Tuesday 10 April 2018 by FIIG Research Company updates

USD Company updates – Dean Foods, Genworth US, NCIG, Rackspace and Tesla

This week, Dean Foods a takeover target, Genworth merger agreement extended again, NCIG interest rate analysis, Rackspace considers IPO and Tesla bonds down to USD86 cents.

Dean Foods a takeover target after share price plunge

On 4 April 2018, Bloomberg reported that milk bottler Dean Foods Co. (Dean Foods) may be a takeover candidate, according to Deutsche Bank. Shares of Dean Foods have tumbled more than 50% in the past 12 months as the company battles a long term decline in US milk consumption and competition from new plants. The Dallas based processor has garnered interest from global dairy players in the past and more recently, activist Swiss firm VV Value Vals AG has taken a 10% position in the shares saying it may seek talks with management.

Dean Foods declined to comment. Earlier this year, the company announced plans to cut annual expenses by USD150m in 2020 through consolidating manufacturing and other measures.

The Dean Foods 6.50% March 2023 USD bond is rated BB- is available at YTW of 6.33%pa.

Genworth merger agreement extended … again

On 27 March 2018, CNBC reported that Genworth Financial Inc. (Genworth US) and China Oceanwide have agreed to a fourth waiver and agreement of each party’s right to terminate the previously announced merger agreement. The fourth waiver and agreement extends the previous deadline of 1 April to 1 July 2018, allowing additional time for regulatory review of the transaction.

In addition, each party acknowledges that the merger agreement may be terminated at any time prior to the new deadline – either by directors of the company, or if the Committee on Foreign Investment in the United States (CFIUS) notifies the parties that it has completed its review of the merger and the mitigation proposals presented by the parties, and intends to recommend that the President of the United States suspend or prohibit the merger from taking place.

The following Genworth bonds are available to trade:

  • Genworth 7.625% September 2021 USD bond; rated B at YTW of 9.08%pa
  • Genworth BBSW+3.50% July 2025 AUD bond; rated A- at YTW of 3.74%pa

NCIG interest rate update

Given the increase in US LIBOR rates over the past 18 months and the percentage of Newcastle Coal Infrastructure Group’s (NCIG) debt exposed to interest rate fluctuation, Research have analysed the group’s ability to absorb rate movements.

The full NCIG interest rate scenario analysis is available to wholesale investors on the FIIG website here.

The NCIG 12.50% fixed rate USD bond rated B+ is available at yield to worst of 8.02%pa. Read the NCIG research compendium report

Rackspace considering IPO

On 28 March 2018, Bloomberg reported that Apollo Global Management LLC (Apollo) is considering an initial public offering of Rackspace Hosting Inc. (Rackspace). The private equity firm has held early talks with advisers and may begin the process before year end. Rackspace could have an enterprise value of as much as USD10bn in a US listing. A final decision has not been made and Apollo could elect to keep the business.

Apollo took cloud computing company Rackspace private in 2016 for USD4.3bn, equivalent to a price of USD32 a share, with peer Searchlight Capital Partners also making an investment. Rackspace completed its purchase of Datapipe Inc. last year, raising an additional USD800m in debt to finance the deal.

The Rackspace 8.63% November 2024 USD bond rated B is available at YTW of 8.17%pa.

Tesla bonds down to 86 cents

On 30 March 2018, Bloomberg reported that Tesla’s notes had plunged to a low of 86 cents on the dollar, reflecting creditors’ concerns about the company’s cash holding. According to the article, ‘Tesla is burning through money so fast that, without additional financing, it would run out of cash before year-end.’

FIIG reported on Tesla’s offering of USD1.5bn corporate bonds last year: “Tesla announced the offering of USD1.5bn corporate bonds with a provisional rating of ‘B2’ at 5.25% for eight years. Sub investment grade bonds typically have robust bondholder protections, or covenants, that according to Moody’s are almost as weak on new US bonds as they have ever been, and Tesla’s are no exception. Fixed income security analysis is as much about the investor protections available as it is about company quality and debt serviceability, and we encourage investors to ask about covenant packages on bonds they are considering wherever possible.”

Please note indicated yield to worst (YTW) are accurate as of 10 April 2018, subject to change. Standard & Poor’s ratings are shown.


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