Rio Tinto Sells $2 Billion of Debt to Fund 2013 Notes Buyback

Rio Tinto Group, the world’s third- largest mining company, sold $2 billion of bonds in a three-part offering to fund a buyback of existing notes.

Rio Tinto issued $500 million each of five- and 30-year debt and $1 billion of 10-year notes through its U.S. finance unit, in its first bond sale in 18 months, Bloomberg data show. Proceeds will fund a tender offer for its 5.875 percent notes due in July 2013, which was accepted by investors holding $1.9 billion of the securities, the company said in a filing today.

The miner joins companies worldwide including CBS Corp. and Bombardier Inc. in redeeming debt, as record-low benchmark interest rates in the U.S., Europe and Japan drag down yields. Companies tendered for $30.5 billion of bonds last month, the most since April, and are on course to buy an additional $24.3 billion this month, according to data compiled by Bloomberg.

“Even if you have to pay a bit of a premium to repurchase your shorter-term debt, if you can get away cheap levels on the longer term, it works,” said Michael Bush, Melbourne-based head of credit research at National Australia Bank Ltd.

Rio, whose first-half profit more than tripled as sales of iron ore to steelmakers surged, paid spreads of 68 basis points to 115 basis points more than similar-maturity Treasuries on its new debt, compared with as much as 752 basis points when it last sold bonds in April 2009.

The 1.875 percent, five-year notes were priced to yield 68 basis points more than Treasuries, the 3.5 percent, 10-year debt pays a spread of 93 basis points, and the 5.2 percent, 30-year bonds yield 115 basis points more than benchmark, according to Bloomberg data. A basis point is 0.01 percentage point.

Buyback Offer

Rio Tinto offered to buy back the 2013 notes at a premium of 40 basis points, according to a Regulatory News Service statement on Oct. 20. Bondholders will get $1,131.97 for each $1,000 of principal they’re owed, the company said today.

The notes were issued in June 2008 at a spread of 240 basis points, according to Bloomberg data. They traded on Oct. 26 at 113.175 cents on the dollar to yield 0.941 percent, or 35.5 basis points more than Treasuries, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority.

Rio has been cutting debt that grew 19-fold after its $38.1 billion acquisition of Canadian aluminum producer Alcan Inc. in 2007. The company has about $19 billion of debt facilities outstanding, according to Bloomberg data.