SYDNEY, May 9 (Reuters) - Australian miner Fortescue Metals Group FMG.AX launched a $1 billion bond offering aimed at U.S. investors on Tuesday, as it seeks to refinance debt in the face of retreating iron prices.
Fortescue declined to give details of the issue of senior notes until it was finalised, with pricing expected on Tuesday during U.S. working hours.
However, a source, citing the term sheet, said the issue, to be rated Ba2 by Moody's and BB-minus by Standard & Poor's, consists of two parts. The five-year piece is being marketed with a yield of 5 percent to 5.25 percent, while the seven-year tranche would pay 0.375 percent over the yield of the five-year tranche.
Fortescue, the world's No. 4 iron ore miner, has long viewed tapping U.S. debt markets as a way to reduce gearing, a top priority after it spent more than $10 billion building its mines. It held $4.3 billion in gross debt as of March 31.
James Wilson, an analyst at stockbroker Argonaut, said the issue proceeds will be used to refinance a $976 million loan maturing in 2019.
"It makes sense to do it now. It's a smart move as they will get cheaper debt than what they originally had," Wilson said.
Both tranches have a three-month call at par prior to maturity. The issue will target U.S.-based investors under 144a reg S documentation, the source said.
Credit Suisse (SIX:CSGN), Deutsche Bank (DE:DBKGn), JPMorgan (NYSE:JPM), and Morgan Stanley (NYSE:MS) are joint-book managers while JPMorgan is acting as sole global coordinator.
In the March quarter Fortescue said it repaid a further $1 billion in debt at par, bringing its net gearing to 22 percent, well below an original target of 40 percent.
Prices of iron ore .IO62-CNO=MB , Australia's top export earner, fell to $61.73 a tonne on Friday, the lowest since October 2016, according to Metal Bulletin, but analysts remain optimistic on Fortescue.
"It's not a concern as it has good cash flows and good iron ore production," Argonaut's Wilson said.
In its March quarterly results, Fortescue reported more than $1 billion in cash thanks to a 12 percent reduction in its production costs in the past quarter versus a year ago.