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Arch Coal: TL lenders ask admin agent to not cooperate with exchange

A group of Arch Coal’s lenders that purportedly hold more than 50% of the approximately $1.9 billion term loan have directed the administrative agent to not cooperate with the company’s proposed uptier exchange offer, asserting, among other things, that the transaction triggers the MFN protection on the term loan and that the company cannot tap its incremental facility for non-cash consideration, according to a statement released by the company this morning.

While the company believes the lenders assertions, which were made in a July 28 letter to admin agent Bank of America Merrill Lynch, are “without merit” and it plans to “contest them vigorously,” Arch said that if the admin agent were to follow the lenders’ direction, the exchange offers would not be completed. The company adds that it has “expressly reserved all of its rights against the lenders who sent such letter.”

To recap, Arch Coal on July 3 launched a multitiered uptier exchange on four series of unsecured notes in an effort to deleverage its balance sheet and improve liquidity, with the majority of one series driving the deal. Note that the proposed transaction entails tapping the remaining capacity under the company’s incremental facility, as well as utilizing capacity under its revolving credit, to back the issuance of pari passu trust certificates issued to junior debtholders at premium to where the deeply distressed bonds trade. The trust certificates would pay 6.25%, effectively the same coupon as the term loan (L+500, 1.25% LIBOR floor).

As reported, sources earlier said that lenders had voiced concerns that the transaction should trigger the MFN on the existing term loan (see “Arch Coal TLB slides as lenders digest uptier bond exchange,” LCD News, July 10, 2015).

In a July 28 letter to admin agent Bank of America Merrill Lynch, lenders assert the following, according to Arch Coal:

  1. The proposed amendment to the revolver requires the consent of the majority of all lenders under the credit agreement;
  2. The transaction trips the MFN protection on the term loan, which is covered by 50 bps of MFN protection, since the effective yield on the incremental loan is more than 50 bps higher than that on the existing term loan;
  3. The credit agreement does not allow incremental term debt to be borrowed in a transaction for non-cash consideration;
  4. That the company is in default under the credit agreement for failure to pay previously invoiced legal expenses of counsel to a group of lenders under the credit agreement.
  5. The new intercreditor agreement is not acceptable;
  6. The proposed replacement of the collateral agent is not acceptable

In today’s statement, Arch refutes each of these as follows, in the same order as listed above:

  1. The company says this is incorrect, pointing to language in the credit agreement that stipulates that proposed revolver amendments “require the consent of only a majority of lenders making revolving loans.”
  2. With respect to the lenders’ claims that the transaction triggers the 50 bps of MFN protection, the company argues that there are no fees associated with the issuance of the incremental term debt per the exchange, and the definition of “effective yield” under the credit agreement takes into consideration only ‘“applicable interest rate margins, interest rate benchmark floors and all fees, including recurring, up-front or similar fees or original issue discount (amortized over four years following the date of incurrence thereof …) payable generally to the lenders making such Class of Loans….”’ The company adds that since it is exchanging more than $367 million of debt at a “substantially higher” interest rate for $154 million of term loans with a lower interest rate and $22 million of cash, “there is clearly no original issue discount in the nature of fees associated with the exchange offers.”
  3. The company argues there is no provision in the credit agreement requiring new term loans must be funded in cash, adding that “such lenders therefore were unable to cite any such provision.”
  4. The company argues that it has no obligation for reimbursement because it says the exchange offers are permitted by the credit agreement and that the invoices received cover a period of time prior to the public announcement of the exchange offers.
  5. The company deems the lenders’ claim that the new intercreditor agreement is not acceptable “irrelevant” because it says the credit agreement requires intercreditor documentation be “acceptable to the Administrative Agents in their sole discretion.” The company notes the documentation is the same as previously approved for use with its existing junior-lien debt.
  6. The company also deems the lenders’ claim that the replacement of the collateral agent is unacceptable to be “irrelevant,” noting that the credit agreement says “the administrative agents shall have the right, with the approval from the Borrower . . . to appoint a successor, such approval not to be unreasonably withheld or delayed.”

Click here to read the company’s full statement. The company is expected to release second-quarter results tomorrow.

Bloomberg News reported late last week that two groups of lenders were preparing to direct the agent not to sign off on the agreement. The report said Paul Weiss Rifkind Wharton & Garrison LLP and Kaye Scholer LLP are representing the lender groups.

Under pressure
Following the news today, the company’s covenant-lite term loan initially gained about 1.5 points, to bracket 57.5, though has since eased from highs, recently marked at 56.25/57.25, up about a three quarters of a point from yesterday.

However, recall the company’s term loan tumbled on the news of the exchange. By contrast, the paper had been up near 70 prior to the news of the exchange, so is down roughly 13 points since the news hit. Losses in the credit have been exacerbated by a deeply negative bias towards the coal sector. The average bid of coal loans in the S&P/LSTA Leveraged Loan Index had tumbled to 67.96% of par as of yesterday’s close, from 76.56 at the end of June.

S&P earlier this month downgraded by three notches the Arch Coal corporate credit rating to CC, from CCC+, and left the outlook as negative. The senior notes were also cut to CC, though from CCC-, but the loan rating was left at B-, with a 2H recovery rating. S&P said it views the related transactions to be distressed, and the determination is based on the company’s financial condition and the significant discounts associated with the exchange offer.

“We intend to lower the corporate credit rating to ‘SD’ and the affected issue-level ratings to ‘D’ on completion of the exchange offer. Subsequently, we would assign a corporate credit rating and outlook that would reflect the new capital structure,” explained S&P credit analyst Chiza B. Vitta.

Moody’s in May downgraded the company to Caa3, also maintaining its negative outlook.

Arch Coal’s term loan, originally $1.4 billion, dates back to May 2012, though the company subsequently placed two add-ons, the most recent of which was a $300 million fungible incremental loan placed in December 2013 to help back a tender offer for the company’s $600 million issue of 8.75% notes due 2016. That deal cleared the market at L+500, with a 1.25% floor, and was issued at 98. – Kerry Kantin

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AK Steel high yield bonds rally on 2Q results, improved outlook for 2015

AK Steel bonds advanced three points this morning, and its shares are up nearly 8%, at $2.71, after the company reported second-quarter earnings and highlighted an improving outlook for the third quarter and second half of 2015.

AK Steel 7.625% notes due 2020 this morning gained back yesterday’s three point loss, to trade at 63, yielding around 20%, trade data show. That’s still down around 20 points from an 83.5 context at the end of June.

The steel producer reported a second-quarter net loss of $64 million, beating S&P Capital IQ estimates of a $70.5 million loss. Net sales came in at $1.69 billion, versus $1.53 billion in the year-ago period.

James L. Wainscott, chairman, president and CEO, stated that “continued strength in the automotive market contributed to an overall increase in automotive market and total shipments quarter-over-quarter.” However, he added that continued high levels of what the company believes are unfairly traded imports significantly impacted selling prices in the carbon steel spot market, which negatively impacted results.

Looking ahead, however, AK Steel said it expects to generate improved results for the third quarter and second half of 2015 due to anticipated higher shipments, improving carbon steel spot market prices, increased production levels resulting in lower per ton operating costs and the continuing benefit of lower raw-materials costs, in particular, ire ore.

AK Steel also said it expects what it believes are unfairly traded imports of carbon steel products to decline in during the second half of 2015 based on pending and anticipated future steel industry trade cases. – Joy Ferguson

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Exterran Energy Solutions withdraws $400M high yield bond offering

Exterran Holdings announced this morning that it has withdrawn the $400 million offering of seven-year (non-call three) senior notes via joint bookrunners Goldman Sachs, Wells Fargo, Credit Agricole, Bank of America Merrill Lynch, Citi, RBC, and UniCredit, according to sources.

This is the 10th officially withdrawn or postponed deal of the year although two issuers, FMG Resources and Presidio, returned with revised offerings. Last year, 17 deals were postponed for a total of $5.825 billion, with the bulk occurring between September and December.

Exterran Energy Solutions, a subsidiary of Exterran Holdings, announced the senior notes deal on Monday, July 13, with proceeds being used as part of its spin-off plans, as announced in November 2014. Ratings had been assigned as BB-/B1, with a 3 recovery rating from S&P, and leads had reworked covenants this week.

As a result of the withdrawal, Exterran Holdings stated today that the planned spin-off of its international services and global fabrication businesses into a stand-alone, publicly traded company named Exterran Corporation will be delayed. Exterran Holdings said it intends to complete the spin-off when market conditions allow.

Houston-based Exterran Holdings, together with its subsidiaries, provides operations, maintenance, services, and equipment for the oil and natural-gas production, processing, and transportation applications. – Joy Ferguson

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Molycorp creditor panel amended to add steelworkers’ union

molycorp-minerals-companynewsThe U.S. Trustee for the bankruptcy court in Wilmington, Del., has added the United Steelworkers to the official unsecured creditors’ committee in the Chapter 11 proceedings of Molycorp, according to a court filing.

 

The entire membership of the committee and their contact info is as follows:

  • Wilmington Savings Fund Society (Attn: Patrick Healy, (302) 888-7420)
  • MP Environmental Services (Attn: Richard Turner, (661) 393-1151)
  • Computershare Trust Company of Canada (Attn: Shelley Bloomberg, (212) 238-3148)
  • Veolia Water North America Operating Services LLC (Attn: Van A. Cates, (813) 983-2804)
  • Delaware Trust Company, as Indenture Trustee (Attn: Sandra E. Horwitz, (877) 374-6010 x62412)
  • Wazee Street Capital Management (Attn: Michael Collins, (303) 217-4506)
  • Plymouth Lane Partners (Master), LP (Attn: Mark Kronfeld, (212) 235-2275)
  • United Steelworkers (Attn: David Jury, (412) 562-2545)

– Alan Zimmerman

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Samson Resources leveraged loan, high yield debt at record lows amid restructuring reports

SIC_logoSamson Resources‘ debt continued to wallow around record lows today after press reports circulated about restructuring negotiations along two different paths. The issuer’s covenant-lite second-lien term loan due 2018 (L+400, 1% LIBOR floor) was little changed today, quoted at 31.5/33.5, while its 9.75% notes due 2020 held an essentially worthless valuation, at 4/5, according to sources.

Two separate groups of creditors are looking to raise capital for the KKR-backed E&P ahead of a looming Aug. 15 bond coupon payment date, according to a report by Bloomberg News, citing unnamed sources. The loan investors are shopping for a new facility to fund the company through a Chapter 11 bankruptcy, while a bondholder group is seeking cash to fund an out-of-court restructuring via some sort of debt swap, according to the report.

Silver Point Capital and Cerberus Capital Management are negotiating for holders of the $1 billion TLB, and the group has retained investment bank Houlihan Lokey and law firm Willkie Farr & Gallagher as advisers, according to the report.

The bondholder group, led by Blackstone Group’s credit business GSO Capital Partners, with Oaktree Capital Group and Centerbridge Partners, is seeking capital to help restructure outside of court supervision, according to the report. The proposal is for an exchange of the $2.25 billion bond issue into equity and new secured notes ahead of the second-lien TL, the report states.

As reported, Samson in February hired Kirkland & Ellis and Blackstone Group to advise on its capital structure and to address liquidity and leverage issues in the face of plunging commodity prices. (See “Samson Resources says Ch.11 could offer most ‘expeditious’ solution,” LCD News, March 31, 2015.) The TLB was in the low 50s at the time, while the bonds were in the low 20s.

Given the $2.25 billion size of the bond issue – tied for the 25th spot as a largest single tranche ever sold – the coupon payment due in 19 business days, or Monday, Aug. 17 given the weekend, is approximately $110 million.

Recall that S&P in April followed up with a downgrade of the company’s corporate credit rating to CCC-, from CCC+, and left the outlook as negative. Also, S&P cut its revolving credit facility to CCC+, with a recovery rating of 1, from B; lowered the second-lien debt to CCC-, with a 4H recovery rating, from CCC+, and downgraded the unsecured notes to C, with a 6 recovery rating, from CCC-.

Moody’s rates Samson Caa3 with negative outlook. The loans are rated Caa2, and the bonds are rated Ca. – Staff reports

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European high yield bond market springs to life after three-week lull

For the third week running, no high-yield paper priced last week – leaving the year-to-date volume at €45.8 billion, according to LCD. In the same period last year, €58.3 billion of paper had been issued.

However, the market exploded into life this morning as banks looked to make up for lost time and began jamming deals into the market – most typically in an attempt to derisk buyout bridges. There are currently eight issuers out to market offering 11 bonds, for a total of roughly €4.4 billion. That activity makes this week the joint-busiest of the year by deal count, with the supply the second-largest in terms of volume, according to LCD.

The forward calendar stands at €6.6 billion, up from €4.5 billion last week.

Latest developments
GFKL will later today price €365 million of secured notes at 7.5%, having dropped proposed FRNs in favour of all fixed-rate issuance earlier today. Proceeds back Permira’s buyout.

Cellnex is driving by with €600 million of bonds that are set to price at 3.25%. Books were 6x covered, and proceeds will refinance debt. The borrower is split-rated at BB+/BBB-.

Verallia will roadshow today and tomorrow €560 million of euro- and dollar-denominated secured notes, and €300 million of unsecured notes. Proceeds, along with the accompanying €1.002 billion, seven-year cov-lite TLB, will be used to finance the buyout by Apollo Global Management.

Labco/Synlab this morning launched a three-part bond offering comprising €675 million of secured notes, split between add-ons to its 6.25% notes due 2022 and E+500 FRNs due 2022, as well as €375 million of new unsecured notes. The roadshow runs today through Wednesday. Proceeds back Cinven’s acquisition of Synlab, and refinance Synlab debt.

Dufry will this week sell €500 million of unsecured notes, with a European roadshow running from tomorrow through Thursday. Proceeds, along with those from bank-provided term loans and a rights issue, will be used to finance the purchase of World Duty Free (WDF) for roughly €2.6 billion, and refinance debt.

Balta will market its €290 million secured bond offering from today through Wednesday. Proceeds will be used to fund the €300 million acquisition by Lone Star Funds, and to fully repay bank debt.

Center Parcs is another issuer on the road today through Wednesday, as it looks to sell £560 million of class B2 secured notes. Proceeds are earmarked to repay existing class B notes via a tender offer, and partially finance Center Parcs’ recent acquisition by Brookfield.

Thames Water will roadshow today and tomorrow £175 million of secured notes in order to repay debt.

LBO
The vast majority of known situations are attempting to derisk underwritten bridges over the next few days (see above). Those that are still ahead include the following:

A consortium of Advent International, Bain Capital, and Clessidra earlier this month signed a definitive agreement to acquireIstituto Centrale delle Banche Popolari Italiane (ICBPI), for €2.15 billion. Financing isn’t likely to emerge until after August because ICBPI’s future capital structure must be agreed by the Bank of Italy. Sources say the debt financing is expected to be sized at roughly €1 billion, and will likely be all-bond.

Cinven, CVC Capital Partners, and Advent International have all been linked to bids for Telecable de Asturias, according to reports, which suggest the trio would face competition from trade player Euskaltel.

The auction for Tank & Rast has gone quiet since April.

As well as the list above, this part of the pipeline is filling with potential financings, some of which are more imminent than others (further details can be found here).

Refinancing
General Motors hired Deutsche Bank to arrange fixed-income investor meetings in Europe for the weeks beginning June 8 and 15, according to sources.

Medical Properties Trust hosted fixed-income investor meetings in late May, paving the way for a euro-denominated capital markets transaction to launch.

Findus is another firm that will see its capital structure refinanced in the event of a buyout. Nomad Foods confirmed last month that it is in exclusive early stage discussions with Findus to acquire its continental Europe business and the Findus Brand.

PAI is considering an IPO of Perstorp, which could value the company at roughly €1.5 billion including debt, according to sources. A refinancing of its bonds is also being looked at, sources add, and the €1.095 billion, triple-tranche cross-border deal is currently callable, with the call price coming down a few points in November this year. – Luke Millar

 

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High grade bonds: Morgan Stanley follows up 2Q earnings with 10-year deal

On the heels of its second-quarter earnings release, Morgan Stanley is in the market with a public benchmark offering of 10-year notes, sources said. The self-funded issue is guided to an A-/A3/A profile. Proceeds will be used for general corporate purposes.

Earlier today, the New York bank reported quarterly earnings which beat expectations, with revenue of $1.3 billion, versus $1 billion for the year-ago period.

Morgan Stanley last completed a 10-year offering in October, when it placed $3 billion of 3.7% notes due October 2024 at T+155, or 3.72%. For reference, the issue traded on Friday at a G-spread equivalent of 155 bps, according to MarketAxess.

Initial whispers for today’s proposed 10-year issue surfaced in the T+175 area, indicating a reoffer yield near 4.13%.

In January, after fourth-quarter numbers, Morgan Stanley completed a $5.5 billion, three-part offering, split across five-year notes – in fixed- and floating-rate formats – along with a 30-year issue, its largest deal in recent years.

After first-quarter earnings in April, the bank completed a $2 billion offering of 3.95% senior notes due 2027 at T+210.

Most recently, Morgan Stanley last month placed $2.9 billion due June 2020, in two parts, including FRNs at L+98, and 2.8% fixed-rate notes at T+110. – Gayatri Iyer

 

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RAAM Global Energy extends deadline for bond exchange again

Struggling oil and gas exploration and production company RAAM Global Energy has extended an exchange offer for its 12.5% secured notes due 2015 by an additional week.

The exchange offer, which is for new 12.5% notes due 2019 and RAAM common stock, was due to expire on July 16. The new deadline is July 23.

So far, roughly $226.5 million in principal of the 12.5% secured notes due 2015, or 95.2% of outstanding notes, has been tendered, a statement said. The company has previously extended the deadline several times.

In April, RAAM Global Energy said it would enter into discussions with senior term loan lenders and bondholders after failing to pay a $14.75 million coupon on the bonds due 2015.

Standard & Poor’s cut RAAM Global Energy’s corporate credit rating to D, from CCC-, and the issue-level rating on the company’s senior secured debt to D, from CCC-, after the missed bond interest payment. A month later, the ratings were withdrawn at the company’s request.

RAAM Global Energy sold $150 million of 12.5% secured notes due 2015 in September 2010 through bookrunners Global Hunter Securities and Knight Libertas. Proceeds funded general corporate purposes. The bond issue was reopened by $50 million in July 2011 and by another $50 million in April 2013.

The company also owes debt under an $85 million first-lien term loan due 2016. Wilmington Trust is agent.

RAAM Global Energy Company’s production facilities are in the Gulf of Mexico, offshore Louisiana and onshore Louisiana, Texas, Oklahoma, and California. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.

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High yield bond prices gain further, clearing par for first time in three weeks

The average bid of LCD’s flow-name high-yield bonds edged up 15 bps in today’s reading, to 100.07% of par, yielding 6.64%, from 99.92% of par, yielding 6.71%, on July 14. Gains were broad based within the sample, with 11 on higher ground against two unchanged and two lower.

The increase builds on a 49 bps jump on Tuesday – the first gain after a two-week slump – for a net improvement of 64 bps for the week. Moreover, it’s atop par for the first time in three weeks.

However, given the recent patch of weakness, the average is up just 29 bps dating back two weeks, and it’s up just 22 bps in a trailing-four-week observation. Still, the average bid now sits at positive 437 bps for the year to date.

The recent rebound comes alongside modest equity market gains since Greece’s deal over the weekend. Signs of cash inflow to the asset class and falling U.S. Treasury yields have lent technical support to the high-yield marketplace. Nonetheless, it’s been somewhat tenuous in high-yield as participants continue to keep an eye on U.S. Treasury rates and commodity prices.

Recall that prior to sample revisions at the start of the year, the average bid had plunged to a three-year low of 93.33 on Dec. 16. However, a snap-back rally followed, and the average bid closed the year at 96.4, for a total loss of 536 bps in 2014.

With today’s increase in the average bid price, the average yield to worst ticked lower by seven basis points, to 6.64%, and the average option-adjusted spread to worst cinched inward by five basis points, to T+501.

Today’s reading in the flow names is a bit wider than with broad index yield, but fairly in line with spread. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed yesterday with a 6.35% yield to worst and an option-adjusted spread to worst of T+486.

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%, 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 increased 11 bps in today’s reading, to 99.93 of par, for a discounted loan yield of 4.13%. The gap between the bond yield and discounted loan yield to maturity stands at 251 bps. – Staff reports

The data:

  • Bids rise: The average bid of the 15 flow names edged up 15 bps, to 100.07.
  • Yields fall: The average yield to worst slipped seven basis points, to 6.64%.
  • Spreads tighten: The average spread to U.S. Treasuries cinched inward by five basis points, to T+501
  • Gainers: The largest of the 11 gainers, Scientific Games 10% notes due 2022, added one full point, to 97.5.
  • Decliners: The two decliners were California Resources 6% notes due 2024, which dropped one point, to 82, andHexion 6.625% notes due 2020, which dipped half a point, to 92.
  • Unchanged: Two of the 15 constituents were steady.
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CORE Entertainment downgraded again; grace period on loan lapses

Moody’s downgraded ratings on CORE Entertainment, citing deteriorating earnings for its U.S. Idol franchise that Fox will not renew after the 2016 season, and the expiration of a 30-day grace period to make a missed loan interest payment.

“The negative outlook reflects the very high leverage, the decline of its Idol franchise, the missed interest payment on the 2nd-lien term loan, and negative free cash flow that elevates restructuring risk,” Moody’s said in a July 15 research note.

Leverage for the company, which owns and develops entertainment content, exceeded 10x as of the first quarter of 2015.

Standard & Poor’s cut CORE Entertainment ratings last month after the company missed the interest payment on a $160 million second-lien loan due 2018.

Moody’s cut CORE Entertainment’s corporate family rating yesterday to Ca, from Caa3, and a $200 million senior secured first-lien term loan due 2017 to Caa2, from Caa1. Moody’s affirmed a Ca rating on the $160 million second-lien term loan due 2018.

“Following the 2016 season of Idol, the company will be reliant on its So You Think You Can Dance (Dance), International Idol format revenue, and its Sharp Entertainment division for earnings which will increase the unsustainability of its capital structure with debt that starts to mature in June 2017,” Moody’s said.

“The cash balance has not been used to acquire EBITDA producing assets to offset the EBITDA lost following the Elvis Presley Enterprises sale and development of new programming content has been slower than expected.”

In June, Standard & Poor’s cut the rating on the 13.5% second-lien term loan due 2018 to C, from CCC-, lowered the company’s corporate rating to CCC-, from CCC+, and the rating on a $200 million senior first-lien term loan due 2017 to CCC-, from CCC+.

Investors in the company are Apollo Global Management and Crestview Partners.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The loans stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more