FMG DEBT

FMS  chairman asked where to get the money for mine development? Perhaps he should have spoken to twiggy? Below is how how got it with discount.
Some worry how to start while others work getting on towards a target. Twiggy seems to have his debt covered in this I/O market.
It's a shame we will never see K in floros.

How Fortescue chairman Andrew 'Twiggy' Forrest got a discount on his 'mortgage'
Date November 26, 2015 - 7:58AM

Peter Ker
Resources reporter

Happy times for Andrew Forrest as FMG gets a discount on its debt repayments Photo: Jacky Ghossein
It's enough to make mortgage-stressed Australians green with envy.
Barely a month after the major banks lifted interest rates to comply with new regulations, companies like Andrew Forrest's Fortescue Metals Group are getting discounts of close to 20 per cent on their debt.
"It is like paying your mortgage back at 82.4 cents in the dollar"
Stephen Pearce
It's not a tale of inequality nor double standards, but rather an insight into funky things happening in global debt markets at the moment.

Fortescue Metals Group's Andrew Forrest has long held that his company can ride out the iron ore price storm by chasing down its production costs, but the emerging consensus on the medium-term future of iron ore is that the current price band is not an aberration - it's the new normal. Photo: Michele Mossop
Fortescue has more than $US8 billion ($11 billion) of debt to repay over the next seven years, with about $US5.7 billion of that due before the end of 2019.
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With prices for its only product, iron ore, falling by 69 per cent over the past two years, many people have doubted whether Fortescue can repay that debt and survive.
But in recent months Fortescue has got a major shot in the arm from the apparently pessimistic people who hold its debt, who have been offering the miner a big discount on its debt repayments.
Fortescue started taking advantage of this in September, when it bought back $US384 million of debt at a 20 per cent discount, meaning it only had to shell out $US305 million.
The miner was at it again this week, buying back $US439 million of debt for $US338 million (a 23 per cent discount), and $US311 million of other debt for $US280 million ( a discount of 10 per cent).
"It is like paying your mortgage back at 82.4 cents in the dollar," said Fortescue's chief financial officer Stephen Pearce, when asked about the trend on Wednesday.
Shaw and Partners analyst Peter O'Connor said the debt discount was "a huge coup" for a company with such a big debt challenge.
"Nobody believed they could or would make repayments in the time frames that they have," he said.
The discounts have added up to $US211 million in savings, and the company expects to save a further $US88 million per year on interest charges.
All of which is good news for Fortescue's founder, chairman and major shareholder Andrew "Twiggy" Forrest, who still has about $2 billion of his wealth tied up in Fortescue shares.
When debt is trading at less than its face value, it is typically a sign that the market is becoming more pessimistic about the chances of that debt being paid back.
But Mr Pearce recently said there could be any number of reasons why the debt was trading at a discount.
"It could be general market views, it could be balancing their own book, it could be a lot of reasons why they would buy and sell a debt piece just like an equity piece," he said.
"It could be around views on China, iron ore or whatever."
Fortescue's $US8 billion or so of gross debt is held across four tranches and all of those tranches are currently trading below their face value.
The 2022 senior unsecured notes were among those targeted in Wednesday's debt repayment, and were trading at more than a 25 per cent discount to face value as the following graph shows.


The other debt targeted on Wednesday was the 2019 senior unsecured notes, which were trading at close to a 12 per cent discount to face value.


The $2.16 billion of senior secured notes due in 2022 have a higher certainty of being paid back, and are duly trading at a smaller discount of less than 2 per cent as demonstrated in the following graph.


The remaining debt tranche is the big one; the $US4.85 billion senior secured credit facility due in 2019.
It was trading at about a 17 per cent discount on Wednesday morning, as the following graph demonstrates.


Mr Pearce said Fortescue remained committed to utilising its cash balances for further debt repayments in the future.
Fortescue is not the only Australian company taking advantage of discount debt.
Uranium miner Paladin Energy got a 10 per cent discount when it spent $US9.9 million on Wednesday to repay $US11 million of debt.
Read more: http://www.smh.com.au/business/mini...s-mortgage-20151125-gl7v47.html#ixzz3sXf65R00
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