"The questions investors had to ask themselves is æwhat is roughly a B-rated issue worth, taking into account certain levels of leverage?' Then it becomes something in the range of 50 basis points, 11.5-12%, 12-12.5% and you also need to look at what is going on in the private loan market. ôThere are not many comps at this low rating, so in many ways itÆs a judgment call," says a specialist. The issuer has a call option with a call premium equal to half the coupon from the end of year three and a quarter of the coupon from the end of year four. The final yield is 12.5 basis points inside the final guidance figure of 12.5%, according to specialists and the issue reportedly saw demand just in excess of $1 billion from 125 accounts. ThatÆs a spread of 762.5 basis points over the reference December 2011 five-year treasury, currently trading at 99-14+ and yielding 4.750%, and 721.5 basis points over the five-year swap. Despite these risks, investors have been eager to embrace the deal, with the issue pricing at a yield of 12.375%, based on a price of 99.544 and a coupon of 12.25%. In fact, the company tried to IPO in HK in 2005, but cancelled because of the negative outlook at that time of the China car sector. ôUS investors have always liked high-yields, but this deal signals a new appetite by Asian standards, because itÆs a (more risky) new issuer,ö comments one analyst. In particular, Moody's points out that 80% of the debt load is short term. To see an improved rating, says MoodyÆs, the debt-to-Ebitda ratio would need to fall below 4x and the Ebitda-to-interest ratio would need to exceed 3-3.5x. According to MoodyÆs, adjusted total debt-to-Ebitda at GITI is currently around 7x, and Ebitda to interest cover is 1.5 to 2x. Overall, MoodyÆs scores GITI a Ba3 credit. Despite the companyÆs ôhigh level of leverage, weak liquidity and private family ownershipö, its competitive position, business diversification, revenue growth profile and profitability are scored Ba or better by MoodyÆs. ItÆs also an opportunity to diversify funding away from the heavily reliance on Chinese banks. Apart from helping its parent, the proceeds are to be used for capital expenditure, general corporate purposes and possible acquisition of other tyre businesses. ôB3/B- companies can have quite a range of yield this deal is at the lower end of the ratings at which you expect a deal to get done, so itÆs at the higher end of the yield,ö says one source. GITI Tire is the largest motor vehicle tyre manufacturer in China, headquartered in Shanghai. ôBondholder security was not diluted, but it took a bit of extra time to sort things out and inform investors,ö says the source. As a result, the security package had to be changed to ensure bondholders had the same kind of protection in the revised issue. However, the issuers got legal advice late in the day that Singaporean companies were not permitted to do that. That note was then going to be part of the collateral on the bond. In return, the parent was going to give a note to GITI that was secured by its holding in GITI Tire. Indeed, GITI is passing $160 million of the $200 million bond proceeds to its parent. Part of the security package involved the pledging of the stake which parent GT Asia Pacific holds in GITI. But nobody left the book,ö says one source. ôBy the time the change in the security package had been signed off, we did not have time to go back to the Asian investors, so we had to extend an extra day. The deal was meant to price on Thursday but eventually priced on Friday, reportedly because of changes in the security package. The sale was arranged by Credit Suisse and Lehman Brothers. GITI Tire is a privately owned entity belonging to a Chinese family based in Singapore and Indonesia. The B3/B- senior five-year $200 million secured note from GITI Tire finally priced a day late on January 19 in Hong Kong.
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