Kentucky-based Ashland, a Fortune 500 name, sold
US$2.3bn worth of debt in a four-part bond deal that won the
company swift approval from credit rating agencies.
"They're on the path to being investment-grade, so this is
very positive for the company," said one high-yield bond
investor. S&P and Moody's downgraded Ashland to junk in
Pricing the bond sale via Citi, BofA Merrill, Deutsche Bank,
Scotia and PNC joint books, the company took out secured debt
consisting of a US$1.032bn term loan B and a US$1.406bn term
A draw on its new US$1.2bn senior unsecured revolver will be
used to repay the remaining US$200m of the term loan A.
With no secured loans left outstanding, the security on the
existing senior secured notes will also fall away, leaving the
company with very little secured debt and putting the senior
unsecured debt at the top of its capital structure.
As a result, Moody's upgraded the rating on the senior
unsecured note to Ba1 from Ba2, and confirmed Ashland's
corporate family rating at Ba1. S&P raised the senior unsecured
debt to BB from BB- and affirmed the corporate credit rating at
Ashland, which is focused on achieving its leverage target
of 2.0x, is currently leveraged at 4.2x, according to Moody's.
The agency expects Ashland will apply free cashflow towards
debt reduction going forward, and will limit the size of
near-term acquisitions to reduce that leverage.
Ashland began marketing the US$2.3bn senior notes on
Wednesday morning, with the deal split among three-year,
five-year, 9.5-year (in the form of an add-on to its 4.75% due
2022) and 12-year bullet tranches.
Initial price thoughts were 3% for the three-year, 4% for
five-year, 5% for the 9.5-year add-on (for a dollar price of
98.125) and 5.25%-5.375% for the 12-year tranche.
The 12-year was then changed to a very investment grade-like
30-year maturity with initial price thoughts of 7%.
Guidance came out at slightly tighter levels on most
tranches: 3% area on the three-year, 3.875%-4% on the five-year,
4.875%-5% on the 9.5-year 4.75% add-on, and 6.875%-7% on the
On Thursday morning, the three-year tranche, at US$300m, was
launched and priced at 3% at par. The US$700m five-year piece
priced at 3.875% at par. The US$650m add-on to the 4.75% notes
due 2022 priced at 99.059 to yield 4.875%, while the US$350m
30-year piece priced at 6.875% at par.
The three longer tranches priced on the tight end of talk.
While the deal was viewed as a strong positive for the
company, pricing was perceived as too tight for some high-yield
But it was attractive for investment-grade buyers, who were
heard to account for roughly 35% of the US$7bn order book.
The 30-year tranche was also viewed as investment-grade in
style. The majority of demand on that piece came from high-grade
buyers, it was heard, while high-yield investors gravitated to
the lower duration bonds.
Demand was strong. For the US$650m add-on, for example, one
investor heard orders had reached US$3-US$4bn.
But secondary performance was muted, with all tranches seen
trading flat to up half a point after the deal priced - fully
understandable from a high-yield perspective.
"I think the market has seen enough of this low-yielding
stuff," the high-yield investor said.
"Nowadays people seem to be more attracted to a company that
is having difficulties but offering yield, than a solid Double B
rated company at these tight levels."