Celanese returns to debt market as fallen angel
Celanese raised about US$2.6bn in the euro and dollar bond markets on Thursday, just a month after the chemical and special materials company found itself with two junk ratings to its name.
The credit's newly acquired fallen angel status seems to have done little to discourage a good number of investors from participating in today's three-part trade, which was upsized from around US$2bn earlier this morning.
With the buyside starved of new-money options, high-yield investors have been keen buyers of newcomers to their space, especially companies whose prospects for returning to investment-grade look good.
"Fallen angels usually tend to be good investments," said one investor. "They usually tend to go back to investment grade at some point."
Celanese, now rated Ba1/BB+/BBB-, falls into this camp, according to CreditSights analysts who wrote this week that the company has the best chance among comparable firms of winning back its investment-grade ratings, though that may take a few years.
"This is a big well diversified company that is going to survive for the long term," said a second investor. "So this is a great company for high-yield investors to get involved with at the Double B level."
Against that backdrop, left lead JP Morgan was able to squeeze pricing on today's bond deal comprising two dollar tranches – a five-year non-call two and an eight-year non-call three – and a euro-denominated six-year non-call 2.5 bond.
In the end, it priced the US$700m five-year at a yield of 6.5%, the US$1.1bn eight-year at 6.75% and the €750m (US$808.9m) six-year at 5%, the tight end of respective price talk of 6.5%-6.75%, 6.75%-7% and 5%-5.25%.
The company had initially approached investors with thoughts of 7% area on the eight-year, and 25bp-37.5bp inside that level for the five-year, and 5.25% area on the euro tranche.
Olin, another chemical products company with the same ratings as Celanese, priced an eight-year non-call three late last month at par to yield 6.625%. That bond was trading down at 99 cents on the dollar on Wednesday to yield 6.787%, according to MarketAxess data, and CreditSights analysts see fair value on Celanese's new bond tight to those levels.
"[Celanese is] much better equipped to pull through the upcoming economic softness than peers like Olin and Methanex," analysts at the research firm wrote on Wednesday.
Sinking to junk
The Texas-based Celanese essentially became a fully fledged sub-investment grade credit in February when Moody’s joined S&P in cutting Celanese to junk. Fitch still has a BBB- rating on the credit, but with a negative outlook.
Rating agencies said downgrades come on the back of weaker demand for Celanese's products, which are used in a range of industries across the globe.
The credit has also been weighed down by its US$11bn acquisition of DuPont's mobility and materials business in 2022 just as the Federal Reserve started hiking interest rates.
The bonds that Celanese issued in the summer of 2022 to help fund that acquisition carried coupons that stepped up in the event that S&P or Moody's demoted it to junk, further raising the cost of financing.
"They got in a little over their skis in an acquisition and ultimately their credit profile couldn’t catch up to it," said a third buyside account.
Moody's said last month that it expects Celanese's adjusted debt-to-Ebitda ratio to range between 5x and 6x, noting it will have to refinance a good chunk of the US$2.7bn of debt falling due this year and next.
This latest issue, whose proceeds are being used to pay down near-term debt, will go a long way to smoothing out the company's near-term debt profile.