Realogy Plans Debt Sale as Investor Confidence Surges

Realogy Corp. plans to sell $700 million of secured debt as investor confidence in the real estate company owned by Leon Black’s Apollo Global Management LLC jumps to the highest in more than three years.

The owner of Century 21 and Coldwell Banker plans to use proceeds to repay a portion of its term loans, while seeking to extend maturities on the bank debt by three years, Parsippany, New Jersey-based Realogy said in a statement distributed by Marketwire today.

The company was purchased by Apollo for $6.6 billion amid the worst U.S. housing slump since the 1930s in a bet that the market would turn around. The cost to protect Realogy’s debt from default dropped today to the lowest since July 2007, according to data provider CMA, as borrowing costs fall amid signs of an improving economy.

“It gives them flexibility and it gives them time,” said Michael Kraft, senior portfolio manager at Crimson Capital Trading LLC in New York. “Those two things alone improve things from a credit-default swaps perspective. They’ve got more breathing room.”

The real estate company plans to amend the maturity date on its revolving credit line, first-lien term loans and synthetic letter of credit line to 2016 from 2013, according to the statement. A majority of lenders need to approve the proposal, the statement said.

‘Additional Flexibility’

Realogy had $6.85 billion in outstanding debt as of Sept. 30, excluding securitization obligations, according to its most recent quarterly filing.

The extended credit line will give the company “additional flexibility” to incur secured indebtedness to refinance outstanding securities and additional junior-lien debt, according to the statement.

Realogy declined to comment beyond today’s statement, spokesman Mark Panus said in an e-mail.

The offering “is just an example of the markets being overheated and not discerning between the good and bad deals,” said Marc Gross, a money manager in New York at RS Investments, which oversees $3 billion in its fixed-income funds. “They are kicking the can down the road. This is a company that cannot support the higher interest payments that they will have to pay to extend and do the new deal.”

‘Market’s Excess’

“The fact that investors would consider it is a sign of the market’s excess right now,” Gross said. “These are the deals that investors can get hurt on.”

Credit-default swaps on Realogy, which typically fall as investor confidence improves and rise as it deteriorates, declined 35.6 basis points to 689.9 at 11:36 a.m. in New York, CMA data show.

Swaps are tumbling to the lowest in three years on companies purchased in leveraged buyouts before credit markets froze, from Univision Communications Inc. to Freescale Semiconductor Inc.

The swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Swaps on Univision fell to 533.2 basis points on Jan. 5, the lowest since November 2007, CMA data show. Contracts on Freescale tumbled to 597.5 on Jan. 3, also the least since November 2007, the data show.

Borrowing costs on junk debt are hovering near the lowest since 2005 amid signs the economic recovery is gaining momentum. A private report showed service industries expanded at the fastest pace since May 2006 and the Institute for Supply Management’s non-manufacturing index rose to 57.1 last month, the highest level since 2006.

Yields on high-yield debt, rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s, fell to 7.58 percent on Jan. 14, the lowest since 7.55 percent on Nov. 9, the index data show. That was the least since 7.53 percent on March 11, 2005.

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

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

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