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Breitburn bonds climb on $1B debt and equity investment by EIG

Breitburn Energy Partners bonds rose on Monday after the oil-and-gas exploration-and-production company said it had secured a $1 billion investment from EIG Global Energy Partners, making it the latest in a growing list of energy companies that are taking steps to preserve liquidity amid slumping oil prices.

Breitburn Energy 7.875% notes due 2022 were up five points this morning, at 75/76. Though still down from the 90 context prior to OPEC’s decision in November, the notes are now 15 points off record lows in January.

The company said in a press release on Sunday that it would sell $350 million of perpetual convertible preferred units and $650 million of senior secured notes in a private offering to investment funds managed by EIG and other purchasers.
BreitBurn was forced to shelve plans to offer $400 million of 8.5-year senior notes late last year as market conditions became increasingly adverse for energy producers. Price talk on that deal, which was intended to fund an RC-repayment effort, was in the 8.25% area.

The $650 million issue of senior secured notes will pay 9.25% and mature in 2020. The notes will be secured on a second-priority basis and will be effectively subordinated to Breitburn’s credit facility, but senior to Breitburn’s existing 2020 senior notes and 2022 senior notes and any existing and future unsecured indebtedness to the extent of the value of the collateral securing the senior notes.

Proceeds from the deal are expected to repay borrowings under its credit facility, resulting in net borrowings, at closing, of approximately $1.24 billion. Breitburn is amending its credit facility to allow for the issuance of the senior notes and to establish a revised borrowing base of $1.8 billion through April 2016. According to a 10-K filing, the company had a borrowing base of $2.5 billion as at Dec. 31, 2014 and approximately $2.2 billion in borrowings under its credit facility.

The Series B convertible preferreds, meanwhile, will be issued at a price of $7.50, representing a premium of approximately 27% to Breitburn’s common unit closing price on March 27, 2015.

In addition, Breitburn said it intends to reduce its common distribution to $0.50 per unit, having already slashed its distribution by 50% to $1 per unit in January. Shares in the name fell 5%, to $5.60, by mid-morning.

Previous steps taken by the company to preserve liquidity include reducing its capital spending to $200 million, from $600 million, and reducing planned distributions to unitholders to around $200 million, from $400 million.

Jefferies LLC is serving as lead placement agent and sole financial advisor to Breitburn, and Credit Suisse is serving as financial advisor to EIG.

Los Angeles-based BreitBurn is an independent oil-and-gas company with properties in Michigan, California, Wyoming, Florida, and Kentucky. The B+/B1 company trades on the Nasdaq under the symbol BBEP, with an approximate market capitalization of $1.24 billion. – Rachelle Kakouris

Follow Rachelle on Twitter for distressed debt news and analysis. 

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US high yield bond mart sees $90B in first-quarter issuance

US high yield bond issuance.JPG

U.S. high yield bond volume during 2014’s first quarter totaled some $90 billion, the most since the second quarter of 2014, according to S&P Capital IQ/LCD. It is the largest first-quarter tally since the $100 billion in 2012.

The volume was due in large part to considerable cash inflows to the asset class, which have totaled a net $9 billion so far this year, according to Lipper. The YTD inflow is despite some $3 billion in outflows during a two week span earlier this month. – Staff reports

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Thoma Bravo taps Erwin Mock for capital markets position

Private equity firm Thoma Bravo today announced it has hired Erwin Mock to serve as its director of capital markets. This is a new position intended to strengthen the firm’s ability to develop and deploy strategies for the financing of Thoma Bravo acquisitions and existing portfolio company add-ons, sources said.

Mock will be based out of Thoma Bravo’s San Francisco office, bringing 15 years of experience in leveraged finance to work for the firm and its investors. Mock most recently served as a managing director at UBS Investment Bank. Prior to that role, he served as director at RBC Capital Markets, in addition to other leveraged finance and restructuring advisory roles with UBS, Credit Suisse and DLJ over the past 15 years.

Thoma Bravo invests with a particular focus on application and infrastructure software and technology-enabled services. The firm currently manages a series of private equity funds representing more than $7.5 billion of equity commitments. – Staff reports

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European high yield bond funds see €75M investor cash outflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €75 million net outflow for the week ended March 25. The reading includes a €71 million net inflow for ETFs, and a €6 million net inflow for short-duration funds. The reading for the week ended March 18 is revised from a €1.038 billion inflow to a €1.041 billion inflow.

The provisional reading for February is a €1.9 billion inflow. This follows January’s €1.9 billion inflow, which broke a run of seven consecutive monthly outflows. 2015 inflows through February are €3.76 billion, versus a full-year 2014 inflow of €4.15 billion, and an inflow of €8.35 billion in 2013.

Fund flows typically lag market moves, and so it has proven with this first outflow in 13 weeks. New issues have struggled to perform in recent weeks, Touax was forced to withdraw its new issue last week, while secondary in general has softened due to a combination of deal fatigue and end-of-quarter technicals. Consequently some of the market’s lustre has worn off, though few are concerned – high-yield typically sees a softening in the run up to Easter each year, while the modest outflow breaks three consecutive weekly inflows of €1 billion-plus.

Retail cash flows for U.S. high-yield turned positive, at $856 million, in the week ended March 25, according to Lipper. This is the first inflow stateside after two weeks of outflows totalling $3 billion. The inflow was all related to the exchange-traded-fund segment, however. These funds saw an inflow of $1.05 billion, while mutual funds dented the total with an outflow of $190 million. The latest inflow over the past week brings the full-year reading to inflows of $9 billion, with 41% ETF-related.

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 55 funds, with total assets under management of €38 billion. Its monthly analysis takes in a larger universe of 100 funds, with €52 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation”. – Luke Millar

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Murray Energy moves forward with $1.55B high yield bond deal backing Foresight buy

Murray Energy is moving off the shadow calendar to near-term business with a $1.55 billion, two-part second-lien bond deal in connection with the coal credit’s planned acquisition of a majority stake in Foresight Energy. Deutsche Bank and Goldman Sachs are joint bookrunners, and an intraweek roadshow is planned for Monday through pricing on Thursday, according to sources.

The pitch is for five- and eight-year tranches, each with the now-common short call schedules, with two and three years of protection, respectively. Bankers have not immediately outlined the call premiums, but take note that issuer-friendly par plus 50% coupon has been increasingly accepted this year amid strong market conditions, although Murray’s last print was the new standard of eight-year (non-call three) at par plus 75% coupon.

That offering was $350 million and is also as second-lien dating back two years. These 8.625% notes due 2021 were issued at par via sole bookrunner Goldman Sachs, and they now trade around 105, offering about 7.25%, trade data show.

Ratings for the new second-lien notes have already been assigned, at B-/B3, and with a 6 recovery rating by S&P, indicating expectation for negligible recovery (0-10%) in the event of default. The profile reflects a split decision on the state of the credit, with a one-notch downgrade by S&P, versus a one-notch upgrade by Moody’s.

As reported, the same two banks last week launched the coordinated loan package, with $2.25 billion of term loans. Commitments are due on April 1 (see “Murray Energy, Foresight outline talk on $2.25B TL package,” LCD News, March 20, 2015).

Per the terms of the deal, privately held Murray will pay $1.395 billion in cash to purchase an 80% voting interest in Foresight Energy GP, with a 77.5% interest in the incentive-distribution rights. Murray will also purchase about 50% of the limited partner interest in Foresight Energy LP.

The combined company will control over nine billion tons of coal reserves, the companies said. Foresight founder Christopher Cline will retain a minority interest in Foresight.

As part of the deal, Murray had reached out to bondholders for consents “in order to facilitate the implementation” of the capital structure changes. Holders of a $400 million series of first-lien 9.5% notes due 2020 are offered $75 per bond for consents, while the $350 million series of second-lien 8.625% notes are offered $50 per bond, according to a company statement.

It was expanded to include a cash tender offer yesterday. Holders of the exchange notes due 2020 are offered $1,150 per bond, while the $350 million series of second-lien notes due 2021 are offered $1,100 per bond, according to a company statement. Both are inclusive of an early tender payment of $50 per bond. The early tender deadline is 5:00 p.m. EDT on April 8. – Matt Fuller

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

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Heinz, Kraft eye investment-grade debt to refi $9.5B of Heinz debt

The merger of H.J. Heinz (BB-/Ba3) and Kraft Foods Group (BBB/Baa2) is shaping up to result in a cusp-level, investment-grade rating for The Kraft Heinz Company, according to the company and initial ratings-agency assessments.

Heinz management today said on an M&A call that the company intends to refinance roughly $9.5 billion of its existing secured debt with new investment-grade debt at closing, which is expected in the second half this year, and refinance its preferred equity when it becomes callable next year.

“We are committed to a sustainable investment-grade rating at closing and for the long-term,” stated a Heinz executive, noting that just $2.2 billion of second-lien notes will stay in place until it is “economical” to refinance them with investment-grade debt.

Based on these comments, it appears that the $9.5 billion of Heinz debt slated to be refinanced includes the company’s approximately $6.38 billion of institutional term loans and its $3.1 billion issue of 4.25% notes due 2020, both of which date back to the $28 billion LBO of Heinz by 3G Capital and Berkshire Hathaway in 2013. For reference, the originally $9.5 billion institutional loan is the largest deal to be syndicated in the post-credit-crisis era, according to LCD.

Standard & Poor’s today placed Heinz’s ratings under review for upgrade and Kraft’s under review for downgrade, eyeing a BBB- outcome for the combined entity. “We estimate the merged company’s pro forma adjusted net debt could exceed $33 billion at close, based on current merger terms and financing expectations,” analysts stated, after calculating pro forma leverage at “slightly” over five times at closing and between 4-5x during the next two years, or consistent with an “aggressive” financial-risk profile.

Consideration to Kraft shareholders, which will hold a 49% stake in the combined company versus 51% to Heinz shareholders, includes stock in the combined company and $16.50-per-share special dividend amounting to roughly $10 billion, or 27% of Kraft’s closing price yesterday. The dividend will be funded by an equity contribution by Berkshire Hathaway and 3G Capital.

At first blush, Kraft bondholders have taken leverage and downgrade implications in stride, instead focusing on the prospects for a more dynamic and globally diversified profile for the merged entity and the commitment to investment-grade ratings.

Northfield, Ill.-based Kraft recently aggressively revamped its management structure after a rougher-than-expected 2014 for earnings and cash flow. Kraft in December announced a new CEO, and on Feb. 12 this year announced the departure of its CFO, chief marketing officer, and EVP of R&D, Quality and Innovation.

Kraft’s current chairman and CEO, John Cahill, will become chairman and chair of a newly formed operations and strategy committee of the Board of Directors of The Kraft Heinz Company, while Heinz’s CEO, Bernardo Hess, will become CEO. Alex Behring, chairman of Heinz and the Managing Partner at 3G Capital, will become the chairman.

Kraft’s most liquid debt issues date to pricing in May 2012, ahead of a spin off from what would become Mondalez International, a move that separated the relatively low-growth U.S. packaged-foods business (Kraft) from the higher-margin, $35 billion global snacks business (Mondalez).

The $6 billion, four-part private offering – which was exchanged for public notes in January 2013 – included $1 billion of 1.625% notes due June 4 this year, as well as $1 billion of 2.25% five-year notes due 2017 at T+160, and $2 billion each of 3.5% 10-year notes due 2022 at T+200 and 5% 30-year bonds due 2042 at T+235.

The 5% notes due 2042 generally traded today in the mid-to-high-T+170s, or roughly 20-25 bps tighter week to week, and down from T+220 at the year-to-date heights in mid-January, trade data show.

Over in the secondary loan market, the H.J. Heinz B-2 term loan due 2020 was steady in a 100.125/100.375 context following the news. Recall the company earlier this year repaid roughly $2 billion across its B-1 and B-2 term loans with proceeds from a $2 billion issue of 4.875% second-lien notes due 2025, reducing the amounts outstanding to approximately $2.11 billion outstanding under the B-1 loan due 2019 (L+225, 1% LIBOR floor) and $4.27 billion under the B-2 tranche (L+250, 1% floor).

Over in the bond market, Heinz 4.25% second-lien notes due 2024 ticked up just one point on the news, with trades at 103, as its 4.875% second-lien notes due 2025 surged 10 points. Note a first call looms at 102.125 next month for the $3.1 billion series. – Staff reports

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European high yield bond funds see €1B investor cash inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €1.04 billion net inflow for the week ended March 18. The reading includes an €81 million net inflow for ETFs, and a €19 million net inflow for short-duration funds. The reading for the week ended March 11 is unrevised from a €1.2 billion inflow.

The provisional reading for February is a €1.9 billion inflow. This follows January’s €1.9 billion inflow, which broke a run of seven consecutive monthly outflows. 2015 inflows through February are €3.76 billion, versus a full-year 2014 inflow of €4.15 billion, and an inflow of €8.35 billion in 2013.

There have now been three consecutive weekly inflows of €1 billion-plus, and four in total this year. Prior to this influx, there had never been a €1 billion-plus weekly inflow in European high-yield. Market participants admit the impact of QE had been widely underestimated, and that the magnitude of the ensuing inflows has caught many players by surprise. Meanwhile, the latest inflow saw ETFs contribute just 8% of the reading, versus an average of 25% for the previous three €1 billion-plus inflows. This indicates that managed accounts were the main beneficiaries last week.

In contrast, retail cash flows for U.S. high-yield were deeply negative for the second week in a row, with a $1 billion withdrawal in the week ended March 18, according to Lipper. This is roughly half the $1.96 billion withdrawal recorded the week before, though it was entirely tied to the mutual fund segment, with actively managed accounts reporting a $1.38 billion outflow for the week, versus a $378 million inflow from ETFs. The withdrawal over the past week brings the full-year reading down to an inflow of $8.2 billion, with 33% ETF-related. Last year, after the first 11 weeks, there was a net $3 billion inflow, with 14% ETF-related.

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 55 funds, with total assets under management of €38 billion. Its monthly analysis takes in a larger universe of 100 funds, with €52 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation”. – Luke Millar

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Rite Aid 8-year senior notes price at par to yield 6.125%; terms

Rite Aid this afternoon completed its $1.8 billion offering of senior notes via joint bookrunners Citi, Bank of America Merrill Lynch, Wells Fargo, Credit Suisse, and Goldman Sachs, according to sources. Terms on the CCC+/B3 transaction were finalized at the tight end of guidance, and in line with whispers. Rite Aid is using the proceeds to finance its previously announced acquisition of Envision Pharmaceutical Services. As reported in February, Rite Aid will acquire EnvisionRx from sponsor TPG, paying approximately $1.8 billion in cash and $200 million in Rite Aid stock, or approximately 27.9 million shares, the filing shows. Terms:

Issuer Rite Aid Corporation
Ratings CCC+/B3
Amount $1.8 billion
Issue senior (144A)
Coupon 6.125%
Price 100
Yield 6.125%
Spread T+434
Maturity April 1, 2023
Call nc-3 @ par + 75% coupon
Trade March 19, 2015
Settle April 2, 2015 (T+10)
Bookrunners Citi/BAML/WFS/CS/GS
Price talk 6.25% area
Notes First call @ par + 75%
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Fortescue high yield bond, leveraged loan debt mixed after co. “defers” refinancing plan

Fortescue Metals Group debt was mixed late yesterday and again this morning in the wake of the company’s decision to “defer the voluntary refinancing” via a $2.5 billion offering of secured notes and multi-tiered bond tender offer. The postponement is the sixth withdrawal this year, (though Presidio returned) and it’s the largest single pulled deal dating to the financial crisis, according to LCD.

The 6% notes due 2017 targeted in the exercise changed hands this morning at 88, versus 91.063 late on Tuesday and 94.25 earlier this week, while 6.875% notes due 2022 not involved in the tender offer were volatile, trading anywhere from 74.5 to 77, with the most recent print at 75.5, versus 85 prior to the deal launch, trade data show.

In the loan market, Fortescue’s roughly $4.9 billion term loan due 2019 (L+275, 1% LIBOR floor) was pegged on either side of 91 this morning, up roughly 1.5 points from lows touched yesterday but little changed from levels late yesterday after rumors circulating that the bond deal had been pulled, according to sources. Note the paper is roughly two points below where it was trading before the company unveiled its refinancing plan.

Fortescue stated that it “decided not to pursue the previously announced $2.5 billion senior secured note offering and refinancing as the company’s disciplined cost objectives were not met,” according to a company statement. Terms and conditions did not meet the objectives because “debt capital markets were not favorable at this time,” the filing showed.

To that end, the seven-year (non-call three) offering of secured notes under Rule 144A for life was whispered in the high-7% context early in the marketing process, price talk was released Monday afternoon at 8-8.25%, and over the course of market deterioration yesterday – with recent new issues from other commodity credits trading many points below offering prices – investor demands were widening towards 9%, according to sources.

There was a strong order book, but it was beyond the company’s line in the sand of 8.5%, sources added.

Joint physical bookrunners were Credit Suisse (B&D), and J.P. Morgan. Proceeds were slated to finance a tender offer for all of the borrower’s 2017 and 2018 notes, and for some of its 2019 notes, as well as for general corporate purposes.

Ratings were crossover, at BB+/Baa3/BBB-.

As reported, the company dropped plans to issue a new $2.5 billion, seven-year term loan to back the tender offer that launched earlier this month, and it intended an amendment and extension to its outstanding $4.9 billion term loan due June 2019. Both efforts have also ended.

Fortescue is rated BB+/Ba1. The company’s shares trade on the Australian Securities Exchange, under the ticker FMG. – Staff reports

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Fortescue Metals scraps $2.5B leveraged loan; opts for high yield bonds instead

Fortescue Metals has launched a $2.5 billion offering of seven-year (non-call three) secured notes via joint physical bookrunners Credit Suisse (B&D), and J.P. Morgan. An investor call is scheduled for today at 10:30 a.m. EDT, for pricing tomorrow.

Proceeds from the 144A-for-life deal will finance a tender offer for all of the borrower’s 2017 and 2018 notes, and for some of its 2019 notes, as well as for general corporate purposes.

Note, the bonds feature a 40% equity claw, and the first call is at par plus 50% coupon.

The new bonds will sit closely to the borrower’s 6.875% notes due April 2022, and 8.25% notes due November 2019, which closed on Friday respectively at 77 yielding 11.7%, and 93.125 yielding 10.15%, according to S&P Capital IQ.

The company has now dropped plans to issue a new $2.5 billion seven-year term loan to back the tender offer that launched earlier this month, though it is proceeding with its amend-to-extend. At the same time it launched an amendment and extension to its outstanding $4.9 billion term loan due June 2019.

As reported, following a lender call last week some lenders bristled at the terms of the adjoining amendment request, and as the company indicated it could also tap the bond market to back the tender offer if lenders were cool regarding the proposal on the table. The amendment sought to allow the company to place the new loan – which was expected to be fungible with extended amounts – as a separate deal. The existing loan is covered by 50 bps of MFN protection, but note the MFN wouldn’t be triggered if the new term debt was  placed as a new deal, or via the bond market.

Fortescue’soutstanding 2019 loan slipped from 95.5 to 90.75-bid in response. Credit Suisse and J.P. Morgan had circulated price talk of L+425-450, with a 1% floor on the new and extended debt, with a 99 OID on the new money and a 25 bps fee on offer for extending lenders.

As reported, the Australia-based iron ore producer late yesterday launched a tender offer for its $1 billion issue of 6% notes due 2017, its $400 million of 6.875% notes due 2018, and its $1.5 billion of 8.25% notes due 2019, but note the tender offer for the 2019 notes is subject to a $700 million cap. Holders that tender prior to the early participation date will receive a $30 early participation payment for each $1,000 in principal. Including the early participation payment and the tender-offer consideration, the total consideration is $1,032.50 for the 6% notes due 2017, $1.037.50 for the 6.875% notes due 2018, and $1,000 for the 8.25% notes due 2019.

The early participation date for the tender offers is 5:00 p.m. EDT on March 17, and the expiration date is 11:59 p.m. EDT on March 31. Credit Suisse is dealer manager for the tender offers.

Fortescue is rated BB+/Ba1. The company’s shares trade on the Australian Securities Exchange, under the ticker FMG. – Staff reports