Trump Spending Pledge Gives Life to Builder's Junk-Bond Deal

  • Tutor Perini revives debt offering it pulled before election
  • Stock has soared on Trump’s infrastructure spending promises

Five months ago, construction firm Tutor Perini Corp. had to cancel a bond deal after failing to drum up investor enthusiasm. Then President Donald Trump came along.

The company that specializes in building bridges and tunnels revived its efforts to issue bonds Monday. But unlike the volatile market it faced last year -- just a week before the U.S. election -- Tutor Perini is now riding a surge in its stock price. And it’s dangling the promise of Trump’s trillion-dollar infrastructure plan to win over hesitant investors as the firm looks to push out debt coming due next year.

“There’s a lot of talk about the Trump infrastructure plan and that could bode very well for the industry,” said Jorge Casado, vice president of investor relations at Tutor Perini. “If Trump reduces the corporate tax rate that will also have a significant favorable impact.”

Since November, the builder’s shares have surged more than 70 percent as investors bet on a windfall from construction projects to be initiated by the new administration.

No Concession

Tutor Perini is now marketing the bonds at about 7 percent, according to people with knowledge of the matter. That’s about the same interest rate they were initially hoping to pay last year. The lack of concessions in the revived deal reflects management confidence in getting this offering through, the promise of new infrastructure spending and credit markets that are on a much stronger footing.

The Trump administration has been hobbled by botched policy roll-outs and an early failure on another signature promise -- health-care reform -- and it remains to be seen whether Trump’s infrastructure pledges can translate to a permanent boost for business. But Casado said the industry is benefiting from other tailwinds since the election, including voter-approved measures in Los Angeles and Seattle that promise an increase in infrastructure spending.

When asked on a February earnings call about Trump’s infrastructure plans -- as well as a proposal to build a wall along the border of Mexico -- Chief Executive Officer Ronald Tutor said that the company expects to “take as large a lead as anyone” if the spending programs move forward.

Carson Block, the short-seller and founder of research firm Muddy Waters LLC, said in October that he was betting against Tutor Perini’s stock because the company bleeds cash on working capital and has a disproportionate level of client disputes in the form of claims and unapproved change orders. Tutor Perini declined to comment on Block’s research. A representative for the short seller didn’t immediately respond to a request for comment.

The company plans to use the proceeds from the bond sale to repurchase all the outstanding debt on its 2018 notes, and to pay down an existing term loan as well as borrowings on a credit line, according to a statement.

Along with the eight-year notes that are expected to price on Thursday, the company will also refinance its credit facilities with a new $350 million revolver, according to bond marketing documents. Goldman Sachs Group Inc. is leading the debt sale.

— With assistance by Gowri Gurumurthy

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