DuPont Coatings buyout by Carlyle Group likely to yield big loan, bond financings

The Carlyle Group’s purchase of DuPont Performance Coatings is expected to yield debt financing of roughly $3.9 billion, according to sources.

The $4.9 billion cash purchase is expected to close in the first quarter 2013, subject to customary closing conditions and regulatory approvals. The companies’ announcement didn’t identify the lead lenders, but bankers who’ve been evaluating the transaction in recent months suggested the deal could include roughly $2.5 billion of term loans and another $1.4 billion of bonds.

The transaction was not included in yesterday’s estimate of the visible institutional calendar; including the deal would push the visible pipeline to $25.9 billion, and the visible M&A related institutional pipeline to $18.6 billion.

DPC is a global supplier of vehicle and industrial coating systems with 2012 expected sales of more than $4 billion and more than 11,000 employees.

Founded in 1922 and headquartered in Wilmington, Del., DuPont Performance Coatings is a global manufacturer, marketer, and distributor of advanced coating systems primarily for the transportation industry. The company comprises four segments: refinish, OEM, industrial liquid, and powder. The company operates manufacturing sites on six continents, serving customers in 120 countries directly and through 4,000 distributors.

Carlyle’s industrial and automotive investments include Allison TransmissionHertz, and PQ Corporation, as well as recent commitments to invest in Hamilton Sundstrand IndustrialSunoco’s Philadelphia refinery and regional rail freight operator Genesee & Wyoming. – Chris Donnelly


Navistar bonds, stock edge higher following news of CEO ouster

Navistar International announced today embattled CEO Dan Ustian would be stepping down and replaced in the interim by former Textron CEO Lewis Campbell. The executive shakeup comes at a time when the Illinois-based truck maker is undergoing previously announced steps to address a problematic capital structure and business model. Ustian will also leave the board of directors, according to the announcement.

Under Ustian, Navistar found itself facing challenges revamping its product line following an Environmental Protection Agency’s rejection of its engine technology, slowing demand and a troublesome debt burden, according to sources and ratings notes. The corporate rating is at junk status of B/B2.

The company’s $900 million issue of 8.25% senior notes due 2021 have moved up to trade in round lots as high as 96.75 today after trading heavily last week in a 95.5/96.5 context, according to sources and trade data, with odd lots reaching 98 following the news. The $570 million in 3% sub notes continue to trade in the 90s context, according to trade data, unchanged from trades last week.

Navistar recently announced several steps to address its troubles, including new financing. It also said it faces an SEC probe.

The new $1 billion term loan the company arranged to deal with certain issues remains in a 101 context, where it broke Aug. 16, according to sources. The five-year loan, rated B+, which was issued at 99, is priced at L+550, with a 1.5% LIBOR floor.

The 8.25% notes had slipped following news the SEC probe into accounting and disclosure matters and an operational update that included withdrawal of 2012 guidance. The news prompted a downgrade by both Moody’s and Standard & Poor’s.

The signs of distress attracted activist investors Carl Icahn, who recently bought up 15% of the company’s stock, and Mark Rachesky, whose hedge fund MHR Fund Management disclosed a 13.6% stake in Navistar in July, spurring both stock and bond gains at the time.

Following the announcement, the company’s stock rose 1.5% today at 4:03 p.m. EDT, to trade at $23.32 today at 4:03 p.m. EDT versus the previous close. – Max Frumes


High yield issuance surges in August as issuers chase low-cost funding

Issuance ballooned in the U.S. high-yield market in August as a parade of borrowers jumped in to meet strong investor demand and capture tighter funding levels. The frenetic activity over the first two weeks of the month helped make this the second-busiest August on record.

With business drying up this week amid the traditional summer lull, August volume projects to be approximately $30.3 billion from 51 issuers. Those figures, which are the most by both counts since March, compare to $21.2 billion from 41 deals in July, according to LCD. That two-month tally already nearly matches the second quarter’s $51.8 billion volume total. The surge in August pushed volume for the year above $203 billion, or 15% higher than the comparable period a year ago, versus a 4% deficit at the end of the second quarter.

After a brief market correction in May and June, issuers have enjoyed improved borrowing conditions behind escalating demand and a secondary market rally. Data from EPFR Global show that investor coffers have been bolstered by a 10-week streak of retail-cash inflows totaling $9.8 billion. Meanwhile, the OAS on the Bank of America High Yield index tightened to T+588 on Aug. 22, from T+610 at the beginning of the month, while the yield to worst fell to 6.82%, from 6.96%.

With that, clearing levels for fresh paper tightened to 6.96% across all issues in August, from 7.84% in July and a year-to-date average of 7.77%. Narrowing the focus to just single-B transactions, the average yield for such deals in August was 7.36%, versus 7.85% in July and a year-to-date average of 8.17%. Nineteen transactions totaling $14.6 billion were priced with a yield under 6%, representing 48% of total August issuance (including two split-rated deals). By contrast, 10 issues for $3.6 billion, or 12% of the total, priced with a yield of more than 8%.









Notable prints during August include an all-time low coupon for a new issue with a maturity of at least seven years (excluding split-rated deals): the 4.625% bullet notes due 2023 for Constellation Brands, which, at BB+/Ba1, had crossover appeal. Meanwhile, Continental Resources reopened its 5% callable notes due 2022 at 102.375, capturing the lowest-yield print at 4.624%. Pricing of the BB+/Ba2 paper came 32 bps atop where the existing paper was pegged before news of the tack-on. Iron Mountain logged the lowest print for single-B subordinated notes with its 5.75% notes due 2024 (B+/B1). And Penske Automotive Group a week later placed 5.75% subordinated notes due 2022 with ratings one notch lower, at B/B2.

Breaks into the secondary were not as robust as in June and July, but that can partly be chalked up to compressing new-issue premiums and tighter clearing levels. For example, repeat borrowers in August on average had new debt pricing roughly 35 bps higher than where comparable existing paper was trading pre-announcement, compared to average premiums of 43 bps and 50 bps for deals priced in the first and second quarters, respectively, according to LCD.

Bids for new issues as they broke into the secondary were approximately 0.72 points higher than offer on average for deals priced in August. That’s down from 0.91 points in July and a year-to-date average of 0.85 points. That said, follow-on demand remained solid despite the concentration of supply in the first half of the month. As of Aug. 22, these deals as a group were indicated about 1.1 points higher from issue, on average.

With borrowing rates for high-yield issuers so low, it is not surprising to again see heavy activity geared toward refinancing existing debt. In August, $19.9 billion, or 69% of the month’s total volume, was earmarked to repay debt. That is the highest by both measures since March. Of that, 40.5% was specifically for repaying bonds, while 35% backed term loan takeouts, according to LCD. Among the companies rolling over bond maturities were TXUSandRidge Energy, and Steel Dynamics, while notable bond-for-loan takeouts were launched by Caesars EntertainmentCommunity HealthFirst Data, and Univision Communications.

Standouts refinanced much-higher coupon paper. For example, Charter’s CCO Holdings subsidiary was able to achieve a 5.25% coupon on 10-year notes after a $250 million upsizing, to $1.25 billion, with proceeds supporting repayment of 13.5% paper. Likewise, Sirius XM Radio netted a 5.25% coupon on $400 million of 10-year notes backing repayment of 13% notes due next year. Recall the latter issue was placed in summer 2008 to back a merger of Sirius and XM. The bonds priced at 89.9, to yield 16%, amid a dearth of issuance thanks to the credit crunch. – Matthew Fuller


Univision nets lender OK of leveraged loan amendment

Lenders to Univision Communications have approved an amendment that allows the company to apply proceeds from its recently completed bond deal to repay borrowings under its non-extended term loan due 2014 (L+225) and its extended term loan due 2017 (L+425) on a ratable basis, sources said.

Without the amendment, the company would have been required to repay borrowings under the non-extended tranche ahead of the extended loan.

Deutsche Bank ran the amendment. Consents were due Tuesday.

The privately held Spanish-language media company currently has roughly $450 million outstanding under the non-extended loan and about $5.5 billion under the extended tranche.

As reported, the company last week completed a $625 million issue of 6.75% secured notes due 2022, which priced at par via bookrunners Deutsche Bank, Bank of America, Barclays, Credit Suisse, Morgan Stanley, and Wells Fargo. The deal was upsized by $125 million.

This marks the company’s second bond deal this year, following a $600 million tack-on in January to its 6.875% secured notes due 2019, bringing the total issue size to $1.2 billion.

Univision was acquired in 2007 by a consortium comprising Madison Dearborn, Providence Equity Partners, Saban Capital Group, Thomas H. Lee, and TPG Partners. Corporate ratings are B/B3. – Kerry Kantin/Jon Hemingway


CLO resurgence continues in 2012 despite expectations for slowdown

The widely expected summer slowdown in CLO issuance is proving less severe than many participants feared.

After CLO issuance averaged $3 billion a month in the first half of the year, managers printed $1.8 billion of new vehicles in July and another $1.9 billion during the first half of August, when ING Asset Management, Halcyon, Symphony, American Capital Strategies, Highbridge, Franklin Advisers, and TICC Capital put deals on the board. That brings year-to-date volume to $22 billion, which is the highest annual figure since 2007. For reference, $12.3 billion of deals printed in all of 2011.


Looking ahead, indicators point to potential strong volume in the next months, with signs looking positive for CLOs to finish the year strong and push to the wide end of strategist expectations of $20-30 billion.


Europe: Purchase price multiples creep up, while M&A outlook sags with vendors willing to wait for higher returns

The persistent imbalance between the volume of cash coming into the leveraged loan market and the availability of new deals to absorb that cash continues to generate a healthy technical bid for assets. Starting with the fourth quarter of 2008, TLB/TLC/second-lien new issuance has lagged repayments out of the S&P European Leveraged Loan Index (ELLI) in 14 out of 16 quarters, and in the three months to the end of July institutional primary volume was 36% lower than the €5.9 billion of repayments.

This trend has supported a strong secondary bid, and has the potential to feed into a lively primary market during the autumn session.

Lively, that is, if deals actually come forward and make the most of the demand for assets. The auction pipeline is fairly patchy, and various prospects have fallen away recently. Although it’s perfectly normal for auctions to falter and fail, the roll call of busted auctions includes some large transactions that would have made a splash in the otherwise sparse market.

These pulled deals include the sale of Belgian mobile operator Base, which generated EBITDA of €273 million in 2011. The auction was under threat following reports that Telenet had backed away and vendor KPN was therefore less likely to make its sale target. On Wednesday, KPN confirmed that it has pulled the sale, as bids were not high enough.

Last month, the long-discussed sale of a 50% stake in Italy-based pharmaceuticals group Rottapharm-Madaus to two sponsors was pulled, with the CEO citing differences of opinion over governance issues. Previously, Permira’s auction of frozen-food business Birds Eye Iglo was pulled in late June as bids fell short of the vendor’s target.

Also in question are Allianz’s sale of Selecta – which is deemed unlikely to go ahead as the sponsor is understood to be unhappy with the bids – and the sale of Schenck by IK Investment Partners. Unfunded bids for the latter business went in on Aug. 6, but were disappointing, sources said.

There are rumours circulating the market of sponsor interest in M&S, and a buyout of the iconic U.K. retailer would certainly make an enormous splash. But few seem to be taking this prospect seriously – after all, it would entail a jumbo sterling deal for a U.K. retailer with a large pension deficit and a recent spell of poor trading. Even with the attractions of the brand, the market capitalisation of more than £5.6 billion would require several sponsors to work together, and finding the debt financing could be a huge struggle as the combination of size and sector would put it well outside most banks’ comfort zone.

The key difficulty in pepping up the pipeline continues to be getting buyers’ and sellers’ expectations to meet up, and on this front there has been relatively little development this year, as vendors tend to be unhurried and are willing to wait to try to achieve a better return. “There is still a wide gap, unless the seller is incentivised or forced,” says a banker, adding that there are few prospects arising from corporates actively trying to sell divisions.

Purchase prices by country, sector
With this patchy M&A picture in the background, average purchase price multiples (PPMs) on buyouts in the leveraged loan market have started to creep up. The LTM reading for Europe as a whole stood at 9.19x through the end of July, up from 8.86x in full-year 2011.

Germany-based transactions have seen a stronger-than-average increase, rising by more than a turn to 9.19x, versus 8.07x. Given the thin deal flow in the last 12 months this reading could simply be caused by one or two outliers, but it does chime with the status of the German economy as the strongest in the eurozone, making it realistic for sponsors to bid most aggressively for companies based there.

In terms of PPMs by sector, defensives naturally attract higher multiples, at 9.48x LTM, up a touch from 9.24x in 2011. But the bidding for cyclical-sector credits has seen a more pronounced increase in the average PPM, to 8.85x LTM, from 7.68x in 2011.

Again, these readings are vulnerable to being swung by a small number of credits, since the dealflow has been so scant recently. However, a pick-up in the appetite for cyclicals could be symptomatic of improving confidence in the outlook for these credits, if buyers believe the macro picture has crept a few steps closer to recovery – or at least a few steps away from disaster.

In the cases of both the cyclicals and defensive sector cohorts, average equity contributions have risen from roughly 45% to just under 49% between the 2011 and LTM readings.

Cutting the data by country again, an increase of roughly this magnitude is seen in most countries, but with some variations. Equity contributions are slightly higher than average in France, for example, rising to 56.2% LTM, from 51.46% in 2011 – unsurprising considering the market’s experience of painful restructurings over the past three years.

It is also notable that in Germany, the average equity contribution has actually fallen, albeit only slightly, from 49.6% in 2011, to 46.9% LTM, bucking the trend seen across the rest of the market. These figures support the argument – suggested by Germany’s higher PPMs – that more aggressive deal structuring is possible for German companies.

The picture in terms of financing multiples has been fairly steady. Total leverage multiples on all leveraged deals have increased from 4.39x in 2011 to 4.47x in the first seven months of 2012, while multiples on LBOs have increased from 4.49x to 4.6x.

Putting aside the nuances of country and sector, some sources argue that higher PPMs are simply a product of desperation among sponsors for new deals in a slow but highly competitive market. “Most sponsors get similar debt packages, so they can only differentiate themselves by the amount of equity,” says an arranger.

However, even if sponsors are eager to spend their spare cash there will be a natural ceiling on PPMs, since most buyouts generate returns for the sponsor from growth in the underlying business. Under the current economic conditions, it is hard to see much growth in the next few years, which will make sponsors wary of paying up too aggressively, sources say. – Ruth McGavin


Unisys senior notes price at par to yield 6.25%; terms, details

Unisys today completed an offering of senior notes via sole bookrunner Citi, according to sources. Terms printed at the midpoint of guidance and at the target size of $210 million. Proceeds from the deal will be used to redeem $183 million of outstanding 12.75% secured notes due 2014. That paper was issued in August 2009 as part of an uptiering debt-exchange exercise. Blue Bell, Pa.-based Unisys is an information-technology company that provides IT services, software, and technology solutions worldwide.



Issuer Unisys
Ratings BB-/B1
Amount $210 million
Issue senior notes (SEC-registered)
Coupon 6.25%
Price 100
Yield 6.25%
Spread T+543
FRN eq. L+522
Maturity Aug. 15, 2017
Call nc-life
Trade Aug. 16, 2012
Settle Aug. 21, 2012 (T+3)
Joint Bookrunners Citi
Px talk 6.25% area
Notes carries T+50 make-whole call; w/ change-of-control put @ 101.

DaVita prices upsized note offering at par to yield 5.75%

DaVita today completed an offering of senior notes via joint bookrunners J.P. Morgan, Barclays, Bank of America, Credit Suisse, Goldman Sachs, Morgan Stanley, SunTrust, and Wells Fargo, according to sources. The deal was upsized by $250 million while final terms came at the tight end of guidance, which itself was tight to the pre-marketing whisper, sources note. Proceeds back the Denver-based dialysis provider’s acquisition of HealthCare Partners Holdings. The transaction’s total consideration includes $3.66 billion in cash that will be funded with debt and approximately 9.38 million shares of DaVita common stock. Financing also includes a $1.65 billion TLB-2 and a $1.35 billion TLA-3. Pro forma leverage for the transaction is 3.7x, according to the company. Terms:

Issuer DaVita
Ratings B/B2
Amount $1.25 billion
Issue senior notes (off the shelf)
Coupon 5.75%
Price 100
Yield 5.75%
Spread T+404
FRN eq. L+394
Maturity Aug. 15, 2022
Call nc5
Trade Aug. 14, 2012
Settle Aug. 28, 2012 (T+10)
Joint Bookrunners JPM/Barc/BAML/CS/GS/MS/Sun/WF
Px talk 5.75-5.875%
Notes w/ three-year equity clawback for 35% @ 105.75; carries T+50 make-whole call; w/ change-of-control put @ 101; upsized by $250 million.

GM Financial preps benchmark-sized 5-year bond offering backing GCP

General Motors Financial Company is back in market after 15 months with another benchmark-sized offering of five-year bullet notes, according to sources. Look for terms this afternoon via Citi, Credit Suisse, and Deutsche Bank, the sources note.

Although expected to be rated BB-/Ba3, the transaction is being steered off high-grades desks towards crossover investors, according to sources. Issuance is under Rule 144A, the sources add. Proceeds will be used for general corporate purposes.

GM Financial, formerly known as AmeriCredit, was last in market in March 2011 to help pay down high-coupon, legacy AmeriCredit 8.5% notes due 2015. A $500 million issue of 6.75% notes due 2018 were issued at par, the wide end of talk, but it’s now pegged at 111.5, yielding about 4.5%, according to S&P Capital IQ.

Fort Worth, Texas-based GM Financial provides auto financing through auto dealers across the U.S. and Canada. The company was formed through the October 2010 acquisition of AmeriCredit by General Motors Holdings. – Matt Fuller


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HY mutual fund inflows swell in 9th consecutive positive reading

Data from EPFR Global show a $1.1 billion cash inflow to U.S.-domiciled high-yield mutual funds and exchange-traded funds in the week ended Aug. 8, by the weekly reporters only. With $846 million attributable to mutual funds, the approximate 23% balance was ETF-driven.

The cash inflow is nearly double last week’s $587 million inflow, and it extends the streak to nine weeks of cash inflows totaling $9.5 billion. And with yet another week-over-week infusion, the four-week outflow streak during the May correction, which totaled $6.3 billion, is a faded memory.

The trailing-four-week average slips to positive $1 billion per week, from $1.1 billion last week. Recall that eight weeks ago this figure was deeply negative, at $1.6 billion per week on average.

The year-to-date total inflow is now $21.1 billion, of which $7.4 billion is ETF inflows, or 35% of the total. Last year the $13.1 billion of full-year inflows included $5.5 billion of ETF inflows, or 42% of the total.

Net asset value increased amid strong market conditions this past week, rising $982 million, or 0.5%. That’s based on $188 billion of total assets of the weekly reporter sample, versus $186 billion at the end of the prior week, and stripping out the inflow. Net assets are up 30% so far this year after an 18% gain in 2011, according to EPFR. – Matt Fuller