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Guggenheim Investments launches 2 new BulletShares high yield bond ETFs

Guggenheim Investments over the weekend launched two new high-yield corporate bond exchange-traded funds as part of a regular maturity-extension scheme, according to a company statement. Guggenheim’s new high-yield ETFs add to the asset management firm’s seven high-yield ETFs outstanding since January 2011.

The new funds are the BulletShares High-Yield ETFs with target maturities of 2019 and 2020. The pair of funds trade on the NYSE Arca under the respective tickers BSJJ and BSJK. These fixed-income defined-maturity funds can be used to ladder exposure to the asset class, according to the firm.

The BulletShares ETFs track indices of approximately 56-200 high-yield corporate bonds with effective maturities in the same calendar year as each fund’s maturity. Other BulletShares ETFs carry maturity dates ranging from 2013-2018, with ticker symbols BSJD, BSJE, BSJF, BSJG, BSJH, and BSJI, respectively.

Portfolio managers are Saroj Kanuri, Burak Hurmeydan, and Jie Du, and expenses are 0.42%, according to the prospectus. The funds will normally be at least 80% invested, the filing shows.

The first and largest in the small but expanding market segment is the iShares iBoxx High Yield Corporate Bond Fund, which trades on the NYSE Arca under the ticker HYG. The fund, which was launched in April 2007, is intended to track the iBoxx $ Liquid High Yield Index as a rules-based index consisting of approximately 50 of the most liquid and tradable U.S.-dollar-denominated high-yield corporate bonds for sale in the U.S. – Matt Fuller

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High yield bond issuance sets record in september at $47.65B

U.S. high-yield bond issuance set a monthly record in September, logging $47.65 billion in volume, besting the prior monthly peak of $46.8 billion in September 2012, according to S&P Capital IQ/LCD. The surge in issuance is courtesy a host of hefty deals, including a $2.15 billion offering backing a Caesar’s Entertainment debt repurchase, which priced today.

With this month’s activity, year-to-date high yield bond issuance totals roughly $255 billion, easily topping the $243 billion seen at this point last year. The full-year total for 2012 was $346 billion, a record.

The surge in issuance is accompanied by renewed investor enthusiasm. Retailcash inflows into U.S. high yield funds more than doubled over the past week, totaling an impressive $3.1 billion, according to Lipper. That’s the largest inflow in 10 weeks, bringing the year-to-date number closer to the black, at an outflow of $2.5 billion, according to LCD’s Matt Fuller, citing Lipper. That’s down considerably from just a few weeks ago.

Of note this week (besides Caesar’s), Dell priced its $1.5 billion offering backing its LBO by private equity concern Silver Lake. Also, General Motors wrapped a $4.5 billion bond package backing a recapitalization/stock repurchase.

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Rotech Healthcare exits Chapter 11

Rotech Healthcare Inc. exited Chapter 11 protection on Friday, the company announced, following bankruptcy court approval of its reorganization plan on Aug. 29.

The bankruptcy court last month also approved the company’s $358 million in exit financing (see “Rotech nets $357.5 million exit-financing commitment,” LCD News, July 22, 2013).

The Orlando-based company, one of the largest providers of home medical equipment in the U.S., filed a pre-arranged Chapter 11 in Wilmington, Del., on April 8 after skipping a March 15 interest payment of $290 million of its 10.5% second-lien notes due 2018.

Proskauer Rose served as Rotech’s bankruptcy counsel, with Barclays as financial advisor and AlixPartners as restructuring advisor. Wachtell Lipton Rosen & Katz represented each of the consenting second-lien noteholders. – Staff reports

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European high yield bond funds see €203M investor cash inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €203 million inflow for the week ended Sept. 25. This includes a €70 million net inflow to ETFs. The reading for the week ended Sept. 18 is unchanged, at a €177 million inflow. The latest reading marks three consecutive weekly inflows.

The provisional reading for August has been revised down to a €577 million inflow, from a €581 million inflow. This compares with a €1.07 billion inflow in July, a €2.4 billion outflow in June, a €723 million inflow in May, a €555 million inflow in April, a €579 million inflow in March, a €156 million outflow in February, and a €1.8 billion inflow in January. The latest estimate for total inflows this year through August is €2.7 billion.

Money continues to flow into high-yield funds as worries over the U.S. Federal Reserve’s tapering of asset purchases diminish and market players look to add risk. As reported last week, a triple-digit inflow had not been seen since mid-August, and the latest reading will give bankers confidence there will be good demand for upcoming deals. However, investors are keen on bonds that are large enough to remain liquid in the aftermarket, as so far this month they have generally been offered deals from crossover credits or sub-benchmark transactions, and traditional high-yield accounts therefore say pickings have been slim, despite a monthly volume of €6.5 billion.

In the U.S. retail-cash flows for high-yield funds more than doubled for the second consecutive week, with a $3.1 billion inflow in the week ended Sept. 25, compared with just $1.4 billion for the week ended Sept. 18, according to Lipper, a division of Thomson Reuters. The cash infusion is the largest in 10 weeks, and it boosts the four-week-trailing average to positive $1.2 billion per week, from positive $417 million last week, and negative $516 million the week prior.

Retail cash inflows to bank loan mutual funds and exchange-traded funds totalled $762.3 million for the week ended Sept. 25, according to Lipper, a division of Thomson Reuters. That is down from $1.33 billion last week, and $1.55 billion in the week prior. This week’s result comes in under the trailing four-week average of $1.09 billion, which drops from $1.2 billion last week. Still it is the 67th consecutive inflow to the asset class, for an infusion of $51.5 billion over that period.

As reported, J.P. Morgan only calculates flows for funds that publish daily or weekly updates of their net asset value and total fund assets. As a result, J.P. Morgan’s weekly analysis looks at around 50 funds, with total assets under management of €10 billion. Its monthly analysis takes in a larger universe of 90 funds, with €27 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation.” – Sohko Fujimoto

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Howard Hughes high yield bonds (B/Ba3) price at par to yield 6.875%

The Howard Hughes Corporation today completed an offering of senior notes via sole bookrunner Credit Suisse, according to sources. Pricing came on the wide end of talk after a $250 million upsizing. While the three-year non-call period is shorter than normal for the maturity, it is countered by a first call price at par plus 75% of the coupon, rather than the standard 50%. Issuance will be under Rule 144A for life, and proceeds will be used for development, acquisitions, and other general corporate purposes, according to the company. The Howard Hughes Corporation, based in Dallas, Texas, is a real-estate investment and development company engaged in the managing, developing, and leasing of commercial, residential, and mixed-use real estate. Terms:

Issuer The Howard Hughes Corp.
Ratings B/Ba3
Amount $750 million
Issue senior notes (144A-life)
Coupon 6.875%
Price 100
Yield 6.875%
Spread T+458
FRN eq. L+439
Maturity Oct. 1, 2021
Call nc3; 1st call @ par +75% of coupon
Trade Sept. 27, 2013
Settle Oct. 2, 2013 (T+3)
Bookrunner CS
Co-Leads
Co’s.
Px talk 6.75% area
Notes w/ three-year equity clawback for 35% @ 106.875; subject to T+50 make-whole call; w/ change of control put @ 101; upsized by $250 million
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Bankruptcy judge Robert Drain appointed as mediator for Cengage

The bankruptcy court overseeing the Chapter 11 proceedings of Cengage Learning appointed bankruptcy court judge Robert Drain to act as mediator in the case, according to a Sept. 25 court order.

As reported, Cengage’s Chapter 11 case is pending in the Eastern District of New York, which is located in Brooklyn. Drain is a bankruptcy court judge in the Southern District of New York’s White Plains, N.Y., location (SDNY bankruptcy courts are also located in lower Manhattan and Poughkeepsie). Drain has presided over a number of large Chapter 11 cases, including A&P, Reader’s Digest, and Hostess, among others, and is currently presiding over the Chapter 11 proceedings of Excel Maritime.

Significantly, the appointment does not specify a timeline for the mediation, but rather provides that “the parties shall meet and confer with the mediator to establish procedures and timing for the mediation.”

As reported, in seeking the appointment of a mediator the company had sought a specific schedule that, in the company’s view, would allow for the resolution of key issues in the case on a timetable that would see the company emerge from Chapter 11 by the end of the year. More specifically, the company said it wanted the bankruptcy court to appoint a mediator by Sept. 13, and for the key parties in the case to hold at least three mediation sessions, the first by Sept. 20, the second by Oct. 4, and the third by Oct. 11 – a schedule that has obviously not been met.

The company has maintained that it must exit Chapter 11 by the end of the year to avoid harm to its business. What’s more, that emergence deadline is enshrined in the company’s restructuring support agreement with a group of first-lien lenders and the cash collateral order in the case.

The company filed a proposed reorganization plan and disclosure statement on Aug. 15 (the deadline set forth in the RSA), but key stakeholders, including the unsecured creditors’ committee, equity sponsor and first-lien debt holder Apax Partners, and senior noteholder Centerbridge Partners argued that the proposed disclosure statement was missing key information, including financial and valuation information, and that there were several pending legal issues in the case that needed to be resolved before a reorganization plan could be developed and confirmed.

That forced the company to postpone its scheduled hearing on the disclosure statement, which had been set for tomorrow. A new date has yet to be set.

As for the scope of issues to be addressed in the mediation, the order from Brooklyn Bankruptcy Court Judge Elizabeth Strong said, “The mediator is authorized to mediate any issues concerning, among other things, the allocation of estate value among the various creditor constituencies and the terms of a plan of reorganization for the debtors.”

More specifically, the order cited, among other issues, the company’s enterprise value, foreign subsidiary valuations, disputes over the validity of liens asserted against the company’s copyrights, the status of about $274 million of disputed cash held by the company, the company’s 2007 LBO, substantive consolidation, and “issues regarding Apax Partners.” – Alan Zimmerman

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Gannett lines up $1B of high yield bonds for Belo acquisition

Gannett this morning launched a $1 billion, two-part bond offering through joint bookrunners J.P. Morgan, Citi, Barclays, Mitsubishi, Mizuho, SunTrust, and U.S. Bancorp, according to sources. It is a drive-by deal with an investor call at 11:00 a.m. EDT, with pricing to follow this afternoon.

Tranches of six-year (non-call three) and 10-year (non-call five) senior notes will each total $500 million. Ratings are not yet assigned, but accounts are being told to expect no change from the existing BB/Ba1 senior unsecured profile, sources note. Issuance will come under Rule 144A for life.

Proceeds from the deal, together with cash on hand, will help finance the company’s acquisition of Belo Corp. and fund general corporate purposes. Gannett in June announced it was buying Belo for $13.75 per share in cash, or roughly $1.5 billion, plus the assumption of $715 million in existing debt.

The publishing and broadcasting giant subsequently issued $600 million of 5.125% notes due 2020 in July, although that was earmarked for debt repayment. Pricing was at 98.6, to yield 5.375%, which was tight to guidance with a $100 million upsizing. More recently the 144A-for-life paper was pegged at 99.25, yielding around 5.25%, according to S&P Capital IQ.

McLean, Virginia-based Gannett operates several media and marketing outlets, including print, television, and online segments. The acquisition will nearly double Gannett’s current television broadcast portfolio to 43 stations, from 23 stations. Gannett trades on the NYSE under the ticker GCI with an approximate market capitalization of $6.1 billion. – Jon Hemingway

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Europe: Alcatel-Lucent high yield bonds, shares firm on reports of Nokia tie-up

Alcatel-Lucent 8.5% notes due 2016 are slightly firmer this morning on the back of news reports that Nokia is considering a tie-up with the company, according to sources. The bonds are variously quoted, with some desks marking them between 111.75-112, while others have a bid-offer spread of 112/114, sources added. Various reports suggest a combination between the Finnish mobile hardware group and Alcatel-Lucent’s mobile-phone networks business.

Alcatel-Lucent shares are up 5.68% so far today, while Nokia’s shares are up 0.76%. Five-year CDS referencing Nokia is currently at a market mid-price of 220, having tightened from around 517 prior to announcing its asset sale to Microsoft earlier this month. Five-year CDS referencing Alcatel-Lucent is quoted at around 440, which is tighter from the 500-550 quotes seen in August.

Neither company has issued an official statement regarding a potential tie-up, but market analysts note that broadly speaking, the combination would make strategic sense.

Nokia is currently rated B+ watch positive, B1 developing, and BB- rating watch positive at Standard & Poor’s, Moody’s, and Fitch, respectively. All three agencies currently view Nokia’s divestment of its devices and services business to Microsoft as positive for the credit. On Sept. 2, Microsoft agreed to pay Nokia €3.79 billion cash for the business, plus an additional €1.65 billion in cash to license Nokia’s patents.

Meanwhile, Alcatel-Lucent is undergoing a corporate restructuring via its “Shift Plan,” to cut costs and generate cash through asset sales. It is rated B- stable and B3 outlook negative at S&P and Moody’s, respectively. On Sept. 3, S&P upgraded the issue rating on Alcatel’s unsecured notes to CCC+ following its partial repayment of secured debt. – Sohko Fujimoto

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JC Penney debt falls further, CDS gaps wider as shares tank

Debt backing J.C. Penney was on the decline for a third consecutive session after press reports that the struggling retailer is in talks to possibly raise more cash. More negative bias today stems from pessimistic Street research on the credit, and JCP shares traded down 14%, to $10.23, for a net 22% decline week over week.

In corporate bonds, the 5.65% notes due 2020 dropped five points, to 72/74, while the long-tenor 6.375% bonds due 2036 gave up six points, to 65/67, according to sources. In trading, the 6.875% notes due 2015 were lower by one point, with prints at 93.25, for a net two-point decline on the news, while 7.95% notes due 2017 changed hands at 89.5, for a net three-point fall this week, trade data show.

Over in loans, the J.C. Penney TLB due 2018 (L+500, 1% LIBOR floor) shed 1.75 point, to 95.5/96, for a net 3.5-point decline on the reports, according to sources.

Five-year CDS in the name widened roughly 17% this morning, to 20.813/22.125 points upfront, according to Markit. That’s fully 42% wider on the news, or essentially $597,000 more upfront, at roughly $2.15 million at the midpoint, in addition to the $500,000 annual payment, to protect $10 million of the retailer’s corporate bonds in the event of default.

Bloomberg News reported late Friday afternoon that Goldman Sachs is advising the company on additional fundraising options, which it said include borrowing against its real-estate holdings. The report noted that discussions with hedge funds and other investors are at an early stage, citing unnamed sources. The report flagged both Glenview Capital Management and Hayman Capital Management as recently upping their stakes in J.C. Penney this month. Additionally, Reuters reported that the company could potentially look to raise cash through a combination of debt and equity.

Fresh press reports this morning highlighted that a Goldman Sachs research report circulated with lower targets for debt valuation based on an expectation for more debt as a liquidity buffer. Moreover, the report flagged “bankruptcy,” albeit prematurely, according to a Barron’s blog, which detailed the Goldman research and utilized a classic “falling knife” idiom in reference to the share pricing.

The $2.25 billion covenant-lite TLB was syndicated in May via Goldman Sachs, Barclays, J.P. Morgan, Bank of America Merrill Lynch, and UBS; it was issued at 99.5. Proceeds were used to fund a tender offer for the company’s 7.125% notes, and are available to fund ongoing working capital requirements and general corporate purposes. Corporate ratings are CCC+/Caa1. – Staff reports


 

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With $10B Week, U.S. high yield bond volume totals $236B so far in 2013

weekly high yield bond issuance

High yield bond issuance in the U.S. last week totaled $10 billion via 19 deals, making this the third consecutive active week since the market returned from the Labor Day break. So far in September bond issuance has topped $31 billion, the most since May of this year. The year-to-date total is roughly $240 billion, compared to $234 billion during this period in 2012.

Of note last week, Sallie Mae (SLM Corp.) completed a $1.25 billion deal backing general corporate purposes and private equity firm Hellman & Friedman set a $950 million offering in support of its LBO of insurance concern HUB International. One PIK toggle deal priced during the week, a $475 million offering backing Lone Star Funds’ recapitalization of its BI-LO supermarket concern.

Of note in high yield last week (though not reflected in volume because the deals have not yet priced), two high-profile issuers trimmed the size of their bond offerings in favor of larger leveraged loan tranches, demonstrating the loan market’s continued attractiveness to speculative-grade issuers. Blackstone’s Hilton Worldwide Finance scaled down a planned $3.25 billion tranche to $1.5 billion, in favor of a covenant-lite loan that now totals $7.6 billion, according to LCD. Dell likewise trimmed its bond offering (backing an LBO) in favor of bank debt.