Louis Dreyfus Commodities : Issuance focus

Louis Dreyfus Company organised roadshows last week to carry out a five or six-year sub-benchmark placement. According to feedback provided by the company yesterday, demand would mainly concern a five-year maturity (i.e. end-2020), with a yield of at least "mid to high 4%”.There are already two senior unsecured bonds outstanding: LOUDRE 18 (z+260bp, YTW: 2.5%) and LOUDRE 20 (z+392bp, 4.0%). Since the announcement of the planned issue, the 2020 bond’s spread has widened by around 40bp, vs. around 20bp for the JPM "BB" index which widened with the US elections. We are assigning a BB-??/Stable rating to LDC, which factors in the sharp deterioration of credit metrics over the last three years, due to plummeting profits in the sector, while a reversal of the trend seems unlikely for the moment. However, in the medium term, the outlook for the sector remains favourable and LDC retains a leading position in a market where it has been present for more than 150 years. Access to liquidity remains satisfactory (the group is in closing stages of completing the renewal of its RCFs in Europe with margins of 70 and 80bp over three and four years). Finally, we expect positive news in terms of divestments over the coming quarters, which could help the group find more comfortable credit metrics. Given this estimated rating, the spreads proposed on the LOUDRE 18 and 21 papers appear to us to be “fair”, especially if we factor in the illiquidity premium and the difficulty of following the credit’s trend (unlisted company, semi-annual publications, low visibility on results outlook). Regarding the planned new issue, we believe that a premium of at least 50bp vs. the 2021 paper would be appropriate. Given the current market conditions and the complexity of Louis Dreyfus Company's credit profile, we feel that the investment should only attract investors with a Buy & Hold strategy and we do not expect a heavily oversubscribed orderbook which would lead to a price increase immediately after the issue. >