Trac Intermodal LLC is planning to raise $485 million of junk bonds in part to pay a dividend to its private-equity owner, Fortress Investment Group.
The truck logistics equipment leasing and rental company will use $325 million of the proceeds for the payout and $150 million to repay debt, according to a regulatory filing. Standard & Poor’s has graded the notes B-, six levels below investment-grade, with a stable outlook.
The deal would bring the tally of junk-bond deals that are used to reward shareholders to $1.8 billion this year, according to data compiled by Bloomberg. So-called dividend deals dropped to $7.1 billion in 2015 from a record $13.9 billion the year before. The downside of the bonds is they can increase a borrower’s risk of default by piling on debt, with only some of the cash going to improving operations or boosting revenues.
"The stable outlook reflects our expectation that the company’s credit metrics will remain relatively consistent through 2016 after it completes the proposed debt-financed dividend," S&P analysts led by Betsy Snyder, wrote in a note.
The Princeton, New Jersey-based company will start marketing the securities Monday and may sell the debt as soon as this week, according to a person familiar with the sale who’s not authorized to speak publicly.
Blake Morris, a spokesman for Trac Intermodal, declined to comment.