Will Noble trump Truba in the high-yield bond stakes?

While the status of Truba's bond transaction remains unclear, Noble's five-year 144A deal could be the one to open this year's high-yield bond market.
Noble Group, one of Asia's largest diversified commodities trading companies, yesterday announced a five-year 144A transaction, likely to price soon after a roadshow that will begin in Hong Kong on Monday. The roadshow will encompass Singapore, London and the US. The transaction, which is managed by Citi and JPMorgan, and expected to be of at least $300 million, will repay existing debt.

Noble could pip PT Truba Alam Manunggal Engineering at the line for the glory of carrying out the first high-yield bond transaction of the year. The status of the Indonesian single-B rated transaction, sole-led by UBS and co-managed by BNP Paribas, is still unclear. The deal was initially scheduled to price last Friday. Earlier this week, a source at UBS said they were still building the book for a $100 million to $150 million bond at 17% to 18%.

ôWeÆve said no to the deal,ö says an investor, ôand no-one we know has said yes. They may scramble across the finish line, but I wouldnÆt be surprised if the deal didnÆt go ahead.ö

ItÆs unclear whether UBS has received internal approval to sell the bonds to its private bank. Often, for contentious credits, approval to sell to retail investors is not granted, reflecting the degree of credit risk linked to the transaction. UBS was not available for comment on these issues.

In contrast, Noble's bond is at the other end of the high-yield credit range. The bonds are rated Ba1 (stable)/ BB+ (positive) by MoodyÆs and Standard and PoorÆs, and Fitch rates it investment-grade. The transaction will comprise a standard investment-grade covenant package including a change-of control clause, negative pledge, limitation on mergers and limitation on sale, similar to that of the companyÆs last bond transaction. That bond was managed by JPMorgan in 2005, and observers noted then that despite the non-investment grade rating of the bonds (Ba1/BB+), the offering included none of the usual restrictions and covenants present in a high-yield deal.

At the time, Noble's financial strength and strong debt coverage ratios led many investors to believe that it was rated too low. They showed their sentiments by investing in a deal without the covenants you would normally expect from a similarly-rated trade.

ôIt is one of the larger high-yield names and one of the best candidates to open the high-yield market,ö says a banker not involved in the deal. ôItÆs a known name; they have issued before; itÆs a credit that many have followed.ö

ôThe market is pretty supportive at the moment. The right names will be well accepted by investors,ö says another. ôNoble was one of the most active names in the CDS market during the tough times earlier this year and, as a result, the deal should receive a lot of attention. Given the cross-over ratings, lots of different types of investors can participate in the deal.ö
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