HG bonds: Aptiv places $2.5B of new senior notes backing Wind River bid; terms

Aptiv PLC today completed a $2.5 billion offering of senior notes across 2.396% two-year (non-call one) notes at T+80, 3.25% 10-year notes at T+135 and 4.15% 30-year bonds at T+190, as the company funds a pending acquisition.

The company in January announced the planned acquisition of software concern Wind River Systems for approximately $4.3 billion, targeting closing in mid-2022, subject to regulatory approvals and customary closing conditions. Aptiv, which delivers technology and mobility solutions primarily to the automotive sector, said that Wind River's "decades of experience delivering safety critical systems" would allow it to "accelerate the journey to a software-defined future of the automotive industry," according to regulatory filings.

Proceeds of the bond offering will fund a portion of the cash consideration payable in connection with the acquisition. If it does not consummate the transaction on or prior to July 10, 2023, Aptiv will be required, under a special mandatory redemption provision, to redeem the 2032 notes and the 2052 notes, and it would then use the net proceeds from the offering of the 2025 notes for general corporate purposes, filings show.

Aptiv made a quick return to the bond markets, after it priced $1.5 billion of 3.10% 30-year senior bonds in November 2021, primarily to refinance a $700 million issue of 4.15% senior notes due March 15, 2024, and a $650 million issue of 4.25% senior notes due Jan. 15, 2026. Following that effort, the company's nearest-term bond maturities now include notes due in 2025, across issues denominated in euros and U.S. dollars, a euro-denominated 1.60% issue due in 2028 and dollar-denominated 4.35% notes due 2029.

The 3.10% bonds due Dec. 1, 2051, which it priced in November at T+140, traded this morning at T+174, or well above the coupon rate, at 3.98%, trade data show.

The BBB/Baa2/BBB issuer ratings for Aptiv reflect stable outlooks on all sides. The ratings profile was unchanged in the wake of the Wind River bid, which rating agencies note will advance the company's strategy of diversifying into non-auto industrial markets, including aerospace, defense, industrial and telecom. Fitch today noted that only about 10% of Wind River's revenue is currently derived from the automotive sector.

"Aptiv has a strong track record of successfully integrating its acquisitions and we expect that it will likely achieve the planned $125 million of annual synergies stemming from its reduced spending on third-party software providers and increased revenue from its Advanced Safety and User Experience (26% of total sales in first nine months of 2021) business through the integration of Wind River's technology solutions," S&P Global Ratings said in a Jan. 11, 2022, research note. The agency projected leverage rising to about 2.6x pro forma for the acquisition and after S&P Global Ratings adjustments, from about 0.9x as of the end of September 2021. It expects Aptiv to deleverage toward 2.0x by 2023, or "well below" its 3x downside trigger, as it generates "strong" free operating cash flow.

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