Fortescue worries are deepening. From The Australian:
Ratings agencies Moody’s, Fitch and Standard & Poor’s yesterday all confirmed their ratings and outlook for Fortescue were unchanged in the wake of the failed refinancing. But all included the caveat that continued weakness in iron ore could prompt a rethink.
“Further deterioration in industry dynamics, and iron ore prices remaining below $US65 per tonne could place negative pressure on the rating and/or outlook in the absence of any counter measures,” Moody’s analyst Matthew Moore said.
A potential sale of a stake in Fortescue’s Pilbara rail and port infrastructure was explored in depth previously. But one investment banker who has followed the space closely believes such a sale would struggle to reap a suitable price in this market. “Who is going to give them a good price if you’ve got a desperate seller and the iron ore price is in the toilet?” the banker said.
Amid the yield-chasing madness the ponzi-bond failure is telling. One might have thought a sackable offense even given how it has only served to declare to the world that the firm is deep trouble. Reuters has some inside dirt:
The timing was terrible – as Stephen Pearce battled through the frigid Manhattan weather, another squall was brewing in the iron ore market that would blow his efforts off course and force Fortescue to scrap its attempted refinancing.
…Fortescue also misjudged the appetite of investors who had just forked out $10 billion to Valeant Pharmaceuticals in the second-biggest junk bond sale on record. They had also just snared a 10 percent yield on a $1 billion issue by top U.S. coal miner Peabody Energy.
…”You just don’t do $2.5 billion in a dangerous sector, especially after the Valeant trade,” said a debt investor who declined to be named.
…”The execution process was not done particularly well, starting with an unattractive loan transaction and then attempting to shift to the bond market,” said Steven Oh, global head of credit and fixed income at PineBridge Investments.
Fortescue would have been better off tapping the European market, where there is a lack of higher-yield supply, he said.
It would probably shake investor’s confidence even more now to see a senior head roll but the failure is not a good look. Then again, both bonds and equity rallied sharply yesterday so perhaps it’s all good!
