SKF loses backing of longer-dated bondholders
Swedish industrial bearings maker SKF has failed to gain consent from bondholders of its two longest maturing notes to acknowledge that the proposed spin-off of its automotive business on Nasdaq Stockholm would not trigger a cessation of business clause.
SKF asked holders of its four bonds to agree that the divestment does not trigger the clause, via a consent solicitation organised by Citigroup and SEB, but only investors of its two shortest bonds did so, the €300m 1.25% 2025s and €400m 3.125% 2028s.
SKF (Baa1/BBB+; Moody's/Fitch) failed to gain sufficient consent for the other two notes, its €300m 0.875% 2029s and €300m 0.25% 2031s, and the exercise was terminated for these bonds.
“In relation to the 2029 notes and 2031 notes, the issuer hereby notifies noteholders that it terminated the consent solicitations in relation to the 2029 notes and 2031 notes in accordance with provisions of the consent solicitation memorandum,” SKF said in a statement.
If SKF decides to go ahead with the spin-off of its automotive business, it risks the 2029 and 2031 noteholders accelerating and demanding full repayment of the bonds.
The price of the 2031 note barely changed on the news. It is bid at a yield of 1.32%, up 3bp on Tuesday but still significantly inside Sweden's base rate of 2.25%. It was hovering around 4% a year ago but fell from around 3.60% when the proposed spin-off was announced in October.
That suggests bondholders reckon they could be bought out at par. For now, both sides are expected to wait before outlining further moves.
SKF had offered a 0.25% consent fee to bondholders and this will be paid to the 2025 and 2028 bondholders by March 6.
SKF has been taking a cautious approach after another Swedish company, Essity, was hit with legal action in December by some of its bondholders seeking full repayment after the healthcare products maker spun off its Asian arm Vinda for SKr19bn (US$1.9bn). Essity had not sought consent from bondholders.
On March 10, holders of four bonds issued by UK paper and packaging company DS Smith will be asked to concede its business has not “ceased” following its sale to US peer International Paper. The consent process will tidy up the event of default language, which tends to be clearer under US documentation.
DS Smith said this would “allow additional flexibility for potential reorganisation of the issuer's subsidiaries, if required, now that the issuer and its subsidiaries are part of the International Paper group”.
Those who gave consent by February 26 will receive a 0.15% fee. BNP Paribas and Deutsche Bank are running the exercise.
These situations are of concern to European corporate issuers, as many printed low-coupon bonds between 2019 and 2021, which are now trading under par as rates have risen. That means they could be accelerated if a major corporate action such as a divestment is proposed if it is deemed a cessation of business.