Spectrum Plans Debt as Takeover Deals Test Moribund Market: New Bond Alert
Spectrum Brands Inc., the maker of batteries, pet food, and lawn-care products, is marketing debt as companies involved in acquisitions test a market where issuance has fallen to the lowest in more than a year.
Spectrum plans to sell $500 million of notes due in 2018, the Madison, Wisconsin-based company said yesterday in a statement. The maker of Remington electric shavers and Cutter insecticide is acquiring small-appliances maker Russell Hobbs Inc. and is offering the notes and seeking a $1 billion term loan to refinance debt, the company said.
Sales of high-yield, high-risk debt were $6.4 billion last month, the least since March 2009, Bloomberg data show. Europe’s debt crisis, decelerating growth in China and concern about increased regulatory reform are among the factors that has stymied investor confidence and sapped demand for risky assets, said Kingman Penniman, president of high-yield research firm KDP Investment Advisors.
“For those who want to come to market right now, you have to pay up,” said Penniman, who is based in Montpelier, Vermont. Companies that don’t need to raise funds for more urgent purposes such as acquisitions “are going to wait this out.”
Junk, or high-yield, high-risk, debt is rated below Baa3 by Moody’s and BBB- by S&P.
Skillsoft Plc, Hillman Group Inc., and Kratos Defense & Security Solutions Inc. were among at least five companies that issued a combined $955 million of debt last month to help fund acquisitions, Bloomberg data show.
At least five speculative-grade companies involved in takeovers have sales pending, including Spectrum, Triumph Group Inc. and Transunion Corp.
“With the strong market and the liquidity we had in March and April, companies went from deals for refinancing, to funding an equity dividend, to acquisitions,” KDP’s Penniman said yesterday in a telephone interview. “Then the market pulled back, and they were caught.”
Spectrum’s proposed term loan and notes are rated B2 by Moody’s Investors Service, five levels below investment grade, while Standard & Poor’s said May 24 that it assigned an equivalent rating of B. The debt may be sold as soon as June 11, when a Spectrum shareholder meeting is scheduled, the company said.
The extra yield investors demand to own junk-rated debt instead of Treasuries climbed 14 basis points from May 28 to 704, according to the Bank of America Merrill Lynch High Yield Master II Index. Spreads had widened to 724, the biggest gap in more than five months, on May 25, as Europe’s debt crisis and rising military tensions on the Korean peninsula fueled concern that global economic growth was threatened.
There were no corporate bond sales yesterday, according to data compiled by Bloomberg. High-yield sales in May were the least since March 2009, when companies issued $2.3 billion of the debt. The $25.6 billion of investment-grade issuance last month was lowest since October 2008, Bloomberg data show.
Spreads on investment-grade debt rose 3 basis points to 205 basis points, the highest in a week, according to the Bank of America Merrill Lynch U.S. Corporate Master Index.
Following is a description of $7.3 billion of pending sales of dollar-denominated bonds in the U.S.
BANK OF MONTREAL plans to sell U.S. dollar-denominated covered bonds in a benchmark offering, according to a person familiar with the transaction. The debt will be secured by mortgages guaranteed by the Canada Mortgage and Housing Corp. and is expected to receive a grade of Aaa from Moody’s and AAA from S&P, said the person, who declined to be identified because terms aren’t set. A benchmark offering is typically at least $500 million.
CHILE plans to sell $1 billion of 10-year bonds, along with its debut sale of peso securities, Finance Minister Felipe Larrain said. The country will “certainly” issue the debt this year, Larrain said.
DOHA BANK QSC, Qatar’s third-largest bank, plans to sell senior notes in dollars, the lender said in a statement on the Qatari bourse, without disclosing the size of the offering.
FORETHOUGHT FINANCIAL GROUP INC. plans to sell $150 million of 10-year bonds, according to a person familiar with the transaction, who declined to be identified because terms aren’t set. S&P assigned the notes a grade of BBB- in a March 24 report.
The PROVINCE OF CORDOBA, Argentina, plans to sell as much as $350 million of bonds in international markets once the federal government completes a restructuring of defaulted debt, Banco de Cordoba said.
SENSIENT TECHNOLOGIES CORP. said it entered into an agreement with a group of four financial institutions for the issuance of $110 million in fixed-rate, senior notes, according to a Nov. 19 statement distributed by Business Wire. The company plans to issue seven-year debt to repay existing indebtedness, Sensient said in a March 1 regulatory filing.
TRIUMPH GROUP INC., the maker of aircraft components, said it plans to offer $350 million of eight-year notes. Proceeds will be used to help finance the Wayne, Pennsylvania-based company’s acquisition of Vought Aircraft Industries Inc., Triumph said in a May 26 statement distributed by Business Wire.
TRANSUNION CORP., the provider of credit information to banks and consumers, plans to sell $645 million of notes due in 2018, according to Moody’s and S&P. Moody’s graded the senior unsecured notes B3, six steps below investment quality, and S&P ranked them an equivalent B-, the debt raters said separate reports. Proceeds from the sale, along with a $250 million revolving credit facility and a $940 million term loan, will be used to pay for Madison Dearborn Partners LLC’s acquisition of a 51 percent stake in the company from the Pritzker family, S&P said.
SPECTRUM BRANDS INC., the maker of batteries, pet food, and lawn care products, plans to sell $500 million of notes, Moody’s and S&P said in research reports. Spectrum is acquiring small- appliances manufacturer Russell Hobbs Inc. and is offering the notes and seeking a $1 billion term loan to refinance debt, according to a person familiar with the talks. Moody’s said on May 20 that it rated the proposed term loan and notes B2, while S&P said May 24 that it assigned both equivalent debt ratings of B, five levels below investment grade.
AKBANK TAS, the Turkish bank part-owned by Citigroup Inc., plans to sell five-year, dollar-denominated eurobonds worth up to $1 billion, according to a filing with the Istanbul Stock Exchange.
CEDAR FAIR ENTERTAINMENT CO., the operator of amusement parks that called off a takeover by an Apollo Management LP affiliate last month, said it plans to sell $500 million of senior unsecured notes due in 2020. Proceeds will be used to repay existing debt, the Sandusky, Ohio-based company said in a May 20 statement distributed by PR Newswire.
WILLBROS GROUP INC. plans to sell $250 million of six-year notes and seek a $50 million term loan to help pay for its acquisition of InfrastruX Group Inc., according to a company statement distributed by Marketwire. Willbros will also use 7.9 million shares of its stock and cash on hand to pay for the acquisition, it said in the statement. Moody’s rates the notes B3 and S&P ranks them B+.
IRSA INVERSIONES Y REPRESENTACIONES SA, Argentina’s biggest real-estate company, extended an offer to sell $250 million in 10-year bonds until June 4, the company said in a regulatory filing in Buenos Aires on May 26, when the offer had been scheduled to end. S&P assigned the notes a grade of B-, six steps below investment quality.
CAPELLA HEALTHCARE INC., the hospital operator backed by private-equity firm GTCR Golder Rauner LLC, plans to sell $500 million of seven-year notes, according to a person familiar with the transaction. Proceeds will be used to refinance Capella’s existing first-lien credit facilities and second-lien term loan, Moody’s Investors Service said in a report.
TITAN INTERNATIONAL INC., the maker of tire and wheel systems for off-highway equipment, said it plans to sell at least $150 million of senior unsecured notes. Proceeds will be used to repurchase the 8 percent senior unsecured notes due in 2012 and for general corporate purposes, the Quincy, Illinois- based company said in a May 13 statement distributed by Business Wire.
BWAY HOLDING CO., the paint-container and aerosol-can maker being acquired by Madison Dearborn Partners LLC, plans to sell $200 million of notes to help pay for its acquisition, according to a person familiar with the offering. It’s also seeking $565 million in bank debt, said the person, who declined to be identified because terms aren’t set.
INVENTIV HEALTH INC., the provider of sales and marketing services to science companies that is being acquired by Thomas H. Lee Partners, may sell $275 million of senior notes to back the purchase, it said in a regulatory filing.
CITGO PETROLEUM CORP., a U.S.-based unit of Petroleos de Venezuela SA, plans to sell $1.5 billion of secured notes due in 2017 and 2020, according to a person familiar with the offering. S&P assigned the notes a grade of BB+, one step below investment quality.
LEARNING CARE GROUP NO. 2 INC. is planning to sell $265 million of payment-in-kind notes that can pay interest in the form of additional debt, according to a person familiar with the transaction. The company plans to issue five-year senior secured notes, of which 10.5 percent can be paid in cash and 2.5 percent in additional debt, said the person, who declined to be identified because terms aren’t set.
COMMUNITY EDUCATION CENTERS INC. plans to sell $210 million of six-year, senior secured notes that may yield 12.75 percent to 13 percent, according to a person familiar with the offering. The notes, which can’t be called for the first 3 1/2 years, will be sold in a private placement, said the person familiar with the transaction. The company, which initially planned to sell the debt in a 144A transaction, will borrow the money through a private offering. Proceeds from the sale may be used to repay debt, the person said. Jefferies & Co. is underwriting the sale.
Offerings in Pipeline
MALAYSIA plans to raise about $1 billion from its first sale of conventional dollar bonds in eight years after drawing bids for five times the Islamic debt it offered, a finance ministry official said. The government may hire the same banks, including CIMB Group Holdings Bhd. and HSBC Holdings Plc, to arrange the sale by Sept. 30, said the official, who declined to be named as the discussions are private. Malaysia raised $1.25 billion from its first Shariah-compliant dollar bond in eight years on May 27. Malaysia is rated A3 by Moody’s and A- by S&P.
INDOSAT PALAPA CO., a unit of Indonesia’s second-largest phone operator, delayed a planned dollar bond sale until market conditions improve, a person familiar with the matter said May 26. Indosat began meetings with investors in Asia, the U.S. and Europe on May 12 to gauge demand for a global bond sale, according to a company statement sent to the Indonesian stock exchange that day. Moody’s assigned a provisional Ba1 rating to the notes and S&P rated them BB, one step lower.
SABIC CAPITAL, a unit of Saudi Basic Industries Corp., delayed a bond sale because of unfavorable spreads, Chief Financial Officer Mutlaq al-Morished said. The bond offer received more than $1 billion in investor interest, he said in a May 26 telephone interview. The spreads were “not what we wanted,” he said. Sabic Capital had hired HSBC Holdings Plc, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to sell a benchmark-sized bond, al-Morished said in a May 17 telephone interview.
GHANA is considering selling its second dollar bond next year to tap investor demand as the start-up of oil production boosts economic growth and narrows the budget deficit, Deputy Finance Minister Fifi Kwetey said. The government is considering a “no-deal roadshow” as early as the fourth quarter to gauge international investors’ appetite, Kwetey said in a May 26 interview in Abidjan. Ghana sold its first global bond in 2007, raising $750 million to help fund the construction of roads and power plants.
ANGOLA received credit ratings from Moody’s, S&P, and Fitch Ratings that put it on par with Nigeria, Lebanon and Belarus, and paved the way for a planned sale of international bonds this year. The southern African nation’s creditworthiness was rated at B+ by S&P and Fitch, four levels below investment grade. Moody’s assigned an equivalent ranking of B1.
EURASIAN NATURAL RESOURCES CORP., a London-based iron ore and alumina producer with operations in China and Russia, said it delayed its first dollar bond sale. The company is “postponing meetings with investors regarding a potential bond issuance under its Euro Medium Term Note program until further notice,” Charlotte Kirkham, a spokeswoman for ENRC, said in an e-mail. The company had hired Deutsche Bank AG and Morgan Stanley to manage the sale, according to a person familiar with the transaction.
KAZAKHSTAN plans to sell between $500 million and $750 million in bonds to investors abroad in the autumn, Kazakh Finance Minister Bolat Zhamishev said in a May 14 interview. The bonds will probably be denominated in dollars and will be used to set a benchmark for corporate borrowing, Zhamishev said.
TRANSNET LTD., the South African state-owned transportation company, delayed a sale of dollar bonds after meeting with U.S. and European investors because of adverse market conditions, according to Barclays Plc-owned Absa Capital, which advised on the transaction. The transport company is rated BBB+ by S&P, the third-lowest investment grade. Transnet said in February that it planned to sell $2 billion of international debt to help fund infrastructure projects.
QATARI DIAR REAL ESTATE INVESTMENT CO. may raise about $1.5 billion by selling global bonds backed by Qatar, according to a person familiar with the sale plan. The developer may offer 10- year conventional bonds and 5-year Islamic securities, said the person who declined to be identified because details of the transaction haven’t been completed. HSBC Holdings Plc and Barclays Capital are among banks expected to manage the sale, according to the person.
CREDIT EUROPE BANK LTD. plans to sell three-year bonds in dollars, according to people with knowledge of the sale. The notes may be priced to yield 7.75 percent to 8 percent, the people said. Citigroup Inc. is managing the sale.
JONES APPAREL GROUP INC. postponed an offering of $250 million of senior notes due 2018. The New York-based retailer is paying $180 million for a 55 percent stake in Stuart Weitzman Holdings LLC, a closely held maker of women’s apparel, according to a May 6 statement distributed by PR Newswire. Proceeds from the notes sale will be used for general corporate purposes and to help fund the acquisition, the company said. Citigroup Inc., JPMorgan Chase & Co., SunTrust Banks Inc. and Wells Fargo & Co. will manage the sale.
CHINA ORIENTAL GROUP CO. plans to sell senior notes to provide working capital and possibly to finance the purchase of steel mills and iron ore assets in China. Deutsche Bank AG will manage the sale with ING Groep NV, according to a statement to the Hong Kong stock exchange.
OAO SBERBANK , Russia’s biggest lender, may sell $1 billion of dollar-denominated bonds for the first time in two years when debt markets improve, Deputy Chief Executive Officer Anton Karamzin said. Sberbank will consider selling $1 billion of “five-year senior unsecured” notes to establish a benchmark “if the price is right,” Karamzin said. Sberbank hired DZ Bank AG, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to organize meetings with bond investors, a banker involved in the transaction said April 29.
BANK FOR INVESTMENT & DEVELOPMENT OF VIETNAM received approval from the central bank to issue 7 trillion dong ($369 million) of notes and another 3 trillion dong of dollar- denominated notes in 2010, according to a statement on State Bank of Vietnam’s Web site.
BOLIVIA plans its first international bond sale in more than 70 years as early as the end of 2011, Finance Minister Luis Arce said. He didn’t disclose the size of the offering.
KOREA FINANCE CORP. plans to sell $100 million to $200 million of foreign-currency bonds in its first overseas debt sale since October, Edaily reported, without citing anyone. The state-run agency also plans to sell $1 billion of global bonds in the U.S. in the second half of the year, the Korean-language online newspaper said.
NATIONAL AGRICULTURAL COOPERATIVE FEDERATION of South Korea, known as Nonghyup, hired five banks to help it sell U.S. dollar-denominated bonds, according to two people with knowledge of the matter. Citigroup Inc., Credit Agricole CIB, ING Groep NV, Morgan Stanley and Royal Bank of Scotland Group Plc will help the company with the benchmark offering, the people said. The federation, which provides credit and banking services to farmers, is considering a maturity of 5 1/2 years, according to one of the people. Moody’s Investors Service rates Nonghyup A1.
PTT PRODUCTION & EXPLORATION PCL, the Thai oil explorer, hired Credit Suisse Group AG and Royal Bank of Scotland Group Plc to help it sell global bonds, according to two people familiar with the matter who asked not to be identified as the plan is private.
UNION BANK OF INDIA LTD. plans to sell bonds denominated in U.S. dollars, according to a person familiar with the matter. Barclays Plc, Citigroup Inc., Deutsche Bank AG and Standard Chartered Plc will manage the sale, the person said.
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORP. of the Philippines may sell between $750 million and $1.5 billion of dollar-denominated bonds “anytime” to help refinance maturing debt through next year, Vice Chairman Jose Ibazeta said. The company manages the finances of state utility National Power Corp.
BRISBANE AIRPORT CORP., owner of Australia’s third-busiest airport, may sell bonds in the U.S. later this year as it pursues new markets to help refinance debt and pay for a new runway. The company is considering a 10- or 15-year U.S. private placement and a five- to seven-year Australian dollar bond sale in late 2010 or early 2011, Chief Financial Officer Tim Rothwell said in a phone interview from Brisbane.
VIETNAM NATIONAL COAL-MINERAL INDUSTRIES GROUP, the state- owned coal producer known as Vinacomin, plans to sell as much as $500 million of bonds overseas this year to fund mining and energy projects, according to Deputy Chief Executive Officer Nguyen Van Hai.
FINLAND may sell five-year bonds denominated in dollars this year, the Finnish Treasury said in a document posted on its Web site.
POLAND may delay selling dollar-denominated bonds until July or the autumn, Deputy Finance Minister Dominik Radziwill was quoted as saying by PAP newswire. Poland may sell bonds in euros as early as the autumn to prefinance its 2011 borrowing needs, Radziwill was quoted as saying.
MONGOLIA plans to sell as much as $1.2 billion of bonds overseas this year to fund infrastructure to support its mining industry, Finance Minister Sangajav Bayartsogt said. This is Mongolia’s first benchmark offering of dollar-denominated debt. Investment banks are advising Mongolia to issue debt with maturities of between 5 and 10 years, Bayartsogt said in an interview. The securities may offer a yield of between 8 percent and 11 percent, he said.