Outlook 2014: M&A activity may affect tender, redemption volume in 2014

By Lisa Kerner

Charlotte, N.C., Dec. 31 - Low interest rates made 2013 almost a mirror image of 2012 "and every bit as active" in terms of debt refinancing deal volumes, according to Kristian Klein, vice president at D.F. King & Co., Inc.

"The markets continued to stay strong and stable, which provided issuers the ability to refinance at better rates," said Klein.

While many issuers expected rates to go higher at some point in 2013, they didn't.

When the 10-year Treasury is at or below 3%, it makes sense to refinance early or ahead of calls, according to Klein.

Volume was steady through 2013 with no real downturn. Many issuers who did not refinance in 2012 took advantage of the opportunity in 2013.

In terms of deal size, Klein said the fundamentals remain unchanged.

What investors wanted to do with the money and the underlying terms were the same, regardless if it was one issue for $100 million or 10 offers for $150 billion. The "story doesn't change," Klein said.

No one debt refinancing transaction stood out for Klein in terms of size or being out of the norm. "So many of them were opportunistic offers because of the marketplace."

Looking ahead, Klein expects volume for the first quarter of 2014 to be strong. Investors that failed to take advantage of the rates in 2013, or those who still expect rates to rise, will jump on the bandwagon.

M&A activity could affect volume in the coming year.

"The potential for increased M&A activity in 2014 could provide increased activity through tender offers and consent solicitations," said Klein.

Also, more and more issuers are interested in knowing who their bondholders are.

Big deals in 2013

Altria Group, Inc. wrapped a cash tender offer for up to $2.1 billion of four series of notes in November. Holders exceeded the offer cap, tendering a total of $3,809,651,000 of notes.

The company accepted for purchase $1,599,971,000 of tendered 9.95% notes due 2038 and 10.2% notes due 2039 and $500,004,000 of tendered 9.7% notes due 2018 and 9.25% notes due 2019.

Also in November, AT&T Inc. received about $1.7 billion in its any and all tender offers for 15 series of notes and debentures. The company accepted tenders for $3.29 billion of nine series of notes in offers that ended on Dec. 4.

Barrick Gold Corp. accepted about $1.44 billion in its tender offer for up to $1.5 billion of 10 series of notes that ended Dec. 2.

"Assuming rates remain unchanged for the foreseeable future, we would expect issuers to continue to monitor refinancing opportunities," Klein said.

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