Chemicals company Celanese priced a US$7.5bn jumbo bond offering on Thursday to help finance its US$11bn purchase of DuPont's Mobility and Materials business, testing the volatile market's appetite for a low Triple B credit.
The borrower is offering a juicy yield at a time when investors say they have been reluctant to participate in deals in the investment-grade and high-yield bond markets that saddle balance sheets with debt, amid concerns the US and global economy is headed for a downturn.
“The market in general is stepping back from levered issues,” said Adam Coons, a portfolio manager at Winthrop Capital Management. “We are continuing to hear that real money players just are not willing to step into risk yet.”
Celanese is seizing the opportunity to issue when the broader sentiment brightened up in equities and corporate bonds, providing a rare window for borrowers who have had to navigate choppiness in risky assets over the last few weeks. The S&P 500 closed 1.5% higher on Thursday, its fourth consecutive gain.
The offering attracted US$23bn of orders, according to two buyside sources.
Proceeds from the capital raise will help take out the US$9.5bn bridge facility that backs the acquisition. Financing for the purchase also includes US$1.5bn of term loans. A euro-denominated bond is also expected.
Bookrunners for the new Celanese bonds were BofA Securities, Citigroup, Deutsche Bank, HSBC and JP Morgan.
The five-part deal includes US$2bn two-year, US$1.75bn three-year, US$2bn five-year, US$750m seven-year and US$1bn 10-year fixed portions. A proposed three-year floater was dropped from the offering. Leads set the notes at Treasuries plus 287.5bp, 300bp, 312.5bp, 325bp and 337.5bp, respectively, with each tranche tightening 25bp from initial marketing. The average spread for a Triple B issuer was 206bp over Treasuries on Wednesday, according to ICE BofA index data.
"It seems to be performing well on the break," said one of the sources. "It’s about 5bp-10bp tighter across the curve after they tightened final pricing by 25bps from initial price talk. All credit was on fire today so that move is in line with the broader market."
Celanese's 1.4% August 2026 senior notes were trading at 235bp over Treasuries on Thursday, according to MarketAxess.
CreditSights said price thoughts on the offering had come wide to comparably rated peers like International Flavors & Fragrances, and was in line with crossover issuers like Braskem.
Credit analysts view the deal's chunky yield – at least based on price thoughts – as necessary to overcome investor concerns that Celanese is a cyclical chemicals business that could lose its investment-grade ratings in the event of a protracted recession. The NYSE-listed company is rated Baa3 by Moody's and BBB- by Fitch, with both putting the company on negative outlook. S&P has Celanese at BBB.
Moody's calculated the acquisition will bring Celanese's gross leverage up to 4x from 1.3x, as of March, though the company is expected to bring leverage back down to 3x by the end of 2024. Fitch noted the front-dated nature of the issuance reflects its intent to defend its investment-grade rating.
A credit analyst said the cost to finance the acquisition had risen significantly since the DuPont purchase was announced in mid-February, as the Federal Reserve lifted interest rates aggressively this year.
As a result, a large chunk of the company's free cash flow, bolstered by the acquisition, may need to be diverted into paying down the new debt, which could potentially put pressure on its ratings, said the analyst.
The offering has a coupon step-up of 25bp for every notch downgrade below Baa3 from Moody's or BBB- from S&P. The step ups are capped at 100bp for each rating agency and 200bp for both.
Updated story: Adds final pricing