Outlook 2016: AIG, KazMunay Gas, Hewlett-Packard in big deals; commodity pricing has impact

By Lisa Kerner

Charlotte, N.C., Dec. 31 – A lot of time spent in liability management in 2015 focus on distressed issuers “and their attempts to deleverage balance sheets through the use of exchanges, tenders and buybacks,” according to Kristian Klein, senior vice president of D.F. King & Co.

Klein called 2015 “a very interesting year” that was driven primarily by volatility on a macro basis and commodity prices.

“The first half of the year a majority of the market had yet to really feel the impact of the stress in the E&P and metals & mining sectors, Klein said. There was a flood of refinancing business ahead of what the market knew would be an eventual rate rise in the back half of 2015.”

At the end of the summer and into the fourth quarter, there was a massive sell-off in high yield.

There were “really no new issuance after the first half of the year” in emerging markets and a “flurry of liability management for financial institutions,” Klein said.

“Given the heavy commodity exposure that most of Latin America has, it won’t surprise me to see issuers use the U.S. HY playbook to attempt more distressed type transactions in an effort to strengthen balance sheets and liquidity over the near-term,” she said.

There were a number of significant deals in 2015.

KazMunayGas gets tenders

JSC National Co. KazMunayGas investors tendered $5.1 billion principal amount of its notes in an offer that ended on Dec. 4.

The total purchase amount for the first-priority notes was $2,457,639,000. For the second-priority notes, the company purchased $970,259,000 of the $1 billion 4.4% notes due April 30, 2023 and the $500 million 4 7/8% notes due May 7, 2025.

The company began the cash tender offer on Nov. 5 for up to $3.4 billion of six series of its notes.

AIG’s $3.3 billion tender

In July, American International Group, Inc. announced the results of its tender offer for up to $3.3 billion equivalent principal amount of a number of note series. The tender cap in the offer was lifted to $3.3 billion, up from $3 billion.

The breakdown for the tendered amounts was: $1,303,700,000 of the $2,411,000,000 5.85% medium-term notes, series G, due Jan. 16, 2018; $542.9 million of the $1,250,900,000 6.4% notes due Dec. 15, 2020; $361.6 million of the $1 billion 3.375% notes due Aug. 15, 2020; €600,000 of the €13.5 million 8% series A-7 junior subordinated debentures due May 22, 2018; and none of the £5.6 million 8.625% series A-8 junior subordinated debentures due May 22, 2018.

Also tendered were $337.7 million of the $645.6 million 5.6% medium-term notes, series G, due Oct. 18, 2016; €120.3 million of the €750 million 4.375% notes due April 26, 2016; £73.5 million of the £161.7 million 5.75% series A-2 junior subordinated debentures due March 15, 2017; €143.6 million of the €306.2 million 4.875% series A-3 junior subordinated debentures due March 15, 2017; £181.2 million of the £281.4 million 6.765% sterling notes due Nov. 15, 2017; and €20.6 million of the €61.8 million 6.797% euro notes due Nov. 15, 2017;

Additionally tendered were none of the $116.4 million 8.5% junior subordinated debentures due July 1, 2030 issued by AIG Life Holdings; none of the $78.9 million 7.57% junior subordinated deferrable interest debentures, series A, due Dec. 1, 2045 issued by AIG Life Holdings and none of the $227.3 million 8.125% junior subordinated deferrable interest debentures, series B, due March 15, 2046 issued by AIG Life Holdings.

International Paper eyed

In June, International Paper Co. wrapped its oversubscribed tender offer for up to $1 billion of four series of its notes as well as one series of notes issued by wholly owned subsidiary Temple-Inland, Inc. The company had upped the offer to $1 billion and extended the deadline to June 11 from May 28.

The breakdown for the tendered notes is as follows, in order of priority acceptance level: $377,264,000, or 37.73%, of the $1 billion of 7.5% notes due 2021; $255,481,000, or 28.29%, of the $903,191,000 of 7.95% notes due 2018; $160,917,000, or 69.63%, of the $231,096,000 of 6.625% notes due 2018; $127,972,000, or 30.13%, of the $424,719,000 of 9.375% notes due 2019 and $446,763,000, or 49.64%, of the $900 million of 4.75% notes due 2022.

The company accepted for purchase tenders for all of the first four series of notes and purchased about $78,366,000 of the 4.75% notes using a proration factor of about 17.58%.

Eli Lilly gets tenders

Eli Lilly & Co. investors tendered $1.45 billion principal amount of seven series of notes as of May 27, the early tender date.

The company began the cash tender offer on May 12 for up to $1.6 billion principal amount of the seven series of notes. The offer continued until June 10.

The tendered amounts were $270,313,000, or 33.79%, of the 5.55% notes due 2037; $311,573,000, or 77.89%, of the 4.65% notes due 2044; $103,866,000, or 25.97%, of the 5.95% notes due 2037; $253,887,000, or 36.27%, of the 5.5% notes due 2027; $91.04 million, or 31.83%, of the 6.77% notes due 2036; $48.77 million, or 16.18%, of the 7.125% notes due 2025; and $370.03 million, or 37%, of the 5.2% notes due 2017.

VimpelCom

In March, VimpelCom Amsterdam BV received tenders for $1.8 billion of notes in its cash tender offer for up to $2.1 billion principal amount of eight series of notes.

The offer was divided into four priority levels, and pricing for the fourth tier was set using a modified Dutch auction.

Wynn Resorts

Wynn Resorts, Ltd. subsidiary Wynn Las Vegas, LLC completed a cash tender offer for all of its $1,226,600,000 principal amount of 7¾% first mortgage notes due 2020 and $377,010,000 of 7 7/8% first mortgage notes due 2020 in February.

Holders tendered $1,146,501,000 total principal amount of the 7¾% notes and $305,866,000 of the 7 7/8% notes.

Baxter International

Baxter International Inc. investors tendered about $1.1 billion of notes in the company’s offer for any and all of five note series and about $1.6 billion in the capped offer for two note series as of the July 1 early tender date.

In the maximum offer, Baxter offered to pay the maximum principal amount of notes that it can purchase for up to any difference between $3 billion and the total amount paid in the any and all tender offer for five note series.

HP for up to $8.85 billion

Hewlett-Packard Co.’s offer for up to $8.85 billion of the outstanding debt securities ended Oct. 28.

Holders had tendered $4,349,172,000 of notes into the any and all offer by the early tender deadline of Oct. 14, or 66.40% of the amount outstanding.

Also, holders tendered $5,780,338,000 of notes into the waterfall offer by the early tender deadline for 65.69% of the outstanding notes. The waterfall offer was oversubscribed by the tender offer and only $2,299,792,000 of the tendered notes were accepted. None were accepted after the early tender deadline.

The company received tenders for a further $55,658,000 of the notes covered by its any and all cash tender offer following the early tender deadline.

LIPA for up to $2 billion

Long Island Power Authority of New York announced the results of the tender offer for its electric system general revenue bonds in October.

The authority tendered for up to $2 billion of the $3,322,210,000 par amount or, in the case of capital appreciation bonds, maturity amount of its electric system general revenue bonds.

The authority decided to accept all bonds tendered at or below their respective purchase prices with the exception of its series 2006F note, of which $2,525,000 will be purchased.

Talisman lifts cap

In January, Talisman Energy Inc. lifted the tender cap, this time to $2 billion principal amount of notes, and extended the offer to Jan. 7.

Investors had tendered another $47,821,000 of notes since the most recent update as of Dec. 8.

Talisman raised the offer cap on Dec. 9 to $1,524,531,000 principal amount, which was the amount of notes tendered by the early tender deadline. The company was tendering for $750 million of the five series of notes when the offer began Nov. 24.

2016: ‘when’ to refinance

Looking ahead to 2016, Klein predicts “more of the same as it looks like we are in a ‘lower for longer’ cycle with commodity prices.” She is, however, curious to see what impact this will have on other sectors.

“We are starting to see industrial names trade lower, which could also lead to similar transactions as to what was seen this past year for E&P, assuming debt balances cannot support free cash flow generation.

“Going back to the U.S. market, though, refinancing transactions fell off in the back half of 2015. Those same issuers are seeing maturity dates get closer and it becomes less about ‘if’ they need to refinance and more like ‘when.’”

These same issuers could be looking at “quick fix liability management options as a bridge to better markets and more permanent capital structures,” she said.

© 2015 Prospect News.
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