Vale draws a crowd in US$1bn tap of 2026 notes


Brazilian miner Vale amassed a US$5bn order book for a US$1bn tap of its 6.25% 2026s on Monday with the buyside taking a shine to the company whose deleveraging plans are expected to free up cash flow and set it on a more stable path.

“People like the credit,” one investor told IFR. “Capex is trending lower so there is more free cash flow and the company is committed to deleveraging.”

The company is expected to cut net leverage for 2016 to around 2.1x, down from the 3.7x seen in 2015, and could hit 1.5x if iron ore prices average around US$55 per ton this year, according to Fitch.

With asset sales that totaled some US$1.3bn last year and the generation of free cash flow, management hopes to reduce net debt to between US$15bn-US$17bn, Fitch said.

The company is coming to market after the yield on the 2026 shrunk from 5.74% on December 22 to 5.11% on Friday, according to Thomson Reuters data.

Vale is still split rated at Ba3/BBB-/BBB after Moody’s demoted it to junk in February last year following the rout in iron ore and other base metals.

“I guess Moody’s needs to do something as they are far away from the other agencies,” said Klaus Spielkamp, head of fixed-income sales at Bulltick. “They are three notches below investment grade. That’s exaggerated.”

Even so, Moody’s warned in a note on Monday that lower metals prices compared to levels seen in 2011-2014 “will prevent a faster recovery in credit metrics.”

At a final yield of 5.20%, Vale’s US$1bn tap of its 2026s is seen leaving little juice on the table after initially approaching investors with IPTs of 5.45% against a secondary level of around 5.17% pre announcement.

“There is very little premium to the existing curve,” said Spielkamp. “But I still like the name.”

The deal priced at 107.793 to yield 5.20% or 278.3bp over US Treasuries. BB Securities, Bradesco, JP Morgan, MUFG and Santander acted as leads.

Proceeds are going to refinance a 4.375% euro-denominated note due 2018, and for general corporate purposes.

Source: Reuters



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