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US High Yield Distress Ratio Opens 2015 at Elevated 13.4%

The U.S. corporate bond distress ratio opened the new year at an elevated 13.4% as of Jan. 14, according to S&P’s Global Fixed Income Research Group. Distress ratio credits are compiled as those trading at T+1,000 or greater.

The distress ratio is a hair lower than 13.8% in December, but represents a big expansion from 8.1% in November, 5% in September, and a recent low of 4.7% in June, according to S&P GFIR reports.

“Recent drops in oil prices have impacted the profitability of oil and gas companies (particularly the exploration and production segment), whose spreads have widened considerably, and that spread expansion had a spillover effect to the broader speculative-grade spectrum as a whole,” said Diane Vazza, head of S&P GFIR.

The distress ratio generally trended lower since the second half of 2012, however, as noted above, and it’s been at an elevated level since October. It’s a leading indicator and typically a precursor to more defaults.

The lagging indicator is S&P’s trailing-12-month U.S. corporate default rate, which slipped to 1.5% in December, from 1.6% in November.Caesars Entertainment and LBI Media defaulted in December, but larger year-ago defaults rolled out of the calculation.

Today’s report, titled “Distressed Debt Monitor: The U.S. Distress Ratio Remains Elevated, At 13.4%,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports

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US High Yield Bond Issuance Hit $4.8B Last Week; $13.4B YTD

US high yield bond issuance.JPG

 

It was another relatively quiet week in the U.S. high yield bond market, with six issues accounting for nearly $5 billion in volume. Investors continue to trend toward quality, with lower-rated issuers forced to pay-up significantly, according to LCD’s Joy Ferguson. (Indeed, a CCC rated deal for Presidio was scrapped today; that issue was shopped to investors at upwards of 11%.)

Year to date, US issuance lags, with some $13.4 billion booked so far in 2015, compared to $19.6 billion at this point in 2014, according to LCD. – Tim Cross

 

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Presidio shelves $400M high yield bond offering amid insufficient investor demand

Presidio this morning postponed its $400 million offering of senior notes backing its purchase by Apollo Global Management from American Securities due to insufficient demand at price talk, according to sources.

This is the second postponed deal of the year after Koppers withdrew its $400 million, five-year offering last week. Last year, 17 deals were postponed for a total of $5.825 billion, with the bulk occurring between September and December.

Presidio, via issuing entity Aegis Merger Sub, had emerged last Wednesday with talk of 10.75-11%, inclusive of its OID, on its eight-year (non-call three) offering, which was well wide of initial thoughts in the low 9% range, sources had indicated.

Barclays (B&D), Credit Suisse, Citi, Goldman Sachs, and RBC were joint bookrunners, joined by co-managers Apollo and Natixis.

Ratings on the offering had been assigned at CCC+/Caa1. Additionally, S&P assigned a 6 recovery rating to the issue. Note the deal came with a larger-than-typical equity clawback of up to 40% for the first three years at par plus the coupon.

Last Wednesday, arrangers on the concurrent loan revised pricing upward. The $600 million seven-year covenant-lite term loan was widened to L+575, offered at 97, from L+475, with a 1% LIBOR floor, and offered at 99. The financing also includes a $50 million revolver. The loan is allocating today, sources said.

Presidio, an IT infrastructure-solutions provider for approximately 6,000 clients across the U.S., assists clients in designing, procuring, implementing, and managing IT infrastructures that deliver tangible business value. – Joy Ferguson

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Nexstar Broadcasting inks $275M high yield bond deal (B+/B3) to yield 6.125%

Nexstar Broadcasting has completed its offering of senior notes via Wells Fargo, Deutsche Bank, RBC, Morgan Stanley and SunTrust Robinson Humphrey, according to sources. Terms were finalized at the tight end of guidance, along with a $25 million upsizing. Nexstar is using proceeds to back the proposed acquisition of three television stations.

S&P today upgraded the company’s senior unsecured debt one notch to B+ and raised the unsecured recovery rating to 4, from 5. The rating agency also revised its outlook to positive, from stable, due to Nexstar’s increased size and scale as a result of the latest acquisitions. Terms:

Issuer Nexstar Broadcasting
Ratings B+/B3
Amount $275 million
Issue senior (144A-life)
Coupon 6.125%
Price 100
Yield 6.125%
Spread T+450
Maturity Feb. 15, 2022
Call nc-3 @par+50%
Trade Jan. 21, 2015
Settle Jan. 29, 2015 (T+6)
Jt. Bookrunners WFS/DB/RBC/MS/STRH
Co-Managers Barc/CS/RBS
Price talk 6.25% area
Notes Upsized by $25 million; first call at par +50% coupon

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Valeant Pharmaceuticals (B/B1) high yield bonds price to yield 5.5%

Valeant Pharmaceuticals this afternoon completed its $1 billion offering of senior notes via Barclays, RBC, Deutsche Bank, DNB, HSBC, MUFG, and Morgan Stanley. Terms were finalized at the tight end of talk, and heavy demand allowed for a revision of the first call premium to a more-issuer-friendly par plus 50% coupon, from par plus 75% coupon at launch. Valeant is seeking proceeds to redeem its outstanding 6.875% senior notes due 2018, to repay all or a portion of the amounts drawn under the revolving credit facility, and for general corporate purposes, including acquisitions, according to sources. The 6.875% notes are callable on Feb. 12 at 103.44, according to S&P Capital IQ. Note the first call at par plus 50%. Terms:

Issuer Valeant Pharmaceuticals
Ratings B/B1
Amount $1 billion
Issue senior (144-life)
Coupon 5.5%
Price 100
Yield 5.5%
Spread T+386
Maturity March, 1, 2023
Call nc-3 @par+50% coupon
Trade Jan. 15, 2015
Settle Jan. 30, 2015 (T+10)
Bookrunners Barc/RBC/DB/DNB/HSBC/MUFG/MS
Co-Managers Citi/JPM/STRH
Price talk 5.5-5.625%
Notes First call at par +50%
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Aristotle Credit Partners launches bond/loan mutual fund

Aristotle Credit Partners has launched its first mutual fund, the Aristotle Strategic Credit Fund, a year after the credit platform first formed.

Typically, the fund will invest a minimum of 80% of its net assets in debt securities, including U.S. and non-U.S. corporate bonds and loans, as well as securities in both developed and emerging markets. The institutional no-load share class will trade under the symbol ARSSX.

Currently sized at $1.7 million, the open-ended fund is set to increase to $2 million shortly. Aristotle Credit’s affiliate Aristotle Capital Management has two equity mutual funds (Aristotle International Equity Fund and Aristotle/Saul Global Opportunities Fund) that bring the total for all Aristotle branded mutual funds to roughly $50 million.

Douglas Lopez, Michael Hatley, and Terence Reidt are the Portfolio Managers, responsible for the day-to-day management of the Fund. The executives currently direct various strategies at Aristotle Credit, where they serve as Principals, Portfolio Managers, and members of Aristotle Credit’s research team.

Based in Los Angeles, Aristotle Credit Partners, LLC is an institutional asset management firm focused on value-added credit strategies. – Sarah Husband

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McDermott, distressed debt pros launch debtstream sales & trading platform

Jay McDermott, a well-known figure in the world of distressed debt, has partnered with a team of capital market professionals to launch Debtstream Corp., a distressed debt boutique based in New York City.

The new venture is aimed at supporting distressed debt managers by providing a sales, sourcing, and trading platform focused solely on private debt. CEO Jay McDermott founded the firm to help clients find solutions to reposition risk, enhance value, and monetize existing portfolio opportunities.

The elimination of prop desks as a result of financial regulation, and a slowdown in the distressed market has had a fundamental impact on the sourcing business, McDermott says.

“We see that there is a void in the sourcing market that an intermediary can fill to help the repositioning of risk from banks and claim holders,” says McDermott, who believes 2015 could be the early part of the next cycle for distressed investing.

Debtstream aims to add liquidity by identifying situations, building the credit story, and developing the market. This, McDermott says, helps original lenders monetize their distressed assets while creating opportunities for hedge funds and other distressed buyers who have differing recovery time horizons and risk appetites.

McDermott has over 15 years management experience supervising trading, sales, research, loan closing, and operation professionals and marketing distressed capabilities and products to hedge funds. McDermott’s career highlights include building and managing the distressed business for global bank offering commercial services at RBS. Prior to that, he was head distressed private trader at Bear Stearns.

The firm is founded by McDermott and partners Rick KammlerTina LeungRich FurlongMarie BakerJohn Mori, and Francesca Sena. – Rachelle Kakouris

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Much maligned, energy segment led high yield bond returns in late 2014

The financial (and mainstream) press spent much of the past few months detailing how energy issuers – oil & gas mostly – have been dragging down the high yield bond market in particular, and the credit markets in general.

The dire talk was not without reason, of course, as oil prices continue to plummet (they were near $50 per barrel today), and with energy issuers comprising a significant 17% of today’s high yield bond market, according to various estimates.

That’s the narrative, anyway. But as high yield guru Martin Fridson points out, there was a rebound in the speculative grade bond market during the second half of December that went largely overlooked, what with the swarm of oil crash stories. And which industry led the way during that period, return-wise? Fridson:

“…  energy – the focal point of the December debacle – delivered the strongest second-half return of any major industry. (Our analysis focuses on the 15 largest high-yield industries.) For the month as a whole, Energy was the worst performer by far, at -6.24%. Observe, however, that December’s best performer, Healthcare at 0.43%, did less than half as well as Energy (2.56% versus 5.77%) from Dec. 16 through month-end.”

2h dec hy returns

That’s not to say, of course, there’s a free ride as far as energy bonds are concerned. As Fridson pointed out earlier, a full third of the bonds in the BofA Merrill Lynch US High Yield Energy Index are now in distressed debt territory (meaning they have an option-adjusted spread of at least 1,000 basis points).

But, after the massive sell-off of 2014, energy issues, along with metals & mining, were easily the cheapest major industries, per Fridson’s Fair Value analysis.

Marty’s full analysis detailing energy bonds performance in late 2014 is available to LCD Subscribers here.

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Natixis hires Sevrens to lead new Americas DCM position

Natixis today announced the hiring of Christopher Sevrens as head of debt capital markets syndication, Americas, in a new position covering both bond and loan syndications, according to a bank statement.

Based in New York City, Sevrens will report locally to Kevin Alexander, head of fixed income, Americas.

Sevrens joins Natixis from Morgan Stanley’s capital markets group, with a focus on leveraged acquisition finance and syndications. Prior positions were held in the space at Citadel Securities and Merrill Lynch.

Natixis is the corporate, investment, and financial-services arm of France-based Groupe BPCE. The company is listed on the Paris stock exchange. – Staff reports