The success of a bond offering last week to fund a joint chemical venture between Chevron Texaco and Phillips has surprised two senior analysts: a buy-sider at a large East coast firm and a sell-sider. The Chevron Phillips Chemical Company's 5.375% notes of '07 (Baa1/BBB+) was upsized to $500 million from $400 million, and received a very strong rating from both Standard & Poor's and Moody's Investors Service, both analysts acknowledge.
Nonetheless, the deal was priced 100 basis points tighter than it should have been, says Joe Princiotta, analyst at Deutsche Bank and a third-teamer on the 2001 Institutional Investor All-America Fixed-Income Research Team. He says the bonds do not have the explicit support of the parent companies. "I wouldn't expect chemicals to be a core or strategic part of these businesses, especially with a large part of the assets based in the Gulf of Mexico," he adds. Princiotta says the operation can be pursued more profitably in other parts of the world.
The buy-side analyst says he did not buy the deal, because "companies are generally far more eager to lend their names than their balance sheets to joint ventures." He believes the principal buyers were insurance companies, looking for a short maturity deal with decent yield.