CyrusOne gets second investment-grade credit rating in fourth quarter

By Devika Patel

Knoxville, Tenn., March 4 – CyrusOne Inc. garnered its second investment-grade rating last quarter and marked the occasion by refinancing its domestic bonds and offering new Euro bonds.

“Something that we’ve been focused on for a really long time was getting to investment-grade,” vice president of capital markets and investor relations Michael Schafer said at the Raymond James 41th Annual Institutional Investors Conference in Orlando on Wednesday.

“This is obviously a capital-intensive business and access to capital is important to ensure continued growth.

“We got our second investment-grade credit rating in October of last year, which made us investment-grade index eligible.

“We followed that up with a refinancing of our U.S. bonds later in the year, which generated roughly 200 basis points of savings in interest expense, and then, earlier this year, closed our inaugural Euro bond offering.

“So, what we’ve done is really strengthen the balance sheet over the last few years and that sets us up really well for growth over the coming years,” he said.

Leverage is within the company’s targeted range and there is ample liquidity under CyrusOne’s revolver.

“We’re targeting leverage, net debt to LQA EBITDA, in the 5.5x range,” Schafer said.

“We exited last year at 5x, so there’s capacity there.

“We had $1.25 billion of liquidity available, so we can use our revolver to fund short-term requirements and then we’ll term that out,” he said.

On Nov. 20, 2019, CyrusOne LP and CyrusOne Finance Corp. priced $1.2 billion of split-rated senior notes (Ba1/BBB-/BBB-) in two tranches.

The notes are guaranteed by CyrusOne Inc.

The companies sold $600 million of 2.9% five-year notes at 99.859 to yield 2.931%. The notes priced with a spread of 135 bps over Treasuries.

Initial price talk on the five-year tranche was in the Treasuries plus 160 bps area.

A $600 million tranche of 3.45% 10-year notes priced at 99.709 to yield 3.485%, or a Treasuries plus 175 bps spread.

The 10-year notes were initially talked to price with a spread in the 200 bps over Treasuries area.

Bookrunners were Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, BMO Capital Markets Corp., Capital One Securities, Inc., Fifth Third Securities, Inc., KeyBanc Capital Markets Inc., MUFG, PNC Capital Markets LLC, RBC Capital Markets, LLC, Stifel, Nicolaus & Co., Inc., SunTrust Robinson Humphrey, Inc. and TD Securities (USA) LLC.

Proceeds will be used for a consent solicitation and cash tender offer to purchase any and all of the company’s $700 million of 5% senior notes due 2024 and any and all of its $500 million of 5.375% senior notes due 2027 and for general corporate purposes.

Also on Nov. 20, 2019, CyrusOne announced that CyrusOne LP and CyrusOne Finance Corp. launched tender offers to purchase for cash any and all of their outstanding $700 million 5% senior notes due 2024 and $500 million 5.375% senior notes due 2027.

The issuers also began consent solicitations to amend the indentures governing each series of notes to reduce the notice requirements for optional redemption to three business days from 30 days, to eliminate substantially all of the restrictive covenants and certain events of default and to eliminate or modify certain other provisions contained in each indenture.

The tender consideration for the 5% notes was set using the 1.625% Treasury due March 15, 2020 plus 50 bps, and the tender consideration for the 5.375% notes was set using the 2.375% Treasury due March 15, 2022 plus 50 bps.

On Dec. 4, 2019, the companies announced early results and priced the tender.

By the consent payment deadline, 5 p.m. ET on Dec. 4, holders had tendered, $570,611,000, or 81.52%, of the 2024 notes and $432,033,000, or 86.41%, of the 2027 notes.

The tender consideration for the 5% notes was set at $1,032.74 per $1,000 of notes using the 1.625% Treasury due March 15, 2020 plus 50 bps, and the tender consideration for the 5.375% notes set at $1,098.33 per $1,000 of notes using the 2.375% Treasury due March 15, 2022 plus 50 bps.

Pricing took place at 2 p.m. ET on Dec. 4.

The total consideration for each series included a consent payment of $30.00 per $1,000 of notes.

Holders who validly tendered their notes of either series and delivered their consents under the solicitations by the consent payment deadline received the applicable total consideration for such series of notes.

Holders who tendered their notes after the consent payment deadline and on or prior to the offer expiration time, 11:59 p.m. ET on Dec. 18, were eligible to receive an amount equal to the applicable total consideration less the $30.00 consent payment per $1,000 principal amount.

Holders also received accrued interest up to but excluding the payment date of the notes.

The issuers said they would redeem any and all of the notes not tendered in the offers.

CyrusOne is a Dallas-based real estate investment trust specializing in data center properties.

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