CSN Inova Bonds Draw 77.5% Tender at 11% Coupon Swap

CSN Inova Ventures, the Cayman Islands subsidiary of Brazilian steelmaker Companhia Siderúrgica Nacional (NYSE: SID), accepted $1.007 billion in principal of its 6.750% senior notes due 2028 at the August 10 expiration of its exchange offer, the company said Tuesday.

That 77.49% tender rate on the roughly $1.3 billion outstanding block satisfied the minimum participation condition. Holders who tendered get $253.85 in cash plus $746.15 in new 11.000% senior notes due 2030 for each $1,000 of old notes. Settlement is set for August 12.

The swap cuts CSN Inova's near-term maturity wall – the 2028 notes were a 2.5-year bullet – at the cost of a 425-basis-point coupon step-up.

The issuer expects to issue about $698.3 million of the new notes and pay roughly $255.7 million in cash consideration. CSN's consolidated interest bill will rise by about $42 million a year on the exchanged portion, based on those figures. The issuer gets no cash proceeds from the exchange.

The trade buys time. The new notes run to 2030, and the cash component gives holders immediate liquidity. The issuer also received the required consents to amend the indenture governing the 2028 notes, the company said. The consent solicitation was tied to the tender; holders could not consent without tendering.

CSN, one of Brazil's largest steel producers, has been managing a debt load that stood at 3.1x net debt to EBITDA at the end of the second quarter. The company's mining division, which exports iron ore, provides a partial hedge against the steel cycle. The domestic construction market has been soft.

The 11% coupon on the new notes reflects the credit's risk premium. CSN's existing 2030 bonds were quoted around a 9.5% yield before the exchange announcement, according to Trace data. The new notes, issued at par, price at a spread that compensates holders for the longer duration and the subordination of the Inova entity within the CSN structure.

Banco Bradesco BBI, BNP Paribas, Citigroup, Credit Agricole, HSBC, Morgan Stanley, UBS and XP Investimentos acted as dealer managers. D.F. King was the information and exchange agent.

The exchange was limited to qualified institutional buyers in the U.S. and to non-U.S. persons in offshore transactions under Regulation S. The new notes are unregistered and subject to transfer restrictions.

CSN reported a 7% drop in steel sales volumes in the second quarter compared with a year earlier, pressured by lower demand from Brazil's industrial sector. The company's iron ore segment posted record quarterly output of 11.2 million metric tons.

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