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Below are details of a High Yield bond issued by industrial leader, Terex Corporation (NYSE:TEX). As part of Bondsquawk’s High Yield Portfolio released last week, this bond offers an investor an opportunity to capture high income.

Terex Corporation Senior Notes (CUSIP 880779AX1)

  • 6.5% Fixed Semi-Annual Coupon
  • April 1, 2020 Maturity Date
  • April 1, 2016 Next Call Date at $103.25 Dollar Price
  • Current Market: Offered at $106.75, Yield to Worst of 5.03%
  • +434 basis points Yield Advantage over comparable maturity U.S. Treasury (On the run 5-Year)
  • $106.88 Dollar Price, 5.01% Yield to Maturity at time of Inclusion of High Yield Portfolio
  • ‘B+’ Rating by Standard & Poor’s which falls on the High Yield spectrum

Company Profile

Terex Corp. is a diversified global manufacturer of capital equipment operating in five business segments — Aerial Work Platforms (AWP), Construction, Cranes, Material Handling & Port Solutions, and Materials Processing. The company manufactures a wide range of equipment for use in industries such as construction, infrastructure, quarrying, shipping, transportation, power and energy. Terex also offers a complete line of financial products and services for the purchase of Terex equipment through Terex Financial Services. The company which is headquartered in Westport, Connecticut has more than 15 thousand employees with facilities in the Americas, Europe, Asia, and Australia.

Key Reasons

Deleveraging Balance Sheet: Total Debt for TEX declined $253 million from a year ago to $2.06 billion through the Third Quarter of 2012. As a result, the company is better able to service its debt as evident by its improving Interest Coverage ratio. The EBITDA to Interest Expense ratio using the trailing 12 months of data improved from 1.3x last year to 3.2x.

Better Profitability: Despite lackluster revenue growth of one percent over the past year, profitability for TEX improved significantly. EBITDA grew by $98.3 million over the past year to $167.6 million in the Third Quarter of 2012.

Cash is King: For the past 12 months, TEX has produced just under $200 million in free cash flow. As of the Third Quarter, the company has $543 million in Cash. Given the amount of debt and the total size of the company (Equity as of Third Quarter is $2.5 billion), TEX has ample liquidity.

Excellent Yield Despite Call Risk: The bond is callable on and anytime after the following dates and at the following prices:

  • April 1, 2016 $103.250 Dollar Price 5.16% Yield to Call
  • April 1, 2017 $101.625 Dollar Price 5.07% Yield to Call
  • April 1, 2018 $100.000 Dollar Price 5.03% Yield to Call

At a current price of $106.75, the bond is trading well over all of the call prices. Don’t let this scare you. Despite this drop in price should the issuer call the bonds at any of these dates, the investor is able to capture coupon payments from now until that call date to more than offset the decline in price. This is evident in the positive Yield to Call calculations for each of the call dates. Yield to Worst takes the lowest of the Yields (including Yield to Maturity of 5.37%) for a “worst-case” scenario which for this bond is 5.03%. As a comparison, the average Yield to Worst of the Industrial Goods sector is 4.86% according to Wells Fargo High Yield research report, Industrial Goods Relative Value Analysis, dated December 10, 2012.

Disclaimer: The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.

Source: Terex Corp Bond Offers High Income Opportunity