YPG Holdings has launched a 5-Year MTN issue with a 7.30% coupon:
Yellow Pages Group announced today an offering by YPG Holdings Inc. (the “Company”) of Medium Term Notes for gross proceeds of $260 million. The net proceeds from the issuance of the Notes will be used for general corporate purposes, to repay indebtedness outstanding under the Company’s commercial paper program and to repay an amount of $200 million under its term credit facility. This offering is scheduled to close on or about June 25, 2009.
Pursuant to this offering, the Company will issue $260 million of 7.30% Series 7 Notes (compounded semi-annually), which will be dated June 25, 2009, will mature on February 2, 2015 and will be issued at a price of $100.00.
The Series 7 Notes will be guaranteed by Yellow Pages Income Fund (TSX: YLO.UN), YPG Trust, YPG LP, Yellow Pages Group Co., Trader Corporation, YPG (USA) Holdings, Inc., Yellow Pages Group, LLC and YPG Directories, LLC. The Notes have been assigned a rating of BBB (high) with a stable trend by DBRS Limited and a rating of BBB- with a stable outlook from Standard & Poor’s Rating Service.
Their ability to issue on these terms provides credibility to their previously announced issuer bid for YPG.PR.A and YPG.PR.B. The former closed yesterday at 22.50-58 to yield 7.52%-7.40% to retraction 2012-12-31, while the latter closed at 17.35-49 to yield 10.84%-10.71% to retraction 2017-6-30. There is, of course, a difference in the credit quality between the MTNs and the preferreds, but that’s a very high tax-adjusted spread!
YPG.PR.A and YPG.PR.B are both tracked by HIMIPref™ but are relegated to the “Scraps” index on credit concerns.
If I understand you correctly, you mean that this issuance makes it more serious / probable that they will indeed buy back for cancellation some of their prefs (YPG.PR.A & YPG.PR.B) as previously announced. Could you please explain in a bit more details why it would be advantageous for Yellow Pages to do so? Is it purely tax considerations (by buying back a preferred share (say the “A”) on the market which yields approx. 7.5% they cannot deduct for income tax purposes, they now substitute it with an instrument (the new MTN issue) costing them a little be less in terms of cash flow, but as interest payment rather than as a dividend on the “A, but which is fully deductible in ther income taxes return??? Are there other reasons to do so? Yellow Page being (I am told) highly leveraged, would it be better for them to use these proceeds to pay back their loans maturing in the next months?
If we consider solely the YPG.PR.A vs. new MTN, then the MTN has both a longer term and a lower pre-tax yield than the preferred. The after-tax differential is even greater, as you point out.
The situation with YPG.PR.B requires more judgement, but it closed Friday with a bid side yield of 10.89%; equivalent to about 15.25% at the standard factor of 1.4x. Comparing with the MTN, they will be shortening term by about three years, but picking up nearly 800bp which on the face of it is pretty good business.
The main conclusion to be drawn from the MTN issue is that they do indeed have access to the bond market for 5-year issues at rates that are not exhorbitant, which gives more comfort than an exhorbitant rate or inability to access the bond market at all.
I gave a schedule of their debt as of 2008-12-31 in a prior post. As stated in their press release quoted in the post, proceeds of this issue will be used to reduce the term loan they took out to refund their April ’09 maturity and other short term debt.
I would be much happier if they had issued 10- or even 30-year paper. But given the choice between a five year issuance and no issuance at all, I’m pretty happy about course of events.
[…] showing that it can access the bond market and is chipping away steadily at its bank debt (as noted in mid-June); it’s certainly encouraging, but a 10-year issue would increase confidence in YPG.PR.B given […]
[…] and YPG.PR.B were last mentioned on PrefBlog in connection with YPG’s issuance of 5-Year MTNs. YPG.PR.A and YPG.PR.B are both tracked by HIMIPref™ but are relegated to the Scraps subindex […]