Pernod-Ricard viewed as likely convertible bond issuer after ArcelorMittal, bankers say

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After steel giant ArcelorMittal launched a heavily over-subscribed convertible bond (CB) this week, capital markets bankers in Paris and London said Pernod-Ricard could follow suit.

ArcelorMittal’s initial EUR 750m issuance was upsized on Wednesday to EUR 1.25bn and priced with a 32.5% conversion premium and 7.25% coupon after the book was 5x oversubscribed. The bankers believed a Pernod-Ricard deal could follow priced on similar terms.

Two French bankers believed Pernod-Ricard could now be eyeing a CB. One of the bankers who is not involved with the situation said: ”Pernod – word is they’re looking at a EUR 1bn CB.” ”It’ll be around the same pricing as Arcelor most likely. The CDS is around 600bps so that’s what the spread will be around,” he said. BNP or Societe Generale were named as likely candidates for the advisory mandate. Pernod declined to comment.

Bankers in London agreed Pernod would be a likely CB issuer, but had not heard of concrete plans on the anvil. ”Everytime you screen for companies this one comes out as one of the top 15 companies that should do a CB as the vol is high and bonds are expensive,” said one of the bankers. A second London-based banker added that Pernod had been the focus of investor ’chit chat’ for some time. A market observer said investment grade French groups that are relatively indebted, and that can’t easily access bond markets or pay double digit coupons will look at the CB market. ”It’ll be very popular – great company, not that cyclical,” the observer said.

ArcelorMittal’s deal could be the trigger for Pernod to bring a deal to the market, a sector banker explained. ”Demand is obviously there in France assuming it’s a high delta name and a good coupon,” he said. ”I’d say [it would be] directly linked to Arcelor because you wouldn’t want to be first out of gate and wouldn’t want to be last.”

Pernod started a EUR 1bn asset disposal program that began in the first half of its 2008/2009 year to improve debt ratios, and is targeting a net debt/EBITDA ratio of close to 4 by 30 June 2011. With these plans in mind, a banker with knowledge of Pernod’s strategy was surprised at the possibility of Pernod taking on more debt, as he thought there would be pressure from banks to deleverage after it acquired Vin & Spirits in early 2008. As Pernod is not facing pressing maturities, the banker suggested a CB would be likely an effort to maintain or preserve bank relationships. He added that as Diageo paid 7.25-7.5% for its bond late last year, Pernod would need to pay upward of 8% if it were to go for a regular bond. At 31 December 2008 Pernod’s net debt amounted to EUR 12.96 bn.

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