Novelis Inc. sold $2.5 billion of bonds in the largest US junk offering in two months, as the premium investor’s demand to own the debt relative to Treasuries plunges to the lowest since May.
Novelis, the Atlanta-based aluminum unit of India’s Hindalco Industries Ltd., issued $1.1 billion of seven-year debt that pays 572 basis points more than similar-maturity Treasuries, stated a data compiled by Bloomberg. A $1.4 billion portion of 10-year bonds yields 550 basis points more than the benchmarks, the data show.
The offering is the largest speculative-grade sale in the US since Reynolds Group Holdings Ltd. issued $3 billion of bonds in October, the data show. Novelis led $12 billion of junk-rated corporate bond issuance this week, the most since September and more than double the 2010 weekly average of $5.65 billion, the data states.
“There’s demand for high yield right now, and these offerings are getting pounced on,” said Guy LeBas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia.
Spreads on junk-rated debt have tumbled 32 basis points to 560 basis points since December 3, the most on a weekly basis since June and to the lowest level since May 3, according to Bank of America Merrill Lynch index data. A basis point is 0.01 percentage point.
“There is too much cash chasing, too few opportunities right now,” LeBas said. “As spreads decline, the only way to meet return hurdles is to go down in credit rating.”
Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and BBB-by Standard & Poor’s. The bonds from Novelis are graded B2 by Moody’s and B by S&P, according to statements from the New York-based ratings companies.
Proceeds from the sale will be used along with borrowings under a $1.5 billion secured bank loan to refinance debt and pay for a $1.7 billion distribution to Hindalco, Novelis said in a statement today.
