Next Plc is planning its first bond sale in more than two years as the average extra yield investors demand to hold pound-denominated company notes instead of U.K. debt fell to the lowest in almost two weeks.
Britain’s second-largest clothing retailer hired banks to arrange meetings with investors starting Sept. 20 for a possible sale of notes in sterling, according to a person familiar with the matter. OAO Gazprom, the world’s biggest natural gas producer, is marketing its first bonds in the currency since 2007, according to data compiled by Bloomberg.
Companies sold 4.2 billion pounds ($6.7 billion) of bonds in the U.K. currency this month, the most since February, Bloomberg data show. Issuance is surging amid concern borrowing costs will rise as the strengthening economy prompted Bank of England policy makers to vote unanimously that no more stimulus is needed at present, according to minutes from its latest meeting.
“Given the better data we’ve seen in the U.K., the market is pricing in hikes earlier than the Bank of England is predicting,” said Tim Butcher, an investor at Scottish Widows Investment Partnership in Edinburgh who helps oversee about 30 billion pounds of corporate debt. “People are spooked about the prospect of policy errors by central bankers and companies concerned about yields rising are getting issuance away now.”
The spread between sterling corporate debt and gilts narrowed 2.6 basis points to 135 basis points, the least since Sept. 5, Bloomberg index data show.
Next last sold bonds in May 2011 when it priced 325 million pounds of notes maturing in October 2021 to yield 207 basis points more than gilts, according to Bloomberg data. The Leicester, England-based company has about 86 million pounds of outstanding bonds maturing on Sept. 30, the data show.
The proceeds of a potential bond sale will be used for general corporate purposes, to refinance existing debt and to fund any possible future share buybacks, according to a spokesman for Next who asked not to be named citing company policy.
“Next has scarcity value given that the company hasn’t been in the market recently,” Butcher said. “I’d be surprised if there wasn’t decent investor appetite for this deal.”
Gazprom is seeking to raise 500 million pounds from seven-year notes that will be priced to yield 315 basis points more than similar-maturity gilts, a person familiar with the matter said. The Moscow-based company’s 800 million pounds of 6.58 percent bonds issued in May 2007 mature in October, Bloomberg data show.
British mobile phone retailer Phones 4u Finance Plc priced 205 million pounds of senior payment-in-kind toggle notes due 2019 to yield 10.25 percent, according to data compiled by Bloomberg.
The PIK notes give the Newcastle-under-Lyme-based retailer the option of paying coupons with cash or more debt and can be bought back by the company after 1 1/2 years. Phones 4u, which is owned by private-equity firm BC Partners Ltd., sold the debt through its Phosphorus Holdco Plc unit to pay dividends to shareholders and other fees and expenses.
The company, rated B2 or five levels below investment grade by Moody’s Investors Service, was placed on review for a downgrade on Sept. 16 when it announced plans to sell PIK debt.
“Gross leverage, interest cover and free cash flow would be negatively impacted by the increased amount of debt and related interest payments,” Margaux Pery, an analyst at Moody’s, wrote in a report.
Moody’s assigned the new securities a provisional Caa2 rating, eight levels below investment grade.
-- With assistance from Leo Laikola and Lyubov Pronina in London. Editors: Jennifer Joan Lee, Michael Shanahan