Investors buy $1.5 billion of junk bonds as part of GE plastics deal
August 20, 2007
The sale of $1.5 billion of junk bonds as part of the debt package to fund the acquisition of General Electric’s plastics division showed that the high-yield market isn’t completely closed for business.
The unit, called SABIC Innovative Plastics Holdings, borrowed $1.5 billion at a yield of 9.5%, showing that “a high-yield new issue can get done,” according to KDP Investment Advisors.
“Yet, it isn’t highly representative of other deals on the forward calendar, and the bulk of demand for this issue apparently came from Middle Eastern accounts.”
Junk-rated debt issuance has been slim since the end of June as investors have been asking to receive higher interest payments for the risk they take.
General Electric sold its plastics division to Saudi Basics Industries for $11.6 billion. The $1.5 billion junk senior bond deal, rated B1 by Moody’s Investors and B+ by Standard & Poor’s, is part of an $8.2 billion debt package, which will also include leveraged loans to be sold later this week. It has a seven-year maturity.
Saudi Basic Industries has structured the transaction like a leveraged buyout, contributing about 30% of the deal in equity and funding the rest with debt.
This is the largest sale of junk-rated debt since the sale of Chrysler’s $6 billion leveraged loan package on July 31, which was part of the debt financing for its acquisition by Cerberus Group.