By Simon Crompton
The UK engineering company ignored a trend among high-yield investors to boycott deals where bondholders are denied equivalent guarantees to senior bank lenders. Investors have turned their backs on similar issues, including February offerings from Jefferson Smurfit and Calpine, both of which had to be cancelled.
Yet Invensys successfully placed £615 million ($1.1 billion) of bonds in March, one of the largest European deals without a US registration. Does this indicate that investors are losing sway? Probably not – Invensys paid heavily for its choice. The decision to structure the deal in ways that investors no longer find acceptable will cost it £165 million – £15 million a year for the bonds' 11-year term.
Investors have been disgruntled for some time. A revolt against the lack of structural security in European high-yield deals almost halted the market at the beginning of 2003.
A group of investors, including asset management teams from Aberdeen, ING and AXA, wrote to industry bodies saying they would avoid the bonds unless they were structured more favourably.
But several deals, including Brake Bros and Focus Wickes, broke the mould in the second half of 2003, giving bondholders guarantees from issuers' subsidiaries and a place in insolvency negotiations for the first time.