Issuers Of Asset-Backed Deals Look To Corporate Bond Buyers

Issuers of bonds backed by consumer and commercial loans don't want to miss out on the opportunity to sell their wares to investors who generally buy corporate bonds.

Given the corporate bond market's greater liquidity and the asset-backed market's need to woo investors who have grown wary of the sometimes dubious collateral backing their securities, these issuers are willing to simplify deals to draw more buyers.

Earlier this month, for example, Crown Castle International Corp. (CCI) sold a refinanced $1.9 billion in senior secured notes. The bond was a hybrid commercial-mortgage and corporate-credit deal backed by cash flow from the operation of 11,000 U.S. cellphone towers.

To make the note more attractive to a broader buyer base, Crown Castle simplified the security and issued it all with a single-A rating. It also issued it with 5-, 7- and 10-year maturities.

"We wanted to stagger our debt maturities and have smaller tranches," said Fiona McKone, a vice president in corporate finance at Crown Castle in Houston. "Typically, a commercial mortgage-backed security would have been five years so in this sense it was unusual--most of the paper is 10-year maturity."

The 10-year note was particularly attractive for the company because the contracts underlying the revenue were also long-term contracts, McKone said.

The five-year tranche worth $300 million sold to yield 4.523%. The seven-year tranche worth $350 million sold to yield 5.495% and the 10-year $1.25 billion tranche sold to yield 6.113%.

"The rates were very attractive," McKone said, noting the weighted average coupon was lower than the CMBS deal the company did in 2006.

Another advantage of the structure was the transaction's receiving a higher rating--an A from Fitch Ratings and an A2 from Moody's Investors Service--several notches above the junk rating given to the company's corporate credit. Crown has a corporate credit rating of B plus from Standard & Poor's and Moody's rates it at Ba2, two steps below investment grade.

Fitch gives the company's senior secured debt a rating of B plus.

By creating a hybrid, the issuers also made the security a tad safer as an investment.

"The essence of the transaction is that the collateral is isolated in a bankruptcy-remote entity so investors would expect a better recovery in the event of a default than in a corporate borrowing," said Cory Wishengrad, a managing director in the asset securitization group at Barclays Capital in New York.

The Crown deal is the first one of its kind this year but it could have a wider application for esoteric asset-backed securities, industry participants say.

Issuers and underwriters will increasingly want to tap into the liquidity seen in the corporate bond arena "by facilitating access to corporate bond investors," Wishengrad said.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; anusha.shrivastava@dowjones.com

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