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High grade bonds: Whole Foods doubles bond offering to fund stock buybacks

After doubling the deal size, Whole Foods Market today completed a $1 billion offering of 5.2% notes due December 2025 at T+300, or 5.218%. The issue, which was originally marketed at $500 million, was printed through early whispers in the low-T+300s.

Proceeds will be used for working capital and general corporate purposes, including stock repurchases and the repayment of indebtedness from time to time. On Nov. 4, after releasing quarterly earnings that missed expectations, Whole Foods also announced a new $1 billion share repurchase program. The new authorization does not have an expiration date.

Austin, Tex.–based Whole Foods operates natural and organic foods super markets.

Earlier today, Standard & Poor’s assigned a BBB– rating to the new 10-year notes. “Our ratings and the negative outlook on the corporate credit rating reflect our view that Whole Foods remains the leader in the natural and organic sub segment of the highly fragmented food retail industry, yet its overall share of the food retail industry is still relatively small and under pressure,” the agency said today.

Following the buyback announcement earlier this month, S&P revised the outlook on its BBB– rating to negative, from stable, reflecting the “expectations that Whole Foods’ credit protection measures could weaken below our previous forecast over the next two years because of less conservative financial policies combined with weaker operating performance. We anticipate that the company will encounter difficulties in achieving its operational goals in light of its shift in strategic priorities. This includes focusing more on price investments and expense management in response to declining sales trends,” the agency said on Nov. 5.

On Nov. 10, Moody’s assigned a Baa3 senior unsecured rating to Whole Foods. “Despite recent weakness in operating performance and the potential of a $1 billion increase in funded debt to primarily finance share repurchases, the company’s proforma credit metrics will remain strong with lease adjusted leverage of about 3.1 times. We expect management initiatives including price investments, cost cuts, expense control and moderation in new store growth to result in improved profitability in the next 18-24 months,” analysts said. Terms:

Issuer Whole Foods Market
Ratings BBB-/Baa3
Amount $1 billion
Issue 144A/Reg S (with registration rights)
Coupon 5.200%
Price 99.861
Yield 5.218%
Spread T+300
Maturity Dec. 3, 2025
Call Make-whole T+45 until notes are callable at par from three months prior to maturity
Trade Nov. 30, 2015
Settle Dec. 3, 2015
Books JPM/MS
Px Talk IPT low-T+300s
Notes Upsized from $500 million
Proceeds will be used to fund a share repurchase program
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Outflows from US HY funds continue, but at slower rate

Retail-cash flows to U.S. high-yield funds were negative $501 million in the week ended Nov. 25, according to Lipper. While this is the third consecutive outflow, it is milder than the $1.4 billion and $1.8 billion totals in the two prior weeks.

The combined redemption over that period of $3.2 billion followed $9.6 billion of inflows over the five weeks prior.

In a notable shift, ETF flows were slightly positive at $3.7 million. In the prior week, ETF outflows contributed 26% to the total while during the week ended Nov. 11 it drove 70% of a heavy week of flows out of the asset class.

The trailing-four-week average turned negative this week at $402 million, from positive $232 million in the previous week.

The full-year reading falls to positive $984 million, with an inverse measurement to ETFs. The full-year reading is negative $1.33 billion for mutual funds against positive $2.31 billion for ETFs, for an inverse 235% reading.

Last year, after 47 weeks, there was a net inflow of $858 million based on $659 million of mutual fund inflows and $199 million of ETF inflows. (Recall that last year’s total tally at this point in the year included the all-time record $7.1 billion outflow in the week ended Aug. 6, 2014.)

The change due to market conditions last week remained negative, at $1.25 billion, or 0.7% against total assets, which were $189.1 billion at the end of the observation period. (Note: any reconciliation to prior reports will show a disjointed asset pool due to some fund reclassifications. Please contact Lipper for details.) At present, ETFs account for $37.1 billion of total assets, or roughly 20% of the sum.

Recall that a change due to market conditions of negative $3.2 billion seven weeks ago, or nearly a 2% drop, at the depths of the September market sell-off, was the largest one-week plunge in 120 weeks, or roughly 2.3 years, dating to the $3.7 billion deterioration in the week ended June 26, 2013. — Jon Hemingway/Matt Fuller

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Abengoa Dollar Bonds Plummet In Trading due to Insolvency Proceedings

After the huge drop in bonds backing clean-technology concern Abengoa overseas today on insolvency proceedings, the U.S. dollar-denominated paper followed suit, with huge price declines in block trades. The engineering “Finance” unit’s 8.875% notes due 2017, for one, traded down 42.5 points, at 16.5, while the pari passu 7.75% notes due 2020 changed hands at 15, from 45 prior to the news, trade data show.

As reported, Abengoa bonds plummeted today as the company announced it has filed for creditor protection after an agreement with Spanish industrial company Gonvarri to back its capital increase fell apart. The borrower’s euro-denominated 8.5% notes due 2016 were the worst performers, down 38.5 points at 25.5, having been up at 93 only two weeks ago.

Elsewhere in the euro-heavy capital structure, the 8.875% notes due 2018 were off 22 points, at 21; the 7% notes due 2020 were 21 points in the red, at 16.5; the 5.5% notes due 2019 were down 19 points, at 15; and the 6% notes due 2021 were off 14 points, at 21. The moves were starker earlier this morning, with the company’s cash curve down 45 points in the 2016s, and the rest of its curve down more than 20 points, sources noted.

Abengoa filed under article 5 bis of the Spanish insolvency law. The filing does not automatically open insolvency proceedings, but protects the company from creditor enforcement actions and the directors from potential liabilities for up to four months to continue refinancing negotiations.

As reported, the firm has been in negotiations with lending banks and Gonvarri to back a capital increase of up to €650 million to address its highly leveraged capital structure, as well as its high working capital requirements. Gonvarri said earlier this month that it would invest up to €350 million to bolster the capital increase. However, sources close to the discussions said the negotiations with the lending banks and Gonvarri hit an impasse on the cost of their respective investments.

The builder and operator of renewable power generation facilities had gross debt of €8.9 billion at the end of September, while its cash position fell to €346 million as of September, versus €831 million in June. The current cash position is not sufficient to cover the €374 million of debt set to mature this quarter.

Abengoa is based in Seville, Spain, and listed on the Madrid Stock Exchange. The company offers technology solutions for sustainability in the energy and environment sectors, including generating electricity from renewable resources, converting biomass into biofuels, and producing drinking water from sea water. — Staff reports

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Dollar Tree bonds buck market trend, trade up after 3Q results

Bonds and shares of Dollar Tree traded higher today after the retailer reported some better-than-expected third-quarter results. The benchmark 5.75% notes 2023 changed hands in round lots half a point higher, at 103, just as the broad market was crumbling today, trade data show.

Shares of Dollar Tree, which trade on the Nasdaq under the symbol DLTR, advanced nearly 7%, to $74.22.

Dollar Tree reported net sales in the quarter of $4.95 billion, which was up 136% year over year but notably inclusive of a $2.67 billion contribution from acquired rival Family Dollar, according to a company statement. While immaterial to Dollar Tree’s year-ago third-quarter performance, the result was approximately 2% better than the S&P Capital IQ consensus mean estimate of $4.84 billion.

Adjusted EBITDA was $442 million for the quarter, according to the company, which was essentially in line with the S&P Capital IQ average estimate of $446 million.

Away from this relatively bright spot of business, high-yield was essentially red across the board in low volume trading ahead of the holiday break. Some decliners were significant, especially telecom and media. For example, Sprint 7.875% notes due 2023 traded down two points today, at 77, for a five-point decline this week, and Intelsat Jackson 7.75% notes due 2021 dropped back another full point, to a 44 context, for a six-point decline for the week, trade data show.

The $2.5 billion issue of Dollar Tree 5.75% senior notes date to par issuance in March via a J.P. Morgan-led syndicate and with B+/Ba3 ratings, which is still the current profile. Proceeds supported the merger. See “Dollar Tree: Deal Postmortem,” LCD News, March 18, 2015.  — 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 fall further as some constituents notch large declines

The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.

Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.

The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.

Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.

The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.

As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.

The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.

Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports

The data

Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.

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Foresight, Murray bonds diverge after Foresight corrects 3Q result

Bonds backing Foresight Energy soared last week, but Murray Energy paper remained under pressure, since Foresight corrected and restated its third-quarter results. Management said that the cost of coal produced was driven by a $1.43 per ton increase in the cash cost per ton sold, rather than a much-larger $2.38 per ton increase, as well as a 2.7% sale volume decrease, rather than 7% as previously reported, according to a company filing.

Foresight 7.875% notes due 2021 rocketed since the news, with trades last week reported as high as 90 and in large blocks, as compared to market quotes down at 72.5/74.5 prior, according to sources and trade data. More recent trades were a bit lower, however, with round-lot trades at 85.25 on Friday.

In contrast, bonds backing Murray Energy, another distressed coal credit that holds a significant stake in Foresight, were still under pressure amid the ongoing sector slump. The Murray 11.25% second-lien notes due 2021 that were sold earlier this year changed hands last week in blocks at 26, versus 34 the prior week after the Foresight restatement on Nov. 12, trade data show.

Recall that bonds of the two companies were respectively in the mid-70s and high 40s at the end of October after Foresight announced plans to suspend dividend payments to all of its subordinated units, including Murray Energy. See “Foresight, Murray bonds fall after Foresight cuts dividend,” LCD News, Oct. 30, 2015.

As reported, Murray Energy, the largest privately held mining company in the U.S., bought a significant stake in Foresight earlier this year, through which it acquired all of the outstanding subordinated units previously held by Foresight Reserves. The $1.3 billion issue of the 11.25% second-lien notes were sold to fund the transaction, with pricing at 96.87, to yield 12%, via Deutsche Bank and Goldman Sachs. Ratings are B–/Caa2, down from B–/B3 at offer.

Foresight’s $600 million issue of 7.875% senior notes were sold in August 2013 via a Morgan Stanley–led syndicate, at 99.28, to yield 8%, as part of a dividend recapitalization. Ratings are B+/Caa1, up a notch from CCC+/Caa1 at offer. — Staff reports

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European High Yield Bond Funds See €399M Investor Cash Inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €399 million inflow for the week ended Nov. 18. The reading includes a €108 million net inflow for ETFs, and a €161 million net inflow for short duration funds. The reading for the week ended Nov. 11 is revised from a €582 million inflow to a €581 million inflow.

The provisional reading for October is a €1.6 billion inflow. That brings to an end four consecutive monthly outflows, with September losing €879 million, August €1.1 billion (the largest outflow on record), and July and June having recorded €260 million and €702 million outflows, respectively. March’s €3.1 billion influx remains the largest monthly inflow on record. January and February both registered a €1.9 billion monthly inflow, while April’s inflow was €1.4 billion, and May’s influx was €550 million.

Inflows for 2015 through October are €7.7 billion, versus full-year inflows of €4.15 billion and €8.94 billion in 2014 and 2013, respectively. Inflows for 2015 peaked at €9 billion through the end of May.

The market has now recorded six consecutive inflows for a total just shy of €3.4 billion (by the weekly reporters). Primary meanwhile hosted no new issuance last week, and despite accounts having plenty of cash to put to work, the sellside admits there is unlikely to be many more deals this year. Price discipline combined with a generally discerning buyside means prospective borrowers are now likely to wait for the typical New Year stampede before pulling the trigger.

Retail-cash flows to U.S. high-yield funds were negative $1.4 billion in the week ended Nov. 18, according to Lipper. This is the second consecutive large outflow, following $1.8 billion the week before, for a combined redemption of $3.2 billion, following inflows totalling $9.6 billion over the five weeks prior. Unlike in recent weeks the cashflow was not ETF-heavy, at just 26% of the outflow, or $354 million. In the week prior, the large outflow was roughly 70% related to ETFs, or $1.3 billion of the withdrawal. The full-year reading slips to positive $1.5 billion, with an inverse measurement to ETFs. Indeed, the full-year reading is negative $824 million for mutual funds against positive $2.3 billion for ETFs, for an inverse 155% reading.

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

Follow Luke on Twitter for leveraged finance news and insight. 

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High Yield Bond Prices Sink To Levels Not Seen Since 2011

high yield bond flow names

The average bid of LCD’s flow-name high-yield bonds fell 58 bps in yesterday’s reading, to 90.35% of par, yielding 10.05%, from 90.93% of par, yielding 9.75%, on Nov. 17. Performance within the 15-bond sample was mixed, with five gainers, three unchanged issues, and seven decliners.

The recent decline is a sixth consecutive observation in the red, and it pushes the average deeper below the four-year low of 91.98 recorded on Sept. 29. As such, the current reading that is testing the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011. – Matt Fuller

Follow Matthew on Twitter for high yield bond news and insights.

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High Yield Bond Funds See Another Hefty Cash Witdrawal

Retail-cash flows to U.S. high-yield funds were negative $1.4 billion in the week ended Nov. 18, according to Lipper. This is a second consecutive large outflow, following $1.8 billion last week, for a combined redemption of $3.2 billion following inflows totaling $9.6 billion the five weeks prior.

high yield bond fund flows

Unlike recent weeks, the cashflow was not ETF-heavy, at just 26% of the outflow, or $354 million. Last week, for example, the large outflow was roughly 70% related to ETFs, or $1.3 billion of the withdrawal.

The trailing-four-week average contracts to positive $232 million per week this past week, from positive $1.4 billion last week and from positive $2.2 billion two weeks ago. The current observation is the lowest in five weeks.

The full-year reading slips to positive $1.5 billion, with an inverse measurement to ETFs. Indeed, the full-year reading is negative $824 million for mutual funds against positive $2.3 billion for ETFs, for an inverse 155% reading.

Last year, after 46 weeks, it was the opposite. There was a net inflow of $813 billion based on $1.04 billion of mutual fund inflows against $225 million of ETF outflows. (Recall that last year’s total tally at this point in the year included the all-time record $7.1 billion outflow in the week ended Aug. 6, 2014.)

The change due to market conditions last week was negative again this past week, at $1.5 billion, or almost fully 1% against total assets, which were $190.9 billion at the end of the observation period. (Note: any reconciliation to prior reports will show a disjointed asset pool due to some fund reclassifications. Please contact Lipper for details.) At present, ETFs account for $37.3 billion of total assets, or roughly 20% of the sum.

Recall that a change due to market conditions of negative $3.2 billion seven weeks ago, or nearly a 2% drop, at the depths of the September market sell-off, was the largest one-week plunge in 120 weeks, or roughly 2.3 years, dating to the $3.7 billion deterioration in the week ended June 26, 2013. — Matt Fuller

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

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American Energy – Permian Basin secured notes price at par; terms

After a month’s delay, American Energy – Permian Basin yesterday finalized terms on its first-lien bond offering via joint bookrunners Goldman Sachs, Jefferies, and Bank of America Merrill Lynch, according to sources. Several covenants were rejiggered amid the ongoing investor negotiations, and there was a $30 million downsize, to $530 million. Take note that the structure was been altered from five-year (non-call two), with a first call at par plus 50% coupon, to five-year (non-call three), with a first call at par plus 100% coupon. Proceeds from the B/B2 transaction will be used to repay all borrowings currently outstanding under the company’s revolving credit facility, which as of Sept. 30, 2015, was $201 million, and to reduce the company’s borrowing base to zero. Additionally, proceeds may be used to fund the remaining portion of a pending acquisition, as well as to fund drilling and completion activities and infrastructure development, and for other general corporate purposes, according to sources. Terms:

Issuer American Energy – Permian Basin
Ratings B/B2
Amount $530 million
Issue first-lien secured (144A)
Coupon 13%
Price 100
Yield 13%
Spread T+1125
Maturity Nov. 30, 2020
Call nc3 @ par+100% coupon
Trade Nov. 19, 2015
Settle Nov. 25, 2015 (T+4)
Joint bookrunners GS (left)/JEFF/BAML
Comanagers MUFG, MS, WFS
Price talk 13%
Notes Downsized by $30 million; revised from 5y nc2 structure; first call now @ par+100% coupon; several covenants revised.