On 29 November 2016, Adani Abbot Point Terminal (AAPT) announced a tender offer for $85m of the 5.75% senior secured notes due 1 November 2018. This follows the tender and repurchase of approximately $63m of the notes in August and forms part of the debt reduction plan announced earlier this year
AAPT has announced a tender offer for the 5.75% senior secured notes due 1 November 2018. There is approximately $437m outstanding from the original $500m that was issued. This follows a tender and repurchase of the notes in August which resulted in approximately $63m of the notes being bought back by the company.
Our trading desk notes that the trading price of AAPT bonds has increased post the announcement of this tender offer and as at Friday 2 December, the bonds were trading slightly above par.
The current tender offer is for up to $85m face value of the 2018 notes, with a stated maximum spread of 500bps, which equates to approximately 99.7 cents in the dollar clean cash price. The tender offer will be carried out using the Dutch auction procedure, and the offer expires at 4pm on Monday 5 December 2016.
The tender offer is available in minimum amounts of $500,000, and may, thereafter be submitted in integral multiples of $1,000.
The Tender Offer Memorandum dated 29 November 2016 provides a hypothetical illustration of how the issuer would apply the Dutch auction procedure, which can be found in the tables below: Source: Tender offer memorandum, 29 November 2016
It is important to note that while the illustration shows 460bps as a hypothetical minimum purchase spread for this tender, AAPT do not disclose that information. Further, AAPT reserve the right to fulfil only part or none of the proposed $85m tender amount if they feel that tender spreads are too low (purchase prices are too high).
AAPT currently have around $1bn of debt maturing in 2018, including the notes targeted by the current tender offer. Moody’s downgraded the company from Baa3 to Ba2 in March this year, citing concerns over weakening positions of AAPT’s coal mining counterparties, and consequently AAPT’s ability to generate sufficient future free cashflow to achieve previously anticipated deleveraging. Moody’s were also concerned about AAPT’s refinancing risk around the approximately $1bn of debt maturing in 2018. Subsequently, AAPT released a Capital Management Plan comprising of equity injections from the parent entity and shoring up of free cashflow until 2018 with the intention of applying the proceeds towards voluntary debt reduction.
The note tender carried out in August was funded by a $75m equity injection, and it is likely that the current tender is being funded out of a combination of new equity and reserved free cashflow.
We see the tender offer and buyback of 2018 notes as positive for AAPT, and in line with AAPT’s prior statements with regard to debt reduction. However, even after assuming $85m of 2018 notes are repurchased, the outstanding debt balance in 2018 is still over $930m, and we expect further debt reduction will be needed to address this. Most likely, this would rely on further equity injections from the parent company. Whilst the Capital Management Plan announced earlier demonstrates an intention to reduce debt, there is no legal obligation for the company to adhere to the plan.
The tender will be priced at or around 11am on Thursday 8 December 2016 and the results will be announced shortly after on the same day. Tendered bonds will settle on Monday 12 December 2016. Average and maximum purchase prices were not disclosed following the tender last August and we expect this will be the case with the current tender auction. The tender in August was for a total face amount of $75m of the 2018 notes at a maximum purchase spread of 635bps, of which approximately $63m was repurchased.
For those of you holding the 2020 bonds, pricing did not change post the announcement. The 2020s are currently offered at an indicative yield to worst of 7.1%*.
For more information please call your local dealer.
Note: Prices are accurate as at 2 December 2016 but subject to change.
*Yield to worst is the lowest yield an investor can expect when investing in a callable bond.