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Sears Plans Debt as Junk Bond Sellers Jump to 5-Month High: New Bond Alert

Sears Holdings Corp., the largest U.S. department-store company, is marketing debt as the number of high-yield issuers in September jumps to a five-month high.

The retailer plans to sell $500 million of notes due in 2018, it said in a Sept. 28 statement distributed by PR Newswire. Hoffman Estates, Illinois-based Sears may use proceeds to repay a senior secured revolving loan, for working capital requirements of its retail businesses and for general corporate purposes, according to the statement.

Speculative-grade companies have issued debt 61 times in September, the most since 79 in April. Sales of high-yield, high-risk corporate bonds surged this month as companies took advantage of investor demand and lower capital costs to refinance debt, said Christopher Towle, who oversees $20 billion in high-yield and convertible securities at Lord Abbett & Co. in Jersey City, New Jersey.

“The pool of issuers being accepted in the marketplace is broader,” Towle said in a telephone interview. “Companies are taking advantage of lower costs of capital to refinance out their so-called maturity walls in 2011 and 2012 that don’t really exist anymore.”

Yields on junk-rated corporate bonds fell 4 basis points yesterday to 8.05 percent, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Spreads on the debt narrowed 7 basis points to 629 basis points, the index data show.

‘A Shortage of Yield’

“There’s a shortage of yield out there, and the high-yield market is the beneficiary of that,” Towle said. “Given monetary conditions, refinancing needs and the low cost of capital, high-yield issuance is where it should be.”

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

Sears’s notes were rated BB+ by Standard & Poor’s, one step below investment grade.

Investment-grade corporate bond spreads were unchanged at 184 basis points for the sixth straight day, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. Absolute yields on the debt rose 3 basis points to 3.68 percent.

Hongkong Land Holdings Ltd. sold $600 million of 15-year senior unsecured U.S. dollar debt, and Hyundai Motor Co. sold $500 million of 5 ½ -year notes denominated in U.S. dollars to lead $4.76 billion of investment-grade offerings yesterday.

Omega Healthcare Investors Inc. sold $225 million of debt after increasing the size of the transaction to bring high-yield debt sales this month to $32.5 billion, the most since companies issued $34.2 billion in April, Bloomberg data show.

Record September

Companies sold $149.9 billion of debt in the U.S. corporate bond market for the busiest September on record, and the most sales since March 2009, when borrowers issued $143.9 billion of debt, according to data compiled by Bloomberg.

Issuance this week is $20.4 billion of investment-grade debt and $1.79 billion of junk bonds, Bloomberg data show.

The following is a description of at least $11.9 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

AVIATION CAPITAL GROUP, the commercial jet-leasing company owned by Pacific LifeCorp, plans to sell $300 million of 10-year notes, according to a person familiar with the transaction who declined to be identified because terms aren’t set. Pacific LifeCorp is a unit of Pacific Mutual Holding Co.

QATAR ISLAMIC BANK SAQ plans to sell its first dollar- denominated sukuk, according to a statement from the Gulf state’s biggest Shariah-compliant lender on the Qatar Exchange’s website. The issue will be launched subject to market conditions, and Credit Suisse Group AG, HSBC Holdings Plc and Qatari investment bank QInvest have been hired to manage the sale. Chief Executive Officer Salah Mohammed Jaidah said on May 19 the company may issue up to $750 million of securities that comply with the religion’s ban on interest.

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

BANCO CONTINENTAL SA, the Lima- based unit of Banco Bilbao Vizcaya Argentaria SA, plans to sell $200 million of 30-year bonds, according to a person familiar with the transaction. The bank may sell the bonds, which are callable after 10 years, to yield about 7.5 percent, said the person who declined to be identified because terms aren’t set. Credit Suisse Group AG and BBVA are arranging the sale, the person said.

VOTORANTIM CIMENTOS SA plans to sell perpetual bonds in dollars, which are callable after five years, years, according to a banker involved in the transaction. Bank of America Corp., HSBC Holdings Plc, Itau Unibanco Holding SA and Morgan Stanley are managing the issue, which will be guaranteed by Votorantim Participacoes SA and Votorantim Industrial SA, the banker said.

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.

SEADRILL LTD. plans to issue $200 million to $400 million of five-year, U.S.-dollar denominated debt, it said in a statement. Carnegie ASA and Pareto Securities AS are joint-lead managers and joint book runners, according to the statement.

High Yield

ASSOCIATED MATERIALS LLC plans to sell $730 million of seven-year notes, according to a statement distributed by PR Newswire. Proceeds from the sale will be used to finance the company’s leveraged buyout by Hellman & Friedman LLC, Cuyahoga Falls, Ohio-based Associated Materials said in the statement.

CLEARWATER PAPER CORP. plans to sell $350 million of senior unsecured notes, the Spokane, Washington-based company said in a filing with the Securities and Exchange Commission. The maker of consumer tissue, bleached paperboard and wood products plans to use proceeds, along with $210 million of cash on hand to finance its purchase of Cellu Tissue Holdings Inc., the filing said.

SEARS HOLDINGS CORP., the largest U.S. department-store chain, plans to issue $500 million of senior secured notes maturing in 2018, according to a company statement distributed by PR Newswire. Proceeds may be used to repay borrowings under the company’s senior secured revolving credit facility, to fund working capital requirements of its retail businesses and for general corporate purposes, the statement said.

ICON HEALTH & FITNESS INC., the Logan, Utah-based exercise equipment manufacturer, plans to sell $205 million of six-year senior secured notes, according to a person familiar with the transaction, who declined to be identified because terms aren’t set.

TPC INC. plans to sell $325 million of seven-year notes through its TPC Group LLC unit, according to a statement distributed by PR Newswire. Proceeds may be used to repay debt and finance a dividend, the company said in the statement. Moody’s ranked the debt B1 and S&P assigned the notes an equivalent grade of B+.

ARDAGH GLASS HOLDINGS LTD. plans to sell 7- and 10-year bonds in euros and dollars, according to a banker involved in the transaction. The seven-year issue comprises 850 million euro and $375 million portions, and the 10-year issue includes 315 million euros and $310 million, the banker said. Citigroup Inc., Credit Suisse Group AG and JPMorgan Chase & Co. are managing the sale. The notes will be issued through Ardagh Packaging Finance Plc.

BURGER KING HOLDINGS INC. may sell $900 million of 8-year notes denominated in U.S. dollars and euros, according to a person familiar with the transaction. Proceeds may be used to help pay for Burger King’s acquisition by 3G Capital, said the person, who declined to be identified because terms aren’t set. The debt may be issued through Blue Acquisition Sub Inc. and price on Oct. 1 or Oct. 4, the person said.

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.

BREITBURN ENERGY PARTNERS LP plans to sell $250 million of 10-year notes, according to a statement distributed by Business Wire. Proceeds from the sale will be used to repay bank borrowings, BreitBurn said in the statement.

AFFINION GROUP HOLDINGS INC., the provider of marketing and customer-loyalty plans, intends to sell about $325 million of senior notes due in 2015. Proceeds may be used to repay the company’s senior unsecured term loan facility and for general corporate purposes.

HAPAG-LLOYD AG, Germany’s biggest container-shipping line, is planning a debut high-yield bond issue as it seeks to raise $500 million to refinance debt. The notes in euros and dollars will have maturities of five and seven years, according to a banker involved in the transaction. The five-year notes will be callable after three years, while the seven-year notes can be called after four years, said the banker, who declined to be identified before terms are set.

CHINA MEDICAL TECHNOLOGIES INC., which makes devices for tumor treatments, plans to sell as much as $200 million of five- year senior notes denominated in dollars, the company said in a statement distributed by PR Newswire. Proceeds will be used to buy back convertible notes due in 2011 and 2013, Fitch Ratings said in a statement. Deutsche Bank AG and Standard Chartered Plc will help the Beijing-based company arrange meetings with investors in Hong Kong, Singapore, London and the U.S., said a person familiar with the transaction who asked not to be identified because terms aren’t set.

LODGENET INTERACTIVE CORP. plans to sell $435 million of six-year notes, according to a filing with the Securities and Exchange Commission.

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.

WEST CORP., the communications-services provider 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.

DINEEQUITY INC., the owner of Applebee’s Neighborhood Grill & Bar and the IHOP pancake chain, plans to sell as much as $825 million of eight-year 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.

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.

Split Rated

AWAS AVIATION CAPITAL LTD., a unit of the Dublin-based aircraft leasing company AWAS, plans to sell $600 million of senior secured notes due in 2016, the company said in a statement on its website. Proceeds may be used to repay debt, to finance the purchase of new aircraft and for general corporate purposes, according to the statement.

Offerings in Pipeline

AL BARAKA BANK EGYPT ESC, a unit of Bahrain-based Albaraka Banking Group, may sell dollar-denominated Islamic bonds in the second half of 2011, the bank’s chairman said Sept. 29. The bank has not decided on the size of the bond, he said.

AMERICAN INTERNATIONAL GROUP INC. plans its first debt offering since its bailout two years ago as the insurer moves toward independence from the U.S. government, Chairman Steve Miller said Sept. 29.

TURKIYE IS BANKASI AS, a Turkish bank, applied to Turkey’s capital markets regulator to sell dollar-denominated bonds abroad, according to a filing with the Istanbul Stock Exchange.

BANCO DE CREDITO E INVERSIONES, Chile’s fourth-largest lender by assets, postponed the sale of five-year notes in U.S. dollars, according to a person familiar with the offering.

The company had planned to sell the notes as soon as Sept. 24, said the person, who declined to be identified because the marketing was private.

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.

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.

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: Boris Korby in New York at bkorby1@bloomberg.net;

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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