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CIT Group bullet notes ink at tight end of guidance, target size

CIT Group this afternoon completed a two-part senior notes offering via joint bookrunners Bank of America, Deutsche Bank, Goldman Sachs, and J.P. Morgan, along with lead manager Credit Agricole, sources said. Terms on the BB-/B1 tranches were inked at the tight end of guidance and target size, totaling $3 billion. Both carry a typical T+50 make-whole call and change-of-control put at 101, according to a filing. This marks the financial-services firm’s fourth bond transaction this year. As with previous deals, proceeds will be used to fund general corporate purposes and to refinance existing notes, particularly the 7% series C notes due 2016 and 2017, according to an SEC filing. CIT has been actively addressing these maturities, most recently with the announced redemption of $600 million of 2016 notes at par on Aug. 20. Terms:

Issuer CIT Group
Ratings BB-/B1
Amount $1.75 billion
Issue senior notes (off the shelf)
Coupon 4.25%
Price 100
Yield 4.25%
Spread T+364
FRN eq. L+344
Maturity Aug. 15, 2017
Call nc
Trade July 31, 2012
Settle Aug. 3, 2012 (t+3)
Jt. Books BAML/DB/GS/JPM
Jt. Lead CAG
Px talk 4.375% area
Notes w/ change-of-control put @101
Issuer CIT Group
Ratings BB-/B1
Amount $1.25 billion
Issue senior notes (off the shelf)
Coupon 5.00%
Price 100
Yield 5.00%
Spread T+350
FRN eq. L+338
Maturity Aug. 15, 2022
Call nc
Trade July 31, 2012
Settle Aug. 3, 2012 (t+3)
Jt. Books BAML/DB/GS/JPM
Jt. Lead CAG
Px talk 5.125% area
Notes w/ change-of-control put @101
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HD Supply add-on high yield bonds price at 107.5 to yield 6.5%

HD Supply this afternoon completed an add-on offering of 8.125% secured notes via bookrunners Bank of America, Goldman Sachs, Barclays, J.P. Morgan, Credit Suisse, Deutsche Bank, Wells Fargo, and UBS, sources said. The company’s return to market after four months met healthy interest, precipitating a $100 million upsizing, to $300 million, and putting the total outstanding in the fully fungible series to $1.25 billion. The B+/B2 notes are non-callable until April 2015, and then are callable at a higher-than-usual first call price of par plus 75% of the coupon. Proceeds will be used for general corporate purposes, initially to repay borrowings under the company’s ABL facility, sources note. Terms:

     
  Issuer HD Supply
  Ratings B+/B2
  Amount $300 million
  Issue add-on secured notes (144A)
  Coupon 8.125%
  Price 107.5
  Yield 6.525%
  Spread T+553
  FRN eq. L+534
  Maturity April 1, 2019
  Call nc3 @ par plus 75% coupon
  Trade July 30, 2012
  Settle Aug. 2, 2012 (t+3)
  Jt. Books BAML/GS/Barc/JPM/CS/DB/WFS/UBS
  Px talk 107.375 area
  Notes upsized by $100 million; total now $1.25 billion; original $950 million priced April 5, 2012 @ par

Most Recent Comps ($$)

HD Supply (Cov-Lite TL 4/12) 1000.00M Deal Dossier
HD Supply (HY 3/12) 1625.00M Deal Dossier
HD Supply (ABL RC 4/12) 1500.00M Deal Dossier
HD Supply (Extend 4/10) 873.00M Deal Dossier
BMHC (2nd Lien 1/10) 135.00M Deal Dossier
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McClatchy shares, bonds advance after 2Q results blow past estimates

The McClatchy Company shares surged nearly 13%, to $1.89, and the company’s debt advanced after second-quarter results blew past Street expectations. The 5.75% unsecured notes due 2017 traded three points higher, at 82.25, while the secured 11.5% notes due 2017 gained the same amount, with prints at 106.5, according to trade data.

The company’s net income in the second quarter was $26.9 million, or $0.31 per share, versus net income of $4.9 million, or $0.06 per share in the 2011 comparable period, the company statement shows. S&P Capital IQ calculates normalized EPS at $0.19 per share, which is nearly double its consensus mean estimate of $0.10 per share.

Gains in EPS are noted even as net second-quarter revenue slipped 4.8%, to $299.3 million, as compared to the year-ago second quarter, according to the firm. Advertising revenues declined 5.7%, but digital advertising expanded by 4.9%, the company stated. Management noted that advertising trends were deeper in the first quarter, down 6.8%, so sequentially the figure is improving.

The fallen angel issued the 11.5% secured notes in early 2010 as part of a debt repayment effort. Ratings were B-/B1 at offer. S&P briefly upgraded its rating to B+ on improving earnings, but then lowered to the current B/B1 profile a year ago on declining advertising trends.

McClatchy is the third-largest newspaper publisher in the U.S. in circulation, with 30 daily newspapers and 50 non-dailies, including the Miami Herald, the Sacramento Bee, the Fort Worth Star-Telegram, the Kansas City Star, the Charlotte Observer, and Raleigh’s News & Observer. The company trades on the NYSE as MNI with an approximate $162 million market capitalization, according to S&P Capital IQ. – Matt Fuller

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Aurora Oil & Gas high yield bonds price at 101.5 to yield 9.36%

Aurora USA Oil & Gas today completed a fungible add-on to its 9.875% notes due 2017 via bookrunners Credit Suisse and UBS, according to sources. Pricing came at the midpoint of talk after a $65 million upsizing from the original target size. Proceeds from the deal will be used to fund capital expenditures for development of the company’s Eagle Ford shale holdings. Funds will also be used for other general corporate purposes, including possible acquisitions of oil and natural gas interests, the company said. The additional notes bring the outstanding issue size to $365 million. Terms:

Issuer Aurora USA Oil & Gas
Ratings CCC+/Caa1
Amount $165 million
Issue add-on senior notes (144a-life)
Coupon 9.875%
Price 101.5
Yield 9.364%
Spread T+901
FRN eq. L+880
Maturity Feb. 15, 2017
Call nc2.5
Trade July 26, 2012
Settle July 31, 2012 (T+3)
Joint Bookrunners CS/UBS
Co-Leads
Co’s.
Px talk 101.5 area
Notes w/ equity clawback for 35% @ 109.875 until 2/15/15; carries T+50 make-whole call; w/ change of control put @ 101.
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Toys ‘R’ Us eyes looming debt maturity with $350M high yield bond issue

Toys ‘R’ Us is driving by the high-yield market today with a $350 million issue of five-year (non-call 2.5) senior notes via lead bookrunners J.P. Morgan and Goldman Sachs, along with additional bookrunners Bank of America and Deutsche Bank, according to sources. The deal is being made to address a looming April 2013 maturity: $400 million of 7.875% bullet notes.

The company announced the transaction this morning, saying proceeds from the bond deal and cash on hand will be used to fully redeem the issue, which was sold in 2003 with BBB ratings. Because the issue is non-callable for life, it’s expected that the company will have to execute the T+50 make-whole provision, which works out to about 105% of par.

Existing senior notes are CCC+/B3/B, and Fitch confirmed that rating this morning, with a stable outlook. Besides the 7.875% notes, the company also has approximately $910 million in various European real estate credit facilities due between February and April 2013, according to Fitch, which expects Toys ‘R’ Us to address all its refinancing needs with cash, dividends, and loans over the next 3-4 months.

Toys ‘R’ Us has been absent the high-yield market since August 2010, when it placed a $350 million issue of 7.375% secured notes due 2016 in an effort to repay term debt. The bonds carried BB-/B1 ratings when they were issued at par, but they now are rated B+/B1 and are pegged at 98.25, yielding about 7.9%, according to S&P Capital IQ.

Pari passu to today’s new issue are the company’s 7.375% notes due 2018, also legacy fallen-angel paper with no call options beyond the make-whole provision. The paper trades around 84, yielding about 11%, trade data show.

In a June 8 quarterly filing, the company said it has begun discussions on potential refinancing options with “various lenders and advisors.” The company said it believes it has the ability to refinance or repay the credit facilities and bonds prior to their maturity dates, but cautioned that “given that the majority of our upcoming maturities are concentrated in Europe, the weakness of the European economic climate could reduce or restrict our ability to refinance these debt obligations on favorable terms.”

As of April 28, the company had about $5.5 billion of debt, including $3.3 billion of secured debt.

Toys ‘R’ Us was in the loan market in April for a $225 million B-3 term loan, which was issued at 98. Proceeds were earmarked for general corporate purposes, including debt repayment.

The retailer, which is controlled by Bain Capital, KKR, and Vornado Realty Trust, is rated B/B1. – Matt Fuller

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RadioShack bonds tumble, stock dividends suspended, as 2Q results miss expectations

RadioShack bonds and shares are trading lower this morning after the company reported second-quarter results that missed expectations. The electronics retailer’s 6.75% notes due 2019 are pegged in a 66/68 context, and the paper traded at 65 out of the gates this morning, down from the mid-70s yesterday, according to market sources and trade data.

Although second-quarter revenue of $953.2 million was up 1.2% from a year ago, it fell short of consensus estimates of $970.4 million, according to S&P Capital IQ. The gross profit margin in the quarter shrank to 38%, from 46% in the comparable year-ago period, which management said was impacted by a shift toward lower margin smartphones. Adjusted EBITDA from continuing operations swung to negative $1.1 million, from positive $69.1 million in the year-ago period.

Net loss in the quarter was $21 million, or $0.21 per share, but the market was looking for earnings of around $0.03 per share. Earnings in the same period a year ago were $24.9 million, or $0.24 per share.

The company also announced it was suspending its stock dividend to increase cash flow and help fund debt repayment. RadioShack has $375 million of convertible notes maturing in August 2013 and the company plans to refinance half of that debt in the coming months and will pay down the balance with excess cash. Current total liquidity of $910.2 million includes $517.7 million of cash and $392.5 million of availability under a revolver, the company said.

RadioShack shares are sharply lower, shedding roughly 26%, to $2.67 per share.

RadioShack debuted in the high-yield market one year ago with the $325 million issue of 6.75% notes via Bank of America, Goldman Sachs, J.P. Morgan, and Wells Fargo, and with proceeds supporting general corporate purposes, according to sources. Issuance was at par with BB/Ba2 ratings. The downgrades since that time to the current B+/B2 profile were tied to weak operating trends. – Jon Hemingway

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Dividend loan volume jumps in July, thanks largely to private equity

The loan market’s July recovery has breathed fresh life into dividend financing, with issuers tapping loan accounts for $3.8 billion of dividend-related new issues during the month (as of July 20). That’s the largest monthly sum since April and is up from just $750 million in June.

July’s burst of loan activity brings dividend-driven loan volume to $28.2 billion in the year to date, versus $35 billion during the same period in 2011. Still, recap activity remains on pace to exceed the all-time high of $49.3 billion, from 2007.

By contrast, high-yield bond recaps have gone missing entirely in July despite hot market conditions, and they continue to lag far behind last year.

Bond recap volume totals $7.4 billion in the year to date, down from $19 billion in the same period in 2011. Therefore, total dividend-related leverage financing is down 34%, to $35.7 billion, year-over-year.

The reason dividend financing has skewed toward loans this year is the outsized influence of private equity firms in this financing segment. PE firms, arrangers explain, want to preserve the option of tapping the IPO market or selling off portfolio companies unencumbered by the no-call periods and high prepayment fees associated with bonds.

PE-backed firms, in fact, account for most of July’s recap activity, thanks in part to a big boost from Booz Allen Hamilton. Although the issuer is now publicly held, it’s still largely owned by Carlyle.

PE firms also are punching above their weight in the year to date, at 79% of recap loans, versus 48% of overall volume. That’s at the wide end of the historical range:

As this implies, 2012 has been the year of the dividend for PE firms. Consider that as of July 20, LCD has tracked $11 billion of dividends financed with leveraged loans, versus $17 billion of equity invested in new LBOs. That means that sponsors collectively have withdrawn 65 cents of dividends for every dollar of fresh capital they’ve invested in a new LBO (again, this is for deals backed by leveraged loans). Said another way, 39% of PE capital flow has been out of issuers via dividends – surpassing the prior high of 33%, from 2010.

Looking ahead, participants expect dividends to remain a major source of loan supply. For one thing, arrangers say that though screening activity for new LBOs has picked up recently, most of these potential deals will not materialize until the fourth quarter. That will leave plenty of room to issue dividend deals in the months ahead when technical conditions allow.

For another, PE firms remain focused on generating liquidity for limited partners that have seen relatively few liquidity events since the bear market of 2008/2009. In 2012, for instance, LCD has tracked 29 sponsor-to-sponsor deals, while S&P Capital IQ lists 14 PE-backed IPOs. By comparison, there have been 44 dividend deals alone so far this year through which PE firms have extracted 66% of their original capital commitment, on average.

Dividend financing, by the numbers
This year’s dividend deals are less ambitious than those executed during 2011 – most of which were inked in the first half, when the market was hitting on all cylinders. On average, issuers in July added 1.2 turns of leverage via recaps – to 4x, from 2.8x pre-transaction – versus 1.7 turns in 2011.

As usual, lenders are taking a more cautious approach to dividend deals than LBO deals. The reasons here are obvious: recaps extract equity, while LBOs are packaged with new capital. Thus, the average 4x pro forma debt multiple of 2012 dividend deals is inside the 4.8x average of large-corporate LBOs.

For this reason, in part, recaps have produced a lower rate of default historically than the broader leveraged loan population. The cumulative default experience of 2004-2007 recap loans, for instance, is 6.9%. That compares to 7.9% for all other deal purposes. – Steve Miller

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Caterpillar SPL Logistics bonds price; proceeds back Platinum Equity buy

The offering of secured notes backing the buyout of Caterpillar’s logistics-services business by Platinum Equity under the moniker SPL Logistics was completed this afternoon via bookrunners UBS and Macquarie, sources said. Issuance is under Rule 144A for life at the tight end of talk after a $25 million upsizing, to $450 million. Ratings for the company’s debut in market are B+/B2. Proceeds from the deal back Platinum Equity’s acquisition of a 65% stake in Caterpillar Logistics. A new $60 million revolving credit line will be untapped, and the sponsor is putting in about $226 million, sources note. Note that bond-deal proceeds are going into escrow pending consummation of the buyout, and there is a mandatory prepayment, at par, if the acquisition is not completed by Nov. 7, 2012, according to sources. Terms:

Issuer SPL Logistics Escrow (Caterpillar Logistics)
Ratings B+/B2
Amount $450 million
Issue secured notes (144A-life)
Coupon 8.875%
Price 100
Yield 8.875%
Spread T+781
FRN eq. L+758
Maturity Aug. 1, 2020
Call nc4
Trade July 24, 2012
Settle July 31, 2012 (t+5)
Books UBS/Macquarie
Px talk 9% area
Notes upsized by $25 million; w/mandatory redemption, at par, if acquisition is not consummated by Nov. 7, 2012


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Sabra Health Care add-on bonds price at 106 to yield 6.5%; terms

Sabra Health Care today completed an add-on offering of senior notes via Bank of America, Barclays, and Wells Fargo, according to sources. Issuance was at guidance after a $25 million upsizing, to $100 million, bringing the total outstanding in the series to $325 million. The healthcare REIT intends to use net proceeds from the offering to repay the $42.5 million outstanding under its $200 million revolving credit facility. The remaining proceeds will be used to fund possible future acquisitions or for general corporate purposes. Terms:

Issuer Sabra Health Care
Ratings BB-/B1
Amount $100 million
Issue add-on senior notes (144A)
Coupon 8.125%
Price 106
Yield 6.487%
Spread T+593/five-year
LIBOR eq. L+570
Maturity Nov. 1, 2018
Call nc2 (originally nc4)
Trade July 23, 2012
Settle July 26, 2012 (T+3)
Books BAML/Barc/WFS
Px talk 106 area
Notes w/ three-year equity clawback for 35% @ 108.125; w/ change-of-control put @ 101; carries T+50 make-whole call; upsized by $25 million; original $225 million priced Oct. 22, 2010 @ par.

 

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European markets weaken on sovereign fears; loans resilient

Following a weak close in Asia overnight, the FTSE 100 is down sharply this morning, trading 1.67% lower, as anxiety surrounding peripheral sovereigns and Europe increases. Greece’s 10-year government bond yields are 90 bps wider today, at 25.6%, while Spanish and Italian yields are 20 bps wider, at 7.4% (a record) and 6.3%, respectively. The iTraxx Crossover is 23 bps wider this morning, at 685.

The market-wide weakness is a result of murmurs that the IMF and some eurozone members – including Germany – may be considering withdrawing their continued support for Greece. Spain also remains in the spotlight due to reports that an additional six regional governments in that country may ask for funds. These developments come ahead of macro numbers set for release tomorrow, such as European PMI, and the U.K.’s second-quarter GDP reading.

Heading into the summer lull, the secondary credit markets are quiet overall, sources said. There is some selling in cash bonds, but no panic selling yet, sources added. Those names at the higher end of the credit spectrum are down 0.25-0.5 points, while those rated lower and considered high-beta are down 0.5-1.5 points, according to sources. Italian telecoms group Wind‘s 7.375% notes due 2018 are a point lower so far, marked around a mid price of 85. Spanish gaming concern Codere‘s 8.25% notes due 2015 – which recovered last week on news of a potential renewal of gaming licenses in Argentina – have surrendered some of their gains today and are also marked roughly a point lower, at 80, sources said.

While its bonds remain comfortably above par, Fresenius Kabi – Fresenius’ division focused on therapy for and the care of critically and chronically ill patients – announced it has agreed to acquire Fenwal Holdings, a U.S.-based provider of transfusion technology products for blood collection and processing, from TPG and Maverick Capital. For the 2011 financial year, Fenwal posted sales of $614 million, and adjusted EBITDA of $90 million. Fresenius will fund the acquisition through existing funds, and continues to assess the options for its proposed acquisition of Rhoen-Klinikum, the company said. There will be a call at 2:30 p.m. CET today, and the transaction is anticipated to close by the end of 2012, subject to regulatory approval.

Activity in loans is also subdued, with new paper marked above par and technicals keeping the market frothy for now. However, investors comment that paper is starting to look expensive as the last European loan deals begin to wrap up. Wood Mackenzie is currently out with a £425 million senior loan financing, for which replies are due July 27, and final replies due Aug. 1. Elsewhere, a mandate for Bartec is being finalised to support Charterhouse’s bid. – Sohko Fujimoto