Aon to Issue Acquisition Debt as Funds Draw Record Inflows: New Bond Alert

Aon Corp., the world’s largest insurance brokerage, is marketing debt as cash flows into global bond funds at the fastest pace on record.

Aon plans to sell as much as $1.5 billion of senior notes to help finance its acquisition of Hewitt Associates Inc., the Chicago-based company said in an Aug. 16 regulatory filing. Aon may also use proceeds to refinance Hewitt’s existing debt and to pay related expenses, according to the filing.

Bond funds globally have had inflows of $68.4 billion this year, poised “firmly on track to eclipse” the record in 2009 of $47 billion, according to Cambridge, Massachusetts-based research firm EPFR Global. Corporate credit is a “near-ideal place to be” amid low economic growth and interest rates, Citigroup Inc. analysts wrote Sept. 3 in a report.

“That corporates are so busy deleveraging creates a good set of fundamentals in terms of upgrades, earnings and balance sheet metrics,” Matt King, Citigroup’s global head of credit strategy in London said in a telephone interview. “These in turn are encouraging people to put money into credit.”

This year, 17 companies globally have been raised to investment-quality, so-called rising stars, while 13 borrowers have been cut to junk, known as fallen angels, Standard & Poor’s said Aug. 26 in a report. High-yield, high-risk, or junk, debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P.

August’s $102.6 Billion

Companies sold $102.6 billion of dollar-denominated bonds last month, compared with $71.9 billion in August 2009, according to data compiled by Bloomberg. Borrowers have offered $702.6 billion this year, an 18.1 percent decline from the similar period in 2009.

“Issuance remained quite robust last month and should resurface with a vengeance in September,” Citigroup analysts led by Mikhail Foux wrote in the report.

The extra yield investors demand to own U.S. corporate bonds instead of Treasuries fell to 294 basis points, or 2.94 percentage points, as of yesterday from 303 basis points at the end of August, according to Bank of America Merrill Lynch index data. Yields rose to 4.914 percent from 4.836 percent on Aug. 31.

Treasury 10-year notes dropped for a second week as a bigger-than-forecast gain in company payrolls eased concern the U.S. economy was falling into another recession. Private payrolls increased last month by 67,000, the Labor Department reported on Sept. 3. The median forecast of economists in a Bloomberg News survey was for 40,000 more positions.

Sara Lee Corp., the maker of Ball Park hot dogs, helped lead $7.23 billion of U.S. corporate bond sales last week, a 5.8 percent increase from the corresponding period ended Aug. 27, Bloomberg data show. The Downers Grove, Illinois-based company issued $800 million of debt split evenly between five- and 10- year notes.

The following is a description of at least $4.25 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

EUROPEAN INVESTMENT BANK plans to sell 10-year bonds in dollars, according to a banker involved in the transaction. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley are managing the sale, the banker said.

KOREA HYDRO & NUCLEAR POWER CO., a unit of state-run Korea Electric Power Corp., may sell bonds denominated in U.S. dollars, according to a person familiar with the matter. The company planned to meet bond investors in Hong Kong on Sept. 6, in Singapore and Los Angeles on Sept. 7 and in London and New York on Sept. 8, said the person, who asked not to be identified because the details are private.

ODEBRECHT SA, a Brazilian construction and engineering company, plans to sell $250 million of perpetual bonds next week, according to a person familiar with the matter. The company planned to meet bond investors in Asia starting Sept. 6, said the person, who asked not to be identified because the details are private. The company will have the right to buy the bonds back after five years, the person said.

LANDWIRTSCHAFTLICHE RENTENBANK, Germany’s development agency for agribusiness, plans to sell seven-year global notes in U.S. dollars in a benchmark offering, according to a person familiar with the transaction. Benchmark sales are typically at least $500 million.

AON CORP., the world’s largest insurance brokerage, plans to sell as much as $1.5 billion of senior notes to help finance its acquisition of Hewitt Associates Inc., the Chicago-based company said in an Aug. 16 regulatory filing. Aon may also use proceeds to refinance Hewitt’s existing debt and to pay related expenses, it said in the filing.

DOHA BANK QSC, Qatar’s third-largest bank, may raise as much as $1 billion from bond sales, its chief executive officer said. The debt is likely to be 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 will sell the bonds in dollars and the local riyal currency, the CEO said in a July 25 interview.

Not Rated

STERICYCLE INC. plans to issue $175 million of seven-year, 3.89 percent notes and $225 million of 10-year, 4.47 percent debt after receiving informal commitments from 22 institutional investors to buy the securities, it said in a statement distributed by Business Wire.

High Yield

TITAN INTERNATIONAL INC., the maker of tires and wheels for off-highway vehicles, plans to sell bonds in September or October and will use the proceeds to repay debt, Chief Financial Officer Paul Reitz said in a telephone interview. The Quincy, Illinois-based company plans to buy back up to $139.9 million of notes maturing in 2012, it said in a statement distributed by Business Wire. The company withdrew a proposed $150 million offering announced in May because of adverse market conditions, Reitz said.

NBTY INC., the maker of Nature’s Bounty and MET-Rx nutritional supplements, may issue $900 million of bonds in addition to seeking a $1.5 billion term loan and a $200 million revolving line of credit to help pay for its acquisition by Carlyle Group, according to a person familiar with the transaction who declined to be identified because terms aren’t set. S&P assigned the notes, or borrowings under a bridge credit facility in their place, a rank of B.

UNIVERSAL HEALTH SERVICES INC., the operator of more than 100 U.S. medical facilities that’s buying Psychiatric Solutions Inc., cut its offering of senior unsecured notes to $250 million, according to a person familiar with the transaction. It increased the size of the term loans it’s seeking by $100 million, said the person, who declined to be identified because terms aren’t set. The King of Prussia, Pennsylvania-based company previously planned to issue $400 million of senior unsecured debt to help finance the acquisition, according to a filing with the Securities and Exchange Commission.

E-LAND FASHION CHINA HOLDINGS LTD, the Hong Kong-based apparel products provider, hired Morgan Stanley to help it sell $200 million of three-year bonds, according to a person familiar with the matter. The company plans to begin meeting with investors in Asia, Europe and the U.S. on July 19, said the person, who declined to be identified because terms aren’t set. Moody’s Investors Service ranked the proposed notes at Ba2, citing growing personal consumption in China, E-Land Fashion’s moderate scale and significant business volatility. Proceeds will be used mainly for capital expenditures and general corporate purposes, Moody’s said in the report.

Offerings in Pipeline

BANCO DE CREDITO DEL PERU, the nation’s largest bank, may sell benchmark 10-year dollar-denominated notes in the country’s first corporate international bond issue in four months. BCP, a unit of Credicorp Ltd., hired Bank of America Corp. and Deutsche Bank AG to arrange meetings with bond investors, according to a person familiar with the transaction who declined to be identified because terms aren’t set. A benchmark sale is typically at least $500 million.

TELEMAR NORTE LESTE SA, Brazil’s biggest fixed-line phone company, hired Bank of America Corp., BNP Paribas SA, BTG Pactual SA and Itau Unibanco Holding SA to sell benchmark dollar bonds, according to a person familiar with the transaction. Telemar, known as Oi, plans to start meeting with bond investors Sept. 6, said the person, who declined to be identified because terms aren’t set.

AEGIS LTD., an outsourcing unit of Essar Group, may sell the first non-convertible dollar bonds from an Indian information technology company. The company, which bought PeopleSupport Inc. in 2008, may sell its bonds as part of a financing package that would include a loan of as much as $350 million to consolidate debt, Chief Financial Officer C.M. Sharma said. The money would go to fund expansion

AMERICAN INTERNATIONAL GROUP INC., the insurer that’s majority owned by the U.S., may sell bonds to help repay its government bailout, it said in an Aug. 9 registration statement filed with the Securities and Exchange Commission.

GATX CORP., a Chicago-based company that leases railroad cars and other equipment, filed a shelf registration with the Securities and Exchange Commission to sell debt securities and pass-through certificates. The debt securities may be senior or subordinated, according to the filing.

JSW STEEL LTD, India’s third-largest steelmaker, plans to sell dollar bonds for the first time in three years and as rupee-denominated finance costs rise. JSW has applied for credit ratings before a possible offshore bond sale to help build a 200 billion rupee ($4.3 billion) steel and power plant in West Bengal, Chief Financial Officer Seshagiri Rao said.

ARGENTINA may sell $1 billion of bonds due in 2017, El Cronista newspaper reported, without saying how it obtained the information. The government is also planning to offer an exchange for dollar bonds due in 2011 and 2012, the Buenos Aires-based publication said.

RURAL ELECTRIFICATION CORP., India’s state-owned lender to power projects, may sell as much as $300 million of bonds in U.S. dollars, Finance Director Hari Das Khunteta said in a telephone interview. Rural Electrification plans to raise $500 million from debt sales in the year ending March 31, he had said on April 16.

THE PHILIPPINES hired eight banks to help arrange the sale of 10-year bonds, which may also include five- and seven-year issues, Treasurer Roberto Tan wrote in a mobile-phone message. The Philippines is also preparing to seek central bank approval for a planned sale of new dollar-denominated debt to exchange for older, shorter-dated notes, Finance Secretary Cesar Purisima said on August 2.

UKRAINE may sell bonds in the international capital markets, according to Dragon Capital, the former Soviet republic’s biggest brokerage. The government may sell $1.5 billion to $2 billion of 10-year, dollar-denominated debt with a yield of 7 percent to 7.5 percent after getting approval for a new International Monetary Fund loan and having its credit rating raised by Standard & Poor’s, said Olena Bilan, Dragon’s chief economist, at a press briefing in Kiev on July 30.

CZECH REPUBLIC plans to sell as much as $2 billion of dollar bonds to diversify from koruna and euro debt, Eduard Janota, former finance minister, said in an interview for Mlada Fronta Dnes newspaper.

POTASH CORPORATION OF SASKATCHEWAN INC., the world’s largest fertilizer company by capacity, filed a registration statement with the U.S. Securities and Exchange Commission for $2 billion of debt securities.

INDONESIA plans to name three banks to help it sell about $650 million of Islamic bonds in October, Dahlan Siamat, director for Islamic financing at the finance ministry, said in a telephone interview in Jakarta. The government sold its first international Islamic dollar bonds in April 2009.

CORPORACION FINANCIERA DE DESAROLLO SA, Peru’s state development bank known as Cofide, plans to sell as much as $250 million of bonds, according to Chief Financial Officer Carlos Linares. Linares said in an interview in Lima that the lender is selling long-term debt as it boosts lending to local infrastructure projects. “Peru’s need for infrastructure is huge,” Linares said. “The government is trying to promote foreign investment in a long list of projects.”

SRI LANKA hired HSBC, Bank of America Merrill Lynch and Royal Bank of Scotland to sell $1 billion of bonds, the Central Bank of Sri Lanka said on its website on Aug 12.

JORDAN plans to sell about $500 million of bonds, Finance Minister Mohammad Abu Hammour said in an interview on June 23. The sale will be denominated in U.S. dollars “as it’s a stable currency and the Jordanian dinar is pegged to it,” Abu Hammour said.

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 Latin Finance 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 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 a Shariah-compliant dollar bond on May 27. Malaysia is rated A3 by Moody’s and A- by S&P.

GHANA is considering selling its second dollar bond in 2011 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 was considering a “no-deal roadshow” 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. 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.

BANK FOR INVESTMENT & DEVELOPMENT OF VIETNAM received approval from the central bank to issue 7 trillion dong ($359 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.

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, 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. 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 5- to 7-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 to fund mining and energy projects, according to Deputy Chief Executive Officer Nguyen Van Hai.

FINLAND may sell five-year bonds denominated in dollars, the Finnish Treasury said in a document posted on its Web site.

MONGOLIA plans to raise $500 million selling bonds in 2010 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 after Europe’s debt crisis drove up borrowing costs. Investment banks are advising Mongolia to issue debt with maturities of 5 years to 10 years, Finance Minister Sangajav Bayartsogt said in a Feb. 9 interview. The securities may yield 8 percent to 11 percent, he said.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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