Ann: Refinancing Update - Launch of Senior Secured Note Offering, page-8

Fortescue said to plan $2.5b of bonds after ditching loan
March 17, 2015 - 8:42AM

Fortescue is planning to sell seven-year senior secured notes. Photo: Reuters

By Elliott Stam
Fortescue Metals Group Ltd., the world's fourth-largest producer of iron ore, scrapped a planned $2.5 billion loan and is looking to raise that debt by selling bonds instead.

The company is planning to sell seven-year senior secured notes, with proceeds being used to refinance unsecured debt maturing in the next several years, according to a person with knowledge of the deal, who asked not to be identified citing lack of authorisation to speak publicly.

The East Perth, Australia-based company is pursuing the financing amid plunging prices for iron ore. Fortescue will also extend its $4.9 billion term loan to December 2021 and may pay a minimum yield of 5.5 per cent, the person said, up from the current 3.75 per cent and at the higher end of the range it had been expected to pay.

The deadline to agree to the extension was pushed out to March 17 from March 13.

The refinancing will increase the company's secured debt by approximately 53 per cent to $7.5 billion, reducing the recovery prospects for that debt below 70 per cent, according to Standard & Poor's.

"Although the group's total debt outstanding will remain unchanged, the proposed transaction is likely to weaken the recovery prospects of both the existing senior secured and unsecured debt holders," S&P said in a statement.

S&P rated Fortescue's senior secured debt BBB and its unsecured debt issuance BB on March 5.

The price of iron ore has fallen by more than half since last April, according to data compiled by Metal Bulletin.

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