Daiwa
$125m (+18.75m) sen unsec cb coming wed from DB/UBS Terms: 7yr 3.25-3.75% up 25-30%, full pctns. Concurrent eq & str8 deals. UOP=Fund part of IRP acq and GCP. JRCC focuses on steam and industrial grade coal & one of largest suppliers of US coal to India. Thru acq enter matallurgical coal mkt. Lev increase, but acq expected to be accretive to earnings and cash flow in yr 1.
PF Cash : 205mm
PF Debt : 698mm
PF LTM EBITDA : 257mm
Converts sub to both straights.
4.5% now x-par 4.5 up 67% back out L+450 for 4 yrs. We’ll use L+700 for 7 yr. Realized vol 40+, we’ll discount vol to 33 for 7 yrs. Theo = 104.25
Credit pos, hungry mkt, paired with cheapest looking coal play in mkt means don’t get stuck in a ” van down by the River” and miss BUY
From BNP
BNP-
So based on the new CB red, the JRCC 3.125% CBs are explicitly structurally subordinated to the high yield notes, as the CBs do not have subsidiary guarantees, which the HY notes do have. Specifically, the IRP subsidiary is key here (the HY notes have a pledge on that sub’s assets) as the IRP sub holds the Met Coal assets, which are the most valuable in the new (combined) company. While this is clearly important it is probably not a huge deal for the credit right now. HY notes are indicated L+445 this morning, and I can’t see a good reason to use more than 50-75 bps wider for the 3.125% converts.
The old JRCC, in my opinion, have a better guarantee package than the new. According to their indenture, while they don’t have an explicit claim on the subsidiary assets, they have cross default provisions throuogh to JRCC subs. If any of the subs of JRCC is in ecent of default or acceleration in teh converts. I would argue that, since JRCC 4.5% is the shortest piece of debt in the current debt structure, and is the first debt due, one could use something tighter than L+450 for the 4.5%