Schaeffler Plans $1.31 Billion Bond to Reduce Loan Costs

Schaeffler AG, a German bearing maker and biggest investor in car-parts producer Continental AG, plans to raise about 1 billion euros ($1.31 billion) in a bond sale to help reduce debt costs and refinance loans.

The junk-rated company is selling senior secured bonds in euros that mature in five years and can be bought back after two years, as well as dollar notes maturing in eight years and callable after three, according to people familiar with the transaction. It’s Schaeffler’s first bond sale since June, according to data compiled by Bloomberg.

Schaeffler’s debt is the legacy of a takeover offer for Hanover, Germany-based Continental that backfired amid the 2008 credit crunch, leaving the closely held company with more than 90 percent of Continental’s shares and borrowings, which exceeded 10 billion euros. By the end of 2012, Schaeffler’s net financial debt had fallen to 6.8 billion euros from 7.1 billion euros a year earlier, the company said on March 21.

“The remaining bank loan volume will be refinanced with improved terms and conditions and extended maturities,” Marcus Brans, a spokesman for Schaeffler, wrote in a statement on the Herzogenaurach, Germany-based company’s website. “Through these measures, the company’s debt maturity profile will be significantly improved and cost of debt further reduced.”

Schaeffler’s bond sale will be the biggest junk offering from a European issuer since satellite operator Intelsat Luxembourg SA raised $3.5 billion in a three-part deal on March 20, according Bloomberg data. Moody’s Investors Service rates Schaeffler B1 and Standard & Poor’s gives it an equivalent B+, four steps below investment grade. Moody’s has assigned the new bonds one grade higher at Ba3.

Debt Reduction

Schaeffler’s high debt levels versus cash flow, unlikeliness to cut debt materially in the short to medium term, and the “complexity” of its corporate organization constrain the company’s credit rating, Falk Frey, a Frankfurt-based analyst at Moody’s said today in a statement.

The manufacturer is forecasting sales growth of 4 percent this year, about double the rate of global auto production. Schaeffler also predicts earnings before interest and taxes at about 13 percent of sales. Revenue rose 4 percent in 2012 to

11.1 billion euros while the operating margin narrowed to 12.7 percent from 15.8 percent a year earlier.

Elsewhere in European credit markets, Gestamp Automocion SA, a Spanish maker of car parts, is meeting investors in London today and in New York starting on April 29 for a sale of senior secured bonds in euros and dollars. The company’s subsidiary, Gestamp Funding Luxembourg SA, plans to sell a total of about 750 million euros of seven-year notes, according a statement on its website.

Gestamp Sale

Gestamp entered into a senior term and revolving facilities agreement on April 19 for a total of 850 million euros, the company said. The bonds and loan facility will be used to refinance existing credit facilities, it said.

Gestamp will refinance “most of its outstanding debt” in “multi-step refinancing in the coming months,” S&P analysts wrote in a report today. They assigned the company a credit rating of BB, two grades below investment grade.

Italian household appliances manufacturer Indesit Co. SpA is selling its first bond since 1999. The unrated Fabriano-based company is raising 300 million euros from five-year bonds that will be priced to yield 4.625 percent, according to people familiar with the transaction who asked not to be identified because the details are private.

Anglo American Plc, the world’s biggest platinum producer, is raising 750 million euros from eight-year bonds that will yield 133 basis points more than the benchmark mid-swap rate, according to a person with knowledge of that deal. It’s the London-based company’s first bond sale since September, Bloomberg data show.

Before it's here, it's on the Bloomberg Terminal.