Cemex sub converts are step in right direction, says CreditSights

Cemex’s issuance of $1.4 billion in new convertibles is, on the whole, a positive thing for credit investors, since it deals with much of the Mexican cement maker’s near term maturity problems. But it does not reduce the fallen angel’s credit risk materially, according to a report published by CreditSight’s last week. (It’s debt Jim, but not as we know it).

The company priced an $800 million tranche of 2016 converts and $600 million of 2018 notes. They bonds are subordinated to all the company’s existing senior debt, and rank pari passu with its $500 million outstanding 2015 convertible. The new bonds can be converted into equity at a 30% premium to the current share price.

Much of the proceeds will be used to pay down Cemex debt maturing this year, which totals $2.3 billion. However, $187 million of the proceeds will be used to buy capped calls on the company’s shares.

The share price has floundered recently, note the CreditSights analysts, partly on the belief of equity investors that Cemex is becoming a more debt-friendly company. This is questionable, says the report, but the new convertibles may put something of a brake on the company’s shares, as well as being a step in the right direction for the company, as it tries to sort out its huge debt problems.