SAPPI is taking advantage of cheap borrowing costs in Europe to raise more than R6bn in a corporate bond issuance that will be used to pay off its pricier debt in the US.
The pulp and paper producer on Wednesday priced the €350m senior secured bond it issued this week at a coupon of 4% per annum, much lower than the 6.63% interest rate it is paying on its 2021 bond in the US.
The debt on the $350m US note is to be redeemed on April 15 this year.
The European Central Bank this month surprised the market by cutting interest rates and expanded its asset-buying scheme to €80bn from €60bn.
The bank cut its main refinancing rate, equivalent to SA’s repurchase, to zero, meaning that banks could borrow at its weekly auctions at no cost.
The central bank lowered its marginal lending rate to 0.25%, and reduced its deposit rate further into negative territory.
"Through this offering, our balance sheet is further strengthened, our debt-maturity profile is enhanced and our annual cash finance charges reduced by $7.8m," Sappi CEO Steve Binnie said on Wednesday.
Sappi had debt of $1.7bn at the end of its last financial year, according to its annual report.
The 6.63% coupon on its 2021 note was the second-highest of its three bonds issued in the US. Earlier this week, Moody’s Investors Service assigned a Ba2 rating to Sappi’s €350m note due in 2023, one notch above the company’s Ba3 rating.
The rating reflects the relative seniority and security package of the instruments in Sappi’s capital structure.
Moody’s sees Sappi’s long-term outlook as stable, based on the expectation that it will maintain its achieved profitability improvements through 2016 and retain its high credit metrics.
Workers stand beside storage towers at Sappi’s Ngodwana wood mill in Mpumalanga. Picture: BLOOMBERG
SAPPI is taking advantage of cheap borrowing costs in Europe to raise more than R6bn in a corporate bond issuance that will be used to pay off its pricier debt in the US.
The pulp and paper producer on Wednesday priced the €350m senior secured bond it issued this week at a coupon of 4% per annum, much lower than the 6.63% interest rate it is paying on its 2021 bond in the US.
The debt on the $350m US note is to be redeemed on April 15 this year.
The European Central Bank this month surprised the market by cutting interest rates and expanded its asset-buying scheme to €80bn from €60bn.
The bank cut its main refinancing rate, equivalent to SA’s repurchase, to zero, meaning that banks could borrow at its weekly auctions at no cost.
The central bank lowered its marginal lending rate to 0.25%, and reduced its deposit rate further into negative territory.
"Through this offering, our balance sheet is further strengthened, our debt-maturity profile is enhanced and our annual cash finance charges reduced by $7.8m," Sappi CEO Steve Binnie said on Wednesday.
Sappi had debt of $1.7bn at the end of its last financial year, according to its annual report.
The 6.63% coupon on its 2021 note was the second-highest of its three bonds issued in the US. Earlier this week, Moody’s Investors Service assigned a Ba2 rating to Sappi’s €350m note due in 2023, one notch above the company’s Ba3 rating.
The rating reflects the relative seniority and security package of the instruments in Sappi’s capital structure.
Moody’s sees Sappi’s long-term outlook as stable, based on the expectation that it will maintain its achieved profitability improvements through 2016 and retain its high credit metrics.
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