Silver Chef is a small cap company listed on the ASX and dedicated to funding hospitality equipment. It operates in Australia, New Zealand and Canada. As for many small companies, dealing with banks has been challenging, particularly in the aftermath of the GFC. In order to lessen its reliance on banks, Silver Chef became one of the first companies to issue high yield debt securities to provide stable funding for its business and diversify its business funding risk away from the banks.
High-yield bonds are not as much a part of the investment scene in Australia as they have been in other parts of the world and so the issue of $30m of unsecured 6 year notes in August 2012, arranged by FIIG securities, was seen as a watershed in the Australian market. Silver Chef had no formal credit rating but the issue had covenants in place offering investors certain protections.
The notes themselves were issued at a yield of 8.5% or around 6y Swap + 465bps.
The issue was buffeted by a profit downgrade in December 2013 when the share price dropped 28% after the company announced that its profit would be 10-15% lower than expected. The yield on the debt issue was said to have only widened by around 15-20bps.