QG Tests Appetite at 5.5% Area

Queiroz Galvao Oleo e Gas (QG) emerged with official guidance of 5.5% area Tuesday for a new $700m 7-year amortizing bond with a 3.8 year average life after securing solid anchor orders. Pricing is expected as soon as today. At those levels, some see OG as a screaming buy especially considering the bond’s 4-year average life and the 200bp plus premium to Petrobras’s 2016s which have been trading around 3.5%. Further positives include the Baa3/BBB minus rating and a collateral package that carries a first priority lien on all the issuer’s tangible assets and project accounts. Odebrecht’s similarly structured 2021s (BBB/Baa3) were also seen as an obvious comp, although they are longer dated. They were trading Tuesday at around 5.36%. OG’s amortizing bond with a 3.8-year average will be used to refinance debt incurred through its Atlantic Star and Alaskan Star drillships which both have long-term contracts with Petrobras. Odebrecht’s issue was used for similar purposes though its vessel was a new build. It marked the first large scale bond of this kind and raised hopes that similar infrastructure trades would follow suit. Earlier Schahin Engenharia had also completed a smaller $270m 2016 deal in October 2010 to refinance debt on the operating Lancer drillship in a BBB rated deal, which priced to yield 5.85%. Queiroz wrapped up investors meetings in Europe Monday for its 144A/RegS project bond. The contractor and provider of offshore and onshore drilling and production services in Brazil has mandated HSBC and Santander as global coordinators on the sale, with Citi coming in as a bookrunner.