Message Mer 22 Mar 2017 08:57

First Quantum Minerals raises US$2.2 billion as part of high

Staggering. That’s one conclusion regarding the amount of high-yield debt investors are willing to take on.

The conclusion is best exemplified by the US$2.2 billion of debt that First Quantum Minerals was able to raise over the past week. That debt offering was in two tranches, both for US$1.1 billion: one tranche, at 7.25 per cent came with a six-year term and the other came with a 7.5 per cent coupon and an eight-year term.

The transaction is significant because it is the largest high-yield raise by a Canadian mining company in at least four years — according to data maintained by FP Data Group. It’s also significant because First Quantum raised US$600 million more than it originally planned when the offering was launched about 10 days back.

But when all the cash was raised, First Quantum, which produces mainly copper, gold, nickel and zinc, didn’t end up with a lower interest rate.

We know that because the company, whose assets are located in Zambia, Spain, Mauritania, Australia, Finland, Turkey, Panama, Argentina and Peru, used some of the cash to repurchase senior notes ahead of maturity. To make such an offer First Quantum was required to offer a premium.

Specifically, the company offered to repurchase all of the US$350 million of 7.25 per cent notes scheduled to mature in 2019; and all of US$1.12 billion 6.75 per cent notes due in 2020. (The 2019 notes were issued in October 2012, while the 2020 notes were issued in February 2014.)

As things materialized, the company didn’t get all the notes that it made offers on but managed to snare about two-thirds of the total outstandings.

And that was sufficient, said director of investor relations Sharon Loung, because the company was able to extend the term of its debt. Now instead of having a bullet payment for large amounts of maturing debt in 2019 and 2020, the company will have smaller payments in both years — but large payments in each of 2023 and 2025.

According to its recent financial statements, as at the end of 2016, First Quantum has a large maturity (US$1.087 billion) in 2021 and a large maturity (US$841 million) in 2022.

At the same time as investors showed their willingness to purchase First Quantum debt, others also advanced Valeant Pharmaceuticals US$3.25 billion in a two-tranche offering. Again that offering was increased in size from the original US$2.5 billion.

Valeant has been a regular issuer in the U.S. high-yield market having raised US$1 billion in January 2015 and US$3.25 billion via a two tranche offering in July 2013. Bombardier has also been a frequent issuer: it borrowed US$1.4 billion last November; US$2.25 billion in March 2015; US$1.8 billion in March 2014 and US$2 billion in January 2013.

While First Quantum is at the top the pile, there’s another list that focuses on less notable achievements, those issuers whose plans to sell high yield debt, didn’t materialize. The latest example played out a few days back when Canadian Energy Services & Technology Corp. shelved plans to purchase an offering of 7.375 per cent notes set to mature in 2020 and withdraw its proposed private placement of new senior unsecured notes. “Current market conditions” were behind the change of plans. The company had hoped to raise US$300 million and extend term by five years.

Other members of that group include SunOpta Foods (US$330 million, Sept 2105); Rooster Energy (US$100 million, late 2014) Glentel ($200 million, Sept 2014); and Capstone Mining (US$300 million, Sept 2014).