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Global Aviation nets court OK for revised sales procedures

global aviation logoThe bankruptcy court overseeing the Chapter 11 proceedings of Global Aviation on Jan. 27 approved the company’s revised sale procedures, according to an order filed on the court docket.

The approval was expected. As reported, Global Aviation submitted a draft order to the bankruptcy court on Jan. 23 that had the consent of the key parties in the case. A hearing on the revised procedures, which was scheduled for Jan. 22, was cancelled once an agreement on a draft order was reached, court filings said (see “Global Aviation seeks court approval for revised sale procedures,” LCD, Jan. 27, 2014).

The company’s proposed reorganization plan, backed by secured lender Cerberus Business Finance, calls for the purchase of new equity in a reorganized company. Among other requirements, competing offers must be based on a purchase of new equity, or if based on an alternative reorganization plan structure, be “no less favorable” to the company and its creditors.

The company has not yet filed its reorganization plan, but said prospective bidders could obtain a copy from the company’s legal counsel.

Among other things, the revised procedures require qualified competing bids to be submitted by March 17, an auction, if required, to be held on March 19, and a hearing to confirm the winning bidder and to confirm the adequacy of the proposed disclosure statement that is related to the ultimate winning bid to be held on March 25. – Alan Zimmerman

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Ancestry PIK-toggle high yield bonds price to yield 8.65%

Ancestry.com logoAncestry.com this afternoon completed its second PIK-toggle dividend deal since going private last year by a group led by Permira. An add-on to the 9.625% contingent-PIK-toggle notes due 2018 was issued intraday via bookrunners Morgan Stanley, Credit Suisse, Deutsche Bank, Goldman Sachs, and RBC Capital Markets, according to sources. Terms on the CCC+/Caa1 transaction were finalized at the tight end of talk. As with the original $300 million, proceeds will be used to pay dividends, or make other payments in respect to the issuer and its subsidiaries’ equity interests. The notes are immediately fungible under Rule 144A for life. Take note that the coupon on the contingent cash-pay notes steps a typical 75 bps when paying in-kind, and as with many of the PIK-toggle dividend deals of late, terms include a 100% equity clawback at 102% of par through October 2015. Terms:

Issuer Ancestry.com Holdings
Ratings CCC+/Caa1
Amount $100 million
Issue add-on senior PIK-toggle notes (144A-life)
Coupon 9.625% (cash)/10.375% (in-kind)
Price 103
Yield 8.648%
Spread T+719
Maturity Oct. 15, 2018
Call nc1.5 @ 102, 101 (orig. nc2)
Trade Jan. 29, 2014
Settle Feb 3, 2014 (T+3)
Joint Bookrunners MS/CS/DB/GS/RBC
Px talk 102.5-103
Notes w/ 1.5-year equity clawback for 100% @ 102; contingent cash-pay w/ 75 bps step when in-kind; total now $400 million; original $300 million priced @ 99 in September 2013.

 

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Europe: Jaguar Land Rover drives by high yield bond mart with £300M offering

Jaguar Land Rover logoJaguar Land Rover is driving by the high-yield market with a £300 million offering of eight-year (non-call life) unsecured notes via physical bookrunners Deutsche Bank (B&D), Bank of America Merrill Lynch, HSBC, and Morgan Stanley, alongside non-physical bookrunners Credit Agricole CIB, Lloyds, and Societe Generale CIB.

There will be an investor call today at 2:00 p.m. GMT, and pricing will take place thereafter.

Proceeds, together with £118 million of cash will be used to refinance debt. Specifically, £414 million will be used to repurchase the borrower’s sterling- and dollar-denominated 2018 notes, as well as for general corporate purposes.

In order to refinance the 2018 notes, Jaguar has launched two tender offers: one for its $410 million of 7.75% notes due 2018, and one for its £500 million of 8.125% notes due 2018. Both notes are currently governed by a make-whole premium of 50 bps over treasuries/gilts, and this translates into a cash price of 107.9 on the dollar notes, and 108.2 on the sterling notes – roughly where the bonds are marked this morning. The dollar notes become callable at 105.813 on May 15, 2014, while the sterling notes become callable at 106.094 on the same date.

The company was last in the market in December 2013, with a dollar-denominated issue of 4.125% notes due 2018 via Citi, Credit Suisse, and J.P. Morgan (B&D) as joint physical bookrunners, with additional bookrunners BNP Paribas, RBS, and Standard Chartered. Proceeds were used for general corporate purposes, including the refinancing of its 2018 notes.

Jaguar Land Rover is a U.K. manufacturer of luxury vehicles. It is rated BB/Ba2. – Sohko Fujimoto/Luke Millar

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European high yield bond funds see €190M investor cash inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €190 million inflow for the week ended Jan. 22. This includes net inflows for ETFs and short-duration funds of €10 million and €77 million, respectively. The latest reading marks the 20th consecutive weekly inflow. The reading for the week ended Jan. 15 is revised from a €222 million inflow to a €215 million inflow.

The provisional reading for December is a €1.39 billion inflow, meaning the provisional 2013 inflow is €8.22 billion. That compares to an inflow of €7.2 billion for 2012.

Ongoing inflows and limited supply have led to rampant demand for new issues this year. Last week saw the first single-B rated deals emerge, from Play and Autodistribution, and books for these transactions were massively oversubscribed – the latter by as much as 15x – as investors scrambled to put money to work. Supply is expected to pick up this week, though at present there is only HSS and Bond Aviation in the live pipeline. A consequence of reasonably light supply has been retail investors looking elsewhere for returns. This is highlighted by the proportion of the weekly inflow that went into ETFs, which dropped to just 5%, versus 20%-plus for each of the last four weeks.

In the U.S., retail cash inflows from high-yield totalled $423 million for the week ended Jan. 22, according to Lipper, a division of Thomson Reuters. That’s an increase from inflows of $65 million the week before, and it extends the inflow streak to three weeks for a total of $1.23 billion, by the weekly reporters only. Flows to mutual funds and ETFs were fairly balanced this past week, at 58% and 42%, respectively. The year through Jan. 22 net inflow is $486 million, reflecting $652 million of mutual fund inflows, versus $166 million of redemptions from ETFs.

Meanwhile, retail cash inflows to bank loan mutual funds and exchange-traded funds totalled $804 million for the week ended Jan. 22, according to Lipper. That total is down from inflows of $1.05 billion the week prior, but extends the net inflow streak to 84 weeks for a total of $62.3 billion over that period. Inflows for the year through Jan. 22 total $2.9 billion.

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.” – Luke Millar

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Altegrity leveraged loans dip, high yield bonds in price discovery as DOJ alleges fraud

altegrityDebt backing Altegrity is quoted lower in wide markets today after the U.S. Justice Department yesterday accused the firm’s USIS division of defrauding the government of millions of dollars by filing at least 665,000 incomplete background investigations.

Bonds backing the firm were down roughly five points, though under price discovery, in the secondary market this morning on the news. The 10.5% senior notes due 2015 were variably pegged in the mid-80s to 90, with five-point bid/ask spreads, while the 11.75% subordinated notes due 2016 fell to either side of 70, also with wide quotes, versus 74/76 before the news, according to sources.

In the loan market, one dealer is marking the TLB due 2015 (L+400, 1% LIBOR floor) at a 96/97 market and the TLD due 2015 (L+600, 1.75% floor) at 98/99, versus levels at 98/98.5 and 99.625/100.125, prior to the news, sources said.

The Justice Department yesterday filed a complaint joining a whistleblower lawsuit against USIS filed in the U.S. District Court in Alabama. In its complaint, the Justice Department says that beginning in at least March 2008 and continuing through at least through September 2012, the firm’s management “devised and executed a scheme to deliberately circumvent contractually required quality reviews of completed background investigations in order to increase the company’s revenues and profits.”

“Specifically, USIS devised a practice referred to internally as ‘dumping’ or ‘flushing,’ which involved releasing cases to OPM and representing them as complete when, in fact, not all ROIs comprising those cases had received a quality review as required by the Fieldwork Contracts,” the complaint continues, noting that the investigations that were “dumped” spanned most federal agencies.

As a result its “fraudulent conduct,” the Justice Department said USIS received millions of dollars it would not have otherwise received had the U.S. Office of Personnel Management been aware that the background checks had not gone through the required quality-review process. Also, OPM also would not have awarded the firm performance awards for the years 2008-2010 totaling about $11.75 million, the complaint said. (The full complaint is attached).

USIS conducted the background checks for NSA leaker Edward Snowden and Aaron Alexis, the gunman at the Navy Yard shootings in Washington, D.C. last year, according to media reports.

Separately, media reports last week said that Altegrity is working with restructuring bankers at Evercore Partners to help it address its upcoming debt maturities.

As of April 2013, the company had just over $1 billion of term debt maturing in February 2015, according to a Moody’s report at the time. The TLB was placed in October 2007 to help support Providence Equity’s acquisition of USIS from Welsh Carson Anderson & Stowe and Carlyle Group, while the TLD was issued in 2010 to support the company’s purchase of Kroll from Marsh & MacLennan.

The company’s bond debt includes $290 million of 10.5% notes due 2015, rated CCC-/Caa3, and $150 million of 11.75% subordinated notes due 2016, rated CCC-/Ca. Issuance was under Rule 144A for life in late 2007 backing a sponsor-to-sponsor sale of the firm.

Altegrity is rated CCC+/Caa2, while the loans are rated B-/B3, with a 2 recovery rating from S&P.

Falls Church, Va.-based Altegrity provides information, security, training, investigations, analytics, financial-advisory, and technology services to governmental and commercial clients. – Kerry Kantin/Matt Fuller

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Party City bonds hold levels in trading after IPO plans unveiled

party cityBonds backing party-store chain Party City more or less held levels today after the company filed IPO plans, sources said. PC Nextco Holdings 8.75% PIK toggle notes due 2019 traded in a 104/105 context, with another market at 103.75/104, sources said. The company’s 8.875% notes due 2020 – a $700 million issue sold as part of the 2012 buyout of the company – were at 112/112.25 after the news, also largely unchanged.

The company plans to raise $500 million via the IPO, a Jan. 21 SEC filing showed. Shares will be listed under the ticker “PRTY.” Proceeds will repay debt and fund working capital and other general corporate purposes.

In July, Party City issued $350 million of 8.75% notes, which pay 9.5% during PIK, via joint bookrunners Bank of America, Deutsche Bank, Barclays, Goldman Sachs, Morgan Stanley, and Moelis. Proceeds funded a dividend.

The notes include an unusual equity-clawback window from 6-18 months after issuance for either up to 40% of the issue or the whole issue at 102% of par.

In 2012, Thomas H. Lee Partners completed a $2.69 billion purchase of a majority stake in the party-supply retailer. After the buyout, Thomas H. Lee Partners owns roughly 70%, and funds affiliated with Advent International Corporation own roughly 24%. Other minority investors, including management, own roughly 6%. – Abby Latour

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GSE/Gundle downgraded after netting 7th loan default waiver

GSE logoGSE Environmental, the producer of geosynthetic liners formerly known as Gundle/SLT Environmental, was subject to multiple credit downgrades last week after receiving additional loan-default waivers and as it continues to struggle in terms of fundamental performance. Both S&P and Moody’s now have a negative outlook on the credit and have flagged the potential for a near-term default.

S&P lowered the corporate credit rating and first-lien loan ratings on GSE by two notches, to CCC- from CCC+, and revised its senior secured recovery rating from 3 to 4, indicating an expectation of an average (i.e. 30-50%) recovery of principal and accrued interest if a payment default occurs.

“We envision a default occurring within six months through an exchange or redemption in conjunction with the sale of the company, or alternatively, via a payment default,” said S&P credit analyst  James Siahaan.

The company recently received a limited waiver and seventh amendment to its first-lien credit agreement following its violation of financial covenants during the fourth quarter of 2013, according to S&P, which noted that financial advisor Moelis & Co. is assisting a sale of the firm with a March 30 deadline looming.

Moody’s cut the corporate family rating and facility rating to Caa2, from Caa1. The ratings outlook is negative to reflect an uncertain operating environment and recovery prospects for lenders, according to Moody’s.

As reported, the issuer in May 2011 received first- and second-lien financing as part of a refinancing effort that bonds and loans dating to a 2004 buyout by Code Hennessy & Simmons. The first-lien term loan was upsized by $10 million, to $135 million, and was firmed at the wide end of L+525-550 talk, with a 1.5% LIBOR floor. Second-lien pricing was boosted to L+950, plus 2% PIK, with a 1.5% LIBOR floor, from L+875-900 talk, while the five-year RC was sized at $25 million, down from the initial proposal of $40-45 million.

As reported, Jefferies handled the transaction, with co-arranger GE Capital. Recent indications in the first-lien term loan are 78/80, according to Markit. The facility is not a member of the S&P/LSTA Leveraged Loan Index, so a default would have no effect on the loan default rate, which stood at 2.11% by amount and 1.61% by number of issuers at the close of 2013, according to LCD.

Houston-based GSE makes geosynthetic linings and provides services used in the containment of solids, liquids, and gases for clients in the waste-management, mining, water- and wastewater-treatment, and aquaculture industries. The business is global in nature and includes a high-growth emerging-markets segment. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, and trading news

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Arch Coal bonds sink in secondary on weaker 4Q shipment, production levels

Arch Coal bonds dropped as much as 1.5 points this morning after the company reported that lower-than-planned shipment levels and reduced production levels will negatively impact its fourth- quarter financial results, according to filings.

The company’s 7% notes due 2019 were quoted down 1.5 points, at 78.5-79.5, while the 7.25% notes due 2020 were also off 1.5 points, at 77.5-78.5, according to sources.

Arch Coal said its fourth-quarter 2013 shipment levels decreased by more than 15% from third-quarter levels in the Powder River Basin due to rail-service issues. In addition, fourth-quarter production at the Mountain Laurel complex in Appalachia decreased by 40%, versus third-quarter levels. As a result, the company said its full-year 2013 metallurgical coal sales volumes were slightly below the low end of its previous expectations.

Fourth-quarter earnings will be released on Feb. 4.

In the loan market, Arch Coal term debt due 2018 (L+500, 1.25% LIBOR floor) is essentially unchanged on the news, at 99.5/100. The paper has been grinding higher in recent weeks due to strong market conditions after the issuer last month placed a $300 million incremental loan at 98, proceeds of which were earmarked to help fund a cash tender offer for its $600 million of 8.75% notes due 2016.

S&P downgraded Arch Coal in early December to B, from B+, on weaker-than-expected sales and EBITDA targets in 2014 and 2015. The company recently extended its debt maturities and created more flexibility by tendering for its $600 million of senior notes due 2016 and amending covenants.

As part of that effort, the company priced a $350 million second-lien offering due 2019 on Dec. 12 at 8%, issued at par. Those notes were off half a point this morning, at 99.75-100.75, according to sources. – Joy Ferguson

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European high yield bond funds see €222M investor cash inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €222 million inflow for the week ended Jan. 15. This includes net inflows for ETFs and short-duration funds of €51 million and €58 million, respectively. The latest reading is the nineteenth consecutive weekly inflow. The reading for the week ended Jan. 8 is revised from a €337 million inflow to a €342 million inflow.

The provisional reading for December is a €1.37 billion inflow, meaning the provisional 2013 inflow is €8.22 billion. That compares to an inflow of €7.2 billion for 2012.

Bankers continue to stress that ongoing large inflows are the bedrock for sustained strong levels of supply, as the high-yield pipeline begins to grow. While the market has hosted €2.87 billion of paper already this year, this has nearly all come from fallen angels or market stalwarts. Supply of debut, single-B deals is set to begin however, following launches from French autoparts supplier Autodistribution and Polish mobile operator Play. European accounts looking for dollar assets will also see supply from Puma Energy and North Atlantic Drilling.

In the U.S., retail cash inflows from high-yield totalled $65 million for the week ended Jan. 15, according to Lipper, a division of Thomson Reuters. However the small, net positive reading was based on a $140 million inflow to mutual funds nearly erased by an outflow of $75 million from the ETF segment. Likewise, the year-to-date net inflow is $64 million, based on $407 million of mutual fund inflow nearly erased by $343 million of redemptions from ETFs.

Meanwhile, retail cash inflows to bank loan mutual funds and exchange-traded funds totalled $1.05 billion for the week ended Jan. 15, according to Lipper. That is the highest inflow in 17 weeks. The net inflow streak was extended to 83 weeks, with a total inflow of $61.8 billion over that span. The last net outflow was recorded in June 2012.

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.

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Telecom Italia launches debut bond deal as a fallen angel

Telecom ItaliaTelecom Italia is driving by with its first deal as a high-yield rated entity. The fallen angel has launched a euro benchmark seven-year (non-call life) unsecured notes offering. Barclays, Credit Agricole CIB, Goldman Sachs and Societe Generale CIB (B&D) are joint bookrunners. Bank of America Merrill Lynch, HSBC, ING and Natixis are other bookrunners.

Price guidance is mid-swaps plus 325 bps area, which equates to a yield of roughly 4.875%, according to sources. Proceeds will be used for general corporate purposes.

The company has a well-stocked curve, which has added between half a basis point and 10 bps on the spread. The two main comparables for the new notes are the 4.875% notes due September 2020, and the 5.25% notes due February 2022 (both are euro-denominated). These were quoted in the region of z-spread plus 290 and 315 on the bid side, prior to the new mandate (they have since risen by five and four basis points, respectively), according to sources.

This puts fair value for the January 2021 maturity at roughly 295, which equates to a new issue premium of about 30 bps at the mid-point of guidance.

Ratings are BB+/Ba1/BBB-, and the ratings outlook is negative at all three rating agencies. Further downgrades are possible if Telecom Italia fails to improve its operating performance, cut debt, and improve cash flows, according to Standard & Poor’s.

In November last year, S&P downgraded Telecom Italia’s corporate credit rating to BB+, and the company, having previously been downgraded by Moody’s, became a fallen angel. Consequently €27 billion of the company’s debt fell into the high-yield category. Despite concerns leading up to the downgrade that the entry into high-yield would see its cash curve come under pressure as investment-grade accounts were forced to dump paper, the entry was in fact orderly.

Investment-grade accounts had time to either lighten up their exposure to Telecom Italia, such that they can still hold a smaller amount of paper by utilizing the buckets many of them have that enable them to hold up to 10% of non-investment grade paper. At the same time, there was no stampede from the high-yield investor base to source paper, partly because accounts were unsure where on Telecom Italia burgeoning curve they wanted to take exposure, and also because many felt a new issue would emerge early this year – offering a new issue premium – given the company has sizable refinancing needs.

Telecom Italia, which was founded in 1994 through mergers of state-owned telecom concerns, is Italy’s largest telecoms group. – Luke Millar / Sohko Fujimoto