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High yield bond funds see massive $3.1B investor cash outflow

high yield fund flows

Retail-cash outflows from U.S. high-yield funds deepened to $3.1 billion in the week ended Dec. 17, according to Lipper. This is the second largest one-week withdrawal of the year, trailing just the record $7.1 billion outflow 19 weeks ago, or the week ended Aug. 6.

The influence of exchange-traded funds expanded during the week, rising to 19% of the outflow, or a $587 million redemption, from just 6% of last week’s $1.9 billion outflow, or just $106 million last week.

This is the third consecutive outflow, for a net $5.8 billion pulled from the asset class over that span. As such, the four-week-trailing average falls deeper into the red, at negative $1.4 billion, from negative $745 million last week and just negative $51 million the week prior. The current observation is the weakest in 17 weeks.

The full-year reading falls to an outflow of $5 billion, with 16% ETF-related. One year ago at this time flows were positive $1.8 billion, and fully 97% was ETF-related.

Alongside the big outflow, the change due to market conditions was also deeply negative, at $2.7 billion. The contraction due to market conditions works out to about 1.4% against total assets, which were $184.6 billion, with 19% ETF-related, or $35.1 billion. Total assets are down $1.4 billion in the year to date, or roughly 1%. – Matt Fuller

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

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High yield bond prices ride market rally; largest gain in 3 years

The average bid of high-yield bond flow-name bonds rallied 307 bps in today’s reading, to 96.4, yielding 8.8%, from 93.33, yielding 10.21%, on Dec. 16, according to LCD. All 15 credits in the sample were positive, with many up multiple points.

The huge rally wipes out Tuesday’s plunge of 241 bps, for a gain of 66 bps on the week. This is one of the largest gains ever recorded in the twice-weekly observation, and, in fact, the largest since a gain of 420 bps on Aug. 16, 2011. Similarly, Tuesday’s drop was the largest since Oct. 6, 2011.

Volatility three years ago was linked to concerns about a double-dip recession in the U.S. and worries about the debt crisis in Europe. This time around, of course, it’s all about the bear market in oil, the effect of low prices on energy-sector credits, and a spillover to non-energy bonds. As well, there’s been a negative technical influence of outflows from the asset class.

With a snap-back rally, the average is in the black for the week, but dating back two weeks the average is down 157 bps and it is lower by 289 bps in a trailing-four-week observation. Moreover, the average is down 536 bps in the year to date. – Matt Fuller

Follow Matt on Twitter for high yield bond mart news and insight.

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Kindred Healthcare inks $1.35B, two-part high yield bond offering to fund M&A

kindred-lolKindred Healthcare this afternoon completed its $1.35 billion, two-part offering of senior notes via Citi, J.P. Morgan, Guggenheim, and Morgan Stanley. Terms were finalized 12.5 bps wide of guidance on a downsized eight-year (non-call three) tranche and at the wide end of talk on an upsized five-year bullet tranche. Note that a 10-year (non-call five) tranche was dropped in favor of the shorter, investor-friendly five-year piece. Proceeds support a planned $1.8 billion acquisition of Gentiva Health Services as announced earlier this autumn. Kindred also plans to tap its existing line of credit and to raise $200-300 million in equity or convertible securities to help fund the acquisition. Kindred agreed to pay $19.50 per share, comprised of $14.50 in cash and $5.00 in common stock. The acquisition is expected to close in the first quarter of 2015. Louisville, Ky.-based Kindred Healthcare is a healthcare-services company that operates hospitals, nursing and rehabilitation centers, assisted-living facilities, and a contract rehabilitation-services business. Terms:

Issuer Kindred Healthcare (Kindred Escrow Corp. II)
Ratings B-/B2
Amount $750 million
Issue senior (144A)
Coupon 8%
Price 100
Yield 8%
Spread T+640
Maturity Jan. 15, 2020
Call nc-life
Trade Dec. 11, 2014
Settle Dec. 18, 2014 (T+5)
Jt. Bookrunners Citi/JPM/Guggenheim/MS
Co-Managers BMO/DB/STRH
Price talk 7.75-8%
Notes Upsized at launch by $50 million.
Issuer Kindred Healthcare
Ratings B-/B2
Amount $600 million
Issue senior (144A)
Coupon 8.75%
Price 100
Yield 8.75%
Spread T+681
Maturity Jan. 15, 2023
Call nc-3 @par+75% coupon
Trade Dec. 11, 2014
Settle Dec. 18, 2014 (T+5)
Bookrunners Citi/JPM/Guggenheim/MS
Joint Lead Managers BMO/DB/STRH
Price talk 8.5% area
Notes Downsized at launch by $50 million. First call at par +75% coupon.
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Endeavour International unsecured creditor panel appointed; members, contact info listed

Endeavour-International-Corporation-END

 

The U.S. Trustee for the U.S. Bankruptcy Court in Wilmington, Del., has appointed an official unsecured creditors’ committee in the Chapter 11 proceedings of Endeavour International, according to court filings.

The members of the committee and their contact information are as follows:

 

  • Open Flow Gas Supply Corp. (Attn: Christina Inzana, (814) 371-2228)
  • SM Energy Co. (Attn: David Copeland, (303) 863-4325)
  • SJ Exploration (Attn: (609) 561-9000)


As reported, the company filed for Chapter 11 on Oct. 10, with a restructuring support agreement supported by holders of more than two thirds of the company’s first-priority, second-priority, and convertible notes. The RSA targets plan confirmation by March 30, 2015, and emergence from Chapter 11 by April 29, 2015. – Alan Zimmerman

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U.S. high yield bond funds see big investor cash withdrawal

high yield fund flows

Retail-cash flows to U.S. high yield funds have turned deeply negative, with a net $859 million redemption in the week ended Dec. 3, according to Lipper. The influence of exchange-traded funds was strong, at 32% of the outflow, or roughly $279 million.

The outflow more than erases last week’s paltry inflow of $44 million, and it’s the second outflow in the last three weeks. With that, the four-week-trailing average falls into the red, at negative $51 million, from positive $773 million last week.

Recall that last week’s small net inflow was an anomaly. There was a $380 million redemption from mutual funds backstopped by a slightly larger infusion of $424 million to ETFs. There is no such dynamic of that size and relative equality of flow dating to the week ended April 27, 2011.

The full-year reading goes essentially flat with today’s report: negative $2 million, based on inflow of $78 million to mutual funds against outflows of $80 million from ETFs. One year ago at this time flows were positive $2.6 billion, and 76% was ETF-related.

Alongside the outflow, change due to market conditions was also deeply negative, at $1.7 billion, the steepest decline in five weeks, and lower by nearly 1% against total assets, which are $201.3 billion, with 18% ETF-related, or $36.8 billion. Total assets are up $4.3 billion in the year to date, or roughly 3%. – Matt Fuller

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

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Dana Holding 10-year #highyield bonds (BB+/B2) price to yield 5.5%

danaDana Holding this afternoon completed its offering of senior notes via joint bookrunners Citi, Bank of America Merrill Lynch, Barclays, Deutsche Bank, J.P. Morgan, UBS, and Wells Fargo. Terms were finalized at the midpoint of talk. Proceeds from the SEC-registered offering will be used to repay the borrower’s 6.5% notes due 2019, and for general corporate purposes. The 2019 notes are first callable in February 2015 at 103.25 and closed last night at 104.25, according to S&P Capital IQ.

Terms:

Issuer Dana Holding
Ratings BB+/B2
Amount $425 million
Issue senior (SEC Reg.)
Coupon 5.5%
Price 100
Yield 5.5%
Spread T+324
Maturity Dec. 15, 2024
Call nc-5
Trade Dec. 4, 2014
Settle Dec. 9, 2014 (T+3)
Bookrunners Citi/BAML/Barc/DB/JPM/UBS/WFS
Price talk 5.5% area
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NII Holdings ad hoc noteholder group slams plan settlement proposal

nii-holdings-logo

 

An ad hoc group of senior noteholders at NII Holdings unit NII International Telecom slammed the company’s recently announced proposed reorganization settlement and plan support agreement in a Nov. 30 court filing, calling it “the product of an inherently flawed process that improperly shifts significant value away from … the senior creditor constituency in this bankruptcy to a more junior creditor constituency.”

While the approval of the proposed settlement is not yet technically before the Manhattan bankruptcy court – the ad hoc group’s filing addresses certain preliminary issues of corporate governance related to the plan support agreement, or PSA, as opposed to the PSA itself – the filing nonetheless clearly suggests that the company’s reorganization proposal faces significant opposition.

According to court filings, the ad hoc group is comprised of Golden Tree Asset Management, Benefit Street Partners, Empyrean Capital Partners, Whitebox Advisors, KLS Diversified Asset Management, and JMB Capital Partners. In the aggregate, the group holds almost $300 million of NII International Telecom’s $900 million of 11.375% senior unsecured notes due 2019, issued in February and April of 2013, and about $212 million of NII International Telecom’s 7.875% senior unsecured notes also due 2019, $600 million of which were issued in May of 2013.

According to the term sheet for the company’s proposed reorganization plan, which is premised on a reorganized equity value of $2.421 billion, holders of the NII International Telecom notes (sometimes referred to in court filings as the “LuxCo notes”) would receive 63.51% of the reorganized company’s new stock (subject to dilution from a rights offering and a management incentive plan), along with participation rights in a $250 million rights offering with an exercise price calculated at a 40% discount to the plan equity value.

Meanwhile, holders of about $1.36 billion of notes at NII Capital due 2016 and 2019, respectively, would receive 25.43% of the new equity, while holders of about $1.5 billion of NII Capital notes due 2021 would receive 11.06% of the equity. Holders of all three issues would also have participation rights in the rights offering.

The reorganization proposal also settles certain litigation claims that have been asserted against the company by NII Capital noteholder Aurelius Capital Management, most notably the claim that the parent guarantees granted in connection with the 2013 issuance of notes by NII International Telecom could be avoided by the company as a fraudulent conveyance.

According to an 8-K filed by the company last week with the Securities and Exchange Commission, the PSA, is supported by holders of roughly 65% of the NII Capital notes, including the largest holder, Capital Research and Management, or CRM, and holders of about 35% of the NII International Telecom notes, as well as the unsecured creditors’ committee in the case.

But according to the ad hoc noteholders group, “although the debtors describe the PSA as a ‘settlement,’ it is no such thing.” According to the filing, “The PSA ignores the priority upon which the company raised its capital and re-routes hundreds of millions of dollars around [International Telecom] for the benefit of [NII Capital] creditors. The parties to the PSA justify this re-ordering of the absolute priority rule based on litigation claims suggested by [NII Capital] creditor Aurelius Capital Management. But these claims are meritless.”

According to the court filing, the $1.6 billion of notes issued by NII International Telecom in 2013 were by their terms expressly senior to the company’s prior debt. The ad hoc group said the proceeds of the notes were used to pay down debt at the company’s operating units (which are not debtors in the case) and to fund the build out of a 3G network for the company, uses which benefited the entire company, including existing noteholders at NII Capital.

As the ad hoc group sees it, the PSA was not driven by the settlement of Aurelius’ litigation claim, but rather by CRM which, as the company’s largest creditor, holds a blocking position at NII Capital. “Without [CRM],” the ad hoc group said, “the company cannot confirm a [NII Capital] plan and, therefore, cannot obtain releases and other protections for the officers and board members of [NII Capital]”.

But, the ad hoc group continues, the company could not settle the guarantee claims without Aurelius, “the consequence of which would require a plan to put substantial amounts of equity in a reserve pending the outcome of litigation on the guarantee claims.” CRM, which would wind up the largest owner of the reorganized company, did not want a substantial part of its recovery tied up in a reserve pending the guarantee litigation.”

The ad hoc group argued that the only way to thread this needle and gain Aurelius’ support for a proposed reorganization plan – given the position of the company and, according to the ad hoc group, virtually every other party in the case that the Aurelius litigation claim was weak – “was to end run the absolute priority rule and strip value from LuxCo by assigning higher probabilities to the Aurelius claims than they merit, or that [CRM] or the company had ever espoused before.”

As noted, the proposed settlement is not before the bankruptcy court at this time. Rather, the ad hoc group’s filing is a response to an oral motion made by the company at a status hearing on Nov. 24 for the appointment of an independent director at NII International Telecom to review the proposed settlement.

According to the ad hoc panel, however, the request was too late – the time for an independent director was prior to the company signing off on the settlement. What’s more, the group said, the limitations the company would place on such a director even at this point, in terms of allotted time for a review of the deal and the scope of authority, are too strict and not in compliance with Luxembourg law governing the fiduciary duties of directors.

“The governance process outlined by the debtors,” the ad hoc group said, “is an attempt at window dressing.”

Alternatively, the group asked the bankruptcy court to set a schedule that “will permit the parties to litigate expeditiously the disputed issues in conjunction with plan confirmation,” noting that “there is no question that these issues must be resolved before a plan can be confirmed.”

Indeed, the group argues, resolving these plan issues now would eliminate the need for an independent director, adding, however, that if the court determines an independent director is needed, he should be “truly independent” and able to act in accordance with Luxembourg law.

“What cannot happen,” The group said, “is the blessing of a PSA whereby two junior creditors agree to a ‘settlement’ of worthless litigation claims so that they can flip the capital structure to maximize their recoveries by taking value away from the unrepresented (but senior) creditor group, and the debtors go along without any proper fiduciary review of that agreement.” – Alan Zimmerman

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High yield bond trading prices hit 29-month low (led by energy co, of course)

The average bid of high-yield flow-name bonds fell 162 bps in today’s reading, to a fresh 29-month low of 97.96%, yielding 7.91%, from 99.58, yielding 7.19%, on Nov. 25, according to LCD. It was a broad-based slump for the 15-bond sample, with 11 issues in the red against four unchanged.

The observation represents a week-over-week move lower due to the Thanksgiving break. It’s the deepest such one-week decline in seven weeks, or since the mid-October nosedive. The average is now down 65 bps from the prior 2014 low of 98.61 recorded on Oct. 16, according to LCD.

The average declined 224 bps during the month of November. The weakness was widespread, with a notable 14-point plunge for Samson Resources, to 54, for a net 23.5-point decrease over the past month.

The big declines in recent days came after OPEC last week decided not to reduce oil production and instead let the marketplace handle what’s moved into roughly a six-month bear market for the commodity. The floor fell out from under energy credits, and the broad market felt the pressure. Solid credits in the energy space were off 2-5 points and weaker names were down more, like Samson.

However, market participants relay that “irrational” price declines throughout the secondary high-yield market over the past two sessions have finally come to an end, and the broad market this morning was rangebound within the context of the new valuation. Going forward, eyes are on the performance of a number of high-yield ETF bid lists that are out and about and on the ongoing volatility in oil prices, according to sources. – Staff Reports

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November High Yield Bond Volume Tops $30B as Investors Return to Market

hy bond issuance 11.30.14

High yield bond volume in the U.S. totaled $30.7 billion in November, up from the $27 billion recorded in October, according to S&P Capital IQ/LCD. With the monthly activity, year-to-volume stands at $306.7 billion. That’s up from the $297.6 billion recorded at this point last year.

With just three viable weeks for business remaining in the year, estimates are for another $10 billion of issuance, assuming market conditions hold, according to LCD’s Matt Fuller and Joy Ferguson. That $317 billion in issuance would be the third-highest full-year total ever, behind the $321 billion last year and the record $344 billion in 2012, according to LCD.

The increased issuance comes as investors, for the most part, return to U.S. loan funds. Despite a relatively small investor withdrawal for the week ended Nov. 20, the trailing four-week average stood at a healthy $1.2 billion inflow, according to Fuller, citing Lipper (there was a small – $44 million – cash inflow last week).

As cash flows into market, yields are widening, from 5.74% on Nov. 3 to an even 6% today, according to the S&P High Yield Corporate Bond Index. (That figure is a yield-to-worst.) – Tim Cross