Companies and governments are said to tap a market when they sell more of an existing series of bonds. Fortescue has been busy doing the opposite; it has been buying back the debt it issued in the past, prior to its maturity date.
The latest debt reduction came in the form of voluntary redemption notice for all USD$577 million of its 8.25% 2019 bonds. The bonds will be repurchased at a price of 102.0625% of face value, which include a premium for early redemption premium equal to half of 4.125% coupon. A couple of days later Fortescue announced it was repaying an additional USD$650 million from it senior secured credit facility which will reduce the balance to a little over USD$4 billion.
This is not the first time for Fortescue. So far it has reduced its debt load by around USD$2.3 billion during the current financial year, via several bond buybacks and its moves may be provoking other corporates to do the same thing. Rio is in the middle of a $1.5 billion bond tender and GE Australia has just announced something similar.
