On the corporate high yield issuance front yesterday, there was a notable deal:
CEMEX, S.A.B. de C.V. announced today the pricing of a US$500 million reopening of its 9.5% notes due 2016, which were originally issued on December 14, 2009 in the amount of US$1,250 million. The additional US$500 million of notes will be issued at a price of US$105.25 per US$100 principal amount plus accrued interest from December 14, 2009 and will have a yield to maturity of 8.477%.
Of the net proceeds from the offering, US$411 million will be used to prepay principal outstanding under CEMEX’s Financing Agreement completed on August 14, 2009. The remaining proceeds will increase cash balances and be used for general corporate purposes, which may include additional repayments of indebtedness, including indebtedness under the Financing Agreement. This prepayment is expected to result in accumulated prepayments under the Financing Agreement in excess of the first financial milestone of US$4.8 billion, thereby allowing CEMEX to maintain the current applicable margin under the Financing Agreement until at least December 2011.
The notes will share in the collateral pledged to the lenders under the Financing Agreement and will be guaranteed by CEMEX and the subsidiaries which have provided guarantees under the Financing Agreement.
Cemex will be paying a fixed rate of 8.91% on the $895m of debt provided by itsprivate placement creditors. On the remainder it stated that it would be payingLIBOR plus 450 basis points and on top a consent fee of 200 basis points, which will be amortised over the life of the loan adding around 60 basis points a year. Cemex estimates that this will increase its cost of the $15bn of refinanced debt at current rates to around 6%. With 7 months of cheaper debt this year, it expects the cost to average around 5% this year. If the milestone payments of $4.8bn of debt reduction by December 2010 and $7.6bn by December 2011 are not achieved the cost of debt could increase by a further 50-100 basis points. However, these milestone payments refer to debt repayments under the refinanced facility, the amount over and above the maturities described below could be provided by other sources of debt, for example bond issues. Cemex’s cost of debt would also increase if more than $1bn of net proceeds are not received from an issue of equity by 30 June 2010.
Cemex is running ahead of schedule in their repayment to banks and private placement holders. While they still have a ways to go to be in the clear, this bodes well for the company's financial flexibility. Now if only demand would follow.
Disclosure: No position