First Data holdco PIK bonds price at 94.5 to yield 15.95%; terms

First Data this afternoon completed a secondary reoffering of 14.5% senior holdco PIK notes due 2019 via Goldman Sachs, according to sources. Pricing was at the tight end of early market whispers after an upsizing to the full $1.4 billion, from just $725 million at launch. Moreover, an early read from the gray market points to follow-on demand and at least a one-point gain on the break, the sources add. As a reoffering, proceeds will stream to the selling noteholders. Issuance is under Rule 144A for life.

The paper is currently callable at 107.25, declining to 103.625 in December 2014 and then par in December 2015. The unrated issue stems from a bond exchange in October, by which holders of previously outstanding 11.5% holdco PIK notes due 2016 were paid off with proceeds from a $300 million offering of convertible preferred shares and received the exchange notes. The notes addressed in the exchange were part of the 2007 financing supporting a buyout of the data-processing giant by Kohlberg Kravis & Roberts. As reported, the deal was not widely marketed; instead it was placed with two Goldman Sachs accounts, and thus was treated as part of the equity contribution. Terms:

Issuer First Data
Ratings NR/NR
Amount $1.4 billion
Issue senior PIK notes (144A-life)
Coupon 14.5%
Price 94.5
Yield 15.945%
Spread T+1,427 approx.
FRN eq. L+1,415 approx.
Maturity Sept. 24, 2019
Call callable
Trade Jan. 14, 2014
Settle Jan.21, 2014 (t+3) 
Lead Books GS
Px talk 94.5
Notes calls: currently @107.25; Dec. 2014 @103.625; Dec. 2015 @par



HG bonds: PEMEX eyes new US debt following S&P upgrade

pemex logoShortly after a Standard & Poor’s ratings upgrade, Petroleos Mexicanos (PEMEX) returned to the U.S. bond market today with a 144A/Reg S benchmark offering split between five-year notes, a reopening of its existing 4.875% notes due Jan. 18, 2024, and new 30-year notes, sources said. The issue is guided to a BBB+/Baa1/BBB+ profile. Proceeds will be used for general corporate purposes. Bookrunners are BAML, Deutsche Bank, and Goldman Sachs.

The Mexico City-based issuer is a state-owned petroleum company. On Dec. 20, S&P raised its rating on PEMEX and its subsidiaries to BBB+, from BBB, following a one notch upgrade in Mexico’s foreign-currency rating to BBB+. The revision in Mexico’s rating reflects the “passage of a landmark energy reform, supported by some changes in the fiscal framework, bolsters Mexico’s growth prospects and fiscal flexibility in the medium term,” the agency said regarding its Dec. 19 sovereign upgrade.

“On a stand-alone basis, we believe that this reform would help Pemex to increase production in the medium-term by partnering with private parties,” S&P added on Dec. 20.

The outlook on PEMEX’s rating is stable, and mirrors the sovereign outlook.

Initial whispers for today’s offering surfaced in the T+175, T+225, and T+275 areas, pointing to reoffer yields in the 3.44%, 5.15%, and 6.58% areas, respectively.

The 4.875% notes due 2024 was originally placed in July as $1 billion at T+235, or 4.939%. For reference, the issue is trading this morning, on average, at 4.94%, and at a G-spread of 202-205 bps, according to MarketAxess.

The 2024 notes were part of a $3 billion, four-part offering, which also included a $500 million floating-rate tranche due July 2018 at L+202, $1 billion of 3.5% notes due 2018 at T+220, or 3.6%, and a $500 million tap of the existing 6.5% notes due June 2041 at T+260, or 6.53%.

For reference, the 2018 issue traded earlier today, on average, at 2.77% and at a G-spread of 128-133 bps, and the 2041 issue is also trading today, on average, at 6.23%, and at a G-spread of 252-256 bps, trade data show.

Last September, PEMEX placed two offerings backed by the Export-Import Bank of the United States (Ex-Im Bank). On Sept. 10, PEMEX placed $400 million of 2.83% notes due February 2024 at 68 bps mid-swaps, and on Sept. 20, it placed $750 million of floating-rate notes due 2014 at L+43. – Gayatri Iyer


Hi grade: Beam bondholders left in dark pending key merger details

Bonds backing distilled-spirits company Beam Inc. were volatile on the secondary market today after Japan’s Suntory Holdings yesterday announced plans to acquire the company for roughly $16 billion, trade data show.

Investors are not only grappling with the leverage and ratings implications of the deal – which could result in junk-level ratings for Beam debt – but also with disparities in covenant protections across the distiller’s array of debt instruments.

For now, shifting bond prices appear to be primarily linked to concerns that credit-quality-constrained portfolios would be forced to dump the issues on a move to junk, rather than worries about Beam’s ability to service its debt.

beam brands

Indeed, the cost to protect against the risk of default on Beam debt for five years on the CDS market fell 17.3% yesterday, reaching a long-term low of 44 bps yesterday, from levels near 70 bps in the first quarter last year, according to data provider Markit.

Higher leverage appears to be the only certainty regarding the proposed merger, leaving bondholders and ratings agencies to wait out clarification of the ultimate capital structure of the merged entity. Fitch today made a placeholder cut of one notch to Beam ratings – citing the “lack of information and transparency regarding this transaction,” which it views as a “significant credit risk” – and left the lower rating under review for further downgrade. Moody’s and S&P are reviewing ratings under a range of potential outcomes, as the current BBB-/Baa2/BBB- ratings profile teeters just above the high-grade/high-yield demarcation.

“Further details about the financing have not been disclosed, including the amount of debt financing (which might be substantial), which entity will issue some or all of the incremental debt, and whether Suntory will provide any guarantees to Beam,” S&P noted today.

Eyeing adjusted debt/EBITDA leverage in the six-times range pro forma for the merger, Moody’s this week placed Beam’s Baa2 and Suntory’s A3 issuer ratings under review for downgrade, assuming Suntory would incur the incremental debt as a result of the proposed transaction. The agency is estimating incremental debt of more than $10 billion, even if Suntory draws on its historically high levels of cash on hand to help finance the deal.

However, Moody’s notes that, while pro form leverage would be “inconsistent” with an investment-grade rating, there could be a potentially “key” offsetting factor. “Leverage reduction could come from the increased earnings opportunities presented by the acquisition, and the current cash flow available from Beam and Suntory to reduce debt,” the agency said today.

The uncertainty leaves bondholders gaming scenarios across Beam’s range of nine long-term debt maturities, dated 2016-2036. Only four of those issues – the $300 million of 1.875% notes due 2017, $250 million of 1.75% notes due 2018, $300 million of 3.25% notes due 2022, and $250 million of 3.25% notes due 2023 – carry change-of-control put provisions, at 101% of par, in the event a takeover leads to ratings downgrades.

However, the put is only triggered if all three ratings agencies cut their grades on Beam to levels below the BBB-/Baa3/BBB- investment-grade threshold, regulatory filings show. Equivocal commentary from the ratings agencies this week leaves the ultimate ratings profile an open question for the marketplace, given the operational strengths of the companies.

All four of Beam’s covenant-protected debt issues were inked in 2012 or 2013, after the company changed its name from Fortune Brands in 2011. Those deals include $500 million of notes placed last June to back a tender offer for existing debt, including the early repayment of a June 2014 maturity and the reduction in outstanding amounts of 2023, 2028, and 2036 issues. Any issues placed earlier than that lack the change-of-control feature, “potentially placing these noteholders at a disadvantage,” Fitch analysts noted today.

Even so, whipsaw trading conditions are not limited to deals lacking the covenant protections. The dollar price for the put-protected 3.25% 2023 issue eroded roughly 2.5 percentage points today, to the 96.5% of par area, after rallying closer to the put level yesterday as one of the most actively traded issues on the bond market, trade data show. But Beam’s shorter-dated 1.875% 2017 was steadier this week, holding in the 100-101% range witnessed over the last month, or just shy of the put price.

Meantime, Suntory announced yesterday that it has obtained committed financing from The Bank of Tokyo-Mitsubishi UFG in connection with the acquisition, which is expected to close in the second quarter.

Under the terms of the deal, Suntory will acquire all outstanding shares of Beam for $83.50 per share in cash. The transaction represents a 25% premium to Beam’s closing price of $66.97 on Jan. 10; a 24% premium to the volume-weighted average share price over the last three months; and a multiple of more than 20x Beam’s EBITDA for the 12 months ended Sept. 30, 2013.

Deerfield, Ill.-based Beam’s brand portfolio of distilled spirits includes Jim Beam Bourbon, Maker’s Mark Bourbon, Sauza Tequila, Courvoisier Cognac, Canadian Club Whisky, Teacher’s Scotch, Pinnacle Vodka, Laphroaig Scotch, Knob Creek Bourbon, Basil Hayden’s Bourbon, Kilbeggan Irish Whiskey, Cruzan Rum, Hornitos Tequila, Skinnygirl Cocktails, and Sourz Liqueurs.

Osaka-based Suntory provides a range of beverages and foods, including a portfolio of beers, distilled spirits and liqueurs, and wines. Analysts noted this week that the merger would address Suntory’s geographic concentration of its alcohol business in Japan, as Beam primarily operates in the U.S. – John Atkins


Laredo Petroleum bonds (B/B2) price to yield 5.625%; terms

laredo logoIndependent oil-and-gas E&P concern Laredo Petroleum yesterday completed an offering of senior notes via a Bank of America-steered bookrunner team that includes Citi, Credit Suisse, Goldman Sachs, and Wells Fargo, according to sources. Terms on the company’s return to market after nearly two years were finalized inside of talk by 12.5 bps even after a $100 million upsizing, to $450 million. Laredo announced the transaction this morning, with proceeds earmarked for general corporate purposes, according to a company statement. Take note that B/B2 ratings were assigned after both agencies raised the existing senior notes profile from B-/B3. S&P cited a higher value placed on Laredo’s energy assets based on midyear 2013 reserves, and Moody’s cited a decreased proportion of secured debt relative the unsecured debt. Terms:

Issuer Laredo Petroleum
Ratings B/B2
Amount $450 million
Issue senior notes (144A)
Coupon 5.625%
Price par
Yield 5.625%
Spread T+317
FRN eq. L+305
Maturity Jan. 15, 2022
Call nc3 @ par+75% coupon
Trade Jan. 13, 2014
Settle Jan. 23, 2014 (t+7)
Jt. Leads BMO, CapOne, JPM, Scotia, SocGen
Co’s. Barc, BBT, BBVA, BOSC, Comerica, ING, MUSA, STRH
Px talk 5.75-6%
Notes upsized by $100 million; first call par+75% coupon; inside of talk by 12.5 bps.

Despite uneventful 2013, bankruptcy cycle poised to turn (think high yield bonds)

The number of bankruptcy filings by publicly traded companies fell to 71 in 2013, representing a total of $42.6 billion in pre-petition assets, compared to 87 filings with a total of $70.8 billion in assets in 2012, according to research released today by, a firm that tracks and compiles bankruptcy information.

The average pre-petition asset figure also continued its downward trend, said, dropping to $600 million in 2013, compared to $814 million in 2012.

leveraged loan default rate

With leveraged loans, defaults remain near historical lows despite creeping higher in 2013.

The largest filing of 2013 was Cengage Learning, with $7.5 billion in assets. Penson Worldwide ($6.2 billion in assets) and Dex One ($2.8 billion) landed in the second and third spots, said, noting those were the only bankruptcies for the year that listed $1 billion or more in total pre-petition assets.

Indeed, Bankruptcy said, those pre-petition asset figures were dwarfed by 2012’s largest filing, Residential Capital, which had $15 billion in assets. also reported that 2013’s bankruptcy activity “covered a wide range of industries,” commenting that this both continued “a trend we’ve seen over the past few years” and was “unlike the bankruptcy cycles of 2000-03 and 2008-09, which were clearly dominated by certain industry groups (telecom/technology and financial services, respectively).”

Still, found that healthcare and medical industry bankruptcies led 2013’s filing count with 10 bankruptcies, or about 14% of total filings, with total combined assets of $1.2 billion, representing about 2.8% of the total. The sector led 2012’s public company bankruptcy count as well, said.

Drilling a little deeper, noted that in terms of asset size, filings from the healthcare and medical industry fell well short of the asset size of filings from the banking and finance, education and publishing sectors, which reported combined total assets of $9.5 billion, $8.2 billion and $6.3 billion, despite only four, three and four filings, respectively, in each industry.

Other industries represented in 2013, according to, included telecommunications (seven filings with $1.5 billion in assets); manufacturing (seven filings with $3 billion in assets); oil and gas (five filings with $1.7 billion in assets); and computers and software (five filings with $575 million in assets).

Despite the 2013 decrease in the total number of filings, said its research showed the number of prepackaged reorganizations (defined by as a situation in which a reorganization plan was filed concurrently with a petition) has been increasing, with 17 prepackaged proceedings in 2013, versus 11 in 2012 and just four in 2011—with respective combined total asset figures of $14 billion, $8 billion and $3 billion.

Despite the clear downward trend in bankruptcy filings over the past several years, not to mention an improving economy, public company bankruptcies nonetheless appear poised for a rebound, according to George Putnam III, founder of New Generation Research, parent company of

“Even with the strength in the markets, there are a number of companies that raised large amounts of debt prior to 2008 that have not yet refinanced or restructured that debt,” Putnam said. “Many of those debt issues come due over the next few years, and we think a significant number of those issuers will have trouble refinancing.”

Beyond the hangover debt from before the financial crisis, Putnam also said, “In addition, there has been a huge amount of new high-yield debt issued since 2009. History shows us that a meaningful percentage of high-yield debt usually defaults within four years of issuance. Even if only a small percentage of the debt issued over the last four years goes into default that is likely to generate a significant surge in bankruptcy filings.”

But it is figuring out the timing of those defaults and the ensuing bankruptcies, of course, that is the tricky part.

“It is difficult to predict exactly when defaults and bankruptcies will pick up again,” Putnam said, “but we are confident it will happen in the not-too-distant future.” – Alan Zimmerman


European high yield bond funds see €337M investor cash inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €337 million inflow for the week ended Jan. 8. This includes net inflows for ETFs and short-duration funds of €94 million and €40 million, respectively. The latest reading is the eighteenth consecutive weekly inflow. The reading for the week ended Jan. 1 is revised from an €89 million inflow to a €99 million inflow.

The provisional reading for December is a €1.16 billion inflow, meaning the provisional 2013 inflow is €7.94 billion. That compares to an inflow of €7.2 billion for 2012.

As is typical for this time of year, borrowers are taking time to get ready to issue – leading bankers to comment that the end of the month is likely to be busier than the start. However with inflows currently so strong, issuers that are ready will launch into an investor base awash with cash, and this alone should focus their attention on getting to market sooner rather than later.

This week’s focus so far is on a crossover-deal from Wendel, while Italian real estate firm Beni Stabili has mandated banks for a new issue, having held investor meetings last November.

In the U.S., retail cash inflows from high-yield totalled $642 million for the week ended Jan. 8, according to Lipper, a division of Thomson Reuters. This is a full reversal of the previous week’s $643 million outpouring that rang in the New Year. This is the strongest inflow since the week ended Nov. 20. The week’s inflow was largely from mutual funds, which comprised $555.5 million of the flow, or 86%, while ETFs accounted for the $87 million balance, at just 14% of the total.

Meanwhile, retail cash inflows to bank loan mutual funds and exchange-traded funds totalled $904 million for the week ended Jan. 8, according to Lipper, a division of Thomson Reuters. The inflow balloons from $142 million last week and is the largest single weekly cash infusion dating back 16 weeks. It was 14% comprised of ETF inflows.

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


$1.1B NRG Energy high yield bond issue prices to yield 6.25%

NRG Energy this afternoon completed a long-awaited corporate offering to support the takeover of the assets of Edison Mission Energy out of bankruptcy. Barclays was quarterback on a bookrunner team that includes Deutsche Bank, Goldman Sachs, Morgan Stanley, Credit Agricole, Natixis, and RBC, sources said. Terms were finalized at the tight end of talk following a $400 million upsizing, to $1.1 billion. Moreover, an early read from the gray market points to further demand and break pricing up at least one quarter of a point, the sources add.

The EME acquisition includes equity interests in Edison subsidiaries, for an aggregate purchase price of $2.635 billion, NRG announced last fall. More specifically, the purchase price will be $1.572 billion net of $1.063 billion retained cash within Edison, and will consist of roughly 12.7 million shares of NRG common stock, valued at $350 million, with the balance to be paid in cash. The transaction will be implemented via a reorganization plan sponsored by NRG. Key stakeholders in the Chapter 11 case, including the unsecured-creditors committee appointed in the case and certain of Edison’s unsecured noteholders, are also parties to the plan-sponsor agreement, NRG said. Terms:

Issuer NRG Energy
Ratings BB-/B1
Amount $1.1 billion
Issue senior notes (144A)
Coupon 6.25%
Price par
Yield 6.25%
Spread T+362
FRN eq. L+353
Maturity July 15, 2022
Call nc4
Trade Jan. 10, 2014
Settle Jan. 27, 2014 (t+10)
Lead Books Barc/DB/GS/MS/CAG/NTX/RBC
Co’s. DNB, KeyBanc
Px talk 6.25-6.375%
Notes upsized by $400 million.

Summit Materials add-on bonds price at 108.75 to yield 7.92%

Summit MaterialsSummit Materials this afternoon completed an add-on offering of senior notes through bookrunners Bank of America, Citi, Barclays, UBS, Credit Suisse, Deutsche Bank, and Blackstone, according to sources. Terms on the deal, which was upsized by $50 million, were finalized at the tight end of talk. The original $250 million dates to January 2012 issuance at par, which was also tight to talk, also after a small upsizing amid heavy interest. It was the aggregates company’s market debut, and proceeds from the bond deal, along with those from a $400 million term loan, were used to refinance existing debt. In this return to market after two years, Summit Materials seeks capital to fund an acquisition. Indeed, proceeds from today’s execution support the acquisitions of Alleyton Resource, a sand and gravel company, and Colorado Gulf, a cargo-transport-services concern. The purchase is approximately $179 million, and additional proceeds from the bond sale back related special payments, some RC repayment, and general corporate purposes, sources noted. Terms:

Issuer Summit Materials
Ratings B-/Caa1
Amount $260 million
Issue add-on senior notes (144A)
Coupon 10.5%
Price 108.75
Yield 7.923%
Spread T+533/7-year
FRN eq. L+526
Maturity Jan. 31, 2020
Call nc2 (originally nc4)
Trade Jan. 9, 2014
Settle Jan. 17, 2014 (t+6)
Books BAML/Citi/Barc/UBS/CS/DB/Blackstone
Px talk 108.25-108.75
Notes upsized by $50 million; total now $510 million; original $250 million priced in January 2012 @par; w/ one-year equity clawback for 35% @ 110.5; carries T+50 make-whole call; w/ change-of-control put @ 101.



Societe Generale adds Postyn, Burt to London high-yield group

Société_GénéraleSociete Generale CIB has announced two new hires to its high-yield team in London. Noah Postyn and Colin Burt have joined as directors, senior high-yield & crossover sales, reporting to Catherine Da Silva, head of high-yield sales.

Postyn joins from ED&F Man, where he held a similar position. He also held capital markets positions at MF Global and J.P. Morgan in Cincinnati. Postyn began his career at Lehman Brothers in 1994.

Burt joins from Credit Agricole CIB, where he was head of high-yield sales for four years. Prior to that he worked at UBS, and before that he was a portfolio manager at SWIP and Abbey National Treasury Services. – Staff reports


European high yield bond funds see €89 million inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows an €89 million inflow for the week ended Jan.1, and a €292 million inflow for the week ended Dec. 25. This includes net inflows for ETFs and short-duration funds of €18 million and €47 million respectively for the week ended Jan. 1, and €88 million and €73 million for the week ended Dec. 25. The latest readings are the sixteenth and seventeenth consecutive weekly inflows.

The provisional reading for December is a €993 million inflow, meaning the provisional 2013 inflow is €7.77 billion. That compares to an inflow of €7.2 billion for 2012.

Strong inflows proved to be the bedrock for last year’s record-breaking supply. Most expect inflows to the asset class to remain robust this year as the ongoing low-yield environment continues to make high-yield attractive relative to other asset classes. This in turn will support another decent year of new issuance, sources comment. The market is expected to re-open tomorrow, with Fresenius widely tipped to launch euro and dollar paper to refinance the €1.8 billion bridge to high-yield that supported its buyout of Rhoen-Klinikum. Expect a dual-tranche issue of euro-denominated notes.

There is also talk that Liberty Global will reach an agreement to buy Ziggo shortly, and once this has taken place bond and loan financing will be launched very soon after. There is also talk of an auto-distribution company readying a deal, and a debut Polish credit looking at a recap.

In the U.S., retail cash outflows from high-yield funds totalled $643 million for the week ended Jan. 1, according to Lipper, a division of Thomson Reuters. The outflow wipes out the inflow of $103 million for the week ended Dec. 25. As for 2013 in full, inflows were $1.9 billion, with ETF inflows comprising 85% of the total, at $1.6 billion.

Meanwhile, retail cash inflows to bank loan mutual funds and exchange-traded funds totalled $142 million for the week ended Jan. 1, according to Lipper, a division of Thomson Reuters. This latest cash infusion takes a stunning, 81-week inflow streak to $60 billion, by the weekly reporters only. However, it’s also notable as the smallest one-week infusion dating back 61 weeks, or since the week ended Oct. 31, 2012. Full-year 2013 inflows total $52.3 billion, of which 10% was tied to ETFs.

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