Philippines announces spread levels in debt swap

New York, Sept. 11 - The Republic of the Philippines announced spread levels in its $11.8 billion debt swap.

As announced on Sept. 6, the country is offering to swap existing dollar-denominated debt with maturities ranging from 2007 to 2025 for longer-dated bonds in order to extend its debt maturity profile and as part of a broader program to manage its external liabilities.

The country said it would buy back global bonds due in 2007, 2008, 2010, 2013 through 2017 and 2019 in exchange for a new amortizing global bonds due 2024 via a modified Dutch auction. The country will issue at least $750 million of the new bonds.

Additionally, holders can exchange 9½% global bonds due 2024 and 10 5/8% global bonds due 2025 for a reopening of the 7¾% bonds global bonds due 2031 via a separate auction.

The Philippines said it may also sell additional 7¾% bonds for cash.

Holders can submit competitive or non-competitive bids.

Investor who own at least $100,000 of a series of existing bonds must tender at least $100,000 of that series.

In exchange for each $1,000 principal amount of existing bonds, investors will receive $1,000 multiplied by the exchange ratio. That ratio will be set as the price of the existing bond, plus accrued interest up to but excluding the settlement date divided by the issue price for the new bonds.

In the exchange for the reopened global bonds, the new bond price will also include accrued interest from July 14 up to but excluding the settlement date.

The price for the existing bonds will be fixed using a spread over a reference yield, with the reference yield being the interpolated U.S. dollar swap rate for the average life of the bonds, fixed at 8 a.m. ET on the day the results are announced. On Monday the Philippines announced that spread will be 149 basis points.

The spread over the reference yield for the existing bonds will be based on the difference between the yield to maturity of the Philippines' 8% bonds due January 2016 and the interpolated U.S. dollar swap rate to the maturity of the bonds at 5 p.m. ET on the business day before the expiration date. The spread for the calculation will be this reference spread plus a relative spread of:

• 7½% bonds due 2007: relative spread of negative 97 bps, giving a combined spread of 52 bps;

• 8 7/8% bonds due 2008: relative spread of negative 87 bps, giving a combined spread of 62 bps;

• 8 3/8% global bonds due 2009: relative spread of negative 68 bps, giving a combined spread of 81 bps;

• 9 7/8% global bonds due 2010: relative spread of negative 41 bps, giving a combined spread of 108 bps;

• 9% global bonds due 2013: relative spread of negative 9 bps, giving a combined spread of 140 bps;

• 8¼% global bonds due 2014: relative spread of negative 6 bps, giving a combined spread of 143 bps;

• 8 7/8% global bonds due 2015: relative spread of negative 2 bps, giving a combined spread of 147 bps;

• 9¾% fixed rate bonds due 2016: relative spread of 12 bps, giving a combined spread of 161 bps;

• 9 3/8% global bonds due 2017: relative spread of 12 bps, giving a combined spread of 161 bps; and

• 9 7/8% bonds due 2014: relative spread of 46 bps, giving a combined spread of 172 bps.

• The relative spread will be 46 bps for the 9½% global bonds due 2024 and 10 5/8% global bonds due 2025, giving a combined spread of 195 bps.

All the spread levels will be announced at 5 p.m. ET on the business day before expiration. At 10 a.m. ET on the expiration day, the Philippines will set the coupon on the new amortizing bonds and announce pricing.

For the global bond add on and the amortizing bonds, pricing will be based on the reference yield plus the clearing spread. In both cases, the reference yield will be based on the difference between the yield to maturity of the Philippines' 8% bonds due January 2016 and the interpolated U.S. dollar swap rate to the maturity of the bonds at 5 p.m. ET on the business day before the expiration date.

For the amortizing bond, the coupon will be the highest multiple of 1/8% that gives a price below $1,020.

The minimum clearing spread for the amortizing bonds will be the benchmark spread plus 38 bps and 53 bps for the reopened global bonds.

As announced Monday, that minimum level is 187 basis points for the amortizing bonds and 202 basis points for the global bonds.

Amounts less than $100,000 will be paid in cash.

The Philippines will not pay accrued interest - the extra amount will be incorporated into the exchange ratio.

The exchange began on Wednesday and expires at 5 p.m. ET on Sept. 12.

The results will be announced at 10 a.m. ET on Sept. 13. And the settlement is schedule for Sept. 25.

Goldman Sachs & Co. (866-390-1729 or call collect 212 357-0601 and JP Morgan Securities Inc (877-217-2484 or call collect 212-834-7306) are the deal managers for the transaction.

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