4.875pc The new dollar bond rate; previous rate was 7.75pc
SMURFIT Kappa has slashed the cost of its borrowing through two new bond deals issued.
Yesterday the company "closed the books" on a new $300m (€238m) bond and a new €200m bond, both at significantly reduced interest rates.
It is the latest example of an Irish company being able to access the bond markets while Irish banks remain locked out by investors and many smaller companies struggle to access credit in the traditional bank market.
Smurfit Kappa will pay interest of 4.875pc on its new dollar denominated borrowings and 5.1125pc on the euro-denominated debt.
Both bonds mature in 2018. The combined new debt of €430m will replace bonds due to be repaid in 2015, which carried a much higher 7.75pc interest charge.
The new bonds will not reduce the overall size of Smurfit Kappa's €2.8bn debt burden. But the lower interest charges, combined with a longer repayment schedule, makes the burden easier to support for the business.
US bank JPMorgan managed the dollar tranche of the debt raising while Citigroup led the euro issuance.
Dublin listed Smurfit Kappa has cut its debts from €3.6bn when the company was floated on the stock market five years ago, but its annual interest bill remain a significant cost to the business.
Shares in Smurfit Kappa closed little changed in Dublin yesterday at €6.70. Fitch Ratings said it expects to assign a "BB" rating on the new bonds, unchanged from the previous debt rating.
Fitch said the new issues improve the company's debt maturity profile by pushing out the average maturity to more than five years.
The agency said the deal will also simplify Smurfit Kappa's financial structure by making all its long-term bank debt and bonds senior secured and ranking pari passu.
Fitch said the corrugated packaging market would remain weak in the second half of this year but that Smurfit Kappa has ample margins to cope with such pressure.
Smurfit Kappa operates in 21 countries in Europe as well as Canada and Latin America.
Fitch said the company could see its credit rating lifted if it continues on its current path of debt reduction and credit improvement.
But it also cautioned that debt could rise again, affecting the company's rating, if trading conditions deteriorate or the company looks at buying a rival.