NEW YORK, March 4 (IFR) - Six of the eight investment-grade
corporate bonds that priced Tuesday included change-of-control
(CoC) language, as wary investors demand more protection after
some recent close calls.
Rattled by Safeway Inc's decision to sell itself - and the
spectre of Time Warner Cable nearly tumbling into junk status -
bond investors are pushing for more CoC clauses.
Entertainment giant Viacom - which didn't include CoC puts
in its bond issue in August - included them today, as did Gilead
Sciences, Potash Corp of Saskatchewan, Aetna, Pitney Bowes and
Burlington Northern Santa Fe.
Air Lease Corp, in the financial sector, also included CoC
Although CoC language is common enough in the
investment-grade market, it's not often that virtually all of
the corporate deals on a single day have included it.
Investors were shocked to see how close Time Warner Cable -
with roughly US$24bn of outstanding debt, none of it with CoC
language - came to being bought by junk-rated Charter
"Time Warner really increased investors' concern about the
event risk in the investment grade market so now the first thing
you look at in a new issue is whether it has CoC protection,"
Rajeev Sharma, portfolio manager at First Investors Management
Co, told IFR.
Companies which can still add debt without piercing their
leverage targets are the most obvious candidates for CoC
"Looking at recent bond issues, investors have asked for CoC
language in deals from companies that have leveragable balance
sheets, which makes them attractive targets for private equity,"
said one senior credit strategist.
Demand for CoC is also required for certain corporates that
are rated single A by one agency - such as the trades today from
Potash (A3/A-) and Gilead (Baa1/A-).
Some investors demand payment of as much as 20bp more in new
issue premium if a bond doesn't have CoC language.
"We've historically avoided deals without that language
unless the spreads were really compelling," said a senior
"So much so that [the issuers] adequately compensated us for
the absence of that language."