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Schaeffler Plans Two-Part Bond Sale as Credit Risk Wanes

Schaeffler Holding GmbH & Co. is planning to sell about 1.5 billion euros ($2 billion) of high-yield bonds as borrowing costs fall.

The parent of the German family-owned industrial-bearing maker will sell five-year, payment-in-kind toggle notes in euros and dollars through its Schaeffler Holding Finance BV unit, according to a person familiar with the deal, who said the proceeds will be used to repay debt. The average yield investors demand to hold junk-rated corporate debt in euros fell to 5.8 percent yesterday, the lowest since June 19, Bank of America Merrill Lynch index data show.

Borrowing costs fell amid speculation Federal Reserve Chairman Ben S. Bernanke will seek to manage investor expectations for stimulus reduction in testimony to Congress today. Yields had surged after he said June 19 the central bank will begin tapering monthly bond purchases later this year if the U.S. economy continues to strengthen.

“The high-yield market is open for business,” said Steven Mitra, a London-based partner at LNG Capital LLP. “The real direction of the high-yield market for the rest of the year is independent of what Bernanke says today, although it might cause some short-term volatility.”

The PIK toggle bonds, a type of security giving borrowers the option to pay interest with more debt, are part of a 3.875 billion-euro refinancing agreement Schaeffler completed today, the company said in a statement. The debt replaces the company’s credit agreement from November 2009.

A spokesman for Schaeffler in Herzogenaurach, Germany declined to comment on the bond sale.

Refinancing Agreement

The debt being refinanced is a legacy of a limited takeover offer for Hanover, Germany-based tiremaker Continental AG (CON) by Schaeffler that backfired amid the 2008 credit crunch. Schaeffler’s net debt fell to 6.83 billion euros at the end of March from 7.16 billion euros a year earlier, the company said on May 21.

In the European investment-grade market today, Deutsche Annington Immobilien SE (ANN), Germany’s largest residential landlord, is planning a two-part bond sale to be issued by its Deutsche Annington Finance BV unit, according to a person familiar with the deal.

The Dusseldorf-based company is issuing 500 million euros to 600 million euros of six-year bonds that may be priced to yield about 185 basis points to 188 basis points above the mid-swap rate, and 600 million euros to 700 million euros of three-year notes offering a spread of about 155 basis points, said the person, who asked not to be identified because the details are private.

Banque Federative du Credit Mutuel, a Strasbourg-based bank, is selling 1 billion euros of notes due February 2021 to yield 110 basis points more than the swaps, according to a person familiar with the transaction.

To contact the reporter on this story: Verity Ratcliffe in London at vratcliffe1@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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