Air Medical Plans Debt as Acquisition Funding Sales Rise: New Issue Alert

Air Medical Group Holdings Inc., the provider of emergency air transportation services, is marketing debt as sales of speculative-grade bonds to fund acquisitions triple from year-ago levels as a percentage of overall volume.

Air Medical Group may sell $545 million of eight-year notes to pay for its purchase by Bain Capital LLC, according to a person familiar with the offering.

High-yield acquisition-related financing has grown to 15.4 percent this year relative to all new issuance from 5 percent last year, according to JPMorgan Chase & Co. analysts led by Peter Acciavatti. While climbing, the percentage remains below the 2005 to 2007 annual average of 45 percent, Acciavatti said in a note to clients.

Issuers seeking to take advantage of the lowest junk yields in more than three years and lacking confidence in the U.S. growth outlook “don’t know what to do with the low cost of capital other than to return it to shareholders or go out and buy growth with a merger or acquisition,” Christopher Garman, president of Orinda, California-based Garman Research LLC, said in a telephone interview.

“The handoff after refinancing waves like we’ve seen is very consistently a contest between acquisitions and capital expenditure,” Garman said. “That’s the next use of proceeds, and as long as the monetary spigots remain open, acquisition and leverage are going to remain the responses in corporate America.”

Fed Policy

The Federal Reserve’s interest-rate policy may not be having the desired effect of increasing employment, according to Garman. The Labor Department said it may subtract 366,000 jobs for the 12 months through March when its figures are updated next year, and its monthly report showed a larger-than-forecast reduction of 95,000 workers in September.

The Fed has kept its target for overnight interest on loans among banks in a 0 percent to 0.25 percent range since December 2008 to aid the economy.

“Traditionally the goal is to lower the threshold for investment,” Garman said. “If companies can raise capital at record low yields, the hurdle for making money on investments should be lower. However, companies are not pursuing those opportunities in the real world, they’re doing it in the capital markets.”

Cost-Cutting

Takeovers typically involve cost-cutting, Garman said. “If anything, this sort of financial engineering could backfire and leave the U.S. with a more highly leveraged corporate sector and fewer employment opportunities,” he said.

The extra yield investors demand to own investment-grade company bonds instead of Treasuries was unchanged on Oct. 8 at 181 basis points leaving it 3 basis points narrower this week, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. Absolute yields on the debt fell 1 basis point to 3.55 percent, the lowest since the daily index data became available in October 1986, and a 14 basis-point weekly decline.

High-yield corporate bond spreads narrowed 1 basis point on Oct. 8 to 612 basis points and have declined 10 basis points since Oct. 1, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Yields fell 2 basis points to 7.85 percent, a 20 basis-point decline on the week and the least since June 2007.

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.

Bond Sales

Companies sold $805 million of debt on Oct. 8 and $21.6 billion for all of last week, Bloomberg data show.

BNP Paribas SA, France’s largest bank, sold $600 million of dollar-denominated notes due in March 2015 in a reopening, according to data compiled by Bloomberg. The bank previously sold $750 million of the bonds in March and $400 million of the debt in April, Bloomberg data show.

Air Medical Group Holdings may issue debt as soon as Oct. 15, said the person familiar with the sale, who declined to be identified because terms aren’t set.

The following is a description of at least $6.63 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

LLOYDS TSB BANK PLC plans to sell U.K. mortgage-backed securities in dollars, pounds, yen and euros, according to two people with knowledge of the sale.

TRANSNET LTD., South Africa’s state-owned ports, rail and pipeline operator, said it may sell $1 billion worth of bonds in international markets to pay for expansion. Transnet has 35.2 billion rand ($5 billion) of debt outstanding.

OAO SBERBANK, Russia’s biggest lender, plans to sell U.S. dollar-denominated debt due in March 2017, according to a person familiar with the transaction. The notes may yield 5.25 percent to 5.35 percent, said the person, who declined to be identified because terms aren’t set.

LANDESKREDITBANK BADEN-WUERTTEMBERG-FOERDERBANK plans to sell three-year bonds in dollars, according to a banker involved in the transaction. Barclays Capital, Morgan Stanley and JPMorgan Chase & Co. are managing the sale, the banker 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. 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.

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

SM INVESTMENTS CORP., the holding company of Philippine billionaire Henry Sy, plans to sell $400 million of 5.5 percent 2017 bonds in a combined swap and sale. The company will issue $213.7 million 2017 bonds in exchange for $196.6 million 2013 and 2014 debt, SM said in an e-mailed statement. It will also sell $186.3 million of 2017 bonds for cash. The settlement date is Oct. 13, the company 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.

High Yield

FRIENDFINDER NETWORKS INC., the publisher of Penthouse magazine, plans to sell $296 million of secured first-lien notes due 2013, according to a note from Standard & Poor’s. S&P rated the debt from the private Boca Raton, Florida-based company B.

ABENGOA SA, the Seville, Spain-based engineering and biofuel production company, plans to sell $600 million of seven- year senior bonds, according to a person familiar with the transaction. Bank of America Corp., Citigroup Inc., Credit Suisse Group AG and Deutsche Bank AG are managing the issue, according to the person, who declined to be identified because terms weren’t set.

NOMOS BANK appointed UBS AG and Royal Bank of Scotland Group Plc to sell at least $300 million of dollar bonds with a maturity of three to five years, Alexei Tretyakov, director of the financial markets at the Moscow-based lender, said in a telephone interview.

AVANGARDCO INVESTMENTS PUBLIC LTD., Ukraine’s biggest egg producer, hired Troika Dialog and JPMorgan Chase & Co. to organize its debut sale of dollar bonds under Regulation S, which bars sales in the United States, Troika said.

AIR MEDICAL GROUP HOLDINGS INC., the provider of emergency transportation services in the Southern and Midwestern parts of the U.S., plans to sell $545 million of eight-year notes to pay for its acquisition by Bain Capital LLC, according to a person familiar with the offering, who declined to be identified because terms aren’t set.

TUTOR PERINI CORP. plans to sell as much as $300 million of senior unsecured notes, the construction company said in an Oct. 6 statement distributed by Business Wire. Proceeds may be used for acquisitions and stock repurchases, according to the statement.

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.

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 roadshow. 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.

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.

Offerings in Pipeline

GEORGIAN RAILWAY LLC, the former Soviet republic’s state- owned rail company, is preparing a bond road show in the U.S., Giorgi Gagnidze, the company’s financial director, said in comments broadcast on Rustavi-2 television.

CENTRAL CHINA REAL ESTATE LTD., part-owned by Singapore’s CapitaLand Ltd., plans to sell bonds denominated in U.S. dollars to fund property projects, according to a statement to the Hong Kong stock exchange. Deutsche Bank AG, Nomura Holdings Inc. and ING Groep NV will manage the sale and help arrange meetings with investors, according to the statement.

ICICI BANK LTD., India’s second-largest lender, hired Barclays Capital, Citigroup Inc. and Deutsche Bank AG to sell as much as $1 billion of bonds with maturities between five and 10 years, according to three people familiar with the offering. India’s second-biggest lender is rated Ba1 by Moody’s Investors Service and BBB- by S&P.

IRVING PLACE CAPITAL may issue $250 million of senior secured notes to help pay for its leveraged buyout of Thermadyne Holdings Corp. and refinance the company’s debt, Thermadyne Chief Financial Officer Steven Schumm said in an Oct. 5 interview. The company will also arrange a $60 million asset- based revolving credit line. Jefferies Group Inc. and Royal Bank of Canada will manage the sale of six-year bonds, Schumm said.

KOREA NATIONAL OIL CORP. hired Barclays Plc, BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG and Korea Development Bank for a sale of dollar bonds, a person familiar with the deal said on Oct. 6. The company known as KNOC said in September it plans to raise between $500 million and $1 billion to fund acquisitions. KNOC is rated A1 by Moody’s Investors Service and A by Standard & Poor’s.

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.

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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