Tuesday 24 June 2014 by Legacy

Transfield Services Limited – USD bond yielding 7.14%

Last month Transfield Services Limited (ASX: TSE) raised USD $325m from global high yield bond investors with the proceeds used to restructure the company’s existing debt

This USD bond is available to wholesale clients in minimum (face value) parcel sizes of USD $10,000 with an indicative yield to maturity of 7.14%.

Details of the bond, including indicative pricing is in the following table and a brief description of the company is provided below. (The following details are informational only and do not constitute research or a recommendation).

Company profile and recent results summary

Transfield Services Limited (ASX: TSE) is an Australian-based provider of operations, construction, maintenance and services activities in the resources, energy, industrial, infrastructure, property and defence sectors. In addition to its Australian operation, Transfield Services Limited also has a presence in New Zealand, Chile and North America.

For the six-month period ended 31 December 2013, Transfield Services Limited derived approximately 72% of its revenue from Australia, 15% from New Zealand, 11% from North America and 2% from Chile.

The company's business operations are comprised of three principal segments:

  1. Infrastructure Services involve infrastructure management and maintenance services in the utilities, transport and telecommunications sectors, asset and facilities management services for the Australian Defence Force, maintaining public housing for the Australian Government as well as asset construction and staff management services for the Australian Government on Nauru and Manus Island;
  2. Resources & Energy are involved in various activities, including maintaining coal seam gas wells in Queensland and liquefied natural gas (LNG) project, operations and maintenance services for oil refineries, consulting services, as well as maintenance and drilling in the mining sector;
  3. Americas includes an upstream business focusing on asset management in the shale gas sector, downstream support services on the US West Coast, road maintenance in the US and Canada, the Flint Transfield Services joint venture that provides services to the oil-sands sector, and the operations and maintenance operations in the Chilean Copper mining sector.

The company has a current market capitalisation of $535m.

Recent results summary – half year to 31 December 2013

Key features of half year result to 31 December 2013 (1H14):

  • Underlying NPAT pre amortisation:                         $9.9m, up $3.2m from prior period
  • Statutory NPAT:                                                   $4.8m
  • Group revenue                                                      $1,790m
  • Underlying EBITDA:                                              $74.4m
  • Underlying EBIT:                                                   $26.5m
  • Total debt:                                                            $756m
  • Gearing (net debt/net debt + equity):                       46%
  • Net debt to EBITDA (per banking arrangements):      2.9x
  • Interest cover ratio (per banking arrangements):        3.9x
  • No interim dividend declared
  • Actively present in six major industries with more than 200 contracts
  • 20-largest contracts accounted for circa 48% of total revenue in 1H14

Management have made clear their strategy for the next year:

  • Convert preferred pipeline into contract wins – the company held preferred bidder status on $2.8+ billion of work expected to be announced in 2H14, with revenue contribution from FY15
  • Reducing net debt and lowering gearing
  • Achieve full year NPAT (pre amortisation) in the $65m - $70m range

Transfield Services Limited is rated BB (stable outlook) by Standard & Poor’s and Ba2 (stable outlook) by Moody’s, however,  the above USD bond ranks behind senior secured syndicated and bilateral bank facilities of approximately $500m and has been rated B+/Ba3, reflecting the subordinated nature, relatively high level of indebtedness and minimal expected recovery in a liquidation scenario. As such, the Transfield Services Limited USD bond is considered to be at the higher end of the fixed income risk spectrum.

Please speak to your FIIG representative if you are interested in the USD Transfield Services Limited USD bond.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.

The Transfield Services Limited USD bonds are only available to wholesale investors and in minimum parcel sizes from USD $10,000.

The above details are informational only and do not constitute research or a recommendation.