Taylor Morrison high yield bonds (BB-/B2) price at par to yield 5.625%

Taylor Morrison Communities today completed an offering of senior notes via joint bookrunners J.P. Morgan, Citi, Credit Suisse, and Deutsche Bank, according to sources. Terms for the 10-year bullet issue were finalized at the tight end of talk with a $50 million upsizing, to $350 million. Proceeds from the 144A-for-life offering will be used for general corporate purposes. Taylor Morrison builds and sells single-family homes, townhomes, and high-rise condominiums in the U.S. and Canada. Terms:

Issuer Taylor Morrison
Ratings BB-/B2
Amount $350 million
Issue senior notes (144A-life)
Coupon 5.625%
Price 100
Yield 5.625%
Spread T+295
Maturity March 1, 2024
Call nc-life
Trade Feb. 28, 2014
Settle March 5, 2014 (T+3)
Lead Books JPM/Citi/CS/DB
Jt. Books
Px talk 5.75% area
Notes Carries T+50 make-whole call; callable at par three months prior to maturity; upsized by $50 million.

Central European Media Enterprises (CME) high yield bonds pop in trading as Time Warner steps in

cme logoCentral European Media Enterprises (CME) announced today that it has agreed on a rights offering from Time Warner in order to refinance its €272.9 million issue of 11.625% notes due 2016.

The company has also launched a consent solicitation to holders of its 9% notes due 2017, which asks to substitute certain cash-pay debt into non-cash-pay debt. CME is offering a consent fee of 25 bps, and the solicitation expires at 5:00 p.m. EST on March 11. Citi is handling the process.

The borrower’s bond prices reacted immediately to the news – the 11.625% notes due 2016 are up by roughly five points to a mid-price of 105.5, while its 9% notes due 2017 are 3-4 points higher at a mid-price of 106, according to sources.

According to an SEC filing, under the rights offering CME shareholders will receive one non-transferable right – to purchase a unit, comprising 15% secured notes due 2017 (a non-cash pay instrument) and 21.17 unit warrants – per 62.5 shares of class A common stock held as of the record date, at a subscription price of $100 per unit. Only shareholders holding 62.5 or more shares of class A common stock will be eligible to participate in the rights offering, the company said.

Via the rights offering, CME expects to raise gross proceeds of roughly $396.8 million, which will be used to refinance the 2016 notes.

CME has outlined four potential outcomes related to the refinancing. Firstly, if the rights offering closes prior to May 29, 2014, Time Warner will fund a $30 million term loan – entered into today – maturing on Dec. 1, 2017. Secondly, if the rights offering does not close prior to May 29, Time Warner will lend a loan to CME in the amount required to redeem the 2016 notes, plus an additional $30 million, all of which will initially mature on Sept. 8, 2014.

Thirdly, if the rights offering closes after May 29 but before Sept. 8, CME will use the rights offering proceeds to repay a portion of the term loan (used to repay the 2016 notes), and the remaining portion of the term loan will mature on Dec. 1, 2017. Finally, if the rights offering has not closed by Sept. 8, CME will issue warrants to Time Warner to purchase 84 million shares of class A common stock, and the maturity of the term loan from Time Warner will be extended to Dec. 1, 2017.

Time Warner will purchase all units not subscribed by other shareholders, in addition to the 576,968 units it is already purchasing separately from CME in a private placement transaction.

In addition, Time Warner will provide a $115 million revolver to CME.

The beleaguered media group reported its full-year results today, with net revenue down 10.1% to $691 million, and OIBDA for the year falling to negative $46.5 million, versus positive $125.4 million last year. CME has been in discussions with Time Warner since last year to address its liquidity situation.

CME is a media company providing broadcasting, Internet, and television in central and eastern European countries. It is rated B-/Caa1. – Sohko Fujimoto

Follow Sohko on Twitter @sohkoatLCD for European Secondary and Distressed news


Cloud Peak Energy places $200M of 10-year high yield bonds (BB-/B1) at 6.375%

Cloud Peak Energy has placed a $200 million offering of 10-year (non-call five) senior notes at the tight end of talk, according to sources. The SEC-registered deal comes via bookrunners Goldman Sachs, Credit Suisse, RBC, Deutsche Bank, Wells Fargo, J.P. Morgan, and Credit Agricole, the sources said. The company plans to use the capital to fund a tender offer for its existing senior notes due 2017. Cloud Peak Energy last tapped the market more than four years ago, pricing $300 million of 8.25% senior notes due 2017, along with another $300 million of 8.5% notes due 2019. The 2019 notes are currently quoted at 108.25, yielding 3.26%, according to Capital IQ. Headquartered in Gillette, Wyo., Cloud Peak Energy is a producer of subbituminous coal. Terms:

Issuer Cloud Peak Energy
Ratings BB-/B1
Amount $200 million
Issue senior notes (SEC Reg.)
Coupon 6.375%
Price 100
Yield 6.375%
Spread T+373
Maturity March 15, 2024
Call nc5
Trade Feb. 27, 2014
Settle March 11, 2014 (T+8)
Co’s. BB&T/Comerica/PNC/Stifel
Px talk 6.5% area

JC Penney debt pops, CDS tightens on 4Q profit, sales forecast; shares rally

Debt backing J.C. Penney is trading higher this morning alongside the company’s shares after the retailer late yesterday reported a small fourth-quarter profit and said it expects same-store sales to increase by mid-single digits in the full year 2014.

J.C. Penney’s 7.4% notes due 2037 are among the most active issues this morning, trading up two points to 70. The 5.75% notes due 2018 are quoted at 80/81 versus some odd lots trades yesterday at 72.50. The 6.375% notes due 2036 are up five points at 70/70.5.

Five-year CDS referencing the retailer also snapped about 7.5 points tighter on the day, quoted at 23.5/24.5 points upfront, sources said.

In the loan market, the company’s covenant-lite term loan due 2018 (L+500, 1% LIBOR floor) popped up more than two points on the news, to bracket 99, up from 96.5/97 ahead of the results yesterday, sources said. For reference, the $2.25 billion loan was issued at 99.5 in May 2013.

For the fourth quarter, J.C. Penney reported a $35 million profit, versus a net loss of $552 million during the year-ago quarter. Excluding a one-time tax benefit and other items, the company posted a $206 million adjusted net loss. The S&P Capital IQ average analysts’ estimate was for a $262 million net loss.

Same-store sales increased by 2% during the quarter, which was the first quarterly comparable sales gain since the second quarter of 2011. The company reported revenue of about $3.78 billion. That total was slightly below the S&P Capital IQ average analysts’ estimate of $3.85 billion and compares to $3.88 billion during the year-ago quarter, though the company noted that the 2012 quarter included an additional 53rd week.

The company also said it ended 2013 with total available liquidity in excess of $2 billion.

Looking forward, J.C. Penney said it expects an increase in same-store sales for the first quarter of 2014 of 3-5%, and forecast a mid-single digits increase for the full year 2014.

“With the most challenging and expensive parts of the turnaround behind us, we will focus on improving gross margin, managing expense and steadily growing our sales in 2014,” said CEO Myron E. Ullman.

The company’s shares are also rallying on the news, up about 22% to $7.30. The stock trades on the New York Stock Exchange under the ticker JCP. The company is rated CCC+/Caa2. – Kerry Kantin/Joy Ferguson


Bankruptcy: Classic Party Rentals unsecured creditors’ committee appointed, full list

The U.S. Trustee overseeing the Chapter 11 proceedings of Classic Party Rentals has appointed an official committee of unsecured creditors in the case. Current membership and contact information is as follows:

  • Herb Stone (415-559-3133)
  • Signature Systems Group (Wen-Kang Chang, 212-953-1116)
  • Stan White (901-331-0564)
  • Jomar Table Linens (Joel Nevins, 909-390-1444)
  • Ryder Truck Rental (Kevin Sauntry, 770-569-6511)
  • Designer 8 Event Furniture Rental (Samantha Sackler, 310-873-3118)
  • Aztec Tent (Chuck Miller, 310-347-3010)

Classic Party Rentals filed for Chapter 11 protection on Feb. 13 with plans for a sale of its operations. The company supplies china, glassware, lounge furniture, and catering equipment for events around the U.S. – John Bringardner


Greektown Casino high yield bonds price at par to yield 8.875%

Greektown Holdings today placed $425 million of five-year (non-call two) secured notes at the tight end of talk, via bookrunners Jefferies, Credit Suisse, Goldman Sachs, UBS, and Wells Fargo, according to sources. Proceeds will be used to refinance existing debt and for general corporate purposes. The Detroit, Mich.-based casino emerged from Chapter 11 in 2010, issuing two series of 13% second-lien notes totaling roughly $385 million to refinance pre-petition debt. The company last tapped the leveraged markets with a $425 million first- and second-lien loan refinancing in December 2012 via Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, and Jefferies. Terms:

Issuer Greektown Holdings
Ratings B-/B3
Amount $425 million
Issue 2nd-priority secured (144A-life)
Coupon 8.875%
Price 100
Yield 8.875%
Spread T+740
Maturity March 15, 2019
Call nc2
Trade Feb. 26, 2014
Settle March 14, 2014 (T+12)
Lead Books Jeff/CS/GS/UBS/WF
Px talk 9% area



Bankruptcy court won’t hear Overseas Shipholding’s Proskauer suit

The bankruptcy court overseeing the Chapter 11 proceedings of Overseas Shipholding Group has “abstained” from hearing the company’s legal malpractice lawsuit against Proskauer Rose and four of its attorneys.

Wilmington, Del.-based Bankruptcy Court Judge Peter Walsh’s Feb. 21, 2014 letter ruling did not provide a specific reason for the decision, but said it was based on the arguments made by Proskauer in its motion seeking the bankruptcy court’s abstention from the case.

As reported, the company’s lawsuit, filed last November as an adversary proceeding in Overseas Shipholding’s Chapter 11 case, argued that Proskauer’s allegedly incorrect legal advice to the company in connection with the drafting and implementation of the company’s credit agreements resulted in a potential tax liability of roughly $463 million. The company further argued that in subsequently trying to address the tax liability, Proskauer allegedly rendered additional legal advice that sought to cover-up its earlier negligence (see “Overseas Shipholding sues former attorneys over tax advice,” LCD, Nov. 19, 2013).

Proskauer, for its part, has denied all of the allegations, and has asserted that Overseas Shipholding is using it as a scapegoat for its tax liability.

The company has since settled the liability with the IRS, which was a key factor behind the company’s Chapter 11 filing in November of 2012, for about $264.3 million. The company has also recently reached a plan-support agreement with key creditors and has said it is poised to file a proposed reorganization plan (see “Overseas Shipholding to file plan soon, seeks exclusivity extension,” LCD, Feb. 24, 2014).

On Jan. 17, Proskauer asked the bankruptcy court to dismiss the adversary action on various procedural grounds, arguing that claims based on advice allegedly provided by Proskauer in 2000, 2001 and 2005, were barred by a three-year statute of limitations, and that other claims related to advice allegedly provided by Proskauer in 2011, while not time-barred, were based on misrepresentations that Overseas Shipholding made to the law firm (see “Dismissal sought on ‘baseless’ Overseas Shipholding malpractice suit,” LCD, Jan. 22, 2014).

Along with its motion seeking dismissal of the claim, Proskauer alternatively asked the Wilmington, Del., bankruptcy court to voluntarily “abstain” from hearing the case on the grounds that state court in New York is a more appropriate court to hear the case, a concept known as “permissive abstention.”

According to Proskauer’s motion filed last month seeking the court’s absention, the malpractice and breach-of-duty claims in the adversary action are based on New York State law, not bankruptcy law. “The merits of the [company’s] state law claims are completely unrelated to OSG’s bankruptcy case,” Proskauer argued, adding, “Indeed, it is beyond dispute that every event underlying the state law claims arose before the petition date and that this action could have been commenced at any time in New York state court irrespective of plaintiff’s solvency.”

Proskauer further argues, “It is equally clear that New York is the most appropriate forum for resolution of” the company’s claims, citing the facts that both Overseas Shipholding and Proskauer are headquartered in New York, the witnesses reside there, the relevant events occurred there, New York law will govern the case, and “New York’s specialized Commercial Division is ideally suited to address the complex questions of New York law that the state law claims implicate.”

Beyond bringing the current adversary action to a halt for now, the next steps in the case are to be determined. Overseas Shipholding could appeal Walsh’s decision, which would obviously delay litigation of the dispute, or opt to refile the case in New York state court – an option that the company has said in court papers would also delay adjudication of the matter. Indeed, according to the company, Proskauer is seeking to litigate the case in the Commercial Division of the New York Supreme Court because it “presumably knows that it will take on average over two and one-half years to get the case to trial,” adding, “Delay, of course, is often the best friend of a defendant, but is no friend of the plaintiff.”

Attorneys for the company did not respond to request for comment.

The potential effect of any delay on the company’s Chapter 11 is less clear. The company’s plan-support agreement is not contingent upon the resolution of the litigation, and specifically provides that any pending claims held by the company would simply be vested in the reorganized company, and thus become an asset, albeit one of uncertain value, of the company. – Alan Zimmerman


Momentive 11.50% subordinated high yield bonds plummet on default concerns

momentive logoMomentive Performance Materials 11.50% subordinated notes due 2016 plummeted another 13 points today to 31.50, according to sources and trade data. The notes were in the 70s earlier this month, but have declined precipitously in the past few weeks on default concerns.

In a report yesterday, Debtwire revealed that Momentive’s sponsor, Apollo, met with holders of Momentive Performance Materials $1.16 billion 9% second-lien notes due 2021 last week in an initial attempt to gauge support for a potential pre-arranged restructuring plan that would revolve around eliminating the $380 million 11.5% senior subordinated notes due 2016 and making the seconds the fulcrum, the Debtwire report said.

Sources told Debwire that Apollo, which is a crossholder in the second-lien and sub notes, may be willing to write-off its junior position in order to maximize its second-lien return prospects through equitization.

Debtwire also reported holders of the issuer’s 9% second-lien notes have gone restricted in an effort to begin restructuring negotiations with management. Those notes traded in an 89/90.25 context today, up from the 86-88 range a week ago.

Earlier this month S&P lowered Momentive’s corporate rating to CCC-, from CCC; the first-lien notes to CCC, from CCC+; and the intermediate-lien debt to C, from CC. S&P said the silicone and quartz producer’s EBITDA is not recovering as much as anticipated, and therefore it expects the company to continue to generate negative free operating cash flow, causing liquidity to dwindle.

Holders of the second-lien notes formed a group at the behest of Oaktree, and the group has engaged Houlihan Lokey as financial advisor and Milbank Tweed as legal advisor, according to a report by Debtwire earlier this month. Those moves come after Momentive Performance retained financial advisor Moelis and legal advisor Willkie Farr, according to the Debtwire report.

Waterford, N.Y.-based Momentive Performance was created from the sale of GE Advanced Materials to Apollo in December 2006. A related entity, Momentive Specialty Chemicals, the other Apollo-controlled entity still referred to under its former name of Hexion, carries no cross-default provisions with Momentive Performance. – Staff reports


Fridson: Purifying the CCC high yield bond segment (the least overvalued, btw)

Synopsis: Adopting a stricter measure of the CCC sector does not alter our conclusion that for the past few months, the lowest credit-quality tier has represented the least overvalued segment of the high-yield market. The high-yield asset class as a whole is extremely overvalued at present. On the positive side, the covenant quality of new issues has been improving since the fall.

Purifying the CCC segment to determine relative value

In conjunction with this update of our rating-specific fair-value analysis, we address a concern raised by some readers about measurement of the CCC spread. As detailed in “Valuation and short-run performance” (Feb. 19, 2013), our model explains historical variance in the option-adjusted spreads of the BofA Merrill Lynch U.S. High Yield Master II Index rating subdivisions as a function of economic conditions, credit availability, the speculative-grade default rate, and Treasury yields.

The bottom-tier index (BAML Ticker: H0A3) consists primarily of CCCs, but also includes CCs and Cs. Both in the latest month and in the historical period used to create the multiple regression formula by which we estimate fair value, the H0A3 spread exceeds the pure CCC spread. This difference could conceivably lead to a false comparison of relative value between CCCs and the other rating categories.

To address this concern, we created a new time series for the pure CCC spread, consisting of 68 quarterly observations (December 1996 to December 2013). In each quarter we calculated a market-value-weighted OAS for the CCCs only. We then applied the above-described FridsonVision Fair Value Model to the quarterly data. The resulting model (see note 1) explains 76% of the variance in the pure CCC spread. This level of explanatory power (R-squared) compares favorably with the corresponding figures of 78%, 80%, and 74% for H0A1 (BB), H0A2 (B), and H0A3 (CCC/CCC/C), respectively.

Fair-valuation output for Jan. 31 appears in the chart below. The bottom line is that whether defined as H0A3 or our newly created Pure CCC index, the bottom tier of the speculative-grade asset class continues – as in recent months – to be the least overvalued.

This is true even in absolute terms for the CCC/CC/C group. Its actual-versus-fair-value gap is less than that of the B category (145 versus 182 bps). On the other hand, our Pure CCC group’s gap versus fair value is five basis points greater the B group’s (187 versus 182). These gaps must be normalized, however, for the differences in scale of fair-value OAS for the various rating categories.

To understand why, suppose that on a given date, the fair-value spread for AA corporates is 100 bps. If the actual spread on that date is 200 bps, AA corporates are surely cheaper than CCCs, with a fair-value spread of 1,000 bps on the same date and an actual spread also greater by 100 bps, i.e., 1,100. Surely, the AAs are cheaper, at a spread 100% greater than fair value, than CCCs, which are a mere 10% wider than fair value.

Following that logic, we show in the column labeled “Difference as a % of fair value” that the CCC/CC/C group is the least overvalued (-15.8%) and the B group is the most overvalued (-31.1%). Pure CCCs, at -22.1%, are more overvalued than the CCC/CC/C category, but still less overvalued than either BBs or Bs. An alternative approach to normalizing the actual-minus-fair-value gaps, measuring the number of standard deviations of overvaluation, produces the same result – namely, the bottom tier is the cheapest portion of the high-yield market at present.

As a caveat, short-term relative returns tend to be a function of changes in investors’ market tolerance, rather than valuation. If risk premiums increase sharply, CCCs will almost certainly underperform BBs and Bs, even if they are relatively undervalued at the outset. Valuation is not a tool for short-term traders, but rather a guide for value investors who aim to benefit over the long run by perennially holding intrinsically underpriced assets.

Going forward, our monthly valuation update will include fair value and actual spreads for the Pure CCC index as well as BAML’s H0A3 index.

High-yield is extremely rich

The chart below updates the fair-value analysis of the high-yield asset class, initially described in “Determining fair value for the high-yield market” (Nov. 13, 2012). Taking into account total risk (not just default risk, as primitive “breakeven” models do), fair value for the High Yield Master II is 557 bps at present.

The current fair-value spread is down from 568 bps one month earlier. An improvement in credit availability offset unexpected, substantial drops in Industrial Production and Capacity Utilization. (Unusually harsh winter weather probably contributed to those declines.) The default rate declined slightly, while the five-year Treasury yield, which is inversely correlated with the spread, dropped by 16 bps.

On Feb. 14 the actual high-yield OAS was 403 bps, or 1.2 standard deviations less than fair value. We define a shortfall of one standard deviation or more as an extreme overvaluation. High-yield has historically underperformed Treasuries in 12-month periods following extreme overvaluations. For the record, the Jan. 31 actual OAS was 421 bps, representing a divergence of 1.0 standard deviations.

Covenant quality improved in January

Covenant quality on new high-yield issues improved in January, continuing an upward trend from the recent low point in the fall of 2013. The chart below updates analysis introduced in “Covenant quality decline reexamined” (Oct. 1, 2013). The Moody’s version of the covenant-quality trend is shown by the dotted line, while the solid line depicts the FridsonVision version. Both are based on Moody’s scores for the individual high-yield issues that come to market each month.

The methodological difference is that we filter out the impact of month-to-month changes in the ratings mix of new high-yield issues. CCC issues on average have stronger covenants than Bs, which on average have stronger covenants than BBs. If, in a given month, the balance of negotiating power between issuers and investors does not shift, but CCCs happen to represent a greater share of issuance than in the preceding month, the Moody’s series will show an improvement in covenant quality, but ours will (correctly) show no such change.

Our series indicates an improvement in the CQ trend to 3.89 in January, from 4.03 in December and from a worst point of 4.19 in September 2013. The Moody’s series shows a worst point of 4.26 in October 2013 and a latest-month improvement to 3.84, from 4.00 in December. By either measure, the rockier conditions in the high-yield market of late have weakened the hand of issuers, enabling investors to obtain somewhat stronger covenants than in the fall.

Martin Fridson, CFA

CEO, FridsonVision LLC

Research assistance by Yinqiao Yin and Ruili Liu



1. The multiple regression formula is:


LightSquared new disclosure statement OK’d; Ergen investment vehicle still unhappy

lightsquared logoJudge Shelley Chapman approved LightSquared’s amended disclosure statement today, but the hearing was as heated as any in the case so far, leaving little doubt the company will face a tough plan-confirmation hearing on March 17.

LightSquared’s latest plan, based on at least $2.65 billion in new financing, proposes to repay all claims against the estate in full, and leave Harbinger Capital Partners with a significant portion of its equity stake intact. (see “LightSquared files latest plan, sees post-Ch. 11 value up to $9.1B,” LCD News, Feb. 18, 2014.) Unlike previous versions of the plan, it is not based on the still tentative FCC approval of LightSquared’ s proposed wireless spectrum use, meaning the plan could allow LightSquared to emerge from Chapter 11 much sooner than previously thought.

SP Special Opportunities, the Charles Ergen-controlled investment vehicle that holds more than $1 billion in claims on LightSquared’s senior debt, remains the last major opponent of the plan. SPSO lawyer Rachel Strickland lambasted LightSquared’s disclosure statement in an objection filed Friday (see “Ergen fund objects to latest LightSquared plan, offers new financing,” LCD News, Feb. 21, 2014) and again in court this morning, calling it “about as brazen an attempt to marginalize a party as I’ve ever seen.”

Under LightSquared’s proposal, SPSO would be paid in full via new third-lien debt, paid in kind over seven years. Paying SPSO’s claims with a debt instrument is a way to ensure Ergen, as the owner of various LightSquared competitors, cannot meddle in the company’s affairs, after bankruptcy, via a controlling equity stake, said LightSquared lawyer Matthew Barr.

In treating SPSO’s claim differently than any other secured claim, such treatment is inequitable and renders the plan patently unconfirmable, Strickland reiterated. Among other things, she pointed out that although LightSquared says its plan is not based on regulatory approvals, the estimated valuation it provides in its disclosure statement is. Assuming FCC approval on all fronts, Moelis & Co. pegged LightSquared’s value as high as $9.1 billion.

The hearing at times devolved into a “mini-confirmation hearing,” Judge Chapman said, as lawyers argued points that are usually reserved for plan confirmation. A disclosure-statement hearing is typically much shorter than plan confirmation; a disclosure statement may be approved as long as it provides voting creditors with adequate information about the plan, not whether the plan itself is viable.

Lawyers in the case will return to court on March 12 for closing arguments in the dispute over whether SPSO, on behalf of Ergen, fraudulently acquired its blocking position in LightSquared’s senior debt. As Judge Chapman noted in today’s proceedings, near the end of its debt-buying spree, SPSO paid as much as 96 cents on the dollar for LightSquared debt, even though Ergen’s e-mails at the time reveal he thought their true market value was closer to 70 cents on the dollar. – John Bringardner