2ND UPDATE:Companies Look To Sell Over $1 Billion Of Junk Bonds Thursday
23 1월 2009 - 5:30AM
Dow Jones News
Speculative-grade companies are selling more than $1 billion of
junk bonds Thursday as they seize the opportunity to raise cash to
repay debt and fund their operations.
The biggest deal is from wireless infrastructure provider Crown
Castle International Corp. (CCI), which is in the market with $900
million in notes. This is larger than the initial target of $600
million, according to one person familiar with the situation.
Petrohawk Energy Corp. (HK) also plans to sell $500 million-$600
million in bonds - more than the originally planned $300 million -
and gas transmission and distribution company Tennessee Gas is
looking for $250 million in what are known as drive-by
offerings.
A drive-by offering means there is enough demand for a deal
without borrowers having to do a long investor roadshow. Drive-bys
used to be fairly common in the junk bond market, but they have
been few and far between since the credit crisis began. The
drive-bys are yet further indication of a reopening of the
new-issuance market for lower-rated companies and follow Nielsen
Co. BV's $330 million junk-bond sale Wednesday.
"As time goes by, the pace of issuance is picking up and more
and more deals are getting done," said Martin Fridson, chief
executive of investment firm Fridson Advisors in New York.
This is excellent news for companies that need to raise cash and
have been locked out of the market for months. Investors caution,
however, not to get too excited, saying that well-known companies
with strong credit profiles will continue to find it easier to sell
debt but lesser-known firms that are vulnerable to the weak economy
will still face difficulties.
"[Crown Castle, Petrohawk and Tennessee Gas] are well-known,
good-quality companies that would normally have access to the
market," said Kenneth Monaghan, head of high-yield credit and
portfolio manager at Rogge Global Partners in New York.
Investors have turned their attention back to corporate bonds
over the last few weeks, as yields on risk-free assets, such as
Treasurys, are so low that buyers get very little return.
"High yield is catching part of this, where people are looking
for limited downside with very high yields," said Gary Sullivan,
head of high-yield bond portfolio management at DB Advisors, the
institutional asset management arm of Deutsche Bank, on a call with
journalists last week.
This renewed interest has allowed speculative grade borrowers to
sell $1.428 billion of bonds already in January, making it the
busiest month for high-yield issuance since July 2008 when
companies raised over $3.8 billion in the market, according to data
provider Dealogic.
"It doesn't say that the market has turned around, but to see
three companies coming to market simultaneously after months of
very little issuance is striking," Fridson said.
A revival of the junk bond market, which is a vital source of
financing for some of the world's major companies, is becoming more
and more important as the default rate increases and the number of
borrowers being downgraded to sub-investment grade rises.
Speculative-grade borrowers made up the majority of U.S. corporate
debtors for the first time in 2007, according to Standard &
Poor's.
Crown Castle is expected to price its bonds to yield
11.25%-11.5%, according to a person familiar with the deal. The
bonds are expected to come at a discount to par value to give a
coupon of 9%. The yield on Petrohawk's 5 1/2-year bonds is expected
to be 12.75%-13% and the coupon is seen in the mid-10% area.
Tennessee Gas, a unit of El Paso Corp. (EP), is expected to sell
its seven-year senior notes at a discount of around 95 cents on the
dollar to yield 9%-9.25% for a coupon of 8%-8.25%.
The yields are less than what the companies could have ended up
paying had they tapped the market last year. But the cost of
borrowing is still at record highs.
U.S. junk bonds have returned 4.71% year-to-date after having
fallen over 30% since the start of last year, Merrill Lynch Master
II High Yield Index. Risk premiums, or spreads over risk-free
Treasurys for high-yield bonds, meanwhile stood at 16.71 percentage
points Wednesday, according to Merrill. That's nearly twice what
they were at the start of 2008 but well below the peak of 21.82
percentage points in mid-December.
Average yields are around 18%. This is down from highs of more
than 20% last year, but it's still more than double the yields junk
bond issuers have traditionally been used to.
Successful deals from Crown Castle, Petrohawk and Tennessee Gas
won't necessarily mean that fallen angels - companies that have had
their credit ratings cut to junk from investment-grade - will find
it easy to raise financing in the bond market, Rogge's Monaghan
said.
"There is money coming into the market and people are looking to
buy new deals. But it doesn't mean that it's going to be a walk in
the park for every company that wants to tap the market," Monaghan
said.
All three deals are expected to price later Thursday, according
to people familiar with the situation.
-By Kate Haywood, Dow Jones Newswires; 201-938-2348;
kate.haywood@dowjones.com
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