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US Foods add-on high-yield bonds price at 101.5 to yield 8.1%; terms

U.S. Foods this afternoon completed an add-on offering of senior notes via a large bookrunner group helmed by Deutsche Bank and including Citi, BMO, Goldman Sachs, KKR, J.P. Morgan, Morgan Stanley, Natixis, and Wells Fargo, according to sources. Terms were inked inside of talk, at 101.5, compared to 101-area guidance, and the deal was upsized by $50 million, to $400 million, bringing the total outstanding to $800 million. Proceeds will be used to repay the issuer’s non-extended term loan, and excess capital raised in the upsizing will be used to repay borrowings under its asset-based revolving credit, according to sources. The deal comes three days after a Citigroup-led arranger group launched an extension of U.S. Foodservice’s roughly $700 million non-extended term loan that is open to both new and existing lenders. Terms:

Issuer US Foods
Ratings CCC+/Caa2
Amount $400 million
Issue add-on senior notes (144A)
Coupon 8.5%
Price 101.5
Yield 8.098% (to worst) / 8.198% (to maturity)
Spread n/a
FRN eq. n/a
Maturity June 30, 2019
Call nc1.5 (originally nc3)
Trade Nov. 30, 2012
Settle Dec. 6, 2012  (T+4)
Books DB/CITI/BMO/GS/KKR/JPM/MS/NTX/WFS
Px talk 101 area
Notes upsized by $50 million; total now $800 million; original $400 million priced May 2011 @par; 1st call @ par +75% of coupon

 

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GulfMark Offshore add-on bonds price at 100.5 to yield 6.3%; terms

GulfMark Offshore this afternoon completed an add-on offering of senior notes via bookrunners Wells Fargo, J.P. Morgan, and RBS, according to sources. Terms came spot on the price talk of 100.5, and demand allowed for an upsizing by $50 million, to $200 million, bringing the total outstanding in the series to $300 million. Proceeds from the fungible add-on will be used to repay certain existing credit facilities and for general corporate purposes, including the funding of vessel-construction costs, the company said. Houston, Texas-based GulfMark provides offshore marine services to oil-and-gas exploration-and-production companies. Terms:

Issuer GulfMark Offshore
Ratings BB-/B1
Amount $200 million
Issue add-on senior notes (144A)
Coupon 6.375%
Price 100.5
Yield 6.286%
Spread T+481
FRN eq. L+472
Maturity March 15, 2022
Call nc4 (originally nc5)
Trade Nov. 30, 2012
Settle Dec. 5, 2012 (t+3)
Books WFS/JPM/RBS
Co.’s DNB
Px talk 100.5 area
Notes upsized by $50 million; total now $500 million; original $300 million priced in March 2012 @par; w/ equity clawback through March 2015 for up to 35% @106.375; carries T+50 make-whole call.

 

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Fallen angels: How speculative grade issuers are transforming Europe’s credit markets (S&P)

In a new report from Standard & Poor’s, entitled “How New Speculative Grade Issuers Are Helping To Transform Europe’s Credit Markets”, the rating agency reflects on the rising number of speculative-grade rated credits, explains how the eurozone crisis has created a new dynamic for downgrades, how fallen angels retain good access to the capital markets, and that an accommodating high-yield market is making the ‘BB’ rating class more acceptable to companies.

S&P comments that the proportion of corporate credit ratings (excluding financials) with speculative-grade ratings has risen to 49%, from 27% in 2000. While this figure is still below that of the U.S., where 64% of ratings are speculative grade, the gap is narrowing.

In the past 12 years, 133 European corporate issuers rated by S&P have been downgraded to speculative grade. In 2012, there were 12, representing €76 billion in reported debt, with a further 10 potential fallen angels (see below for a list of these companies).

The eurozone crisis and subsequent downgrades to sovereigns is having a knock-on effect, and has added a new dimension to the evolution of the credit story in Europe, S&P comments. As rating agency notes, the downgrade of Portugal to ‘BB’ with a negative outlook on Jan. 13, 2012 resulted in four Portuguese companies joining the ranks of fallen angels. These actions, triggered by rising country risk, accounted for 33% of the downgrades to speculative grade in European corporates this year. This is a new development, as key factors behind most corporate rating actions have typically been specific to the company or sector, S&P adds.

Indeed, S&P notes that up until recently, fallen angels have typically been very sizable companies that have experienced significant challenges to their business models – either specific to the company or due to more general sector issues. A good example is British Airways, which was downgraded to BB in May 2009 due to the agency’s view of the sharp deterioration in the operating environment for airlines.

Now, however, S&P is seeing a high percentage of companies crossing the threshold to speculative grade, driven by its assessment of rising country risks, rather than company-specific credit factors. S&P notes however that the situation is not always so clear cut, as sovereign risk also affects its view of companies’ business prospects – an example being OTE, which was downgraded to B- in March 2011. The main driver for this was the deterioration of OTE’s results and stresses within the telecom industry, but another factor was the mix of economic and financial pressures on Greece that also negatively affected consumer spending in that country and resulted in high levels of tax and pension burdens for the company, S&P states.

While the number of fallen angels is on the rise, S&P comments that an important feature of the current credit story is that such companies have managed to maintain very good access to capital market funding in 2012. At the start of the year, European companies looked to the U.S market for funding as European markets were harder to access because of the crisis, but the second half of the year has seen them return to home turf. S&P notes that according to LCD Research, yankee trades comprised only 29% of total high-yield issuance in the second half of the year (to the end of October) compared with 45% in the first half.

S&P warns that it will be some time yet before more non-private-equity-owned European corporates are comfortable operating on a longer-term basis within the speculative-grade category. However thanks to greater investor liquidity and the cost of funds at low levels in the high-yield space, S&P feels the ‘BB’ broad crossover rating category may represent a more sustainable rating level for corporates in Europe than it has before – a shift that may align the distribution of ratings in Europe more closely with that of the U.S.

Nonetheless, while the economic environment in Europe remains moribund – and the number of downgrades is likely to increase in the immediate future – S&P thinks that the increase in diversity and liquidity in credit markets as more debt outstanding is added to the pool of speculative-grade credit could, over time, encourage more private companies to feel more comfortable being rated in the crossover ‘BB’ categories.

This year’s fallen angels are: Portugal Telecom, EDP, REN, Edison, Nokia, Italcementi, Ciments Francasi, Cimpor Cimenots de Portugal, A O Sovcomflot, Freight One, ArcelorMittal, and Co-operative Group. In total this represents €76.4 billion of debt.

Potential fallen angels (issuers rated BBB- and on creditwatch negative or negative outlook) are: Acquedotto Pugliese, AngloGold Ashanti, Clariant, Copenhagen Airports Denmark, Finmeccanica, FirstGroup, Gold Fields, Invensys, OJSC MegaFon, and OJSC NLMK. In total this represents €19.4 billion of debt.

The full report is titled “How New Speculative Grade Issuers Are Helping To Transform Europe’s Credit Markets”. Subscribers to RatingsDirect can access the research piece at www.globalcreditportal.com. Alternatively, to purchase/access the report, please contact Client Support Europe: +44 20 7176 7176 or [email protected]. – Luke Millar

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(EUR) Unitymedia high-yield bonds price at tight end of guidance; terms

Unitymedia today placed an upsized $1.65 billion dual-tranche 10-year (non-call five) secured bond offering. The $1 billion portion, upsized from an originally intended $845 million, priced at the tight end of 5.5-5.75% guidance. The €500 million tranche also came at the tight end of guidance, which was 5.75-6%. Proceeds from the deal will be used to fund a tender for the $845 million outstanding under the issuer’s 8.125% dollar notes due 2017. The company is offering to purchase the notes at 108.125, with an early-bird fee of 18.1 bps, for a total consideration of 108.306. The company also plans to reduce the outstanding amount under the euro 2017 notes from €1.41 billion, to €915.6 million, according to the bond documents. Joint bookrunners for the euro tranche are Deutsche Bank (B&D), Barclays, Citi, Credit Agricole, ING, and RBS. Joint bookrunners for the dollar portion are J.P. Morgan (B&D), Credit Suisse, Goldman Sachs, BNP Paribas, Bank of America Merrill Lynch, and Morgan Stanley. Terms:

 

Issuer Unitymedia Hessen
Ratings BB-/Ba3
Amount €500 million
Issue Secured notes
Coupon 5.75%
Price 100
Yield 5.75%
Spread B+438
Floating eq. E+408
Maturity Jan. 15, 2023
Call nc5
Trade Nov. 30. 2012
Settle Dec. 14, 2012 (T+10)
Books DB, Barclays, Citi, CA, ING, RBS
Px talk 5.75-6%
Notes
Issuer Unitymedia Hessen
Ratings BB-/Ba3
Amount $1 billion
Issue Secured notes
Coupon 5.5%
Price 100
Yield 5.5%
Spread T+397
Floating eq. L+392
Maturity Jan. 15, 2023
Call nc5
Trade Nov. 30, 2012
Settle Dec. 14, 2012 (T+10)
Books JPM, CS, GS, BNP, BAML, MS
Px talk 5.5-5.75%
Notes Upsized by $155M
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Saratoga Resources add-on high-yield bonds price at 98.58 to yield 13%; terms

Saratoga Resources on Thursday afternoon completed a $25 million offering of add-on secured notes via sole bookrunner Imperial Capital, according to sources. The original $127.5 million was completed in July 2011 with a three-year prepay option for up to 10% of the issue annually at a higher-than-usual 106.25% of par, so the add-on carries that feature for the remaining approximate year and a half. Houston, Texas-based Saratoga is an independent oil-and-gas company with properties located in south Louisiana. While the company’s debut in market last year was in support of debt repayment, this week’s print backs general corporate purposes, sources note. Terms:

Issuer Saratoga Resources
Ratings nr/nr
Amount $25 million
Issue add-on secured notes (144A)
Coupon 12.5%
Price 98.58
Yield 13%
Spread n/a
FRN eq. n/a
Maturity July 1, 2016
Call nc1.5 (originally nc2.5)
Trade Nov. 29, 2012
Settle Dec. 4, 2012 (T+3)
Books Imperial Capital
Px talk n/a
Notes w/ equity clawback for up to 35% @ 112.5 through July 2014; carries T+50 make-whole call; w/ prepay option for up to 10% of issue annually @ 106.25 through July 2014

 

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(EUR) Topical: In from the cold – HY opens its doors to PIIGS paper

Over the last two years LCD has looked at how debt domiciled in the stressed sovereigns of Portugal, Italy, Ireland, Greece, and Spain (GIIPS, aka PIIGS) has underperformed relative to the broader market. This underperformance is not surprising, given that the causes of these countries’ weakness (the prospect of sovereign default, the impact of recession, and fear of contagion) and the trigger for any rallies (some form of agreement to address fiscal health) have been constant.

However, the underperformance of debt domiciled in GIIPS does not necessarily mean it should be ignored. As both former loan borrowers and new issuers from these countries turn to the high-yield market, so far they have been the strongest borrowers out of the region, boasting strong fundamentals as well as a healthy premium. Going forward, however, this picture may change. As of the year to Nov. 1, GIIPS credits comprised 11.5% of the S&P European Leveraged Loan Index (ELLI), accounting for €12.2 billion of institutional outstandings. This begs the question as to who is left to come – from lower down the credit spectrum, possibly – and what options are left for such credits should they need to address their debt load.

This chart is part of an LCD News analysis available to subscribers.

Other charts in that analysis:

  • GIIPS high yield bond volume
  • Average primary yield – GIIPS vs non-GIIPS
  • GIIPS HY secondary performance

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High-yield fund flows revert to positive, though ETFs dominate reading

Data from EPFR Global show a $245 million cash inflow to U.S.-domiciled high-yield mutual funds and exchange-traded funds in the week ended Nov. 28, by the weekly reporters only. That’s the first positive reading after an outflow streak numbering four weeks and totaling $2.8 billion, however note that the inflow ties only $4 million to mutual funds.

As such, the 98% balance of the inflow was directed to ETFs, again suggesting fast money at play. And to that end, a recent outflow of $1.27 billion was nearly two thirds ETF-related, while an outflow of $39 million three weeks ago was actually tied to ETF outflows wiping out modest mutual fund inflows.

Regardless of intent, the cash flow has certainly been volatile in recent weeks. In the latest report, the trailing four-week average moderates to negative $538 million, from negative $708 million last week. The latter was the deepest reading in such an observation in 24 weeks.

With the fresh reversal and a cash inflow this past week, a net $22.2 billion of inflows have been recorded in the year to date, of which 34% is ETF infusions. In contrast, there were only $10 billion of inflows at this point one year ago, of which 43% was directed to the ETF segment, according to EPFR.

Total assets of the weekly reporter sample were $185.4 billion at the end of the observation period, versus $184.3 billion last week, which after stripping out the inflow figure shows an $862 million increase due to market, or roughly a 0.5% gain on the week due to firm market conditions. – Matt Fuller

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Inergy Midstream notes price at par to yield 6%; terms

Inergy Midstream today completed an offering of senior notes via bookrunners Citi, J.P. Morgan, Bank of America, Credit Suisse, SunTrust, and Wells Fargo, according to sources. Demand for the deal allowed for a print at the tight end of talk and a $100 million upsizing. Funds raised from the bond deal, along with proceeds from a private placement, are expected to be used to fund the $425 million acquisition of Rangeland Energy and to repay $186 million of borrowings under a revolving credit facility. Inergy Midstream owns and operates natural-gas and NGL storage and transportation facilities and a salt production business located in the Northeast region of the U.S. Terms:

 

Issuer Inergy Midstream
Ratings BB/B1
Amount $500 million
Issue senior notes (144A)
Coupon 6%
Price 100
Yield 6%
Spread T+498
FRN eq. L+485
Maturity Dec. 15, 2020
Call nc4
Trade Nov. 29, 2012
Settle Dec. 7, 2012 (T+6)
Joint Bookrunners Citi/JPM/BAML/CS/Sun/WF
Co-leads
Co’s. Barc,BMO,Com,PNC,RBC,RBS
Px talk 6-6.25%
Notes w/ three-year equity clawback for 35% @ 106; w/ change-of-control put @ 101; upsized by $100 million.
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High-grade bonds: Short-term business debt pushes higher through refi wave

Short-term business debt levels continue to trend higher into year-end, even as refinancing-driven bond deals helped propel the strongest long-term deal flow from high-grade companies on record for a November period, issuance data shows.

Commercial paper issued by non-financial businesses rose to $205 billion as of Wednesday, from roughly $120 billion a year ago, and now slightly more than was outstanding at the height of the housing bubble in July 2007, according to seasonally adjusted data from the Federal Reserve.

Meanwhile, the sum of non-financial CP plus U.S. commercial-and-industrial loans – which is often viewed as a proxy for trends in inventory investment and other working capital uses – reached $1.64 trillion this month, 25% more than was outstanding two years ago at the post-crisis low for that reading, and nearly 10% more than in the summer of 2007, Fed data show.

For reference, that combined reading peaked in the immediate aftermath of the Lehman Brothers collapse as issuers scrambled to lock in committed funding sources. But non-financial CP levels were more than halved and C&L loan balances plunged 20% in 2009, as the recession set in and business activity slowed to a crawl.

With aggregate corporate-bond yield levels, nearly half of this week’s $33 billion high-grade issuance total was associated with proceeds specifically earmarked for the refinancing of short- and long-term debt, and refi-driven deals now total roughly $55 billion in November, or 46% of the record-setting total for a November total of $120 billion.

Two energy companies this week specifically targeted high commercial-paper balances with benchmark deals. Chevron sold $4 billion of long-term debt this week, in part to repay a portion of its $6.1 billion CP balance, while Apache sold $2 billion to refinance the same amount of its total CP outstanding. – John Atkins

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Leveraged finance volume hits record thanks to wild high yield bond mart

Led by a whopping $317 billion in high yield bond issuance, the leveraged finance market – HY bonds and leveraged loans – has soared to record territory in 2012, posting $737 billion in volume, with a full month left in the year. The $317 billion in HY bond volume is itself a record, besting the $287 billion seen in 2010. While leveraged loans have played second fiddle to bonds this year, the $282 billion of institutional loans issued so far in 2012 (that’s debt mainly targeted to non-bank investors) is the most since 2007. It was a different story in 2008, of course. (These numbers are updated through this morning.)