Capital Markets

Prospects Are Warming for Junk Bonds

Cheseapeake Energy expands its offering; Inergy and Intellsat are also in the market.
Stephen TaubJanuary 28, 2009

The junk bond market is showing signs of a thaw, as at least three companies peddled more than $1.4 billion worth of paper on Thursday alone.

As recently as early January, companies with less than A-rated offerings had to watch the new-issue market from the outside, unable to find buyers.

Issuers still need to pay a hefty price to get a deal done. Reuters points out that so far this year, all new high yield bond sales have priced below 95 cents on the dollar. Chesapeake Energy Corp., for example, sold $1 billion in six-year notes this on Thursday. This was ouble what it was originally seeking. The notes were priced to yield 10.625 percent, or 875 basis points over comparable U.S. Treasuries, according to the wire service. They were rated Ba3 by Moody’s and Double-B by Standard & Poor’s.

Chesapeake said it plans to use proceeds to repay outstanding debt under its revolving bank credit facility, which it anticipates reborrowing from time to time to fund drilling and leasehold acquisition initiatives, and for general corporate purposes.

Inergy LP and wholly-owned subsidiary Inergy Finance Corp. sold $225 million of six-year senior notes in the private placement market, according to Reuters. The deal was upsized from an originally planned $200 million. The paper was priced to yield 11 percent, or 915 basis points over comparable Treasuries. It was rated B1 by Moody’s and B-plus by S&P.

Meanwhile, Intelsat Subsidiary Holding Co, a unit of Intelsat Ltd., was expected to sell $200 million of six-year notes, according to Reuters. They were expected to yield about 11.75 percent, according to the report.