Last year was the worst for high-yield markets since the crisis of the early 1990s. Default rates increased, issuance slowed down considerably, trading spreads widened out, and mutual funds saw a near continuous outflow of funds. Many issuers had to resort to more expensive forms of debt, whether short-term commercial paper or mezzanine loans, or had to risk the debt markets and pay higher premiums. So any deal that got done last year could be considered a success.
But AES Corporation wins largely on the basis of timing. Windows of opportunity were rare, and Morgan Stanley Dean Witter gauged the mood of the market well. “The tough part of any issue last year was that between marketing and launching – the prices could change so much,” says Bill Kourakas, co-head of leveraged finance at MSDW. “We picked a time when that would be minimized, which was the period right after Labor Day [September 5]. We had noticed a pick-up in sentiment in the weeks before Labor Day, and anticipated that demand would build up right afterwards.”
So as soon as they got back into the office on Tuesday, Kourakas and his team started on a three-day roadshow, initially looking to raise $600 million. AES is a relatively frequent issuer so did not need a more extensive roadshow, and the company and its bankers concentrated on getting new investors interested.
“The deal caught everyone’s eyeballs,” says John Eisenberg, vice-president in high-yield capital markets for Morgan Stanley. “But we also managed to attract 23 first-time investors in AES who bought one-third of the deal.” Many of those were cross-over investors, and altogether over 50% of demand came from investment-grade buyers.
“This was just the kind of deal the market was looking for at the time,” says Kourakas. “It’s not a telecoms company, but an industrial organization with a phenomenal track record.”
The deal for AES, which used the proceeds to replace its earlier financings used to buy Grupo ADC in Venezuela, carries a 9.5% coupon, launched at levels close to where its outstanding paper was trading, and is due in 2009.
