2ND UPDATE:Junk-Rated Capitalize On New Investor Interest
January 28 2009 - 5:33PM
Dow Jones News
Some $1.4 billion in junk bonds were up for grabs Wendesday as
speculative-grade companies continue to capitalize on renewed
interest in riskier assets to secure financing that has evaporated
elsewhere.
Natural-gas producer Chesapeake Energy (CHK) sold $1 billion of
new senior notes after increasing the deal from an initial target
of $500 million. Yet, the company offered a discount on the new
debt, 95.071 cents on the dollar, so it ended up pocketing just
over $950 million. Meanwhile, Inergy LP (NRGY), which sells propane
and leases propane supplies, bought home $203 million by selling
its six year bonds at a discount.
The willingness of investors to buy into new junk bond deals has
helped ease funding concerns for corporates at the top end of the
speculative-grade ratings spectrum.
It has also allowed speculative-grade borrowers to sell over
$4.2 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.
The yields on the deals ranged from 10.625% on Chesapeake's
bonds, rated Ba3 by Standard & Poor's, to 11% on Inergy's debt,
rated B1. The yields are less than what the companies would have
paid late last year, but the cost of borrowing is still at
exceptionally high.
Indeed, there is incredible demand for more stable, high-yield
names, according to James C. Camp, managing director and portfolio
manager at Eagle Asset Management.
"The names that are coveted in the new issue market are getting
oversubscribed five, six, even seven times," he said.
Intelsat is another company looking to take advantage of this
demand when it sells $200 million in 8.875% bonds at a discount -
around 88 cents on the dollar - to yield around 11.75%. Order books
on that deal are open until 5 p.m. (EST).
Also, Landry's Restaurants Inc. hoping to find favor with
investors for $270 million in new bonds, which were announced last
week and are still marketing, according to KDP Investment
Advisors.
Most of the new junk bond sales this year have seen reserve
enquiry from investors, meaning that most of the order books were
practically filled by the time the deals were announced.
But while investor demand for new issues has picked up, all new
bond sales this year have priced at significant discounts to par
value. The low prices mean that new bond deals have traded above
their issue prices in the secondary market.
"Ninety cents on the dollar is the new par," said one syndicate
official.
As with Inergy, proceeds of Chesapeake's bonds will be used to
repay a portion of the firm's revolving-credit facility. As of
Monday, the outstanding balance on Chesapeake's revolver was $3.45
billion, according to Standard & Poor's Leveraged Commentary
& Data.
-By Kate Haywood, Dow Jones Newswires; 201-938-2348;
kate.haywood@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front
page of today's most important business and market news, analysis
and commentary. You can use this link on the day this article is
published and the following day.