DynCorp Plans Leveraged Loans, Junk Bonds as Yields Fall: New Issue Alert
DynCorp International Inc., the defense contractor being taken over by Cerberus Capital Management LP, is marketing bonds after spreads on high-risk, high-yield debt tightened to the narrowest in a month.
DynCorp will use proceeds from a $455 million sale of seven-year notes to help finance the takeover and to repay existing debt, the Falls Church, Virginia-based company said yesterday in a statement distributed by Business Wire. The release didn’t specify the timing of the sale.
The extra yield investors demand to own so-called junk bonds instead of Treasuries had its biggest decline since February last week after European Union leaders agreed to disclose how banks perform on stress tests and a report showed production in the U.S. rose by the most since August. Spreads on high-yield debt will continue to narrow as default rates remain low, said Mark Durbiano, head of high yield at Federated Investors Inc.
“We do think that the move lower in spread will continue over the balance of 2010,” said Durbiano, who oversees $4 billion of speculative-grade bonds. “We think the quality’s a lot better than people give it credit for. Default rates are falling dramatically.”
The U.S. speculative-grade default rate fell to 7.9 percent in May from 9.5 percent in April, according to Moody’s Investors Service. The company forecast the rate will fall to 2.7 percent by the end of 2010. Speculative, or high-yield, high-risk, bonds are rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.
High-Yield Spreads
Spreads on high-yield bonds narrowed 14 basis points to 668 basis points yesterday, according to Bank of America Merrill Lynch’s U.S. High Yield Master II index. They tightened 45 basis points last week to 682 basis points on June 18, the most since the week ended Feb. 19, when spreads narrowed 47 basis points to 656 basis points. A basis point is 0.01 percentage point.
Moody’s indicators “continue to show positive trends for speculative-grade credit quality and defaults, despite the recent disruption in the bond market,” analysts led by David Keisman wrote in a report released yesterday. Moody’s B3 Negative and Lower list had 209 companies as of June 1, compared with 288 a year earlier, according to the report.
Companies are added to the list when their probability of default rating is downgraded to Caa1 or lower or when a B3-rated company receives a negative outlook or has its rating placed under review for a possible downgrade, Moody’s said.
DynCorp Acquisition
DynCorp said in an April 12 statement that it agreed to be acquired by New York-based Cerberus for about $1.5 billion. The company also plans a $565 million term loan to finance the acquisition, a person familiar with the negotiations said June 16. The unsecured debt due in 2017 is rated B by S&P, five levels below investment-grade, the ratings firm said in a note yesterday.
Royal Dutch Shell Plc, Europe’s largest oil producer, led $11.1 billion of corporate bond sales yesterday, issuing $2.75 billion of fixed- and floating-rate notes in dollars. The company last sold dollar-denominated bonds in March, issuing $4.25 billion of debt, according to data compiled by Bloomberg.
Spreads on investment-grade corporate debt narrowed 3 basis points to 205 basis points yesterday, according to Bank of America Merrill Lynch’s U.S. Corporate Master Index.
Following is a description of at least $4.6 billion of pending sales of dollar-denominated bonds in the U.S.
Investment Grade
CHILE plans to sell $1 billion of 10-year bonds, along with warrants and peso debt, according to a filing with the U.S. Securities and Exchange Commission. Chile will use the proceeds for general purposes, the filing said. The country, which hasn’t sold international bonds in six years, is seeking financing for repairs after a Feb. 27 earthquake and subsequent tsunami killed more than 400 people and caused as much as $30 billion of damage.
DOHA BANK QSC, Qatar’s third-largest bank, may raise as much as $1 billion from bond sales, its chief executive officer said. The money is likely to be raised for five years and is meant to “fix the maturity mismatch” on the bank’s balance sheet, Raghavan Seetharaman said in a June 16 telephone interview from Doha. The bank hasn’t decided which currency to sell the bonds in, he said. The lender said in April that it planned to sell senior notes in dollars 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.
Not Rated
CNH GLOBAL NV, the maker of Case and New Holland agricultural equipment, plans to sell $1 billion of senior notes due in 2017, according to a June 21 company statement. Proceeds will be used to repay debt, including $500 million of 7.125 percent senior notes due in 2014 and money owed Fiat SpA, the company said in the statement distributed by Marketwire. The notes maturing in December 2017 may be sold through the Case New Holland Inc. unit, according to a person familiar with the transaction. Credit Suisse AG, UBS AG and Goldman Sachs Group Inc. are managing the offering.
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.
High Yield
DYNCORP INTERNATIONAL INC., the defense contractor being taken over by Cerberus Capital Management LP, plans to sell $455 million sale of seven-year notes to help finance the takeover and to repay existing debt, the Falls Church, Virginia-based company said in a statement distributed by Business Wire.
BANKRATE INC., the online consumer personal finance network, may sell $280 million of five-year notes to help pay for the acquisition of NetQuote Inc. and CreditCards.com Inc., according to a person familiar with the transaction. Jeffries & Co. and RBC Capital Markets are managing the offering of notes, which are non-callable for three years and may be rated B2 by Moody’s and B by S&P, the person said.
MICHAEL FOODS INC., the biggest producer of egg products in North America, plans to sell $430 million of eight-year notes, according to a person familiar with the offering. The Minnetonka, Minnesota-based Michael foods is being acquired by a fund run by Goldman Sachs Group Inc. from private-equity firm Thomas H. Lee Partners LP for $1.7 billion. Michael Foods also is seeking $865 million in loans to help pay for the acquisition by GS Capital Partners, Goldman Sachs’s private-equity unit.
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, 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.
IRSA INVERSIONES Y REPRESENTACIONES SA, Argentina’s biggest real-estate company, extended an offer to sell $250 million in 10-year bonds until June 24, the company said in a regulatory filing in Buenos Aires on June 14. S&P assigned the notes a grade of B-, six steps below investment quality.
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.
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.
Offerings in Pipeline
URUGUAY may sell as much as $1 billion of bonds in 2011, including $500 million of dollar-denominated debt, Carlos Steneri, director of public credit at Uruguay’s Ministry of Economy and Finance, said June 3 at a LatinFinance conference in London. The dollar-denominated bonds may have a maturity of 20 years or more, Steneri said.
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., will sell bonds when market conditions and rates are favorable, its vice president for corporate finance Mutlaq al-Morished told al- Arabiya television in Dubai on June 16. Sabic delayed a bond sale because of unfavorable spreads, al-Morished said in a May 26 telephone interview. Sabic Capital had hired HSBC Holdings Plc, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to manage a benchmark-sized offering.
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.
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.
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. hired BNP Paribas SA and Standard Chartered Plc to help it sell dollar bonds backed by Korean residential mortgages, according to a person familiar with the transaction. The banks will help arrange meetings with investors in Asia, Europe and the U.S., the person said. Edaily reported in April that the company planned to sell $100 million to $200 million of foreign-currency bonds in its first overseas debt sale since October, without citing anyone. The state-run agency also plans to sell $1 billion of global bonds in the U.S., 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.
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 raise $500 million selling bonds this year and the remainder of a planned $1.2 billion program will be sold according to market conditions, Batbayar Balgan, director general of the financial and economic policy department of Mongolia, said at a forum in Ulan Bator on June 16. The government scaled back its plans for global bond sales this year after Europe’s debt crisis drove up borrowing costs. Investment banks are advising Mongolia to issue debt with maturities of 5 to 10 years, Bayartsogt said in a Feb. 9 interview. The securities may yield between 8 percent to 11 percent, he said.
To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net
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