BlueScope’s partial redemption of its 2018 bonds means investors need to start thinking about their reinvestment options
BlueScope successfully raised USD500m last month at a coupon rate of 6.5% per annum and is using to proceeds to repay the majority of its 2018 bonds which were issued at a higher cost of 7.125% pa. Thus the company will benefit from cheaper overall funding and we expect it will fully repay the remainder of the 2018 bond when the call price steps down later this year. Further details on the new BlueScope bond are available in a previous WIRE article.
BlueScope has now advised it is calling USD190m of its 2018 bonds, about 63.3% of the total issue. The call price is USD103.563 and the payment date is expected to occur on Monday 6 June. Under the bond documentation, BlueScope at its discretion has the ability to redeem (call) the bonds at a specified call price which steps down over the life of the bond. Each 2018 bondholder will receive a portion of their face value adjusted for the higher call price and rounded down to the nearest USD1,000 increment.
The table below shows how much face value (in USD) will be returned for different investment holding levels:
| Current holding | Redemption amount* | Holding after redemption |
| USD10,000 | USD6,000 | USD4,000 |
| USD20,000 | USD13,000 | USD7,000
|
| USD50,000 | USD32,000 | USD18,000
|
| USD100,000 | USD63,000 | USD37,000
|
*Note each partial holding redeemed will receive 103.563% plus accrued interest to 6 June.
Please note that all clients who are left with less than USD10,000 in bonds after redemption (ie: investors with current holdings of less than USD27,000 prior to redemption) will be required to either buy more to increase their holdings to USD10,000 or sell the remaining balance to zero.
The funds are due to arrive in the next week, meaning you need to start thinking about reinvestment options now.
The BlueScope 2018 bonds are currently trading between USD102.00 – USD103.00**. We expect the remainder of the 2018 bonds will be called after November this year when the call price steps down to USD101.781, endorsing the attractiveness of the current call. With 63.3% of the BlueScope bonds being called now at USD103.563 and a potential exit price on the remaining 36.7% of USD102.00** (which is also above the expected future call price), investors could exit their full 2018 position now at a weighted average exit price of around USD103.
In terms of reinvestment options, the new BlueScope USD bond maturing in 2021 is a good option for investors who want to retain exposure to the company. There is no need to swap currency and with BlueScope’s improving financial position retain potential upside to rising bond prices. The bonds are currently indicatively offered at a yield to maturity of 5.25%. BlueScope is performing strongly and recently uplifted its half year earnings guidance by a massive 29%. A link to the BlueScope 2021 bond factsheet is available here.
Alternatively, there are a wide variety of high yielding AUD and foreign currency bond opportunities available. Please speak with your FIIG representative for potential alternative reinvestment opportunities.
If you are a holder of the 2018 BlueScope bonds you should have received an email setting out the timeline for the coming week and the date we expect funds to be in your account. Theoretically given a settlement period of T+2 (trade plus two business days) you could start to place orders to reinvest the funds from this Friday 3 June.
Please contact your FIIG representative for further details on the BlueScope US dollar bonds. Available to wholesale investors only with a minimum face value of USD10,000.
**Please note the market pricing quoted on the 2018 bond is a market price and subject to change depending on supply/demand.