By Josie Cox
LONDON, Aug 2 (IFR) - Midsummer monotony in the corporate
bond market was broken this week when Air Products and Chemicals
first euro bond issuance in six years was knocked off track by
an unexpected swoop on the business by activist shareholder Bill
The US chemicals company was forced to pay up for what was
looking like a slam-dunk deal, after Ackman said he was
acquiring a near 10% stake, just minutes before books on the
seven-year bond were due to close.
That prompted more than half of the accounts to pull out,
according to market sources, with investors spooked by the
uncertainty about what power Ackman and his Pershing Square
Capital Management company now had, and what he would do with
his new voting rights.
"Any shareholder activist move is unlikely to be
bondholder-friendly," one syndicate banker said. "And I've never
really heard of a shareholder move like this that has been
positive for ratings."
Air Products is currently rated A2/A by Moody's and
Standard & Poor's.
The shock move meant that the bond deal priced at the wide
end of price talk that had been set at plus 45bp-50bp by lead
bookrunners Banca IMI, BNP Paribas and Deutsche Bank - and some
7bp wider than where the deal had been expected to price after
guidance was revised to 43bp-45bp over.
"The deal was multiple times subscribed before the news hit
and we were on track to print 300m euros at 43bp over swaps,"
one lead said.
"By the time we printed, the book was still comfortably
subscribed but had understandably taken a major beating."
Pershing Square Capital Management now owns 9.8% of the
company, but analysts said it may have bought even more if the
company had not adopted a so-called "poison pill" that is
designed to make hostile takeovers more difficult.
Although the leads on the bond deal were caught off guard,
the company had an inkling that something like this could
happen. It introduced the pill just last week, following
speculation on Wall Street that Air Products was in Ackman's
"It certainly was a saving grace for the deal," one of the
leads said, emphasising that change of control clauses in the
bond documentation had also been crucial in ensuring the deal
got done despite the unforeseen circumstances.
Under the terms, if a change of control-triggering event
occurs, the company will be required to make an offer to
purchase the bonds at a price of 101% of the aggregate principal
amount of the notes, plus accrued and unpaid interest.
This is the first time Air Products has included such
language in its euro bond issuance documentation. Bankers said
that it had turned out to be advantageous, even though the
chances of Ackman taking a controlling stake in the group were
"It certainly encouraged some investors who may have pulled
out to stay on board," one lead said.
Leads said strong French support for the deal was one of the
key motivations to push on with the transaction.
Although official distribution statistics were not available
at the time of writing, sources said that French accounts had
taken more than two-thirds of the paper.
One banker said this was likely due to the high proportion
of French insurance companies looking for rare top-quality paper
to buy and hold following thin supply in recent weeks.
"Despite everything that happened, risk-averse investors
still see the credit for what it is - a high-rated, good-quality
name," the banker said.
Investors looking for some yield in low-risk products may
also have been attracted by the deal. The coupon of 2% is still
higher than the 1.75% paid by Unilever on its 750m euros
seven-year deal earlier in the week, for example.
This support was also reflected in the bonds' secondary
market performance on Thursday, where they were bid around
3bp-4bp tighter, according to several traders.