Momentive to Sell Debt as High-Yield Default Rate Plunges: New Issue Alert

Momentive Performance Materials Inc. and Momentive Specialty Chemicals Inc., the chemical makers owned by Apollo Management LP, are planning to sell debt as the number of defaults on high-yield, high-risk bonds slides.

Momentive Specialty Chemicals, formerly known as Hexion Specialty Chemicals Inc., will sell $440 million of 10-year notes and Albany, New York-based Momentive Performance Materials plans to issue $840 million of debt of the same maturity in dollars and euros as soon as Oct. 27, according to a person familiar with the offerings.

Defaults on speculative-grade corporate bonds may fall to about 1 percent by the end of 2010 as companies take advantage of the lowest borrowing costs in more than three years to refinance their debt, according to an Oct. 20 report by Fitch Ratings.

“By replacing loans with longer-debt bonds, companies are pushing out debt maturities overall,” said Mariarosa Verde, a managing director at Fitch. “It is beneficial from the point of view of putting downward pressure on default rates.”

The high-yield default rate for the 12 months through September was 3.5 percent, Fitch said, down from 4.5 percent at the end of June and 13.7 percent at the end of last year.

Companies have sold $224.4 billion of junk bonds this year, the most on record, according to data compiled by Bloomberg. Debt maturing in 2016 or later accounts for 87 percent of new issues this year, while bonds due in 2018 or later make up 65 percent, the Fitch report said.

Spreads, Yields Decline

The extra yield investors demand to own high-yield bonds fell 4 basis points to 596 basis points on Oct. 25 while yields declined 2 basis points to 7.74 percent, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Spreads widened 1 basis point on the week, the index data show as yields fell 3 basis points. The yield was the lowest since June 2007.

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

Momentive Performance Materials and Momentive Specialty Chemicals each plan to use proceeds from their sales to repay debt maturing in 2014, they said in separate statements on Oct. 22. Apollo Management combined the companies under Momentive Performance Materials Holdings LLC, according to an Oct. 1 statement distributed by Business Wire. They maintain separate legal identities, according to the statement.

Omnova Notes

Investment-grade corporate debt spreads tightened 1 basis point to 181 basis points Oct. 22, while yields were unchanged at 3.63 percent, according to the Bank of America Merrill Lynch U.S. Corporate Index. Spreads contracted 1 basis point and yields fell 5 basis points for the week, the index data show.

Omnova Solutions Inc. sold $250 million of eight-year notes to lead $575 million of high-yield bond sales on Oct. 22, bringing issuance of the debt last week to $6.93 billion, while investment-grade sales reached $23.2 billion, Bloomberg data show.

The following is a description of at least $5.33 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

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.

KOREA GAS CORP., the world’s biggest buyer of liquefied natural gas, plans to raise as much as $1 billion from dollar- denominated bonds to fund overseas investments, according to a person with knowledge of the matter. The Seongnam-based company hired five banks to help it sell notes, the person said, declining to name the banks and asking not to be identified because the information is confidential. Deutsche Bank AG, Goldman Sachs Group Inc. and UBS AG arranged the meetings, the person said.

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

MOMENTIVE PERFORMANCE MATERIALS INC., a unit of Apollo Management LP, plans to sell the equivalent of $840 million of debt in dollars and euros through a private offering, the company said in a statement distributed by Business Wire.

MOMENTIVE SPECIALTY CHEMICALS INC., the Apollo Management LP-owned chemical maker formerly known as Hexion Specialty Chemicals Inc., plans to issue $440 million of 10-year notes, according to a statement distributed by Business Wire. The debt may be sold through its Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance ULC units, it said the statement.

SIMMONS FOODS INC. plans to sell $250 million of second- lien senior secured notes, according to a person familiar with the offering. Proceeds from the debt due in 2017 may be used to help pay for the acquisition of Menu Foods Ltd., said the person, who declined to be identified because terms aren’t set.

PACNET LTD., the operator of undersea phone and Internet cables in Asia, plans to sell $300 million of five-year bonds, according to a person familiar with the matter. Barclays Plc, Credit Suisse Group AG, DBS Group Holdings Ltd. and Standard Chartered Plc are managing the sale of bonds, said the person, who asked not to be identified because the details are private.

FORTESCUE METALS GROUP LTD., Australia’s third-biggest producer of iron ore, plans to sell $2.04 billion of U.S. dollar-denominated bonds to repay outstanding debt, according to a statement to the Australian stock exchange. The senior unsecured notes will be rated BB+ and will mature in October 2015, Fitch Ratings said in a separate statement.

(Added Oct. 19. See FMG AU .)

RURAL/METRO CORP., the provider of medical transportation and fire protection, plans to sell $200 million of senior notes due 2018 through a private offering, the company said in an Oct. 18 statement distributed by Marketwire.

{Added Oct. 19. See RURL US .)

HIDILI INDUSTRY INTERNATIONAL DEVELOPMENT LTD., the Chinese coal mining company, plans to sell $400 million of five-year dollar bonds, according to a person familiar with the matter, who asked not to be identified as details are private. Moody’s rated the debt B1 and S&P ranked it BB-, one step higher.

(Added Oct. 19. See 1393 HK .)

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.

Offerings in Pipeline

CODELCO, the world’s biggest copper producer, hired Deutsche Bank AG and HSBC Holdings Plc to manage a bond sale, said a person familiar with the transaction who declined to be identified because terms aren’t set. The state-owned company led the rescue of 33 miners trapped half a mile below Chile’s Atacama Desert.

CREDIT BANK OF MOSCOW plans to sell five-year dollar bonds, according to a person familiar with the transaction. The sale of Reg S securities is being arranged by Commerzbank AG, ING Groep NV and Raiffeisen Bank International, the banker said.

DOHA BANK QSC, Qatar’s third-largest bank, hired Morgan Stanley and JPMorgan Chase & Co. to manage a planned $500 million bond sale, its chief executive officer said. The offering, announced on the Qatar Exchange website, will be marketed to investors in the U.S., Europe and the Middle East, Raghavan Seetharaman said in an Oct. 20 telephone interview.

SANTANDER U.K. PLC, a unit of Spain’s largest bank, plans to sell mortgage-backed securities, according to two people familiar with the transaction. The lender hired Barclays Capital, Bank of America Merrill Lynch and JPMorgan Chase & Co. to help its investment banking unit to arrange the transaction, said the people, who declined to be named before the deal is completed. The notes will be issued in dollars, pounds and euros and sold through Holmes Master Issuer PLC Series 2010-1.

BELARUS may sell debt in the U.S. and Asia, according to Finance Minister Andrei Kharkovets. “We will undoubtedly enter the Asian and the American markets,” Kharkovets said in an Oct. 15 interview in Moscow, declining to comment on the timing of possible sales.

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

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.

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

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

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