Continental AG Plans at Least $626 Million in Debut High-Yield Bond Sale

Continental AG is raising at least 500 million euros ($626 million) with a debut issue of high- yield bonds from Europe’s second-biggest car-parts maker.

The company has 8 billion euros of debt to repay by 2012, according to data compiled by Bloomberg. The new bonds are part of a refinancing that follows a 1.1 billion-euro share sale and a 2.5 billion-euro loan agreement, according to Antje Lewe, a spokeswoman for the Hanover-based company.

“Conti will find that starting late on refinancing the 2012 maturities won’t help the bond sale, there’s more anxiety in the market,” said Cyril Benayoun, a credit analyst at BNP Paribas SA in London.

The extra yield investors demand to hold junk debt rather than government bonds rose 20 basis points to 792 basis points since the beginning of the year, according to Bank of America Merrill Lynch data. Continental is tapping the market after growth in the global car industry and cost cutting helped the company post a first quarterly profit since 2008.

Standard & Poor’s cut Continental’s debt to B, five steps below investment grade, from B+ on May 18. Moody’s Investors Service rates the debt one level higher at B1. High-yield, or junk, bonds are rated below Baa3 by Moody’s and BBB- by S&P.

Deal Arrangers

Citigroup Inc. and Royal Bank of Scotland Group Plc are managing the transaction, along with Commerzbank AG, Deutsche Bank AG, ING Groep NV, Landesbank Baden-Wuerttemberg and UniCredit SpA, according to bankers involved in the sale. DZ Bank, Landesbank Hessen-Thueringen Girozentrale, Banca IMI SpA and WestLB AG have been hired as co-managers on the sale, the bankers said.

Continental first lost its investment-grade status in December 2008 when Moody’s cut its grade to Ba1 from Baa3. S&P followed suit in January 2009.

Continental rose 58 cents, or 1.3 percent, to close at 43.89 euros on the Frankfurt exchange today, valuing the company at 8.8 billion euros.

The company plans to combine with dominant shareholder Schaeffler Group, the world’s second-biggest roller-bearing maker, after this year.

To contact the reporter on this story: Sonja Cheung in London at scheung58@bloomberg.net

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