The offshore oil engineering services provider pumped out a $335m seven year Reg S 114A bond on Wednesday in the face of hostile market conditions.
The deal offered an 11.25% coupon at 98.814 to yield 11.50%, an eye-opening 791bp over US Treasuries. The company’s B+ rating from Fitch is supported by its status as "a leading provider of marine-contracting services to Pemex", the agency said.
But despite its links to the booming energy services sector, the issuer had to reduce the size of the offer from $375m to attract the hedge funds, said bankers away from the deal.
"The transaction is investor-friendly and has high yield written all over it," said one New York-based emerging markets debt syndicate banker. The notes have a change of control put at 101 and an equity option that allows the issuer to redeem a maximum of 35% of the principal at 111.25.
There is also a make-whole call provision in four years time at 75bp above US Treasuries, after July 15 2012 the bond is callable at 105.625, 102.813 in 2013 and par from 2015. Morgan Stanley was the sole bookrunner. Proceeds of the issue will be used to service existing debt.
One market participant said the wide spread was "a sign to lower rated names that don’t have a long history of issuing debt or potential to easily raise equity: this is what the future holds." Bankers widely praised the deal. "This is really good. It shows the market is open for those high yielders that are willing to pay," said one banker. "Hats off to them for getting it done in such horrible conditions," said one origination head.
With oil prices rising further, US equities plummeting every day this week, and the European Central Bank raising rates, real money investors are in retreat and reducing their exposures irrespective of quality.
"Every new issue over the last month is now trading below their fixed US Treasury offer and even Brazil 2040s have sold off," said one Americas debt capital markets banker in New York. "The market — when we thought it had already bottomed out — has gone to pieces this week."
In this context, as well as the shortened trading week due to the US Independence Day holiday, Brazilian rice producer Camil Alimentos was unable to find an opening for its $150m BB-/Ba3 deal via bookrunners ABN Amro and Santander. "I have been telling the borrower it would have been madness to go to the market this week when virtually every single asset class in all regions have sold off," said one bookrunner.
Meanwhile, Houston-based AEI (formerly Ashmore Energy International) is eyeing a $250m 10 year bond next week.
Around two thirds of the company’s revenues come from operations in Latin America.
More conventionally, the flurry of Brazilian financial paper is set to continue, most probably before the August summer break said bankers. Banco Cruzeiro do Sul is looking to sell three year dollar denominated Ba1 notes at around 8.375% next week via BCP and UBS.
Meanwhile, Paraná Banco is set to launch a $100m three year B+ bond through Dresdner and Queluz Securities, subject to market conditions.
Finally, Banco Daycoval is mulling a three year dollar bond after the success of its $125m two year 2010 bond in May. Bankers involved in the potential offering are HSBC, Banco Itau and Banco Votorantim.