New lease of life
In a year when many corporate debt restructurings dragged on or fell flat, Mongolian Mining Corp became the first restructured company in Asia to complete a liability management exercise comprising a tender and new issue, enabling it to free up assets pledged as security, extend duration and broaden its investor base.
The coking coal producer had revamped its capital structure after plunging coal prices led to a default in 2016. The restructuring created US$412.5m of senior secured bonds due 2022 and US$195m of perpetual notes after MMC agreed to restrictive covenants, contingent value rights and coupon payments linked to the price of coking coal.
After coal prices began to rally, MMC looked at how it could remove this burden and reengage with global high-yield investors. It turned to adviser Frontier Strategies and bookrunners and dealer managers JP Morgan and Morgan Stanley for a solution.
Rather than conduct an exchange offer, MMC decided to issue a new bond and tender for the old paper. That entailed greater execution risk but allowed MMC to drive down pricing on the new issue and bring in new investors, while the small group of existing holders got a chance to exit a relatively illiquid position.
MMC announced the provisional terms of the tender offer on March 18. Price discovery was a complex process because of the contingent value rights on the senior secured bonds, which required investors to calculate the probability of an improved payout over the remaining life of the bonds.
The issuer initially offered to pay US$1,010 per US$1,000 in principal amount for the senior bonds, including a US$50 early bird premium, but raised the offer by US$40 after feedback. Holders of US$303.176m, or 73.5%, of the senior bonds tendered early, rising to 96.46% by the final deadline.
On April 3, MMC priced US$440m five-year non-call three senior unsecured bonds, rated B–/B (S&P/Fitch), at par to yield 9.25%. Price guidance started at 9.5% area, before tightening to 9.375% area on the way to a final order book of over US$740m.
Some existing holders came in as investors, but around half of the book comprised new names. The decision to issue the new bonds under 144A/Reg S format also broadened the investor base, since the old bonds were in Reg S only format.
In the end, MMC accepted around US$397.8m in principal amount of senior bonds under the tender offer and US$23.9m of perps, for which it paid US$510 per US$1,000 in principal, so the total cash outlay, including accrued interest, was a little over US$430m.