APA opens BBB pipeline

APA Group last week provided some rare diversity for investors in term debt, selling $300 million in 10-year debt on Thursday. The issue is notable for being the first 10-year issue by a BBB-rated issue by any corporate, ever, in Australia.

The firm originally sought bids on $150 million of bonds but doubled the level of debt sold. APA priced the ten year bonds at 240 basis points over swap to yield 8.015 per cent per annum.

APA is the operator of numerous natural gas pipelines and related energy assets. Last week, the firm sold the debt via its financing subsidiary APT Pipelines Ltd.

The APA 1-year bond may open the eyes of many potential corporate issuers. Until now these potential issuers had little confidence in the market as viable source of medium to long term debt and would have gone straight to the US markets.

Perhaps they will now reconsider.

To give some context to this new record for a 10- year bond issued by a 'BBB' rated issuer, the two comparable issues, and both early this decade, were from  Snowy Hydro (then rated BBB+) which sold ten year bonds in 2003 while Southcorp (then rated BBB+) was the first to do so in 2000.

The APA deal is one of only six bond issues with a term to maturity of ten years or more, made this year. Telstra is the only other non-financial institution issuer to do so. APA's long bond is also one of only seven 'BBB' category issuers this year.

An examination of this group of issuers reveals an interesting pricing comparison. Dexus Property Group issued A$180 million of bonds for seven years in April 2010 (before the recent troubles in financial markets broke out), priced at 270 bps over swap. Against this, the pricing of APA Group's issue at 240 bps over looks sensational, being rated one notch lower and with a term to maturity three years longer.