High-Yield Bond: Li & Fung’s US$300m 3.5-year non-call two issue
Supply and demand
Logistics and supply chain firm Li & Fung is not new to the offshore debt market, but as a fallen angel the company’s outing in July marked its first high-yield transaction in US dollars.
The Hong Kong company’s US$300m 8.375% 3.5-year non-call two senior note priced at 98.89 to yield 8.75%, inside initial guidance of 9% area.
In its previous visit to the US dollar market in August 2020, Li & Fung was rated Baa3/BBB (Moody’s/S&P). Since then, the Covid-19 pandemic, a delisting from the Hong Kong stock exchange and the trade war between China and the US have weighed on the credit and its most recent notes were rated Ba2/BB (Moody’s/S&P).
Moody’s downgraded Li & Fung from Baa3 to Ba1 in September 2022 following the sale of subsidiary LF Logistics to Maersk, and again from Ba1 to Ba2 in 2024 on a slow earnings recovery. S&P likewise downgraded Li & Fung multiple times from BBB in 2021 to BB in April 2024.
Fitch assigned Li & Fung a first-time BB rating in July 2025.
The lower ratings meant Li & Fung had to court a new group of investors, which it did through a non-deal roadshow in June and a deal roadshow the following month. It explained to investors that, rather than being purely negative, the US tariff complications meant many companies were keener than before to use Li & Fung to manage their supply chains and avoid disruption.
Its outreach paid off, with orders for the capped trade reaching more than US$1bn at final guidance and US$953m at reoffer. While the issuer debated marketing the notes in 144A format, it decided on Reg S only due to the small size.
Investors appreciated the company’s efforts to make the transaction more appealing by choosing to issue under the more investor-friendly New York law and including a solid covenant package. The bonds are guaranteed by subsidiaries Li & Fung (Trading), Product Development Partners and LF Centennial.
In a tender offer alongside the new issue, Li & Fung agreed to purchase for cash US$50m of its US$650m 5.25% subordinated perpetual securities that were callable in November 2025. Investors were offered US$550 per US$1,000 in principal amount of the old fixed-for-life notes, which had been trading at distressed levels due partly to the huge rise in US dollar rates since issue.
The new bonds have traded above par in the secondary market, suggesting that Li & Fung has successfully rebuilt its investor following.
Citigroup, DBS Bank and MUFG were joint global coordinators, as well as lead managers and bookrunners with Goldman Sachs (Asia), Morgan Stanley and Standard Chartered.
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