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Corporates choose PIKs Back  
Two of Ireland’s largest private corporates, Jefferson Smurfit and Ardagh Glass, have both issued callable payment in kind (PIK) issues in the past month.
A payment in kind bond is a bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or to give the bondholder a similar bond. At maturity, the principal and interest PIK payments are paid out in cash. Normally, issuers of PIKs use the proceeds to fund dividend payments to shareholders.

Ardagh, the glassmaker, brought a €125 million 10 year non-call two offering to the market in mid-February by bookrunners BNP Paribas and Citigroup. The bond carries a coupon of 10.75 per cent and was priced at 99.00 to offer a yield to maturity 10.85 per cent.

Ardagh is using the proceeds of the deal to buy-out its small shareholders, and is offering them a 4 per share.
Jefferson Smurfit, the paper and packaging firm, raised €325 million by issuing a ‘callable’ PIK, which means that the bond can be redeemed, typically at a premium, before the final maturity.

The Smurfit deal consists of a 10-year issue, with a coupon of 11.5 per cent. However, it can be redeemed in two years at a price of 102, then 101, and finally be called at par in January 2009.

The purpose of Smurfit’s issue was to reduce the equity base of the company, as the original investors in the take private of 2002, are taking back €325 million out of €732 million.

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