Last week, Fortescue completed its bond tender and Moody’s downgraded JEM Southbank. Factsheets for Dalrymple Bay Coal Terminal for floating rate 2021 and 2026 bonds have been updated
Dalrymple Bay Coal Terminal (DBCT Finance) factsheets
The factsheets have been updated for both DBCT Finance floating rate 2021 and 2026 bonds. These bonds offer exposure to an investment grade infrastructure asset. To download the factsheets follow the links below; both are available to all investors.
We have good supply in the DBCT 2026 bond currently offered at an indicative yield to maturity of 5.39%. We are in short supply of the DBCT 2021 bonds, but they last traded at an indicative yield to maturity of 4.70%.
Fortescue completes US$750m bond tender
Fortescue has accepted offers to repay US$750m of principal across the 8.25% 2019 and 6.875% 2022 unsecured bonds via the ‘modified Dutch auction’ tender process. With further debt reductions anticipated we continue to believe the 2019 bonds offer good relative value and represent a buying opportunity.
Following the buyback announcement, Fortescue’s 2019 and 2022 bonds traded at the lower end of the tender range of around US$88 and US$75 respectively). We anticipate further debt reduction by Fortescue given the large US$2bn remaining cash balance and the fact that its bonds continue to trade at a material discount to par value.
We estimate US$600m of the 2019 bonds remain outstanding and think it likely Fortescue will want to ‘clean up’ the issue, further endorsing our buy recommendation.
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JEM Southbank’s rating downgraded by Moody’s
On 25 November, Moody’s downgraded JEM Southbank’s rating by one notch, but it retains its investment grade with a stable outlook. Moody’s stated that the rationale for the downgrade is linked to an increased level of uncertainty associated with JEM Southbank's ability to refinance its nominal bonds which are callable in 2018. Moody’s believes that credit spreads remain above the level at which Southbank will be able to refinance without external support, despite the improvement in credit spreads in recent years.
Despite the negative news the nominal bonds have not moved significantly. We have modest supply in both JEM Southbank lines. The 2018 call fixed rate bond is trading at an indicative yield of 3.70%, while the indexed annuity bond due June 2035, is currently trading at 5.55% including an inflation assumption of 2.5 % per annum. . Both bonds are available in minimum parcel sizes of A$10,000.