3rd UPDATE: Companies Raise Over $1 Billion In Junk Bonds Thursday
23 Janvier 2009 - 12:27AM
Dow Jones News
Speculative-grade companies seized the opportunity to repay debt
and fund their operations Thursday, raising more than $1 billion in
the U.S. junk bond market.
The biggest deal was from wireless infrastructure provider Crown
Castle International Corp. (CCI), which sold $900 million of notes
for proceeds of $795.6 million. This was larger than the initial
target of $600 million, and makes it the largest sale of bonds from
a Single B rated company since July 1, 2008, when Intelsat Jackson
Holdings raised $986.51 million, according to data provider
Dealogic.
Petrohawk Energy Corp. (HK) meanwhile sold $600 million in bonds
- more than the originally planned $300 million - for proceeds of
$547.67 million. Also, gas transmission and distribution company
Tennessee Gas banked $237 million of proceeds from its $250 million
bond sale 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 that conditions in the credit
markets are easing for some lower-rated companies and follow
Nielsen Co. BV's $330 million junk-bond sale Wednesday.
"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," 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 just over $3 billion of bonds already in January, making it
the busiest month for high-yield issuance since July 2008 when
companies raised more than $3.8 billion in the market, according to
data provider Dealogic.
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 and Petrohawk saw good demand for their deals, with
the former pricing at a discount at 90.416 cents on the dollar to
give a 9% coupon and an 11.25% yield. The yield on Petrohawk's 5
1/2-year 10.5% bonds, which priced at 91.279 cents on the dollar,
came at 12.75%. Tennessee Gas, a unit of El Paso Corp. (EP),
meanwhile sold seven-year senior notes at a discount at 94.88 cents
on the dollar to yield 9% for a coupon of 8%.
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, according to 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
don't necessarily mean that other speculative-grade borrowers of
fallen angels, or companies that have had their credit ratings cut
to junk from investment-grade, will find it as easy to raise cash
in the bond market, according to Robert Bishop, portfolio manager
for SCM Advisors in San Francisco.
"It'll be a long time before people will be buying Triple C
rated paper," Bishop said.
"The companies that will grab people's attention will continue
to be high quality."
-By Kate Haywood, Dow Jones Newswires; 201-938-2348;
kate.haywood@dowjones.com
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