Copper Producer's Bonds Rise with Price of Metal

By Platt, Gordon | Global Finance, May 2007 | Go to article overview

Copper Producer's Bonds Rise with Price of Metal


Platt, Gordon, Global Finance


Investors who bought into a $6 billion bond issued by Freeport-McMoRan Copper & Gold in March saw the value of their holdings rise quickly in the following weeks, as the price of copper surged to a fourmonth high on expectations of strong Chinese demand for the red metal.

The bond sale was launched to partially fund US-based mining company Freeport-McMoRan's $26 billion cash-and-stock purchase of Phelps Dodge, which created the world's largest publicly traded copper producer.

The three-part bond issue was the second-biggest high-yield offering ever, second only to RJR Nabisco's record $8.5 billion issue in 1989 to finance its leveraged buyout led by Kohlberg Kravis Roberts. That mammoth debt sale depressed the value of RJR Holding's outstanding bonds and triggered lawsuits by disgruntled institutional investors.

The success of the Freeport-McMoRan issue, which was jointly managed by JPMorgan and Merrill Lynch, demonstrated that there is still plenty of appetite among investors for high-yield debt to finance corporate takeovers. The volume of new issues in the US high-yield bond market rose to nearly $20 billion in March from $10.6 billion in February, according to Montpelier, Vermont-based KDP Investment Advisors.

Freeport-McMoRan's bond issue was coupled with a $5.

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