Bond issuances at record highs as companies continue to restructure debt

European company treasurers, facing record debt maturities in 2011, are aware that governments will also be making record amounts of sovereign issues in 2010. Many have therefore been anxious to take advantage of the current historically low interest rates, say lawyers.

At the same time, investors, still wary of equity markets, have been attracted by the relative safety of corporate debt, and the longer-dated bonds now being offered reflect increasing investor confidence and a desire for higher yields. Investors still have cash despite the market being flooded with €20bn of convertible bonds alone in 2009, the highest level for six years (see chart).

Transport infrastructure group Ferrovial has announced that it will increase bond issuance in the next few years to help replace the complex bank refinancing it secured in 2008. Recent issues have included a 6.75% £700m (€807m) offering, maturing in 2026, and a £235m (€271m) index-linked bond maturing in 2039. A jumbo £1bn (€1.15bn) bond by its airports subsidiary, BAA, is planned for mid-2010.

Meanwhile its motorway concessions business, Cintra, has issued a $US400m private activity bond to finance its North Tarrant Expressway project in Texas.

Pescanova, the fish processor and distributor, raised €100m through a convertible issue to finance acquisitions and reduce debt. Its free float moved from 25% to 35%, although half of the stock remains in the hands of the Galician savings banks, Caixa Galicia and Caixanova.

OHL, one of the big six Spanish constructors, offered existing shareholders a 35% discount on a one for five basis on its rights issue to raise €200m to boost cash reserves and prepare for an acquisition in the US. It was OHL's first capital increase in ten years.

Cementos Portland's three-for-eight capital increase, like the many other rights offerings was fully subscribed, giving the underwriters a comfortable profit. The €200m raised was used to improve liquidity. Listed private equity fund Dinamia netted a more modest €40m with its one-for-three recapitalisation.

Gas Natural, Spain's largest gas company, has also now raised €2.2bn with a three part bond having five, eight and ten-year tranches. This is the third time Gas Natural has approached the markets for more than €2bn in seven months, as it looks to reduce the 2008 €19bn bank loan it used to acquire the then number three electricity generator, Unión Fenosa.

Impressed by investor appetite for corporate issues, constructor Acciona, with a net debt of €7.4bn, is also believed to be now considering a first bond issue. Also coming is a €700m issue by broadband and entertainment operator Cableuropa, which is facing a €445m debt repayment this year. The company has been in a reportedly challenging situation almost since it paid €2.25bn to acquire Auna in 2005. Cableuropa is expected to include once again a US offering under rule 144A.

With the added due diligence that highyield issues require lawyers suggest there should be attractive fees to accompany it, in contrast to many other corporate offerings which are seen by banks and issuers to be commoditised offerings, depressing remuneration levels.

Nonetheless, some banking and finance lawyers say they are beginning to look at convertible issues with concern. While they have been extremely busy advising on loan restructurings, particularly in the construction sector, many sense that there is not much more to be done. Banks continuing reluctance to make new loans may however mean that companies, and banks, might be looking to capital markets for funding for some time to come, believe others. It may yet be that this summer it will be banking lawyers on the beach rather than their capital markets counterparts.