Reynolds to Sell $3 Billion Junk Bond Amid BB Rated Surge: New Issue Alert

Reynolds Group Holdings Ltd., the packaging company owned by New Zealand billionaire Graeme Hart, is marketing $3 billion of debt as sales of the highest-ranking junk bonds surge.

Reynolds plans to sell $1.5 billion each of secured and unsecured notes as soon as today, according to a person familiar with the acquisition who declined to be identified because terms aren’t set. Moody’s graded the secured debt Ba3 and the unsecured debt Caa1.

September sales of noninvestment-grade corporate debt rated higher than Ba3 by Moody’s climbed to the highest share of total issuance in six months, according to data compiled by Bloomberg. Company bonds in the top tier of junk have outperformed lower- rated securities this year, Bank of America Merrill Lynch index data show.

“There’s still plenty of demand for higher-quality paper,” said Andrew Feltus, who helps oversee the $5.5 billion Pioneer High Yield Fund at Pioneer Investment Management in Boston. “We’re seeing really strong issuance in the double B, high-quality space.”

Issuance of the debt last month reached $14.5 billion, or 37 percent of all high-yield company bond sales, Bloomberg data show. That was the biggest share since March, when 41 percent of junk debt issuance was rated between Ba1 and Ba3 by Moody’s.

The extra yield investors demand to own high-yield corporate bonds instead of Treasuries narrowed 8 basis points to 618 basis points yesterday, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Yields on the debt fell 15 basis points to 7.629 percent, the index data show.

High-yield, high-risk, or junk, bonds are ranked below Baa3 by Moody’s and BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.

Corporate bonds rated BB have returned 13.7 percent this year, compared with 10.3 percent for B rated debt and 12 percent for securities ranked CCC or lower, Bank of America Merrill Lynch index data show.

DaVita Inc., the biggest U.S. provider of kidney dialysis services, sold $1.55 billion of debt in a two-part offering and CB Richard Ellis Group Inc., the largest commercial property brokerage, sold $350 million of notes among yesterday’s high-yield debt offerings.

Reynolds Group plans to use proceeds from its sale to help pay for its acquisition of Pactiv Corp., the person said. The offering follows the company’s $1 billion sale of eight-year notes in April, Bloomberg data show.

Rabobank Nederland BV and VTB Group each sold $1.5 billion of debt to lead $3.35 billion of investment-grade issuance yesterday, Bloomberg data show.

Spreads on investment-grade corporate bonds narrowed 1 basis point to 183 basis points, while yields on the debt shrank 5 basis points to 3.633 percent, according to the Bank of America Merrill Lynch U.S. Corporate Master Index.

Corporate bond sales of $6 billion this week compare with $18.5 billion in the similar period a week earlier, Bloomberg data show.

The following is a description of at least $9.22 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

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. Moody’s rates the bonds Baa3.

ISLAMIC DEVELOPMENT BANK plans to sell sukuk in dollars, according to two people with knowledge of the sale. CIMB Holdings Bhd., Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc are managing the issue, the people said.

RELIANCE INDUSTRIES LTD., India’s biggest company by market value, approached banks to help it raise at least $1 billion from a bond sale, according to three people with direct knowledge of the matter. The petrochemicals and textile company, whose chairman is billionaire Mukesh Ambani, may use the money for acquisitions, one of the people said, asking not to be identified as the matter is private.

QATAR TELECOM QSC plans to sell dollar bonds with six- and 10-year maturities, according to a person familiar with the matter. The sale may be benchmark in size, the person said, asking not to be identified as details are private. Benchmark typically means at least $500 million.

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

ALTA MESA HOLDINGS LP, a Houston-based oil and natural gas company, plans to sell $300 million of senior notes due 2018, according to a person familiar with the transaction. Proceeds may be used to repay a second-lien term loan, reduce borrowings under a revolving credit line, make a distribution to Alta Mesa Investment Holdings Inc. and for general corporate purposes, said the person, who declined to be identified because terms aren’t set. Moody’s rated the debt B3.

EVRAZ INC. NA CANADA plans to sell $650 million of seven- year bonds that are callable after four years, according to two people with knowledge of the sale. Barclays Capital and Credit Suisse Group AG are managing the issue, which will help refinance existing debt of the parent, Evraz Group SA. Moody’s assigned the notes a grade of B1 and S&P ranked them B, one step lower.

NAVIOS MARITIME ACQUISITION CORP., an owner and operator of petroleum tankers, plans to sell about $375 million of ship- mortgage, seven-year notes denominated in U.S. dollars, the company said Sept. 30 in a statement distributed by PR Newswire.

BRICKMAN GROUP HOLDINGS INC. may sell $300 million of eight-year notes, according to a person familiar with the offering, who declined to be identified because terms aren’t set.

OSO SEVERSTAL, Russia’s largest steelmaker, plans to meet investors in Europe, Asia and the U.S. to discuss a sale of dollar bonds, according to a banker with knowledge of the road show. The company offered to buy back $450 million of bonds on Sept. 30., more than a third of its 9.75 percent notes due in 2013, aiming to refinance the amount with less expensive debt.

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.

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+.

REYNOLDS GROUP HOLDINGS LTD. may sell $3 billion of 8.5- year notes to help pay for its acquisition of Pactiv Corp., according to a person familiar with the offering. The issue may be evenly split between secured and unsecured debt maturing in March 2019, said the person, 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. Moody’s graded the secured debt Ba3 and the unsecured debt Caa1.

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.

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.

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. is planning 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.

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

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.