Queiroz Galvao Crosses Finish Line

Queiroz Galvao Oleo e Gas (QG) finally wrapped up a $700m 7-year 3.8-year average life bond late Wednesday, pricing it at 99.35 with a 5.25% coupon to yield 5.45% or 480.9bp over, coming at the tight end of 5.5% area guidance. The deal was not necessarily a blowout with books heard reaching a modest size, according to investors. But the results were seen as satisfactory enough for an issuer that required more than its fair share of credit work at a time when market volatility has left investors particularly cautious. Some rival bankers had seen 5.5% area whispers 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 included 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 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%. HSBC and Santander acted as global coordinators on the sale, with Citi coming in as a bookrunner.