Scientific Games debt, shares gain as co. readies M&A bond offering

sgi_webScientific Games shares rallied almost 18% today, to $11.33, and debt backing the issuer edged higher after investors learned on a conference call that a long-awaited M&A bond deal is expected to launch to syndication within the next two weeks, according to a conference call transcription. Management said they accelerated the timing on third-quarter results, as did takeover target Bally Technologies, so as to be “better positioned to go to the marketplace,” the filing shows.

As outlined earlier, the acquisition financing calls for $2.485 billion of new secured debt, to be split between term loans and secured notes, along with $2.7 billion of new unsecured notes. The bonds are backstopped, of course, by fully committed bridge financing via J.P. Morgan, Bank of America, and Deutsche Bank.

In the loan market, Scientific Games $2 billion, seven-year B-2 term loan (L+500, 1% LIBOR floor) advanced to 98/98.75 today, from 97.5/98 yesterday, sources said. The covenant-lite B-2 loan was issued in September at 99 to support the Bally transaction.

As for bonds, Scientific Games 6.625% subordinated notes due 2021 changed hands at 80.25, up from 78 amid the market rout two weeks ago. Recall that the B-/B3 paper fell into a bit of price discovery just below 80 on Monday when press reports circulated about the syndication of the bridge loan.

Indeed, a Bloomberg News report claimed the syndication effort was “pulled,” citing unnamed sources. Market sources, however, relay it’s an ongoing effort that’s fully underwritten, yet to close, and still not funded.

With the target for a primary high-yield market execution now outlined as “within the next two weeks,” the deal sits on the LCD shadow backlog of business. Tranching is now expected to be $485 million secured and $2.7 billion unsecured in two series. Details are available online to subscribers at LCD U.S. High-Yield Forward Calendar. –Staff reports


Catalyst Paper to tap ABL, PIK-toggle notes for acquisition

logo_catalystCatalyst Paper disclosed that it intends to finance its acquisition of two paper mills by tapping its asset-based revolver and through $25 million of PIK-toggle notes.

The company has received a commitment letter from CIBC and Wells Fargo to increase its asset-based revolver by $50 million, to $225 million and to use the proceeds to back the acquisition.

Catalysts secured notes due 2017, traded at 87, up from 84/86 earlier this week on the news. The notes are callable at par, bear an 11% coupon, and have $250 million outstanding.

Catalyst is planning to acquire the Biron paper mill located in Wisconsin and the Rumford pulp and paper mill located in Maine from NewPage Corp for $74 million.

In September 2012, Catalyst completed a reorganization, reducing debt by $390 million, eliminating $80 million of accrued interest, and reducing annual interest expenses and other cash costs by roughly $70 million. At the time, holders of $390.4 million in first-lien notes received $250 million aggregate principal of the secured notes due 2017. – Richard Kellerhals/Matt Fuller


Arch Coal high yield bonds, leveraged loans mixed in trading after co. posts 3Q results

Arch Coal debt was mixed today after the company posted a wider-than-expected loss, but better-than-expected revenue for the third quarter as it continues to face depressed pricing amid challenging conditions in the sector.

Arch Coal’s senior notes have sold off considerably over the past several weeks and remain close to record-low levels. The 7.25% notes due 2020 are down five points from before the earnings release, at 46/47, and are significantly lower than where the notes were trading in the mid-70s when it reported its second-quarter earnings in July. The 7.25% due 2021 bonds meanwhile are down a point, at 38.5, versus the high 60s in July.

In contrast, Arch Coal’s covenant-lite B term loan due 2018 (L+500, 1.25% LIBOR floor) edged up a quarter of a point, to 87.75/88.75. The loan traded in the 98 context around the time of the company’s second-quarter earnings release.

The St. Louis-based company said that net loss narrowed to $97 million, or $0.46 per share, from $128.4 million, or $0.61 a share in the prior-year quarter. According to analysts surveyed by Zacks, the results did not meet Wall Street consensus estimate of a net loss of $0.41 per share.

Quarterly revenue, meanwhile, came in at $742 million, above street forecasts of $711.1 million, according to Zacks.

Buyback speculation
The company expects to end the year with approximately $1 billion in cash and short-term investments, which coupled with the fact that it has no meaningful debt maturities until mid-2018, “provides Arch with the financial flexibility needed to navigate current coal market conditions,” said Arch’s CFO John Drexler in a statement.

This improved liquidity position and the fact that its senior notes are now trading in the sub-50 level prompted increased speculation on its earnings call that Arch Coal may look to deleverage and take out its most covenant-restrictive 2020 bonds.

Arch Coal’s representatives did not categorically dismiss the idea should the opportunity present itself, but emphasized its current plan to preserve liquidity to ride out the current conditions in the commodity sector.

Company representatives however said that they believe the current coal market conditions are “in the process of bottoming out,” but they remain conscious on prices.

“We are adequately prepared in case coal recovery is delayed,” said chief operating officer Paul Lang.

Arch’s cash margin per ton increased quarter-over-quarter by 24% in the Powder River Basin and 7% in the Bituminous Thermal segment. That margin expansion helped offset lower cash margin per ton in Appalachia in the third quarter, which stemmed the previously announced idling of Cumberland River as metallurgical coal prices headed toward a six-year low.

For the first nine months of 2014, Arch generated adjusted EBITDA from continuing operations of $164 million, versus $218 million in the prior-year period. – Rachelle Kakouris

Follow Rachelle on Twitter for distressed debt news, analysis and market talk.


Building Materials $1.1B 10-year high yield bonds (BB+/Ba2) price to yield 5.375%

Building Materials Corp. of America (BMCA) this afternoon completed its offering of senior notes via bookrunners Deutsche Bank, Citi, and Bank of America. Terms on the BB+/Ba2 deal were finalized at the midpoint of talk. The deal is a refinancing exercise targeting the borrower’s 6.875% notes due 2018; 7% secured notes due 2020, and 7.5% notes due 2020. BMCA has been absent the primary high-yield market since April 2011 when it placed the above mentioned 6.875% paper.  BMCA manufactures and markets asphalt and polymer-based roofing products, including insulation. Terms:

Issuer Building Materials Corp. of America
Ratings BB+/Ba2
Amount $1.1 billion
Issue senior (144A-life)
Coupon 5.375%
Price 100
Yield 5.375%
Spread T+312
Maturity Nov. 15, 2024
Call nc-five
Trade Oct. 27, 2014
Settle Nov. 10, 2014 (T+10)
Bookrunners DB/Citi/BAML
Price talk 5.25-5.5%

Momentive Performance Materials emerges from Chapter 11

momentive-logoMomentive Performance Materials Inc. emerged from Chapter 11, the company announced on Friday.

The company said it emerged with liquidity of about $360 million after eliminating roughly $3 billion in debt via its Chapter 11 proceeding. The company said it would have about $1.2 billion of post-emergence pro forma debt.

As reported, several appeals remain to be resolved in the case regarding whether make-whole payments are due on the company’s first- and 1.5-lien notes ($1.1 billion of 8.875% first-priority senior notes due 2020 and $250 million of 10% senior secured notes due 2020, respectively), and whether holders of the notes are entitled to a market rate of interest in the cram-down replacement notes being issued to them under the company’s reorganization plan.

The White Plains, N.Y., bankruptcy court confirmed the company’s reorganization plan on Sept. 11.

As reported, under the company’s proposed plan, holders of the first- and 1.5-lien notes will receive replacement notes paying interest at fixed rates calculated at T+200 for first-lien noteholders, and T+275 for holders of the 1.5-lien notes, at the time of emergence.

As reported, in arriving at that cram-down interest rate, Bankruptcy Court Judge Robert Drain rejected the argument that holders were entitled to a market rate of interest and held that, under Supreme Court precedent, the cram-down interest rate need only equal a risk-free base rate plus a risk premium of 1%-3%. Drain’s ruling has proved controversial, however, because of his application of the Supreme Court precedent, which involved a Chapter 13 proceeding, to a Chapter 11 case.

Beyond the plethora of issues involving the senior debt, second-lien lenders ($1.161 billion of 9% second-priority springing lien notes due 2021 and €133 million 9.5% second-priority springing lien notes due 2021) are to receive all of the equity in the reorganized company (after giving effect to the subordination provision of the subordinated notes), along with participation rights in a $600 million rights offering at a price per share determined by using the pro forma capital structure and an enterprise value of $2.2 billion, applying a 15% discount to the equity value. – Alan Zimmerman


Fish nor fowl: Know what junk-bond funds are—and aren’t

high yield fund returnsWith the recent sell-offand rebound – in the high yield bond market, junk bond funds (and ETFs) have been in a very bright spotlight lately, as investors who have had a nice ride throughout much of 2014 have started seeing something called negative returns (that can happen, apparently).

Where do high yield fund returns stand, compared to traditional bond funds and equities? The Wall Street Journal has a graphic today. The answer: pretty much in the middle.


IHS upsized eight-year high yield bonds (BB+/Ba1) price to yield 5%



IHS this afternoon completed its offering of senior notes via J.P. Morgan, Bank of America Merrill Lynch, Wells Fargo, RBC, and Goldman Sachs. Terms were finalized at the tight end of guidance, following a $250 million upsizing. The proceeds from the new notes will be used to repay IHS’ term loan due 2015 and a portion of the balance on its revolving credit facility, according to S&P. The deal will sport investment-grade covenants, as well as a call at par three months prior to maturity. IHS is an analytical and research company.


Issuer IHS Inc.
Ratings BB+/Ba1
Amount $750 million
Issue senior (144A)
Coupon 5%
Price 100
Yield 5%
Spread T+296
Maturity Nov. 1, 2022
Call nc-life
Trade Oct. 21, 2014
Settle Oct. 28, 2014 (T+5)
Sr. Co-Managers BBVA/TD
Price talk 5-5.25%
Notes Upsized by $250 million.

Fridson: After sell-off, high yield bonds now cheap. (Or undervalued, anyway)

After a drastic sell-off, the high-yield market is undervalued for the first time since May 2012. The decline also returned the distressed sector to the fairly valued zone. During the first half of October, the price of the BofA Merrill Lynch US High Yield Index plummeted at a 28% annualized rate. Over that span, the index’s option-adjusted spread (OAS) increased by 68 bps. As of Sept. 30 the index’s year-to-date return stood at 3.61%. The two-week bear market shaved 1.11 percentage points off that figure to leave it at 2.50%.

High-yield now cheap
After being extremely overvalued for much of the year (and more recently moderately overvalued), the BofA ML High Yield Index has swung to moderately undervalued following the recent sell-off. The high-yield spread-versus-Treasuries has not been wider than fair value at month-end since May 2012. Our econometric model of the index’s OAS, introduced in “Determining fair value for the high-yield market” ($), now puts fair value at 442 bps.

That’s down from 479 bps a month ago, thanks in particular to the improvement in Industrial Production announced on Oct 16. The actual OAS as of Oct. 20 was 468 bps, up from 397 bps on Sept. 20. Accordingly, the spread is 26 bps (0.20 standard deviations) wider than our fair-value estimate.

Fridson 2014-10-21 chart 1

Note: Our model is not the simplistic and wrong breakeven analysis (spread – default rate + recoveries = fair-value spread). Rather, it summarizes total risk of the high-yield asset class at a point in time – reflecting liquidity risk as well as default risk – based on five explanatory factors. An extreme misvaluation occurs when the actual spread diverges from the fair-value spread by one standard deviation (130 bps) or more. – Martin Fridson

This analysis is part of a longer research effort by Marty for LCD News, available to subscribers here. Marty’s bond market analysis is available on LCD News each week. He also writes a monthly high yield market column. To subscribe, contact Marc Auerbach


Peabody Energy high yield bonds gain, CDS tightens after results beat expectations

Debt backing Peabody Energy strengthened this morning, just as credit protection costs fell, after the coal credit beat Street estimates for its third-quarter 2014 results. The 6% notes due 2018, for one, traded up two points, at 97.5, while the 6.25% notes due 2021 changed hands at 94, versus 91.5 Friday and as low as 87.688 at the depths of the recent sell-off earlier last week, according to trade data.

Shares were off about 1% on the news, at $10.93, but debt and debt derivatives continued to outperform. Indeed, five-year CDS in the name tightened roughly 11% this morning, to 542/592 bps, according to Markit.

In the loan market, Peabody’s covenant-lite term loan due 2020 (L+325, 1% floor) ticked up a quarter point to 95.25/96.25 this morning, sources said. The loan, originally $1.2 billion, was issued in September 2013 at 99.

Peabody reported first-quarter revenue of $1.72 billion, down from $1.8 billion in the year-ago period, primarily due to lower pricing in Australia markets, according to a company statement. However, results were approximately 5% better than the S&P Capital IQ adjusted mean estimate for $1.65 billion.

Results turned out adjusted EBITDA of approximately $216 million, down from $312 million in the year-ago third quarter and a hair higher sequentially, filings show. Moreover, the earnings figure was 10% higher than the S&P Capital IQ consensus mean estimate for $197 million.

“While global coal markets continue to reflect oversupply and concerns over Chinese coal imports, we are seeing some favorable industry indicators,” offered CEO Gregory Boyce in today’s statement. Boyce specifically flagged growth of imports in India. – Matt Fuller/Kerry Kantin

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


Nova Chemicals 10.5-year high yield bonds (BB+/Ba2) price to yield 5%

novaNova Chemicals broke the market’s no-issuance streak this week, completing its offering of 10.5-year bullet bonds today via Barclays, HSBC, RBC, Scotia, and TD. Terms on the BB+/Ba2 deal were finalized on the tight end of talk. Nova Chemicals returns to market after 15 months in an opportunistic effort to refinance a $350 million issue of 8.625% notes due 2019, which first become callable on Nov. 1, at 104.313. Issuance is under Rule 144A for life, sources said. Calgary, Alberta-based Nova Chemicals develops and manufactures chemicals and plastic resins. The company is a wholly owned subsidiary of the International Petroleum Investment Company (IPIC) of the Emirate of Abu Dhabi. Terms:

Issuer NOVA Chemicals
Ratings BB+/Ba2
Amount $500 million
Issue senior (144A-life)
Coupon 5.00%
Price 100
Yield 5.00%
Spread T+280
Maturity May 1, 2025
Call nc-life
Trade Oct. 17, 2014
Settle Oct. 28, 2014 (T+7)
Bookrunners Barc/HSBC/RBC/Scotia/TD
Price talk 5.125% area