What's Cooking?

Noble Preps for a Sale. Or At Least Its Bonds Do

The company's new securities contain a change of control clause that's already worthless.
NOBLE GROUP LTD
+0.01
At Closing, April 23rd
0.11 SGD

If you believe the bond documents, Noble Group Ltd. really is for sale.

The Singapore-listed commodities trader raised $750 million selling dollar notes Monday that mature in five years. A clause provides for immediate repayment if the company is acquired. But that would only be triggered if Noble were rated investment grade at the time.

"If the notes are rated investment grade by one or more rating agencies and a change of control triggering event occurs (...) the issuer shall, at the option of the holder of any note, redeem such note on the change of control redemption date at its change of control redemption amount together with interest accrued to the date of redemption. This condition shall not apply if the notes are not rated investment grade by one or more rating agencies." 

You may not understand all the legal jargon, but you don't have to. Noble's new securities are expected to be rated BB+ by Fitch and B2 by Moody's Investors Service, one and two notches below investment grade respectively. So there's effectively zero change of control protection for investors.

No Come Back

Noble Group's bonds have suffered since the company was downgraded to below investment grade

Source: Bloomberg

The language in Noble's latest bond-sale document is similar to its previous ones, so it may be that the lawyers just forgot to update that clause. That's unlikely, however.

What then motivated that particular wording? The company's current financial situation means it would take a lot of work for it to recover its investment-grade status, and management has hinted this isn't a huge priority, even exiting some businesses that required a high credit score to optimally operate.

Perhaps Noble wanted the money without burdening any potential suitor with extra debt. A more tightly written change of control clause would have effectively added $750 million to the cash required upfront.

On the Block

Noble Group's shares are up almost 30 percent this year

Source: Bloomberg

Given the recent rumblings about a potential strategic investor buying a large chunk of Noble, that sounds a more plausible explanation. If a suitor has a higher credit rating than Noble, investors wouldn't care about such a technicality, since they probably wouldn't want to redeem their bonds early anyway.

If, however, it happens the buyer is in worse shape than Noble -- an unlikely but not impossible outcome -- that tiny clause could turn into something quite painful.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Christopher Langner in Singapore at clangner@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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