Owens Corning’s $600 million 30-year bond sale sets company record

By Devika Patel

Knoxville, Tenn., July 26 – Owens Corning completed a bond offering in the second quarter that achieved a “record low” interest rate of 4.3% as well as a “record-low credit spread” for the company.

“We completed a successful bond offering,” chief executive officer Mike Thaman said on the company’s second quarter earnings conference call on Wednesday.

“We issued a new 30-year bond of $600 million at 4.3%.

“This financing will improve our debt maturity profile and liquidity.

“Notably, the interest rate represents a record low for Owens Corning.

“This financing once again demonstrates the company’s strong financial position and outlook,” Thaman said.

Another top executive weighed in on the financing, saying that the bond issuance was priced with “a record-low credit spread for Owens Corning.”

“We also took advantage of favorable capital markets,” senior vice president and chief financial officer Michael McMurray said on the call.

“We successfully completed a 30-year $600 million bond issuance and achieved a 4.3% coupon with a record-low credit spread for Owens Corning.

“Proceeds from the transaction were utilized to fund a portion of the Pittsburgh Corning acquisition and to tender other higher-cost debt.

“Permanent debt will increase from $2.1 billion to $2.4 billion, with a $3 million increase in annual interest expense,” McMurray said.

McMurray noted that the company has also delivered “significant” free cash flow.

“Our ability to generate significant free cash flow continues to be a bright spot,” McMurray said.

EBIT for the second quarter were $190 million, compared with $240 million during the same period in 2016. Adjusted EBIT in the second quarter was $230 million, compared with $253 million in 2016.

On June 21, the company priced $600 million of 4.3% 30-year senior notes with a spread of 162.5 basis points over Treasuries.

The split-rated notes (Ba1/BBB/BBB-) priced at 99.064 to yield 4.356%.

BofA Merrill Lynch, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC were the bookrunners.

Of the proceeds, $250 million were used to fund a portion of the purchase price of the company’s acquisition of Pittsburgh Corning and the remainder was used to repurchase all of the company’s 9% senior notes due 2019, to repurchase a portion of its 7% senior notes due 2036 and for general corporate purposes.

On July 6, Owens Corning announced pricing under its June 21 cash tender offers for any and all of its $144,294,000 9% senior notes due 2019 and up to $140 million of its $550 million 7% senior notes due 2036.

As of 5 p.m. ET on July 5, the early tender date, investors had tendered $82,198,000 of its $144,294,000 of 9% senior notes due 2019 and $335,408,000 of its $550 million of 7% senior notes due 2036.

Owens Corning accepted for purchase all of the 9% notes and $139,748,000, or about 42%, of the 7% notes.

Because the tender for the 2036 notes was fully subscribed as of the early deadline, no more of those notes were accepted for purchase.

Pricing was set using the bid-side yield of a reference security plus a fixed spread for a total purchase price per $1,000 principal amount as follows:

• $1,134.45 for the 9% notes, based on the 0.875% U.S. Treasury note due June 15, 2019 plus 50 basis points; and

• $1,336.38 for the 7% notes, based on the 3% U.S. Treasury note due Feb. 15, 2047 plus 150 bps.

The total purchase price included an early tender premium of $30.00 per $1,000 principal amount of notes.

The company also paid accrued interest up to but excluding the settlement date of July 7 for early tenders and July 21 for any remaining tenders.

The offer began on June 21 and expired at midnight ET on July 19.

Owens Corning is a Toledo, Ohio-based maker of composite building materials.

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