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Continental Sells $959 Million Bond to Cut Interest Costs

Continental AG (CON) raised 750 million euros ($959 million) from the sale of a new bond to help refinance the early redemption of higher interest debt.

The coupon for the notes due July 2018 was fixed at 3 percent, the Hanover, Germany-based manufacturer said today in a statement. Continental will use the proceeds to help buy back 1 billion euros of 7.5 percent securities.

The conditions on the new bond represent the lowest borrowing costs for Continental since the company, which is rated below investment grade by all three main ratings companies, re-entered the bond market in 2010. The lower premium demanded to buy Continental reflects three years of rising net income after reporting a loss in 2009.

“The low yield shows how far the company has come,” said Chris Higham, a fund manager at Aviva Investors Ltd. in London, which manages more than 60 billion pounds in credit globally. “The company has made a lot of progress, and now it’s reaping the rewards of that by refinancing at a very low yield.”

Before today’s sale, Continental paid a 4.5 percent coupon on a $950 million bond in September 2012. The cost of insuring investors against losses has also declined, with five-year credit default swaps almost halving during the last 12 months to about 146 basis points, according to data compiled by Bloomberg.

Continental shares rose 2.1 percent to 110.95 euros after hitting an all-time high of 112 euros in Frankfurt trading today. The stock has surged 27 percent this year, valuing the company at 22.2 billion euros.

Oversubscribed Offering

“We managed to use the positive capital-market environment to reduce our interest costs and further improve our debt maturity profile at the same time,” Chief Financial Officer Wolfgang Schaefer said in the statement. “The significant oversubscription again is a sign of confidence by the investors.”

Continental, also Europe’s second-largest tiremaker, is the latest in a series of refinancings in the region. British cinema operator Vue Entertainment Ltd. and U.K. frozen-food producer Findus Group Ltd. are approaching investors for new bond issues as confidence returns to credit markets after the European Central Bank and the Bank of England both indicated on July 4 that they would keep interest rates low.

Continental said yesterday that it will buy back another 1 billion euros of securities paying a coupon of 7.5 percent. This bond will be repaid on Sept. 16, four years ahead of its maturity date.

The company also plans to repurchase 750 million euros of 8.5 percent bonds starting on July 15. The company will use cash and credit lines to finance that transaction, spokeswoman Antje Lewe said today by phone.

The bond redemptions are part a broader effort by the company to improve its financial profile, including refinancing a 4.5 billion-euro loan in January.

Today’s bond sale was managed by BNP Paribas SA (BNP), Citigroup Inc. (C), Deutsche Bank AG (DBK), ING Groep NV (INGA), and UniCredit SpA. (UCG)

To contact the reporter on this story: Angela Maier in Munich at amaier8@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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