Hynix prices 10-year high-yield bond

The South Korean semiconductor manufacturer prices a $500 million deal at the tight end of revised guidance, attracting a $5.9 billion order book.
Pricing its Reg-S, 144a 10-year $500 million transaction at par last night, Hynix Semiconductor closed its deal with a coupon of 7.875%. The transaction attracted a total book size of $5.9 billion via boorunners Citi, Credit Suisse, Goldman Sachs, KDB and Merrill Lynch.

The bond, rated Ba2/BB-/BB by Moody's, Standard and PoorÆs and Fitch,
comes two years after Hynix's last international transaction managed by Deutsche Bank, Citi, Merrill Lynch and UBS. In 2005, Hynix priced a debut seven-year non-call four fixed-rate and a seven-year non-call two floating-rate deal. These bonds traded up substantially on the secondary market, and sources say that last nightÆs transaction allowed the company to re-establish itself on the global bond market.

Market observers had little doubt that the transaction would perform well, noting the issuer had a liquid outstanding curve. Bookrunners issued what sources believe to be fair guidance in a more favourable market, and allowed Hynix to price a good trade. Guidance, announced initially at 8.125% with a range of +/-0.125, was later revised to a range of to 7.875% to 8%.

The bonds were split between 310 investors, with 38% of the bonds selling to Asia, 22% to Europe and 40% to the US. Funds and asset managers accounted for 56% of the buyers, banks 24%, insurance companies 16% and private banks 4%.

A comparable quoted by investors is Korean cable company CMCLZÆs 2016s, which were trading yesterday at a yield of 7%, however according to sources, there are no direct comparables for this deal. The existing bonds are not relevant, since the market expected the fixed-rate 2012 bond to be called on its 2009 call-date. Therefore, it had been trading as two-year paper until the announcement of possible redemption via last nights bond offering. At this point, the existing bonds traded up over a point and a half.

Investors who bought the deal say a rally in the market helped compensate for the price tightening, while the FRN due to be called this year in July will benefit new Hynix bond holders.

Those that did not buy had reservations concerning the future of the company. Says one investor: "Looking back the company is performing better, and has emerged from its dark years. But looking forward, the pricing does not reflect the fact that there are few catalysts for credit improvements going forward.ö

Nevertheless, Fitch expects the company to maintain healthy operating margins and credit metrics within the rating outlook horizon of 18 to 24 months, in view of its proven cost reduction capability and market position in the global memory industry.

The proceeds are to be used for the companyÆs 2012 notes, but some investors question why more funds were not simultaneously raised to meet the companyÆs future capex requirements.

Hynix Semiconductor is a dominant player in the global memory semiconductor industry. The company is one of the very few global memory chip producers equipped with both dynamic random access memory (DRAM) and NAND flash memory solutions. Back in 2001, Hynix's creditors took control of the company via a debt-for-equity swap after it succumbed to a $10 billion debt burden and severe industry downturn. The 2005 bond offering allowed the company to release itself from a Creditors Restructuring Promotion Act (CRPA) 18 months ahead of schedule.
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