Tuesday 14 November 2017 by FIIG Securities IPG Trade opportunities

IPG calls bonds - $40m being returned to investors

IPG has been acquired by Pro-Pac Packaging in a $177.5m share deal. The bonds are due to be repaid on Tuesday 28 November


On Friday, IPG announced the early redemption of $40m of outstanding notes at $102. IPG has been sold to Pro-Pac and the company has exercised its option to call the bonds with funds to be repaid on or about 23 November.

In a tight seller’s market where there are few opportunities, an additional $40m looking for a home, may be hard to place. As always in the over the counter market, there is the possibility of extended settlement periods for clients wanting to reinvest IPG proceeds, if you are interested, please call your dealer.

Investors looking for a place to invest could consider a number of options:

1.   Reinvesting in high yield, either Australian dollar denominated securities or USD high yield

Given that IPG was a FIIG originated high yield bond, intuitively, it makes sense to reinvest in the same market. There are a number of FIIG originated bonds due to mature or hit call dates in the next 12 months. Those looking for a short term home might consider one of these bonds, such as the G8 Education floating rate note due to mature in just over three months next March. 

For wholesale or sophisticated clients, another option is investing offshore in the US high yield market. These companies are much larger, usually have more information available and are rated by Standard and Poor’s or Moody’s which helps determine perceived risk.  However, investors are also taking on currency risk – positive if the AUD falls against the USD but negative if the USD moves relatively higher. Further, while we make the bonds available, our Research team does not cover them. To learn more about how we identify USD high yield bonds for the DirectBond list, please click here.

AUD High yield bond suggestions

Note: Yields accurate as at 13 November 2017 but subject to change

USD High yield bond suggestions

Note: Yields accurate as at 13 November 2017 but subject to change
All bonds listed are fixed rate, available from USD10,000 to wholesale investors only 

2.   Increasing the quality of your portfolio by reinvesting in investment grade 

For some time, we have been encouraging clients to reassess their allocation between investment grade and high yield bonds to make sure they are comfortable with the higher risk high yield bonds present.

A maturing high yield bond presents a good opportunity to reallocate the funds to investment grade if you want to alter the split.

While not listed in the table below, Residential Mortgage Backed Securities (RMBS) are also an option for wholesale clients. We tend to trade parcels most days but volume in any one line is typically low and available from $50,000. Typically, AA rated ‘B’ notes are still paying over 4% per annum and we get the most supply at this level in the structure. High yield tranches when issued are at lower volumes and supply is patchy but please let your dealer know if you are interested.

Investment grade

Note: Yields accurate as at 14 November 2017 but subject to change