Barminco and Broadspectrum both called bonds this week, coupled with the recent Swiss Re call, there will be plenty of cash looking for a home in the next month or so. Investors can trade prior to maturity to take advantage of current offers
Barminco
On Tuesday, Barminco Finance Pty Ltd announced the call of their senior notes due June 2018. The notes carry a 9.00% coupon and traded as low as the mid-70s one year ago. Barminco performed well throughout 2016 with improving credit metrics and contract wins. The bond price increased rewarding investors with excellent double digit returns, some investors will have earned an internal rates of return of over 30%. The bond’s current price is over $100.
The call comes on the back of solid results over the past twelve months, as well as the announcement of repurchases by the company of the same notes throughout 2015 and 2016. According to Bloomberg, USD299m are currently outstanding from an original issue size of USD485m.
As mentioned in the Australian Financial Review in February, the market has been aware of the potential call for some time. As such, the notes have traded up to close to the call price, as certainty has increased:
Barminco bond price, September 2013 to April 2017
Source: Bloomberg
FIIG Research identified Barminco’s notes as an opportunity for clients in October 2015, commenting that:
Barminco operates in the contract mining sector and has been impacted by the very challenging market conditions in the resources sector. The Barminco June 2018 bonds are currently trading at levels which are below par value reflecting the very high level of leverage, challenging conditions in the mining services sector and resulting uncertainty around whether the bond can be fully repaid/refinanced in June 2018. An improvement in earnings will be crucial for Barminco to generate additional free cash flow, reduce its debt position and successfully refinance the high yield bond as it approaches the June 2018 maturity date.
Mitigating this, the company is supported by a broad suite of contracts both in Australia and Africa, and across a range of precious and base metals, principally gold, nickel, zinc, and tin. The company primarily conducts production related rather than exploration related mining activities. The company is also guiding single digit improvement in FY16 earnings which is positive given the challenging market conditions.
At the time the Research team stated the bond was “speculative grade and would suit investors with a very high risk appetite”.
Current holders who are interested in reinvesting prior to maturity should contact their dealer, with indicative bid pricing at time of writing ranging in the low $107s. Based on this level, a sample of holding period returns is below:
| Settlement Date | Clean Price | Approximate IRR p.a. |
| 15/10/2015 | 82.80 | 27% |
| 17/12/2015 | 85.55 | 25% |
| 4/03/2016 | 81.00 | 33% |
| 1/06/2016 | 86.50 | 34% |
| 27/09/2016 | 97.95 | 31% |
| 13/10/2016 | 103.65 | 17% |
For more information, please search The WIRE website.
Refinancing the 2018 bonds has been part of the company’s pathway to an initial public offering on the ASX later this year. The company has been successful in this regard, with an AUD100m debt facility and a new senior secured note issue that was upsized from USD300m to USD350m and priced on Wednesday last week.
FIIG will endeavour to make the USD senior secured note available to eligible investors following the issue date on 26 April. The new bonds carry a 6.625% coupon and are callable after two years at par, or during the first two years in limited quantity at $101.
We encourage interested investors to monitor The WIRE for the factsheet in the coming days and speak to their dealer.
Broadspectrum
Last week, Broadspectrum (formerly Transfield Services) announced the call of their senior unsecured notes due May 2020. The notes carry an 8.375% coupon and have been steadily pulling to par since the announcement of Ferrovial S.A.’s acquisition of the business in May 2016, which led to a rapid rise in the price of the bonds.
Source: Bloomberg
In our view, Ferrovial’s takeover of Broadspectrum was a positive for the credit although Moody’s did state at the time that there would be no immediate effect on the stable outlook for the rating. Standard & Poor did recognise the benefit of the new parent support with a credit rating upgrade.
The brand name recognition of Transfield / Broadspectrum has made this a popular bond for wholesale investors with USD portfolios. Current holders can expect to receive funds following the coupon date on 15 May at 104.188% of par value, plus the coupon.
A total of USD325m of the bonds are outstanding, all of which will be redeemed. Although Ferrovial does have a number of euro-denominated bonds on issue, these are not currently available to FIIG clients and other replacements will need to be sought. Barminco’s senior secured notes maturing in May 2022 that priced at 6.625% last week may be an appropriate replacement to consider depending on secondary market pricing.
Current holders of Broadspectrum seeking opportunities to reinvest should speak to their dealer.