Smithfield edges up on financing news; Hertz adds; Alliance One postpones; busy day overseas

By Rebecca Melvin

New York, June 25 - Smithfield Foods Inc. convertibles nosed higher in trade after the pork-products producer announced an offering of straight notes and said it has begun arranging a new $1 billion credit facility.

Hertz Global Holdings Inc. convertibles scooted up after the rental car company said its outlook was better than previously expected, and outlined a variety of options to address a projected $4.2 billion of fleet refinancing needs in 2010 without tapping into its $1.8 billion of corporate liquidity.

Price talk emerged on the Alliance One International, Inc.'s $100 million convertibles offering, which were first announced Monday.

The Alliance One deal was talked to yield 5% to 5.5%, with an initial conversion premium of 20% to 25%. But it was postponed until Monday after the market close from Thursday after the market close.

Internationally, it was a busy day in convertibles. Five deals priced, with most of them launched and priced the same day.

Wiesbaden, Germany-based SGL Carbon SE priced €190 million of seven-year senior unsecured convertible notes at par to yield 3.5% with an initial conversion premium of 30%.

Mannheim, Germany-based Südzucker AG priced €255 million of seven-year convertible bonds to yield 2.5%, with an initial conversion premium of 30%.

Sevilla, Spain-based Abengoa SA placed €200 million of five-year convertible notes at par to yield 6.875% with an initial conversion premium of 30%.

Seoul, South Korea's Daewoo International Corp. sold $300 million of five-year convertible bonds in a bought deal to yield 3.25% with an initial conversion premium of 30%.

Winnipeg, Man.'s Artis Real Estate Investment Trust priced an overnight deal of C$40 million of five-year convertible debentures to yield 7.5%, with an initial conversion premium of 15%.

And Calgary, Alta.-based Petrobank Energy and Resources Ltd. said it plans to price $300 million of six-year convertible notes talked to yield 4.75% to 5.25%, with an initial conversion premium of 27.5% to 32.5%.

Back on the U.S. front, the convertibles market saw "decent buyers," with higher bids, but not a lot of trading as the summer lull takes hold.

There was buying, a New York-based sellside trader said. "It was a strong market. It's just that I see a lot of guys out right now."

Of bids that were out there and the trading that occurred, there didn't appear to be any identifiable trends.

"It's shorter stuff, longer stuff, vol. oriented," the sellsider said.

Smithfield nose higher

Smithfield 4% convertibles due 2013 traded at 87 versus a share price of $13.25, and at the end of the session were seen at 87.18 versus the closing stock price of $13.41., which compared to a previous level of 85 versus $13.04.

Shares of the Smithfield, Va.-based pork company ended up nearly 3% on the day.

In addition to the more than $600 million of straight notes that Smithfield priced, the company has begun arranging a new $1 billion asset-based credit facility, which will replace the company's existing U.S. revolving credit facility and include an option, subject to certain conditions, to increase available commitments to $1.3 billion in the future.

Similar to the notes, the new credit facility will be guaranteed by substantially all of the U.S. subsidiaries of the company.

Price talk on the revolver is Libor plus 425 basis points with a 100 bps unused fee, sources said. There is a $300 million accordion feature.

In addition, the company is negotiating the extension of the maturity on its $200 million term loan to August 2013 from August 2011 in return for higher pricing, sources remarked. This loan is held by Rabobank and is not a syndicated deal.

The sale of the notes, closing of the revolver and extension of the term loan are expected to be completed in early July, subject to market and other customary conditions.

Smithfield said last week that it expects its results to improve this fiscal year as the industry cuts production to bolster pricing.

Standard & Poor's said it assigned a BB- senior secured debt and 1 recovery rating to Smithfield's senior secured note offering due 2014. The B corporate credit rating was affirmed. The outlook is negative.

Proceeds from the offering as well as the company's planned $1 billion asset-backed revolving credit facility and the planned $200 million term loan maturing in 2013 will replace Smithfield's U.S. credit facility, will help refinance near-term debt maturities and be used for general corporate purposes.

The ratings on Smithfield reflect "the continued weak operating performance in the company's hog production segment, volatility of feed costs, cyclicality of the swine industry and very high debt leverage," S&P analyst Patrick Jeffrey said in a statement.

As a result of very weak operations in fiscal 2009, total debt-to-EBITDA ratio was 15.7x, the agency said.

Hertz scoots ahead

Hertz' 5.25% convertibles due 2014 traded up to 112 versus $7.75 on Thursday. They were previously seen at 103.

Shares of the Park Ridge, N.J.-based car rental company surged 16% to $8.13 amid an upbeat outlook in which it said that demand for rental cars has grown as vacationers have decided to skip air flights in favor of trips within driving distance from home.

Vacation spending has also been helped by discounts being offered by hotel companies.

The company predicted that second quarter earnings will be between 9 cents to 10 cents a share on revenue of $1.7 billion to $1.75 billion.

During a company-hosted investor presentation, company chief executive officer Mark Frissora said car rental demand now appears to be stable in the United States and Europe and may be improving.

Advanced reservations are up year over year for the Fourth of July weekend in the United States, while advanced reservations in Europe for July and August have improved 30% over 2008 levels in Italy and Spain, which are two of the biggest leisure markets in Europe. Throughout Europe, Hertz is seeing a general year-over-year improvement, Frissora said.

The company wants to preserve corporate liquidity for growth initiatives. Regarding its 2010 fleet maturities, Hertz is working to negotiate with lenders of its existing variable funding structures in the United States and Europe to improve terms in order for term extensions.

In the United States, Hertz is in negotiations with its lead bank and is close to agreeing on terms. If the five top banks in Hertz' U.S. facilities were willing to extend at their current commitment levels, the company would raise another $1.4 billion.

Internationally, Hertz has held meetings with its three lead European banks as well as met with 10 potential new lenders in Europe.

Two of the company's current lenders have obtained credit approval to increase lines to Hertz for a total of $500 million, which the company is looking to potentially use in Europe, although the terms have yet to be negotiated.

Additionally, the company is considering the possibility of using the government's Term-Asset-Backed Securities (TALF) loan facility and is pursuing other strategies, including OEM financing and talking to lenders about asset-based loan transactions.

Hertz has available liquidity to cover its 2009 fleet maturities, company executive said.

As of March 31, Hertz had $3.6 billion of available fleet financing in addition to the $1.8 billion of corporate liquidity for total liquidity of $5.4 billion.

Proceeds from Hertz' June equity and convertible senior notes offerings will be used to bridge an expected $850 million to $1.1 billion gap in corporate liquidity caused by the projected blended advance rate and maturity of a letter of credit.

Alliance One to price on Monday

Alliance One plans to price $100 million of convertibles to yield 5% to 5.5% and an initial conversion premium of f20% to 25%, according to a syndicate source.

Pricing was also postponed until Monday after the market close from Thursday after the market close.

Alliance One plans to price five-year senior subordinated notes via bookrunners Credit Suisse, Deutsche Bank and Goldman Sachs in a Rule 144A offering. There is an over-allotment option for an additional $15 million.

Alliance One is concurrently offering $600 million of seven-year senior notes.

Proceeds of both deals will be used to finance a cash tender offer for outstanding debt due 2011 to 2013, to fund convertible note hedge transactions, to repay a $305 million senior secured credit facility and for other general corporate purposes.

Alliance One is a Morrisville, N.C.-based leaf tobacco merchant.

The company also announced the early results of its tender offer and solicitation for six series of notes.

The company previously said it had received sufficient tenders and consents to amend the indentures governing those notes.

The offer covers the company's $264,381,000 of 11% senior notes due 2012; its $150 million of 8½% senior notes due 2012; its $89.5 million of 12¾% senior subordinated notes due 2012; Dimon Inc.'s $3,437,000 of 9 5/8% senior notes due 2011; Dimon's $435,000 of 7¾% senior notes due 2013; and Standard Commercial Corp.'s $6,285,000 of 8% senior notes due 2012.

In 2005, Standard Commercial merged with Dimon, which changed its name to Alliance One International.

Mentioned in this article

Alliance One International Inc. NYSE: AOI

Hertz Global Holdings Inc. NYSE: HTZ

Smithfield Foods Inc. NYSE: SFD

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