Downgrade: W&T Offshore cut to CCC- after energy co. draws down credit line

Standard & Poor’s on Friday lowered its corporate credit rating on W&T Offshore to CCC–, with a negative outlook, from B–, following the company’s announcement that it has drawn down nearly the maximum amount available under its credit facility and hired legal and financial advisors.

At the same time, S&P lowered its issue-level rating on the company’s secured debt to CCC+, from B+, and its issue-level rating on the company’s unsecured debt to CC, from CCC+.

The negative outlook reflects S&P’s view that W&T Offshore could announce a debt exchange or restructuring within the next six months that the rating agency would view as distressed.

Following the facility draw-down, W&T has $447 million in cash on hand. S&P expects the company to use this cash to cure potential borrowing-base deficiencies or covenant breaches in 2016. — Rachelle Kakouris

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European High Yield Bond Funds Break Losing run with €305M inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €305 million inflow for the week ended Feb. 24. The reading includes a €55 million inflow for ETFs, and a €35 million inflow for short duration funds. The reading for the week ended Feb. 17 is revised from a €441 million outflow to a €453 million outflow. Note, the net weekly reading also includes flows for managed accounts.

The provisional reading for January is a €1.31 billion outflow, which appears to be the second-largest monthly outflow number recorded (the largest being a €2.2 billion outflow in June 2013). Inflows for 2015 through December are €9.66 billion, versus full-year inflows of €4.15 billion and €8.94 billion in 2014 and 2013, respectively.

The weekly inflow is the first of any significance this year (though a €5 million inflow was recorded in the first week of the year), and brings to an end a run of six consecutive weekly outflows. It also represents welcome good news for a market that is struggling amid widespread volatility – it has been the worst start to a year for primary activity since 2009, and news thatSolera is now dropping its public euro bond offering and placing the paper privately means the public market has now failed to price its last two deals. Still, should this latest weekly reading be the first of a run of inflows, bankers will hope that outflow fears will abate and fund managers will start putting money to work, which should reduce new-issue premiums and make it easier to print new paper.

Meanwhile, U.S. high-yield funds recorded a net inflow of $2.7 billion in the week ended Feb. 24, marking the largest infusion of fresh cash in 18 weeks. Moreover, this follows an inflow of $65.5 million the week before, the first positive reading in three weeks at the time. ETFs laid solid influence, at 46% of the latest inflow. The year-to-date outflow total is now cut back to just $2.4 billion, with 14% related to the ETF segment. For comparison, the same period in 2015 saw inflows of $10.8 billion, with ETFs accounting for 42%.

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, its weekly analysis looks at around 60 funds, with total assets under management of €50 billion. Its monthly analysis takes in a larger universe of 90 funds, with €70 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation.” — Luke Millar

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JC Penney Debt Gains, Default Protection Cost Plunges After Strong Year-End Report

J.C. Penney bonds and loans were higher this morning after the company released better-than-expected quarterly results and improved guidance for the year ahead. Credit protection costs were essentially halved, and shares gained, with JCP trading up roughly 14% on the NYSE, at $9.50 per share.

The 5.65% notes due 2020 surged six points, to 91/92, according to sources, while the 8.125% notes due 2019 added roughly four points, with trades reported at 101 and 101.5. Long-tenor 6.375% bonds due 2036, meanwhile, jumped 10 points, to 73/74, the sources added.

Over in the loan market, J.C. Penney covenant-lite term debt due 2018 (L+500, 1% floor) is also firmer following the results, rising about a point to bracket 99, according to sources.

In the CDS marketplace, five-year protection costs were chopped down approximately 47%, to 4.8/6.6 points upfront, according to Markit. That’s essentially $500,000 cheaper, at $570,000 for an upfront payment, in addition to the $500,000 annual payment, to protect $10 million of the issuer’s bonds.

Comparable store sales grew 4.1% for the fourth quarter and 4.5% for the full year, according to the company statement. Full-year adjusted EBITDA surged $435 million year over year, to $715 million, besting both the company guidance for $645 million and the S&P Global Market Intelligence consensus mean estimate for $648 million.

Management cited a renewed focus on private brands and omnichannel sales, as well as effective inventory management. Looking ahead, the company put forth guidance for 2016 EBITDA to be $1 billion, the filing showed.

The Plano, Texas–based company is rated CCC+/Caa2. S&P today placed the ratings on CreditWatch with positive implications due to the improved fourth-quarter results and 2016 guidance, which includes a same-store sales increase of 3–4% with further margin improvements. — Matt Fuller/Kerry Kantin

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TPG sees near-record originations in 4Q, helped by Idera investment

TPG Specialty Lending, a BDC trading on the NYSE under the ticker TSLX, said originations totaled a near-record $399 million in the recent quarter.

These originations compare to a gross total of $305 million in the final quarter of 2014 and $185 million in the quarter ended Sept. 30. The most recent quarter was the second strongest quarter for originations since TPG’s inception.

Among the new additions to the portfolio in the final quarter of 2015 was a significant piece of M&A financing for Idera, a loan deal that priced wide to talk in volatile market conditions. The loan funded an acquisition of Embarcadero Technologies, which was a portfolio company of TPG.

In October, TPG added a $62.5 million piece of Idera’s loan due 2021 at a cost basis of $56.4 million and $55.9 million at fair value. The loan accounts for 6.8% of TPG’s net assets.

Asked about the loan in an earnings call today, co-CEO Josh Easterly said TPG was able to co-invest in Idera across platforms and was motivated by an intimate knowledge of the software industry and the acquisition target.

“We were able to go in with size, with a big order, to drive terms on a credit we knew that benefited TSLX shareholders,” Easterly said.

Another addition to the investment portfolio was a $45 million first-lien loan due 2021 to MatrixCare, the company’s 10-K filed yesterday after market close showed. Interest on the loan is 6.25%. Fair value and the cost of the loan was $44.1 million as of Dec. 31, the 10-K showed.

GI Partners acquired Canadian healthcare IT company Logibec from OMERS Private Equity in December. OMERS retained Logibec’s former U.S. subsidiary, MatrixCare, which provides health records to long-term care and senior-living facilities.

Also during the quarter, TPG received repayment of a loan to bankrupt grocery store chain operator Great Atlantic & Pacific Tea Co. (A&P).

Exits and repayments totaled $155 million in the most recent quarter, for a net portfolio increase of $129 million in principal. The fair value of the investment portfolio was $1.49 billion as of Dec. 31, reflecting positions in 46 companies. Some 88% of the portfolio was in the first-lien debt of U.S. middle market companies.

Oil and gas

The BDC’s exposure to the troubled oil and gas sector was 3.2%, at fair value, in two investments: Mississippi Resources and Key Energy Services. This compared to oil and gas exposure of 4% for the portfolio as of Sept. 30, which included a loan to Milagro Oil & Gas. A bankruptcy judge confirmed a reorganization plan for Milagro on Oct. 8.

The investment in upstream E&P company Mississippi Resources included a $46.7 million 13% (including 1.5% PIK) first-lien loan due 2018 and equity. The Key Energy investment is a $13.5 million first-lien loan due 2020, booked with a fair value of $10.5 million in TPG’s portfolio, the SEC filing showed.

“We will opportunistically review situations,” Easterly said of potential lending to the oil and gas sector.


TPG Specialty Lending had no investments on non-accrual status at the end of the quarter.

TICC Capital

The portfolio reflected TPG’s ongoing interest in TICC Capital. TPG owns 1.6 million TICC shares, representing 1.2% of its investment portfolio. TPG is trying to acquire TICC Capital, saying TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

Earlier this month, TPG nominated a board member and proposed severing what it called TICC Capital’s failed management agreement with TICC Management. TPG owns roughly 3% of TICC Capital stock. An earlier stock-for-stock offer by TPG for TICC was rejected.

The move by TPG came after a shareholder vote at TICC in December that blocked a plan to change TICC Capital’s investment advisor to Benefit Street Partners.

“We believe the result of the shareholder vote not only reflects the demand for TICC shareholders for better management and governance, but also heralds an inflection point for the broader BDC industry to build a culture of accountability and shareholder alignment,” Easterly said today.


Net asset value per share declined to $15.15 at year-end, from $15.62 as of Sept. 30, and from $15.53 a year earlier. The decline was due to unrealized losses, widening credit spreads in the broader market, and volatility in the energy sector.

Shares of TPG were trading at $16.01 at midday today, up more than 1%, but the stock drifted down to $15.89 in afternoon trade. — Abby Latour

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Distressed Debt: Energy Woes Continue as Oil & Gas Issuers Join Restructuring Watchlist

A host of U.S. energy companies joined LCD’s distressed debt Restructuring Watchlist last week, adding to an already hefty group of issuers from that still-struggling market segment.

The Watchlist tracks companies with recent credit defaults or downgrades into junk territory, issuers with debt trading at deeply distressed levels, as well as those that have recently hired restructuring advisors or entered into credit negotiations.

Joining the Watchlist last week:

  • Energy company Alta Mesa, which opted for a third-lien loan via a debt swap
  • Chaparral Energy, which hired an advisor after maxing out the remaining $141 million of its revolving credit line
  • Fairway, the New York City-based grocery chain, which said it is running out of cash
  • Midstates Petroleum, which like Chaparral drew down the remainder ($249 million) of its credit line
  • Auto-parts concern UCI Holdings, which missed a $17.25 million bond interest payment
  • Energy concern Venoco, which also skipped an interest payment ($13.7 million)
  • W/S Packaging, which said it might bust one of its loan covenants if the company does not amend the credit or receive a waiver from lenders.


These additions bring the Watchlist to 39 entries. More than half of those – 20 to be exact – hail from the oil & gas/energy sector, while another two are commodities/mining concerns.

distress ratio

More could well join. Oil prices are expected to remain relatively low for the near future, what with an OPEC production freeze – talk of which sparked a very brief rally in crude and U.S. stocks last week – most uncertain.

Longer-term, many U.S. debt issuers will face a steep climb over the next few years, with increasing amounts of high yield debt coming due, according to S&P.

LCD’s Restructuring Watchlist is compiled by Rachelle Kakouris andMatthew Fuller. It is published each week.

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Standard & Poor’s lowers Apollo Investment, cites oil & gas exposure

Standard & Poor’s cut the rating on Apollo Investment Corp. today to BBB–, from BBB, citing in part losses due to exposure to the oil and gas sector and a growing share of non-accrual loans. The ratings change is on both the issuer and the issuer’s unsecured debt.

Apollo Investment has a track record of losses, Standard & Poor’s said in a research note today, noting that realized losses totaled $131 million and unrealized losses came in at $103 million in 2015. Realized losses are expected to grow as unrealized losses become realized losses due to exits from the investments by the company, S&P said.

Apollo Investment’s asset quality is also deteriorating, the rating agency said. Non-accrual loans in the company’s investment portfolio increased last year, to 6.5% on a cost basis at year-end, from 1.4% as of March 31, 2015.

Although the company has moved away from mezzanine lending in recent years, second-lien secured and unsecured debt still accounted for 39% of the total portfolio as of Dec. 31, albeit down from 41% a year earlier. Moreover, non-yielding preferred and common equity investments accounted for 13% of the company’s investment portfolio, a higher share than seen in rivals’ portfolios, S&P said.

The company’s risk position has been hurt by industry concentration, including single-name exposure through a debt and equity investment in Merx Aviation Finance, which accounts for Apollo’s total exposure to the aviation sector.

The company has four specialty areas: 15.2% of Apollo’s total portfolio is in aviation, 12.9% is in oil and gas, 7.7% is in renewables, and 4% is in shipping. Apollo Investment’s top five positions represented 53% of adjusted total equity as of year-end, S&P said.

“We expect both the interest and interest and dividend ratios to be under pressure in the next 12 months as more investments may be classified as non-accrual, putting a burden on recurring income (non-deal-dependent income),” said Standard & Poor’s analyst Sebnem Caglayan.

The company’s leverage, which is measured by debt to adjusted total equity, was 0.90x at year-end.

“The outlook on [Apollo] is negative, reflecting that we could lower the rating if the company’s leverage exceeds 1.0x, while the company continues to operate with earnings ratios weaker than thresholds identified in our criteria,” Caglayan said.

“The negative outlook also incorporates our expectation of continuing losses and higher-than-peers’ nonaccrual loans resulting from the company’s elevated exposure to the oil and gas sector in the next 18–24 months,” Caglayan added. — Abby Latour

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Summit Materials Notes Price at Par to Yield 8.5%

Summit Materials late yesterday completed an offering of senior notes via joint bookrunners Bank of America, Goldman Sachs, Citi, Deutsche Bank, RBC Capital Markets, and Barclays, according to sources. The drive-by deal printed wide of talk, at the target size of $250 million. Proceeds will be used to fund the firm’s acquisition of Boxley Materials Company, and to replenish cash used for its acquisition of American Materials Company, which was announced earlier this month. Denver-based Summit is a construction materials company that supplies aggregates, cement, ready-mixed concrete, and asphalt in the U.S. and British Columbia, Canada. Terms:

Issuer Summit Materials
Ratings B(5)/Caa2(e)
Amount $250 million
Issue Senior notes (144A)
Coupon 8.5%
Price 100
Yield 8.5%
Spread T+711
Maturity April 15, 2022
Call nc3
Trade Feb. 23, 2016
Settle March 8, 2016 (T+10)
Books BAML/GS/Citi/DB/RBC/Barc
Px talk 8% area
Notes First call price @ par plus 50% of coupon. With three-year equity clawback for 40%. Change of control put @ 101. T+50 make-whole call.


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European High Yield Bonds Continue on Hold; Slowest Start to Year Since 2009

european high yield bond issuance

European high yield bond issuance totals a slim €1.59 billion in 2016 (through Feb. 19), compared to €14.14 billion through the same period last year, according to S&P Global Market Intelligence LCD. That’s the worst start to a  year since 2009.

It’s been a slog, to say the least.

“The market has hosted supply in just two of the eight weeks this year,” writes LCD’s Luke Millar, in his weekly high yield analysis. “Of greater concern, bankers admit they are unlikely to bring a new deal until early March, as this year’s new issues are underwater, LeasePlan’s deal was postponed, earnings season is underway, and conditions have been so volatile that pitching pricing levels to prospective clients is difficult.”

This chart is from LCD’s European High Yield Weekly, which offers complete news and data on the European speculative-grade bond market. You can learn more about LCD here

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PetSmart loan, bonds ease on news of cash-funded dividend

PetSmart term debt eased to a 96/97 market today following a Moody’s report stating the retailer’s owners plan to take an $800 million dividend funded by available cash. The roughly $4.3 billion term loan due March 2022 (L+325, 1% floor) was previously bracketing 97, sources said.

The company’s 7.125% notes due 2023 traded down 1.5 points in active trading, at 101, trade data show.

The planned dividend would be funded from proceeds from the sale of PetSmart’s minority interest in MMI Holdings, which operates veterinary hospitals inside PetSmart stores, to majority owner Mars Inc., sources said.

Ratings were not affected, Moody’s said. The issuer is rated B/B1. The term debt is rated BB–/Ba3, with a 2L recovery rating from Standard & Poor’s. The notes are rated B–/B3, with a 6 recovery rating.

Plans for the dividend were reported last week by Forbes.

PetSmart was purchased early last year by a consortium including funds advised by BC Partners, alongside several of its limited partners, including La Caisse de dépôt et placement du Québec and StepStone. Longview Asset Management rolled a roughly $250 million portion of its ownership stake. The sponsors, excluding Longview, contributed rough $1.83 billion of equity. — Staff reports


High yield bond prices build on last week’s rally with modest gain

The average bid of LCD’s flow-name high-yield bonds rose 50 bps in today’s observation, to 91.42% of par, offering an average yield to worst of 8.83%, from 90.92 last Thursday, yielding 9%. The performance was mostly positive, with 10 issues posting gains against four decliners, and one issue unchanged.

This is the third consecutive positive reading, a streak that hasn’t occurred since October. While today’s advance was modest, a look further back encapsulates the stronger market of late as the one-week and two-week gains for the sample of 15 benchmark bonds are 225 bps and 304 bps, respectively.

With the recent broad-based appreciation in price, the year-to-date decline in the average price has narrowed to just 87 bps. For comparison, the average was down 466 bps at the 2016 low of 87.63 on Feb. 11.

With today’s increase in the average price, the average yield to worst fell back below the 9% threshold for the first time in five readings, at 8.83%. That’s a decline of 17 bps from last Thursday. The average option-adjusted spread to worst tightened 14 bps, to T+740.

After removing deeply distressed credits with huge yield and spread amid the year-end revision, the LCD flow names have been more closely aligned with broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Wednesday, Feb. 22, with a 9.06% yield to worst and an option-adjusted spread to worst of T+813.

Bonds vs. loans
The average bid of LCD’s flow-name loans declined 41 bps in today’s reading, to 95.55% of par, for a discounted loan yield of 4.40%. The gap between the bond yield and the discounted loan yield to maturity stands at 443 bps. — Staff reports

The data:

  • Bids increase: The average bid of the 15 flow names rose 50 bps, to 91.42%.
  • Yields decrease: The average yield to worst fell 17 bps, to 8.83%.
  • Spreads tighten: The average spread to U.S. Treasuries tightened 14 bps, to T+740.
  • Gainers: The largest of the 10 gainers was Hexion Specialty Chemicals 6.625% notes due 2020, which jumped 3.5 points, to 77.
  • Decliners: The largest decliner was Valeant Pharmaceuticals 5.875% notes due 2023, which fell 3.25 points, to 86.
  • Unchanged: Only Charter Communications 5.75% notes due 2026 were unchanged, at 98.25.