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MMI International, a precision parts maker, made its debut on Friday with a $300 million high-yield bond, encouraging debt bankers to believe that the sub-investment grade market is open once again after months of inaction.
MMI, which was taken private in July 2007, is headquartered in Singapore and has more than 18 manufacturing facilities across China, Singapore, Thailand, Malaysia and the US. KKR owns 73% of the group and management owns the remaining 27%, making MMI one of the few sponsor-driven bond issuers in Asia.
The deal priced at a yield of 8% and pricing came at the tight end of the 8% to 8.25% final guidance, after attracting a $1.3 billion order book from more than 80 accounts. Credit Suisse, J.P. Morgan and UBS were joint bookrunners.
US investors led demand for the deal due to their familiarity with the sector and MMI’s customer base, which helped the deal considerably. For example, one of MMI’s major customers is Seagate, which has a number of US dollar high-yield bonds outstanding. As a result, US accounts took 79% of the allocation. Asian investors were allocated 13% and European investors 8%. Fund managers made up 77%, insurers 12%, banks 8% and others 3%.
The proceeds will be used to partially repay the company’s senior secured credit facilities of $222 million and an acquisition bridge loan of $75 million. MMI opted for a bond issue instead of a loan as it wanted a longer tenor and financing that is not amortising. The bonds traded at 102 in secondary, up two points from the par issue price.
“The high-yield market is back,” said one banker. “We’ve seen MMI trade up, as has Shui On Land and Cikarang. What this deal shows is that risk appetite for high-yield bonds in Asia is back.”
MMI spent seven days conducting a full global roadshow covering Singapore, Hong Kong, London, New York, Boston and the US west coast. The roadshow was planned to allow the company to tap both emerging-market and US high-yield bond investors. Given the latter’s familiarity with the sector, they drove the transaction in terms of pricing and a number of key high-yield US and emerging-market accounts anchored the deal.
MMI is rated Ba3 by Moody’s, BB- by Fitch and B+ by Standard & Poor’s. The coupon was fixed at 8% and the bonds priced at par. The notes mature on March 1, 2017.
The high-yield market may be open again, but investors are still being selective for now. Core Education & Technologies decided to postpone its debut high-yield bond after marketing a $200 million five-year deal to investors at a yield of 11% to 12% last week.
Core is India’s biggest global education company and generates a significant chunk of its earnings from the US, so the lead banks — Barclays Capital and Jefferies — primarily targeted US accounts. Roadshows were held in the US but not in Asia.
Core is said to be reviewing its bond structure in response to feedback from investors. Rivals suggested that the leads should have spent more time focusing on Asian accounts. “They went to US high-yield accounts, but you need to bookbuild in Asia as well,” said one rival.
However, a source said that the company chose to target US accounts given their familiarity with the sector and that the deal was marketed to Asian investors through calls, even though the company did not hold roadshows in Asia. “The company has sold a convertible bond before and Asia is not the natural home for those bonds,” he said.
