Spam listed companies are looking for the right time to attract investors

CNX Resources Corp.

originally planned to raise funds in the bond market in January, but the natural gas company decided to wait until its earnings were released at the end of the month, only to find that Russia’s invasion of Ukraine in late February effectively closed the market for speculative listed companies.

The Canonsburg, Pennsylvania-based company, which is rated below investment grade, waited until August and then again until September before finally pulling the trigger, raising $500 million to 7.375% which will mature in 2031. CNX is using the proceeds to repay $350 million in 2027 bonds which carry a slightly lower coupon of 7.25%.

“We timed about as well as we could,” said Alan Shepard, the company’s chief financial officer.

Alan Shepard, chief financial officer of CNX Resources.


CNX Resources Corp.

“We are constantly looking to refinance ourselves to avoid our maturities as much as possible because the high yield market is so unstable,” he added. “It can close for long periods of time, so if you’re not careful you’ll be caught off guard.”

Executives of publicly traded companies are facing significantly higher funding costs as the Federal Reserve continues to hike rates, leading some to seek alternatives, while others like Mr. Shepard swallow l increase in prices in exchange for later maturities. Although the overall pressure is limited, as many companies refinanced in 2020 and 2021 when financing was cheaper and investor appetite was stronger, high-yield companies with immediate financing needs must find the good time to appeal to investors, according to corporate bankers.

“This is a window market and our advice to clients is to be ready to access those windows when they come along,” said Alexandra Barth, co-head of capital markets business at leverage at Deutsche Bank. HER

. “Even if the market is choppy, there are options.”

These opportunities are crucial for CFOs, as around $11 billion in high-yield bonds mature by the end of the year, followed by around $62 billion in 2023 and $107 billion. in 2024, according to Deutsche Bank. Adding loans and revolving credit facilities, speculative firms have maturities of about $1.47 trillion through 2027, ratings firm Moody’s Investors Service said last week.

Companies with urgent cash demands still have options, including renegotiating with their lenders or seeking alternative investors in the private credit market, which has grown sharply in recent years. Companies can also make follow-on or market offerings to sell shares in the secondary market, said Anna Pinedo, co-head of the capital markets practice at Mayer Brown LLP, a law firm.

And the high-yield bond market isn’t closed, it’s just gotten more expensive, bankers said. Companies raised $15.7 billion in junk bonds in the third quarter, up from $85.7 billion in the year-ago period, according to Refinitiv, a data provider. Average coupon rates for such transactions climbed to 7.63% in the third quarter from 5.13% a year earlier, Refinitiv said.

The average yield on leveraged loans rose to 9.42% in the third quarter, when companies borrowed $125 billion, from a year when lower-rated companies took out $296.8 billion in loans. leverage, with average returns of 4.57%, Refinitiv said.

In addition to CNX, speculative listed companies including automaker Ford Motor Co.

and the cruise line Royal Caribbean Cruises ltd.

secured new funding in recent weeks, according to Refinitiv. Ford, based in Dearborn, Mich., for its part borrowed $600 million from investors for 6.5% that will mature in 2062, and agreed to a $1.75 billion green bond that has a coupon rate of 6.1% and matures in 2032. The company declined to comment.

Miami-based Royal Caribbean recently raised $2 billion in funds to buy back debt that would have matured in 2023, agreeing to pay investors between 8.25% and 9.25% for the notes that will mature in 2029. “We have access to capital,” Naftali Holtz, the company’s chief financial officer, said last month.

But financing options have tightened and the deteriorating economic outlook could hurt consumer-facing businesses in particular, with some of the recent downgrades falling into that category, according to S&P Global Ratings.

“For a generation, we’ve had lower interest rates and lower borrowing costs. This has led to increasingly higher debt loads and lower credit ratings,” said Gregg Lemos-Stein, analytical director of corporate ratings at S&P.

The low rates of recent years have also resulted in low covenant requirements, which means that some borrowers have not had to take out hedges to protect their exposure to floating rates, e.g. one day guaranteed. This may lead to problems in the future, as the London Interbank Offered Rate and SOFR futures have been trading higher in recent months and exceeded 3.4% for one-month terms on October 14, according to Refinitiv.

Anna Pinedo, Co-Head of Capital Markets Practice at Mayer Brown.


Mayer Brown LLP

Yet default rates remain low and bankers and lawyers see no widespread distress. In the first three quarters of the year, 279 U.S. companies filed for bankruptcy protection, fewer than in previous year periods dating back at least to 2010, according to S&P Global Market Intelligence, an arm of the firm. rating.

Latam Airlines Group HER

on October 11, said it had obtained financing to emerge from bankruptcy. Latin America’s largest airline said its debt after the restructuring would be around $2.2 billion, about 35% less than it currently carries. The interest on its new debt, however, is at 13.375%, much higher than that on its existing debt ranging from 3.6% to 7%, according to documents filed by the company. Latam also had to sell the tickets at a discount to make them more attractive to investors.

AMC Entertainment Holdings movie theater chain Inc.

said on Friday that its subsidiary Odeon Finco PLC had priced a $400 million bond. The bond carries a coupon of 12.75% and was issued at a discount of 92 cents to the dollar for an overall yield of about 15%, a hedge fund analyst said.

Bankers said they have received few calls from triple-C rated companies in recent months seeking maturity extensions. “It could happen in three to six months, but it’s still early days and most companies entered the market in the last two years when the environment was firm,” said Ms Barth of Deutsche Bank.

There could be a pickup in fundraising activity towards the end of the year as companies want to avoid going concern warnings in their annual financial statements, which may call into question their ability to stay afloat for another 12 months. “There could be a window for opportunistic issuers by then,” said one banker.

Meanwhile, companies with credit ratings a notch or two above high yield are also seeing their funding costs rise. Timken Co.

a maker of bearings and power transmission products, raised $350 million in March with a 10-year bond at 4.125% to fund potential deals.

“We took advantage of the fact that rates were still low,” said Philip Fracassa, the company’s chief financial officer. “If we went to market today, we would probably pay closer to 6%.”

Timken’s next bond maturity will be in 2024.

Write to Nina Trentmann at [email protected]

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