By Paul A. Harris
St. Louis, Nov. 19 - Cummins Inc.'s upsized offering of $250 million eight-year senior notes brought a rate that pleased the Indiana-based truck engine company, a first-time issuer of high-yield notes.
The deal (Ba2/BB+/BB-) was increased from a planned size of $200 million and priced Nov. 15 at par to yield 9½% - at the tight end of the 9½%-9¾% price talk. Joint bookrunners were Salomon Smith Barney and JP Morgan.
The deal also signals a high-yield primary market in which demand presently is outstripping supply, sources tell Prospect News.
"The bonds were extremely well received," said Prescott Crocker, fund manager of the Evergreen High Yield Bond Fund, who told Prospect News that he played the Cummins transaction.
"It came at 9½% at par and immediately the first trade was 104," Crocker added.
The Cummins deal was the fourth junk bond offering since the summer to upsize, price at par and come at the tight end of price talk. The others include the deals from Owens-Brockway Glass Container Inc., AmerisourceBergen Corp. and the emerging markets corporate deal from Tyumen Oil which started the string on Oct. 31.
Crocker told Prospect News Tuesday that inflows of cash into high-yield mutual funds - five in a row as tracked by AMG Data Services - are turning investor attention back toward the high-yield primary market from the aftermarket, where it had been glued through late summer into early autumn. Also, Crocker added, it has presently made a "seller's market" of the high-yield primary.
For the company, the 9½% coupon on the new eight-year senior notes represents a positive transaction to mark its first ever junk-bond deal.
"We feel that given the fact that we had to be in the (high yield) market we did quite well," said Cummins director of investor relations Karen Battin. "We had a huge book," she added. "The demand was good and that allowed us to get in at a decent rate."
Cummins will use the money to repay its $125 million of 6¼% notes due March 1, 2003 as well as to repay its revolver and other short-term debt, and for general corporate purposes.
Battin said that upsizing the bond deal by $50 million gave the Indiana truck engine-maker a little extra breathing room.
"At the same time we announced the bond deal we put in place a new revolver," she said. "We had had a $500 million revolver before, and our new one is $385 million. We drew almost none of that $500 million the five years it was outstanding. We had very small borrowings under that agreement so we felt that we did not need the entire $500 million. But just to make sure we were in good shape and had substantial liquidity we upsized the bond deal to $250 million."
Issuer: Cummins Inc.
| Amount: | $250 million (from $200 million)
|
| Maturity: | Dec. 1, 2010
|
| Description of securities: | Senior notes
|
| Managers: | Salomon Smith Barney, JP Morgan (joint books), Banc of America Securities (joint lead)
|
| Co-managers: | Scotia Capital, BNY Securities, RBS
|
| Coupon: | 9½%
|
| Price: | Par
|
| Yield: | 9½%
|
| Price talk: | 9½%-9¾%
|
| Call features: | Callable on Dec. 1, 2006 at 104.75, then at 102.375, declining to par on Dec. 1, 2008
|
| Settlement date: | Nov. 20, 2002
|
| Ratings: | Moody's: Ba2
|
| Standard & Poor's: BB+
|
| Fitch: BB-
|
|
|
© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere.
For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.
