The US bond market is the flavour of the month with Australian corporate debt issuers. First it was GPT group with a two tranche USD$100 bond deal with 2027 and 2028 maturities. Then, came along Suncorp with a USD$500 million issue of 2019 bonds. Now it is BlueScope’s turn to tap the US bond market after receiving a credit rating upgrade from Moody’s earlier this month.
Initially, BlueScope advised the ASX it would be offering $300 million of senior unsecured notes with a 2021 maturity date and a 2018 call date. The steel maker, perhaps best known for its Colorbond range of products, has since advised it is now looking at raising USD$500 million at a yield to maturity of around 6.50% to 6.75%. US 2 year Treasury notes are currently yielding just above 0.80%, so a yield at the lower end of the indicative range would be at nearly a 6% margin, a reflection of BlueScope’s sub-investment BB credit rating.
The funds raised would be used to repay an existing bridging facility. Part of the rationale behind BlueScope’s decision is to diversify its funding sources and extending it maturity profile. It is this repayment of bank debt and replacement with corporate bonds which seems to becoming a theme in Australia in recent times. With yields at historically low levels and banks highly focused on creditworthiness, corporates are finding debt markets are allowing them to reduce the reliance on bank funding.
Other corporates such as Capitol Health have hinted as such in their announcements and it may be a pre-cursor of things to come. With the major banks set to report earnings in the next few weeks a large focus will be on the prospect rising default rates.