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ETFs back away from high-yield bond funds this week, data shows

There was a net $111 million retail cash outflow from U.S. high-yield bond funds for the week ended May 27, according to Lipper. It dents the $907 million infusion last week, and today’s outflow is the fifth withdrawal over the past six weeks.

High Yield Fund Flows May 29 2015

However, take note it’s more than all related to the fast-money, market-timing, and market-hedging influence of the exchange-traded-fund segment. Indeed, this past week’s figures reflect an inflow of $41 million to mutual funds overwhelmed by an outflow of $152 million from ETFs.

Regardless of what that suggests about investor intent, it’s an outflow, but the trailing four-week average nonetheless moderates. The current observation is negative $510 million per week, the least in five weeks, from negative $697 million last week and negative $964 million two weeks ago. Recall that the latter was the largest in this measure over 16 weeks at the time.

The inflow modestly draws down the full-year reading to inflows of $8.4 billion, with 35% ETF-related. Last year, after the first 21 weeks, there was a net $4.7 billion inflow, with 16% related to ETFs.

The change due to market conditions this past week was positive $275 million, the most in six weeks. Still, it’s essentially nil, at just 0.1%, against total assets, which were $208.8 billion at the end of the observation period. ETFs account for $40.6 billion of total assets, or roughly 19% of the sum. – Matt Fuller

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Altice/Suddenlink sets guidance on $1.72B, three-part M&A bond offering

Altice/Suddenlink has set guidance on its $1.72 billion, three-part notes offering as part of Altice’s majority-stake acquisition of Suddenlink, with joint bookrunners J.P. Morgan and BNP Paribas, according to sources. Books will close at 1:00 p.m. EDT, with pricing to follow, sources relay.

The $1.1 billion of eight-year (non-call three) first-lien senior secured notes is guided at 5.25-5.5%, with ratings set at BB-/Ba3 and issued via Altice US Fin I Corp. Another $300 million of 10-year (non-call five) senior notes is talked at the 7.25% area, issued via US Fin II Corp, with ratings of B-/Caa1. A third $320 million tranche of 10-year (non-call five) senior holdco notes is guided at 7.25% at a discount to yield 7.5%, issued by Altice US Fin S.A., and rated CCC+ by S&P, sources indicate.

Altice last Wednesday announced that it will acquire 70% of Suddenlink from BC Partners, CPP Investment Board, and Suddenlink management, with BC Partners and CPP Investment Board retaining a 30% stake. The purchase values Suddenlink at an enterprise value of $9.1 billion and 7.6x synergy-adjusted EBITDA. J.P. Morgan, PJT Partners, and BNP Paribas acted as financial advisors to Altice.

Issuance is under Rule 144A-for-life. Note the special mandatory redemption at the issue price if conditions for the release of the escrow proceeds are not met before Aug. 31, 2016.

As reported, the acquisition is to be financed with $6.7 billion of new and existing debt at Suddenlink, a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.2 billion of cash from Altice.

The transaction is expected to close in the fourth quarter of 2015 once applicable regulatory approvals have been obtained.

This will be Altice’s third jumbo takeover in just over a year. Earlier in 2015, it completed a roughly €6 billion cross-border loan-and-bond financing backing the purchase of the Portuguese assets of Portugal Telecom from Oi for a €7.4 billion enterprise value.

In April of last year, Numericable and Altice completed a $16.67 billion, seven-tranche, euro and U.S. dollar offering that shattered records to become the largest bond deal on record, along with $5.2 billion in Numericable loans. The offerings were part of a multi-pronged M&A-related recapitalization under which Numericable purchased telecom firm SFR from Vivendi.

Suddenlink is the seventh-largest U.S. cable operator with 1.5 million residential and 90,000 business customers, primarily focused in Texas, West Virginia, Louisiana, Arkansas and Arizona. In 2014, Suddenlink generated revenue of $2.3 billion and EBITDA of more than $900 million. – Staff reports

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MarkWest inks 10-year bullet notes at 99.03 to yield 5%; terms

MarkWest Energy Partners this afternoon completed its offering of senior bullet notes via Wells Fargo, Barclays, Bank of America, Citi, Goldman Sachs, J.P. Morgan, Morgan Stanley, RBC, SunTrust Robinson Humphrey, U.S. Bancorp, and UBS. Terms were finalized at the wide end of guidance, according to sources. Proceeds from the SEC-registered issue will be used to fund the tender offers for any and all of the issuer’s three most pressing maturities, the outstanding 6.75% senior notes due 2020; 6.5% senior notes due 2021; and 6.25% senior notes due 2022, filings show. None are currently callable, so considerations are essentially T+50 make-whole provisions at various, inflated par-plus levels. The new notes include an investment-grade style call window three months prior to maturity. Denver-based MarkWest Energy Partners engages in the gathering, processing, and transportation of natural gas. Terms:

Issuer MarkWest Energy Partners
Ratings BB/Ba3
Amount $1.2 billion
Issue senior notes (SEC Reg.)
Coupon 4.875%
Price 99.026
Yield 5%
Spread T+286
Maturity June 1, 2025
Call nc-life
Trade May 28, 2015
Settle June 2, 2015 (T+3)
Bookrunners WFS/Barclays/BAML/Citi/GS/JPM/MS/RBC/STRH/USB/UBS
Co-Managers BBVA/BNPP/CapOne/Comerica/Nat/PNC/SMBC
Price talk 4.875-5%
Notes par call window three months prior to maturity.
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Energy companies MarkWest, SandRidge unveil high-yield bond deals

Three high-yield deals were announced this morning for $2.4 billion. See the LCD High-Yield Forward Calendar for updated details. A cheat sheet follows:

—–Today:

(NEW) MarkWest Energy BB(e)/Ba3(e) $1.2B 10YNCL senior to redeem notes via WFS/Barc/BAML/Citi/GS/JPM/MS/RBC/STRH/UBS/USB

(NEW) Meritage Homes BB-(e)/Ba3(e) $200M 10NCL senior for GCP/repay RC via JPM/Citi/DB/BAML/PNC/RBC

(NEW) SandRidge Energy $1B 5YNC2 2nd lien secured to repay RC/GCP via Barc/MS/RBC//CapOne/Nat/RBS/STRH/UBS

Altice/Suddenlink BB-(1)/Ba3 $1.1B 8YNC3 1st lien; B-/Caa1 $300M 10YNC5 senior; CCC+/tbd $320M 10YNC5 holdco for M&A via JPM/BNP

CommScope BB/Ba2 $500M 5YNC2 secured and B/B2 $1.5B 10YNC5 senior for M&A via JPM/BAML/DB/WFS/Barc/Jeff; talk 4.5%, 6-6.25%.

—–This week:

American Energy Permian CCC+/B1 $295M 5YNC2 2nd lien to repay debt via GS/CS//BAML/MS/WFS

Tops Markets B(e)/B3(e) $550M 7YNC3 1st lien secured to redeem notes via BAML/WFS

—-Next week:

CMA CGM B-(e)/B3(e) ~$400M 5NC2 senior (part of $800M dual currency with Euro 5.5YNC2.5) to redeem notes BNPP/MS//CACIB/HSBC/ING/SG/Uni

Informatica CCC+(6)/Caa2 $750M 8NC3 senior for LBO via GS/BAML/CS/Macq/MS/Nomura/RBC/DB

Life Time Fitness CCC+(6)/Caa1 $600M 8NC3 senior for LBO via GS/DB/Jeff/BMO/RBC/Macq/Nomura/Mizuho

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High-grade bond issuance within stone’s throw of record month

High-grade bond issuance climbed within short reach of the highest monthly total on record, after four issuers combined yesterday to offer $8.25 billion of new supply, largely on the strength of registration-exempt bank notes offerings.

The total as of May 27 left month-to-date issuance at roughly $134 billion, or less than $2 billion shy of the all-time peak for any calendar month, in September 2013, when Verizon Communications skewed the total with a record-smashing single offering of $49 billion of notes backing its acquisition of the remaining stake in Verizon Wireless from Vodafone.

LCD high-grade issuance totals exclude sovereign, quasi-sovereign, supranational, and preferred and hybrid-structure deals.

UBS AG, via its Stamford, Conn.-branch, yesterday completed a $3 billion, four-part offering, including $750 million of FRNS due June 2017 at L+56, and $1.25 billion of same-dated 1.375% fixed-rate notes at T+80, or 1.423%; along with $250 million of FRNs due June 2020 at L+85, and a $750 million tap of the existing 2.35% notes due March 26, 2020, at T+90, or 2.432%.

The 2020 tap was printed at a tighter spread but higher yield relative to when the coupon was first printed on March 23 as a $750 million offering at T+97, or 2.355%.

PNC Bank also launched a $3 billion offering of senior notes, across $550 million of three-year floating-rate notes due June 1, 2018 at L+42 and $1.3 billion of same-dated fixed-rate notes at T+65; along with $750 million of five-year notes due June 1, 2020 at T+83, and $400 million of 10-year notes due June 1, 2025 at T+115.

The 2018 and 2020 issues were set at the firm end of guidance ranges (from T+65-67 for 2018 fixed-rate notes and from T+83-85 for 2020 fixed-rate notes) and through initial fixed-rate whispers in the areas of T+75 and T+90. But the 10-year spread was set at the wide end of talk from T+110-115, and in line with initial whispers in the T+115 area.

KeyBank launched a $1.75 billion, three-part offering, including $250 million of three-year FRNs at L+52; and $750 million of same-dated, fixed-rate notes at T+75; along with $750 million of 10-year notes at T+120. KeyBank was last in market in February, when it completed a $1 billion offering of 2.25% notes due March 2020 at T+80.

Away from the bank sector, Xcel Energy (NYSE: XEL) yesterday completed a $500 million, “no-grow” offering of holding-company senior debt at the tight end of talk, across $250 million each of 1.2% three-year notes at T+58 and 3.3% 10-year notes at T+120. Initial whispers started from T+70-75 for the 2018 issue, and in the T+130 area for the 2025 issue.

The company locked in funds to repay near-term debt and for general corporate purposes, according to regulatory filings. Xcel had consolidated short-term debt of $969 million as of March 31, including $548 million of debt at the holding-company level.

The Minneapolis-based utility holding company – which is parent to entities including Northern States Power Company, Northern States Power Company-Wisconsin, Public Service Company of Colorado, and Southwestern Public Service Company – is not a frequent issuer at the parent level, having last tapped the long-term debt markets more than two years ago, in a deal that at the time snapped an absence from the debt markets dating to September 2011. – John Atkins/Gayatri Iyer

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American Energy-Woodford launches exchange for bond issued in September

American Energy-Woodford late yesterday launched a distressed uptier exchange offer addressing its sole outstanding corporate bond. A majority of bondholders are already on board for the deal, which comes via MUFG as lead dealer manager, with joint dealer managers Credit Suisse and Morgan Stanley, according to sources. Early participation is due by 5:00 p.m. EDT on June 8, according to a company statement.

Under terms of the deal, investors in the company’s $350 million issue of 9% senior notes due Sept. 15, 2022 are offered an uptier exchange into new 12% second-lien PIK-interval notes due Dec. 30, 2020 at a haircut of 70% of par, inclusive of a 5% of par early-participation premium, the filing shows. The interval coupon is PIK from issuance and up to and including the June 2018 coupon, followed by 75% cash and 25% in kind though the June 2020 coupon, then cash to maturity, sources noted.

While certainly distressed, consideration offers a pick-up to secondary market valuation, as the CCC-/Caa3 paper has recently been quoted just short of 50, according to sources. This was the company’s debut in market last fall with CCC/Caa1 ratings via a Credit Suisse-led syndicate and with proceeds used to repay the company’s revolver, fund future acquisitions, and support capital expenditures.

The new, second-lien exchange notes are offered under Rule 144A for life, which is the same as the extant bonds. Features are proposed to include 4.5-years of call protection (Dec. 30, 2019), with a first call premium at 105.5, and a unique price at maturity of, similarly, 105.5, according to sources. An equity clawback feature is typical, at up to 35% of the issue at par plus coupon running for three years.

Conditions for the exchange include participation by at least 85% of bondholders, receipt of $100 million in new equity from the company sponsor, and the arrangement of a new reserve-based RCF with a $140 million initial borrowing base, according to sources.

American Energy-Woodford is one of American Energy Partners’ sponsor-backed platform companies designed to operate solely in the Central Northern Oklahoma Woodford leasehold. The Oklahoma City-based parent, American Energy Partners, was founded by former Chesapeake Energy head Aubrey McClendon in April 2013. – Matt Fuller

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Colt again extends deadline on distressed bond swap, Ch. 11 vote

Colt Defense for a third time extended by another week, to 5:00 p.m. EDT on June 2, the deadline to participate in a deeply distressed uptier exchange offer on its $250 million issue of 8.75% unsecured notes due 2017, according to a company statement. As of last night’s deadline, just 5.7% of bondholders put in for the deal, up from 5.65% last week and 5.1% a week prior, but well beneath the closing condition for 98% participation.

Under the terms of the deal, bondholders are offered an uptier-exchange at deeply distressed levels into new 10% junior-lien notes due Nov. 15, 2023. The consideration offered under terms of the deal is at a pro rata 35% of par, inclusive of a 5% of par consent payment, for each $1,000 face-value Colt bond issue, according to the filing.

As reported, the deal is an effort to restructure the company’s balance sheet and puts the gun maker “in a better position to attract new financing in the years to come,” according to a corporate filing. Moreover, the transaction is an effort to “address key issues relating to Colt’s viability as a going concern,” the filing shows.

That said, the company is also soliciting consents from bondholders to approve a prepackaged plan of reorganization under Chapter 11 in the event that the debt swap fails, and here, too, the deadline for votes was extended a week. In that scenario, the old notes would be cancelled and bondholders would receive their pro rata share of the new notes at the prescribed ex-consent-payment level, or at 30% of par, the filing shows.

As reported, the launch of the distressed swap comes roughly a month after the company announced it reached agreements with its two loan agents to provide an extension of the deadline for the company to deliver its annual results to June 14, according to an SEC filing. The waiver came with a variety of amendments to a $33 million loan with its “rescue-loan” agent Cortland Capital Market Services and a $70 million “lifeline” term loan facility with Wilmington Savings Fund Society and Morgan Stanley (see “Colt Defense nets loan waivers to extend 10-K deadline to June 14,” LCD News, April 9, 2015).

Colt’s sole outstanding bond issue – the $250 million series of 8.75% notes – has wallowed around 30 in recent weeks and traded flat, or without accrued interest, according to sources. Market sources quoted the paper at 28.5/30.5 last week, and a small lot changed hands yesterday at 24.

As reported, the company recently hired turnaround and advisory firm Mackinac Partners as restructuring financial advisor and appointed Mackinac’s Keith Maib to serve as chief restructuring officer.

Colt Defense is rated CC/Caa3. The company was split off from 160-year-old Colt’s Manufacturing in 2002 and serves the law enforcement, military, and private security markets worldwide. The two eventually recombined. The company is controlled by Sciens Capital Management, and Blackstone Group joined with a $30 million equity stake alongside a dividend recapitalization in 2007. – Matt Fuller/Rachelle Kakouris

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

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Gym operator Life Time Fitness to debut in bond market

Life Time Fitness has launched a $600 million offering of eight-year (non-call three) senior unsecured notes via bookrunners Goldman Sachs, Deutsche Bank, Jefferies, Bank of Montreal, RBC, Macquarie, Nomura, and Mizuho.

A roadshow begins tomorrow in New York, before moving to New Jersey on Thursday, and Boston on Friday. Roadshows will also be held on the West Coast on June 1-2, and in the Midwest on June 3, for pricing thereafter.

The aforementioned banks have also arranged a $1.1 billion, seven-year covenant-lite term loan B, which includes a $250 million revolver. A Deutsche Bank-led arranger group last Monday set price talk on the term loan B at L+350-375, with a 1% LIBOR floor and an OID in the 99.5 area. With the loan already in market, the notes have been assigned ratings of CCC+/Caa1.

Proceeds from the RegS/144a-for-life offering will be used – together with equity contributions from sponsors, proceeds from a $900 million sale-leaseback deal, cash on balance sheet, and the new credit facility – to fund the buyout of the company by Leonard Green & Partners and TPG.

The deal marks the company’s first foray into the bond markets.

Life Time Fitness operates high-end fitness clubs throughout the U.S., primarily in suburban locations. – Oliver Smiddy

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Bond prices rise, returning to levels last seen a month ago

The average bid of LCD’s flow-name high-yield bonds advanced 31 bps in today’s reading, to 102.01% of par, yielding 6.21%, from 101.70% of par, yielding 6.28%, on May 21. Performance within the sample was broadly positive, with 10 gainers against four unchanged and a lone decliner.

A modest gain wiped out the small decline of six basis points in Thursday’s reading, for a net gain of 25 bps week over week in the twice-weekly observation. Dating back two weeks, the average is up 80 bps, while dating back four weeks, it’s down 26 bps, as it includes the steep drop on May 7 when the market was being modestly revalued against rising U.S. Treasury rates, heavy supply, and retail cash outflows.

In contrast, rates are lower this week, with the yield on the 10-year note, for one, down in a 2.16% context, from 2.21% going out last week and 2.29% one week ago, and cash has been coming back into the asset class. Last week, for example, Lipper reported a $906 million inflow to mutual funds and ETFs.

At 102.01, the average edged above the 102 mark for the first time in a month. The average hasn’t been atop 102 since a reading of 102.27% recorded on April 28. And it’s now up 86 bps from a recent low of 101.15 on May 7.

For the year, the average has risen 631 bps. Recall that prior to sample revisions at the start of the year, the average plunged to a three-year low of 93.33 on Dec. 16. However, there was a snap-back rally to follow, and the average closed the year at 96.4, for a total loss of 536 bps in 2014.

With today’s gain in average bid price, the average yield to worst slipped seven basis points, to 6.21%, while the average option-adjusted spread to worst tightened eight basis points, to T+465.

Today’s reading is slightly wide to the broader index yield, but fairly in line with spreads. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Friday, May 22, with a 5.94% yield-to-worst and an option-adjusted spread to worst of T+459.

For further reference, take note that a June 24, 2014 reading of 106.98 – close to the February 2014 market peak of 107.03 – had the flow-name bond average yield at 5.02%, which was an all-time low, but spreads weren’t quite there. Indeed, the average yield was 7.63% at the prior-cycle peak in 2007, and the average spread at the time was T+290.

Bonds vs. loans
The average bid of LCD’s flow-name loans dropped one basis point in today’s reading, to 99.93% of par, for a discounted loan yield of 4.12%. The gap between the bond yield and discounted loan yield to maturity stands at 209 bps. – Staff reports

The data:

  • Bids rise: The average bid of the 15 flow names advanced 31 bps, to 102.01.
  • Yields fall: The average yield to worst slipped seven basis points, to 6.21%.
  • Spreads tighten: The average spread to U.S. Treasuries cinched inward by eight basis points, to T+465.
  • Gainers: The largest of the 10 gainers was Scientific Games 10% notes due 2022, which added two points, to 97.
  • Decliners: The sole decliner was California Resources 6% notes due 2024, which ticked down an eighth of a point, to 92.5.
  • Unchanged: Four of the 15 constituents were steady.
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Retail cash returns to high yield bond funds with largest inflow in six weeks

Retail cash stopped flowing out of U.S. high-yield bond fund for the first time in five weeks as investors plowed a net $906 million into the asset class in the week ended May 20, according to Lipper. It wipes out last week’s $89 million outflow, dents the $2.7 billion outflow the week prior, and is the largest single inflow dating back six weeks.

HY fund flows May 21 2015

 

The influence of exchange-traded funds was solid, at 49% of the inflow, or $445 million. It’s been much greater in recent weeks, such as 79% of the $2.7 billion outflow two weeks ago and 84% of the net outflow of $859 million three weeks ago.

With a fresh reversal to inflows, the trailing four-week average moderates to negative $697 million per week, from negative $964 million last week. The latter observation was the deepest in the red in 16 weeks.

The inflow boosts the full-year reading to inflows of $8.5 billion, with 35% ETF-related. Last year, after the first 20 weeks, there was a net $4.9 billion inflow, with 12% related to ETFs.

The change due to market conditions this past week was positive $61 million. It’s essentially nil against total assets, which were $208.7 billion at the end of the observation period. ETFs account for $40.6 billion of total assets, or roughly 19% of the sum. – Matt Fuller

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