DineEquity Plans Debt as Junk Bond Investor Inflows Surge: New Issue Alert

DineEquity Inc., the operator of the IHOP and Applebee’s restaurant chains, is marketing speculative-grade debt as junk bond mutual funds reported the largest inflows in nine weeks.

DineEquity plans to sell senior unsecured notes that may be used to help fund tender offers for “certain series of its subsidiaries’ outstanding securitization notes,” the Glendale, California company said in a Sept. 10 statement.

Inflows into high-yield, high-risk debt mutual funds were $1.2 billion in the seven days ended Sept. 15, the most in nine weeks and the third-largest total this year, Bank of America Merrill Lynch Global Research analysts Mike Cho and Oleg Melentyev wrote in a Sept. 16 note citing Lipper FMI data. Junk issuance climbed to $13.8 billion last week, the second-busiest this year after the record $14.9 billion of sales in the five days ended Aug. 13, according to data compiled by Bloomberg.

“Given the low yields on money markets, I think we’ve seen both high-yield and emerging markets are beneficiaries of that,” said Edward Meigs, a money manager at Dwight Asset Management Co. in Baltimore., who oversees $600 million of junk debt. “High-yield should continue to perform pretty well in sort of a muddle-along economic scenario.”

High-yield, or junk, debt is rated below Baa3 by Moody’s Investors Service and BBB-by Standard & Poor’s. A basis point is 0.01 percentage point.

Junk Spreads

The extra yield investors demand to own junk debt instead of Treasuries fell 1 basis point to 624 basis points, the lowest since May 13, according to Bank of America Merrill Lynch’s U.S. High Yield Master II index. Yields fell 2 basis points to 8.18 percent, the data show.

Visant Corp., the Armonk, New York-based marketing and publishing company, helped lead $1.9 billion of junk issuance on Sept. 17, according to data compiled by Bloomberg. Investment- grade companies didn’t sell any debt.

Speculative-grade debt sales have been at least $18 billion this month, Bloomberg data show.

“There’s a certain point where supply will weigh on the market,” Meigs said in a telephone interview. “By the end of this month, based on what we’re seeing, you’re going to sort of get to that saturation point.”

DineEquity Refinancing

DineEquity plans to refinance about $1.6 billion of debt, the company said in its statement. Barclays Plc and Goldman Sachs Group Inc. will arrange bonds and loans for the transaction, according to a person familiar with the negotiations, who declined to be identified because terms are private.

Spreads on investment-grade bonds were unchanged at 184 basis points, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Yields fell 2 basis points to 3.85 percent.

The index touched a record 3.74 percent on Aug. 24, the lowest in the history of the measure dating to October 1986.

The following is a description of at least $14.6 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

GERDAU SA, Latin America’s largest steelmaker, hired HSBC Holdings Plc, Banco Santander SA and JPMorgan Chase & Co. to sell benchmark bonds overseas, according to a person familiar with the transaction who declined to be identified because the terms aren’t set. Proceeds will be used to refinance debt, the company said Sept. 16 in a regulatory filing. A benchmark sale is typically at least $500 million.

TRANSPOWER NEW ZEALAND LTD., which operates New Zealand’s electricity grid, started marketing at least $150 million of bonds to U.S. private investors, according to a person familiar with the plan. National Australia Bank Ltd. and Citigroup Inc. are managing the sale, the person said, asking not to be named as the details are private.

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

SYDNEY AIRPORTS CORP. hired Bank of America Merrill Lynch, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to arrange debt investor meetings in Asia and the U.S., according to a person familiar with the matter.

ABITIBIBOWATER INC., the largest newsprint maker in North America, plans to sell $750 million of senior secured notes due 2018, the company said in a statement distributed by PR Newswire. The offering is part of the Montreal-based company’s previously announced reorganization plan and emergence from creditor protection in the U.S. and Canada, according to the statement.

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

HARVEST OPERATIONS CORP., a unit of Harvest Energy Trust, may sell $500 million of seven-year notes, according to a person familiar with the offering. Proceeds may be used to repay debt and for general corporate purposes, said the person, who declined to be identified because terms aren’t set. The notes may be sold as soon as Sept. 27, the person said.

YASAR HOLDING AS, a Turkish company that makes dairy and meat products, paint and paper, plans to sell five-year notes denominated in U.S. dollars, said a person familiar with the matter. Barclays Plc is managing the sale, which will be used to fund a senior loan to Yasar from Barclays Bank Plc, said the person, who asked not to be identified because the details are private.

GENON ENERGY, the power producer being formed by the merger of Mirant Corp. and RRI Energy Inc., plans to sell $1.2 billion of notes to help pay for the transaction, according to a person familiar with the offering. The company plans to issue eight- and 10-year notes, said the person, who declined to be identified because terms aren’t set. The 8-year notes may yield 9.5 percent to 9.75 percent, and the 10-year securities may yield 50 basis points, or 0.5 percentage point, more than 8-year notes, the person said. The company originally marketed $1.4 billion of debt, the person said. Moody’s assigned the notes a rank of B3 and S&P graded them B, one step higher.

CHC HELICOPTER CORP., the provider of flights to offshore rigs and platforms purchased by First Reserve Corp. in 2008, plans to sell $1.1 billion of 10-year notes denominated in U.S. dollars, according to a person familiar with the transaction. Proceeds may be used to repay bank borrowings and for breakage fees on interest-rate swap agreements, said the person, who declined to be identified because terms aren’t set.

EVERTEC INC., the processing unit of Popular Inc., a Hato Rey, Puerto Rico-based bank holding company, plans to sell $220 million of seven-year notes, according to a person familiar with the offering. Proceeds will help pay for the acquisition of 51 percent of the company by Apollo Management LP, said the person, who declined to be identified because terms aren’t set.

LIBERTY TIRE RECYCLING plans to sell $200 million of six- year notes, according to a person familiar with the offering. Proceeds may be used to repay bank debt and for general corporate purposes, said the person, who declined to be identified because terms aren’t set.

WEST CORP., the call-center operator taken private by Thomas H. Lee Partners LP and Quadrangle Group LLC in 2006, plans to sell $500 million of notes due 2018 to repay bank debt, according to Standard & Poor’s. S&P assigned the debt a grade of B, the credit rater said in a statement. Moody’s Investors Service ranked the notes B3, on step lower, it said in a separate statement.

TITAN INTERNATIONAL INC., the maker of tires and wheels for off-highway vehicles, plans to sell $175 million of senior secured notes due 2017, it said in a Sept. 15 statement distributed by Business Wire. The Quincy, Illinois-based company plans to buy back up to $139.9 million of notes maturing in 2012, it said in a separate statement. The company withdrew a proposed $150 million offering announced in May because of adverse market conditions, Chief Financial Officer Paul Reitz said in a telephone interview.

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.

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.

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.

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.

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.

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.

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, 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: Sapna Maheshwari in New York at sapnam@bloomberg.net

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