PolyOne Plans Junk-Grade Debt Amid Balance Sheet Repair: New Issue Alert

PolyOne Corp., the maker of Geon vinyl compounds, plans to sell $320 million of notes as junk- rated companies take advantage of falling borrowing costs to refinance debt and avoid default.

PolyOne will issue 10-year notes, using proceeds to buy back $280 million of debt maturing in 2012, according to a statement distributed by PR Newswire. The Avon Lake, Ohio-based company is rated Ba3 by Moody’s Investors Service, or three levels below investment grade, and two grades lower at B by Standard & Poor’s.

Companies have sold $163.3 billion of high-yield, high-risk bonds this year, the most on record, as yields on the debt hover near the lowest since 2007. Credit-rating upgrades are poised to exceed downgrades for junk-rated companies for the fourth straight quarter as fewer borrowers default on their debt.

“Speculative-grade issuers have improved liquidity and are slowly repairing their balance sheets,” wrote Diane Vazza, managing director and head of global fixed-income research at S&P, in a note to clients. “We expect the primary market to stay fairly active over the next quarter, with debt refinancing the primary use of proceeds.”

Spreads on high-yield debt narrowed 10 basis points to 637 basis points on Sept. 10 and tightened 25 basis points over the past week, according to the Bank of America Merrill Lynch High Yield Master II Index. Absolute yields fell to 8.37 percent from 8.49 percent on Sept. 3, the index data show.

High yield, or junk, bonds are rated below Baa3 by Moody’s and BBB- by S&P. A basis point is 0.01 percentage point.

Weekly High-Yield

Linn Energy LLC, the largest publicly traded U.S. oil and gas partnership, and Richardson, Texas-based MetroPCS Communications Inc. each sold $1 billion of notes to lead $3.75 billion of high-yield issuance last week, according to data compiled by Bloomberg.

Sales of the debt this year compare with $162.7 billion last year, Bloomberg data show. The default rate will decline to 2.8 percent by June 2011, Vazza wrote. Moody’s estimated on Sept. 8 that defaults will fall to 2.7 percent by the end of 2010 before declining to 2 percent next year.

Investment-grade corporate bond spreads narrowed 1 basis point on Sept. 10 and contracted 4 basis points to 187 basis points from a week earlier, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. Yields on the debt rose to 3.96 percent from 3.92 percent on Sept. 3.

Hewlett-Packard Co., American Express Co., and Vale SA led investment-grade debt sales of $35.7 billion last week, Bloomberg data show.

The following is a description of at least $12 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

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

PINAFORE LLC AND PINAFORE INC., entities created by Onex Corp. and Canada Pension Plan Investment Board, plan to sell $1.6 billion of senior secured notes in a two-part offering to fund the acquisition of Tomkins Plc. They will offer $600 million of senior secured first-lien notes due 2017 and $1 billion of senior secured second-lien notes due 2018, according to a statement distributed by PR Newswire.

VALEANT PHARMACEUTICALS INTERNATIONAL, the U.S. company merging with Biovail Corp., Canada’s largest publicly traded drugmaker, plans to offer about $1 billion of senior unsecured notes, it said in a statement. Aliso Viejo, California-based Valeant is also seeking $1.875 billion of loans to finance the transaction and pay a dividend, according to a person familiar with the situation.

PROQUEST LLC may sell $250 million of eight-year unsecured notes, according to a person familiar with the transaction. Proceeds may be used to repay debt, pay a dividend to the company’s parent and for general corporate purposes, said the person, who declined to be identified because terms aren’t set.

POLYONE CORP., the maker of Geon vinyl compounds, said it plans to sell $320 million of 10-year notes in a filing. Proceeds will be used to buy back $280 million of debt maturing in 2012, contribute to Avon Lake, Ohio-based PolyOne’s pension plan, and for general corporate purposes, according to the filing.

DINEEQUITY INC., the owner of Applebee’s Neighborhood Grill & Bar and the IHOP pancake chain, plans to sell senior unsecured notes, the company said in a statement distributed by Marketwire. Proceeds may be used to help fund tender offers for “certain series of its subsidiaries’ outstanding securitization notes,” the Glendale, California-based company said in the statement.

GENON ENERGY, the power producer being formed by the merger of Mirant Corp. and RRI Energy Inc., may sell about $1.4 billion of notes to help pay for the transaction, according to a filing with the Securities and Exchange Commission. Moody’s assigned the notes a rank of B3 and S&P graded them B, one step higher.

REYNOLDS GROUP HOLDINGS LTD., the maker of Reynolds Wrap aluminum foil, may sell $2 billion of senior secured notes and $1.5 billion of senior unsecured notes to help pay for its purchase of Pactiv Corp., according to a person familiar with the transaction who declined to be identified because terms aren’t set. Reynolds Group is also seeking $1.5 billion in loans to pay for the acquisition, the person said.

CELANESE CORP., the largest producer of acetyl chemicals used in paint and plastics, plans to sell $400 million of senior unsecured notes due in 2018, it said in a statement distributed by Business Wire. The Dallas-based company plans to use proceeds to retire existing bank debt, according to the statement. S&P ranked the notes BB-.

VISANT HOLDING CORP., the U.S. marketing and publishing firm owned by KKR & Co., plans to sell $750 million of notes due in 2017 through its Visant Corp. unit, according to a statement distributed by PR Newswire. Visant is also seeking a $1.25 billion term loan and a $175 million revolving line of credit, the Armonk, New York-based company said in the statement. Proceeds from the borrowings may be used to repay debt and pay a dividend to investors in Visant’s stock and options.

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. 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

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.

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.

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.

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: Tim Catts in New York at tcatts1@bloomberg.net.

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