Europeans relying on US in 2012 loan, high yield bond market, big uptick in Yankee buying

Yankee loan and bond activity is on the move again as the second-quarter of the year comes to a close. On the loan side, BSN MedicalKloeckner Pentaplast, and Fresenius are all tapping the U.S. and European markets, while STS, a division of Stork, is pre-marketing on both sides of the Atlantic for an upcoming high-yield issue.

During the first half of the year, a total of €13.41 billion of loans from Europe-based borrowers was placed into the U.S. leveraged loan market. This yankee loan total is double the €6.72 billion issued into the U.S. during the whole of 2011, and well ahead of the 2010 total of €7.86 billion (the 2012 total excludes the cancelledFormula One refinancing that launched in May, but was cancelled in June – including that deal, the volume would have been €14.8 billion).

In the year to date, 47% of all loans issued by European borrowers came from the U.S. By comparison, in the two previous full years yankee issuance made up roughly 15% of total issuance – demonstrating the sudden increase in Europe’s reliance on U.S. buyers to get deals done.  – Ruth McGavin


Healthcare credits stable after Supreme Court upholds bill

The Supreme Court issued a ruling this morning largely upholding the Obama administration’s landmark healthcare-reform bill the Affordable Care Act.

The individual mandate will be upheld as a tax under Congress’s power in the Taxing Clause instead of a penalty in other clauses, while the expansion of Medicaid was ruled constitutional, even though the court ruled states cannot be stripped of funds for not complying.

As LCD reported earlier this month, restructuring firms and credit investors have been taking a close look at how the system as a whole and the credits within that system could be affected, as the bill impact every healthcare provider, regardless of industry.

Shares of for-profit hospital chains like Tenet Healthcare and HCA rose following the decision, with Tenet up 8% by 11:45 a.m. EDT, to $5.36. Private equity-backed HCA’s stock was up 9%, to $29.06. Another hospital operator Community Health Systems saw it’s equity jump 10%, to $28.08, over the same time period. Those hospitals would have been hard hit by the cost of caring for uninsured patients if a mandate to buy coverage under health reform was not upheld.

As for the debt, the 6.25% notes due 2018 backing Tenet traded up a quarter of a point following the ruling, to 105.5, according to trade data. Community Health 8% notes due 2019 changed hands half a point higher, at 106, the trade data show.

In the secondary loan market, loans backing Community Health and HCA, market bellwethers for healthcare debt, were stable following the ruling. For example, Community Health’s non-extended term loan due 2014 (L+225) was unchanged, pegged at 98.5/98.75, while HCA’s term loan B-3 due 2018 (L+325) was unchanged from earlier in the week, quoted at 96.625/97.125, sources said.

Importantly, the 2.3% medical-device excise tax included in ACA also survived the ruling. Since debt backing medical-device companies had already accounted for the change, there was little movement in those names, according to sources. The tax is levied on the total revenue of a company and is set to start Jan. 1, 2013.

And the bidding process for Medicare reimbursements will proceed as previously planned. The reimbursement will go forward as implemented by the Centers for Medicare and Medicaid Services whereby suppliers compete to become Medicare contractors for certain items in specific areas by submitting bids. The first round started in Jan. 1, 2011 in nine different areas around the country. So the next round will include 91 more areas as mandated by the ACA.

Given that the companies impacted were already expecting the decreases in reimbursements regardless of the decision, debt of most medical-device or product manufacturers and long-term healthcare providers has remained stable, including Rotech HealthcareApria Healthcare GroupDiagnostic Imaging Group,Group Health CooperativeHologicMedtronicOncure Medical, and Vertellus Specialties.

While this decision wasn’t what the whole market expected, the prevailing views reflected the impact of the bill being upheld, according to a source, now it just becomes a waiting game with the election. – LCD Staff reports


Stronger market tone in place for high yield mart; new issues in focus

A stronger market is back in place in the high-yield secondary, though volumes remain light. Eyes are on the new-issue calendar, which has grown to nine deals totaling $4.2 billion including crossover credits, marking the second largest weekly supply in six weeks – only trailing $5.7 billion last week – as underwriters race towards the second-quarter close.

Benchmarks are higher. Chrysler Group 8.25% notes due 2021 are trading roughly half a point stronger today, at 102, and Chesapeake Energy 6.775% notes due 2019 added a quarter of a point, to 97/97.5, according to sources and trade data. ATP Oil & Gas 11.875% notes due 2015, as well, edged up a quarter of a point, to 45.25/46.25, sources note.

The unfunded HY CDX 18 index edged up three sixteenths of a point, to 95/95.25, according to Markit. Although that’s off three eighths of a point week over week, it’s up significantly from the series low close 3.5 weeks ago.

New issues are outperforming. Sonic Automotive 7% notes due 2022 have advanced to either side of 103 today, from 102.5 yesterday and 99.11 at offer Monday, sources said. SM Energy 6.5% notes due 2023 are pegged at 100.5/101, versus par issuance Tuesday, while P.F. Chang’s 10.25% notes due 2020 are at 103/104, versus par issuance Friday, sources note.

As mentioned, eyes are on the forward calendar, which holds nine credits for $4.2 billion of supply. Details are available online to subscribers and updated in real time at LCD U.S. HY Forward Calendar.Matt Fuller


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GeoEye high yield bonds fall on multiple downgrades as co. faces contract cuts

GeoEye bonds have quietly slumped since netting multiple rating downgrades after the company told investors that government contracts face under-funding risk. The 9.625% first-lien notes due 2015 are pegged just below par, versus 104.25/105.25 prior, while the 8.625% second-lien notes due 2016 are off four points, at 106.25/107.25, according to sources and data provided by S&P Capital IQ.

GeoEye received a two-notch downgrade by S&P today, with corporate credit lowered to B-, from B+, following Moody’s move yesterday by one notch to B2, from B1. Both agencies cited the geo-mapping-satellites company’s announcement on Friday that the National Geospatial-Intelligence Agency (NGA) is seeking to shorten contract terms due to funding shortfalls.

The company’s $400 million issue of 9.625% first-lien notes due 2015 have in two days been cut to B/B1, from BB-/Ba3, while a $125 million issue of 8.625% second-lien notes due 2016 have been lowered to CCC/Caa1, from B-/B3. The credit outlooks were put to “developing” and “negative review.”

GeoEye received two letters from the NGA that it cannot exercise the full-year Enhanced View Service Level Agreement option with the company for the contract year beginning Sept. 1, 2012, but instead proposes a three-month option. The proposal includes and option to extend for the full year if funding were to become available, according to SEC filings.

S&P ‘s downgrade cited “heightened risk of a substantial reduction of U.S. government revenues beginning in late 2012 or in late 2013, which would severely reduce the company’s profitability and cash flow generation.”

“Accordingly, we have revised our business risk assessment to ‘vulnerable’ and our financial risk assessment to ‘highly leveraged,'” offered S&P credit analyst Michael Weinstein.

GeoEye owes investors interest in October and April each year, and a Bloomberg report yesterday cited an analyst at Benchmark Company as saying that GeoEye may not be able to make the April coupon next year if the contract isn’t extended via the nine-month extension option.

GEOY shares have plunged 22% on the news, to $14.24, from $18.34.

GeoEye bonds date to late 2010 and late 2009 issuance via J.P. Morgan, Bank of America, and Deutsche Bank. Proceeds were used for general corporate purposes and debt refinancing efforts, respectively. – Matt Fuller

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James River Coal – stock plunges on downgrade; high yield bonds continue decline

James River stock plunges on downgrade; bonds continue decline

James River Coal 7.875% notes have actively traded in odd lots today at 52-53, with quotes at either side of 50 following yesterday’s downgrade, down two points from yesterday and 10 points from just one month ago, according to sources and trade data. The company’s stock, trading on the Nasdaq under the JRCC ticker, has plummeted 17% from yesterday’s closing price, to $2.41 by 2:30 p.m. EDT today.

Standard & Poor’s lowered the corporate rating down to CCC+, from B-, while moving the issue-specific rating on the $275 million in senior notes due 2019 to B-, from B, based on a decline in demand and increase in expenses for James River’s coal operations. Moody’s gave a corporate rating of B3, with a negative outlook and rating of B2 for the 2019 notes in April.

As LCD reported in May, coal credits have come under pressure amid historically low natural-gas prices and a regulatory environment that is pushing a coal-to-gas transition. The warm winter and ongoing natural-gas substitution on top of the economic viability of thermal coal produced in the Central Appalachia basin fueled S&P’s decision to downgrade. But the agency also took into account fewer production disruptions in Australia and slowing demand in China and the eurozone causing metallurgical coal prices to decline, something LCD had also noted previously as having had an impact on Patriot Coal and other thermal coal producers – especially those with operations in Central Appalachia where extraction has become more expensive.

S&P predicted that James River’s liquidity will begin to deteriorate, as it had only $100 million in adjusted EBITDA in 2012, versus $170 million in 2011, bringing debt to EBITDA up to 7x or higher by year-end. The company’s total liquidity on March 31, 2012 was $208.5 million, comprising $169.4 million of cash and $39.1 million of availability under the revolver, according to filings with the SEC. The revolver is governed by a maximum-capital-expenditures covenant and a minimum-fixed-charge covenant, which S&P believes James River could approach in 2013.

The company issued the 2019 notes in March 2011 via Deutsche Bank and UBS. Proceeds from the deal were used to back the company’s $475 million all-cash purchase of Charleston, W. Va.-based International Resource Partners.

The company also has $230 million of 3.125% convertible notes due 2018, which are indicated at 29, and $172.5 million of 4.5% convertible notes due December 2015, indicated at 37, according to S&P Capital IQ. Both convertible issues’ conversion prices are well above the current price of the stock. – Max Frumes

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European secondary market flat as markets soften with Spanish government bond auction

Any strength seen earlier this morning in the financial markets has evaporated following Spain’s government bond auction. The sovereign’s borrowing costs jumped as it sold €3 billion of bonds, and at press time yields on its 10-year bonds are seven basis points wider, at 6.63%. After widening 20 bps yesterday the iTraxx Crossover is hovering around 705 this morning, two basis points tighter from yesterday.

High-yield bonds are mostly flat today, sources said. ONO 8.875% notes due 2018 are unchanged at 87, and its 11.125% notes due 2019 are stuck at 79. Spanish meat-processor Campofrio’s 8.25% notes due 2016 are stable at 97.5, while Wind 7.375% notes due 2018 are slightly softer, at 86.25. Recent new issues are holding in above par, with Four Seasons 8.75% notes due 2019 wrapped around 100.5, and KDG 6.5% notes due 2017 stable at 102.

Volume and activity levels in secondary loans are subdued, although bits and pieces continue to trade, according to sources. With several primary deals for investors to look at, attention has been diverted away from the secondary, sources add. Birds Eye Iglo is one such deal, and here – following yesterday’s news that Permira has rejected a combined bid from Blackstone and BC Partners for U.K. foods group – market players are on the lookout for either a revised bid for the company or a recapitalisation, which would allow Permira to take some money off the table.

Another credit on market players’ radar is Alain Afflelou, amid speculation that the terms for its €350 million senior loan will be improved. If terms are improved, it would be the second of the deals currently out to market to see such a change, following Global Blue’s flex. Global Blue saw margins pushed out by 25 bps across the structure on its deal, taking the TLB margin to E+575. According to LCD, the weighted average new-issue institutional spread in Europe is ticking upwards again, at E+508 as of May, after hitting E+525 in the fourth quarter of last year and dipping to 487 in the first quarter of 2012. – Sohko Fujimoto


Sonic Automotive notes price at 99.1 to yield 7.125%; terms

Sonic Automotive today completed an offering of subordinated notes via joint bookrunners Bank of America, J.P. Morgan, and Wells Fargo, according to sources. Final terms were inked at the tight end of guidance at the target size of $200 million. The operator of new- and used-car dealerships and repair centers returns to market after two years to pay down its 5% convertible notes due 2029. Roughly $155 million is left outstanding, according to company filings. S&P today upgraded the company’s existing subordinated notes to B+, from B, and assigned a rating of B+ to the new issue, with the upgrade tied to better recovery prospects following the repayment of the convertible notes. Terms:

Issuer Sonic Automotive
Ratings B+/B3
Amount $200 million
Issue subordinated notes (144A)
Coupon 7%
Price 99.11
Yield 7.125%
Spread T+552
FRN eq. L+538
Maturity July 15, 2022
Call nc5
Trade June 25, 2012
Settle July 2, 2012 (T+5)
Joint Bookrunners BAML/JPM/WF
Px talk 7.25% area
Notes w/ three-year equity clawback for 35% @ 107; carries T+50 make-whole call

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PF Chang’s high yield bond deal completed, 99.33 to yield 10.375%; terms announced

The P.F. Chang’s China Bistro LBO bond deal was completed Friday afternoon via joint bookrunners Deutsche Bank, Wells Fargo, and Barclays, sources said. Terms on the CCC+/Caa1 transaction were inked at the middle of talk following a $25 million upsizing, to $300 million. Since there’s been no further revision to the coordinated term loan financing that was upsized earlier by $25 million, with that amount cut from the bond component, the net debt component of Centerbridge Partners’ $1.1 billion LBO appears to have grown. Issuance comes under Rule 144A for life, via Wok Acquisition.


Issuer P.F. Chang’s China Bistro/Wok Acquisition
Ratings CCC+/Caa1
Amount $300 million
Issue senior notes (144A for life)
Coupon 10.25%
Price 99.33
Yield 10.375%
Spread T+904
FRN eq. L+881
Maturity June 30, 2010
Call nc4
Trade June 22, 2012
Settle June 29, 2022 (t+5)
Books DB/WF/Barc
Px talk 10.25-10.5%
Notes upsized by $25 million

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Sappi Papier completes $700M offering of secured notes; terms

Sappi Papier today completed an offering of secured notes via joint global coordinating bookrunners J.P. Morgan, Citi, and RBS, and joint lead managers and bookrunners Credit Agricole, Standard Chartered, and UniCredit, according to sources. Initially outlined as a $300 million, single-tranche offering of five-year notes, investor interest prompted a $100 million upsizing to that tranche and the addition of a $300 million, seven-year tranche. Final terms came at the tight end of guidance for the five-year notes and at the midpoint for the seven-year notes. Proceeds from the deal will be used to back a par-plus tender offer for $700 million equivalent of the company’s two high-coupon issues outstanding – 12% dollar secured notes due 2014 and 11.75% euro secured notes due 2014. Terms:

Issuer Sappi Papier Holding
Ratings BB/Ba2
Amount $400 million
Issue secured notes (144A-life)
Coupon 7.75%
Price 100
Yield 7.75%
Spread T+702
FRN eq. L+677
Maturity July 15, 2017
Trade June 20, 2012
Settle July 5, 2012 (T+10)
Joint Bookrunners JPM/Citi/RBS
Joint Leads CA/StanChart/UniCredit
Px talk 7.75-8%
Notes w/ three-year equity clawback for 35% @ 107.75; carries T+50 make-whole call; w/ par call three months prior to maturity; w/ change of control put @ 101; upsized by $100 million.
Issuer Sappi Papier Holding
Ratings BB/Ba2
Amount $300 million
Issue secured notes (144A-life)
Coupon 8.375%
Price 100
Yield 8.375%
Spread T+727
FRN eq. L+701
Maturity June 15, 2019
Call nc3
Trade June 20, 2012
Settle July 5, 2012 (T+10)
Joint Bookrunners JPM/Citi/RBS
Joint Leads CA/StanChart/UniCredit
Px talk 8.25-8.5%
Notes w/ three-year equity clawback for 35% @ 108.375; carries T+50 make-whole call; w/ change of control put @ 101; 1st call @ par +75% of coupon.

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Developers Diversified Realty bonds price at 98.1 to yield 4.87%; terms

Developers Diversified Realty today completed an offering of senior notes via active joint bookrunners Deutsche Bank, RBS, and UBS, according to sources. Pricing came at the tight side of guidance with a $50 million upsizing. The Ohio-based REIT will use proceeds to redeem on July 17 the $223.4 million outstanding of the company’s 5.375% notes that mature on Oct. 15 as well as for general corporate purposes, SEC filings show. Terms:

Issuer DDR Corp.
Ratings BB+/Baa3/BB+
Amount $300 million
Issue senior notes (off the shelf)
Coupon 4.625%
Price 98.104
Yield 4.865%
Spread T+325
FRN eq. L+309
Maturity July 15, 2022
Trade June 19, 2012
Settle June 22, 2012 (T+3)
Joint Bookrunners DB/RBS/UBS
Px talk T+337.5 area
Notes w/ T+50 make-whole call; w/ par call 90 days prior to maturity; upsized by $50 million.