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US high yield fund flows stay positive in week, but against ETF outflows

U.S. high-yield funds recorded an inflow of $297 million in the week ended April 27, according to Lipper. This is a fourth-consecutive infusion to the asset class, but it’s down from $410 million last week. Regardless, with larger inflows prior, the trailing-four-week measurement expands to positive $493 million per week, from positive $283 million last week.

HY fund flows April 27 2016

However, take note that it was a larger inflow to mutual funds, at $555 million, that was dented by outflows of $259 million from the ETF segment. In contrast, last week’s inflow was almost all ETF-related, at 94% of the sum, while two weeks ago, it was mutual fund outflows filled back in by ETF inflows.

Whatever that might say about fast money, hedging strategies, and other market-timing efforts, this past week is a net inflow that boosts the year-to-date total infusion to $9.7 billion, with squarely 50% ETF-related. Last year at this point, after 17 weeks, the $10.5 billion net inflow was 45% ETF-related.

The change due to market conditions this past week was positive $618 million, which is not much against total assets of $191.8 billion at the end of the observation period, at positive 0.3%. ETFs account for about 21% of the total, at $40.6 billion. — Matt Fuller

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US High Yield Bond Funds See $297M Cash Inflow, Despite ETF Withdrawals

US high yield fund flows

U.S. high-yield funds recorded an inflow of $297 million in the week ended April 27, according to Lipper. This is a fourth-consecutive infusion to the asset class, but it’s down from $410 million last week. Regardless, with larger inflows prior, the trailing-four-week measurement expands to positive $493 million per week, from positive $283 million last week.

However, take note that it was a larger inflow to mutual funds, at $555 million, that was dented by outflows of $259 million from the ETF segment. In contrast, last week’s inflow was almost all ETF-related, at 94% of the sum, while two weeks ago, it was mutual fund outflows filled back in by ETF inflows.

Whatever that might say about fast money, hedging strategies, and other market-timing efforts, this past week is a net inflow that boosts the year-to-date total infusion to $9.7 billion, with squarely 50% ETF-related. Last year at this point, after 17 weeks, the $10.5 billion net inflow was 45% ETF-related.

The change due to market conditions this past week was positive $618 million, which is not much against total assets of $191.8 billion at the end of the observation period, at positive 0.3%. ETFs account for about 21% of the total, at $40.6 billion. — Matt Fuller

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

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This story was originally published on www.lcdcomps.comLCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets.

You can learn more about LCD here.

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Bond prices rebound modestly, just shy of 2016 peak

The average bid of LCD’s flow-name high-yield bonds edged up 36 bps in today’s observation, to 96.54% of par, yielding 7.55%, from 96.18 on Tuesday, yielding 7.64%. Performance within the sample was mixed, with eight gainers against four unchanged and three lower.

The modest gain dents Tuesday’s decrease of 68 bps, for a net decline of 33 bps for the week. The average is essentially unchanged back two weeks, at negative three basis points, but it’s higher by 217 bps reaching back four weeks, as that observation includes more of the March rebound.

Recall that Tuesday was an initial reading in the red after a steady run higher over the past month to a 2016 peak of 96.87 recorded one week ago. That reading was 179 bps above the previous near-term high of 95.08 on March 22 and up 182 bps from the prior peak of 95.05 on March 3.

All said the average this week was essentially hovering just under the 2016 high, amid generally rangebound conditions amid a busy pipeline of first-quarter reports and with mixed cash flows to the asset class. The average is now up 425 bps in the year to date.

With today’s modest gain in average bid price, the average yield to worst slumped nine basis points, to 7.55%, but the average option-adjusted spread to worst cinched inward by just one basis point, to T+604. The smaller move of spread as compared to yield can be linked to the U.S. Treasury market strength of late, as falling underlying yields encourages spread-to-Treasury expansion. Take note that both 7.46% and T+593 one week ago at the 2016 peak price were appropriately the tightest levels this year but, technically, the tightest levels since late October.

Given a smaller sample of high-beta credits, the LCD flow names have been variable against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Wednesday, April 27, with a 7.31% yield to worst, but an option-adjusted spread to worst of T+895.

Bonds vs. loans 
The average bid of LCD’s flow-name loans was down eight basis points in today’s reading, to 99.15% of par, for a discounted loan yield of 4.25%. The gap between the bond yield and the discounted loan yield to maturity is 330 bps. — Staff reports

  • The data: Bids increase: The average bid of the 15 flow names advanced 36 bps, to 96.54.
  • Yields decrease: The average yield to worst slipped nine basis points, to 7.55%.
  • Spreads decrease: The average spread to U.S. Treasuries ticked lower by one basis point, to T+604.
  • Gainers: The largest of the eight gainers were equally two-point increases for Dish Network 5.875% notes due 2022, to 98, and Sprint 7.875% notes due 2023, to 78.5.
  • Decliners: The largest of the three decliners was Hexion 6.625% notes due 2020, which slipped one point, to 84.
  • Unchanged: Four of the 15 constituents were steady in today’s reading.
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McGraw-Hill Global Education bonds price at par; terms

The McGraw-Hill Global Education Holdings bond deal was completed this afternoon at the tight end of talk after the offering was downsized by $270 million, to $400 million, in favor of an increase to the concurrent B term loan, according to sources. Credit Suisse led a bookrunner team that includes Morgan Stanley, BMO, Jefferies, Barclays, Goldman Sachs, RBC, and Wells Fargo. Proceeds from the CCC+/B3 bond deal—and money from the blow-out loan effort—will be used to support a dividend recapitalization of the credit as it seeks to realign its corporate structure and refinance various subsidiary debts. To that end, recall that Apollo Management purchased the education publisher from the McGraw-Hill Cos. in 2013 for $2.4 billion, placing loans and $800 million of secured bonds at Global Education, and placing less debt on the separately siloed K-12 business, McGraw-Hill School Education. Terms:

Issuer McGraw-Hill Global Education
Ratings CCC+/B3
Amount $400 million
Issue senior notes (144A-life)
Coupon 7.875%
Price 100
Yield 7.875%
Spread T+616
Maturity May 15, 2024
Call nc3 @ par+75% coupon
Trade April 28, 2016
Settle May 4, 2016 (T+4)
Bookrunners CS/MS/BMO/JEFF/Barc/GS/RBC/WFS
Price talk 8% area
Notes First call par+75% coupon; downsized by $270 million in favor of increasing the TL; w/ three-year equity clawback option for up to 40% of the issue @par+coupon.
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Apple eyes new debt for $87B, eight-quarter capital return

Apple has again weighted a big $50 billion increase in its capital return program to debt-financed share repurchases, setting the stage for more blockbuster debt offerings after Apple printed $59 billion of debt in the U.S. since its debut deal almost three years ago, including $15.5 billion so far this year.

“As in the past, we expect to fund our capital return program with U.S. cash, future U.S. cash flow generation and borrowing from both domestic and international debt markets,” CFO Luca Maestri said yesterday on Apple’s earnings call, targeting $87 billion over the next eight quarters via buybacks and dividends. While Apple has issued in multiple currencies in recent years, the $59 billion of dollar-denominated debt accounts for the bulk of Apple’s $72 billion of term debt as of the end of March.

April has proven to be a big month for Apple bond news. Apple’s now $250 billion shareholder-return plan through March 2018—under which more than $163 billion was returned via buybacks or dividends through March—prompted Apple to make its debut bond offering on April 30, 2013, when it completed a $17 billion, six-part offering. One year later, on April 29, 2014, the company placed $12 billion in seven parts. Subsequent deals include a $6.5 billion, five-part deal in February 2015, an $8 billion, seven-part deal last May, and offerings so far this year of $12 billion in nine parts in February and $3.5 billion last month via reopenings.

The company paid relatively high costs for funds in mid-February, when the floodgates had just reopened after a harrowing early-month shutdown for the primary markets amid oil-related global volatility. But its costs have since tumbled: Apple’s 4.65% issue due Feb. 23, 2046—placed on Feb. 16 at T+205 as part of a nine-part deal—was reopened on March 17 at T+155, or well below the coupon rate at 4.24%, to raise the total amount outstanding to $4 billion. The issue stands roughly 15 bps wider week to week after the latest buyback news, but is still trading tighter since that tap in the low T+140s this morning, and at lower yields near 4.15%, trade data show.

Still, spreads are up since Apple placed 3.85% 2043 bonds in 2013 at T+100, followed by 4.45% 2044 bonds at T+100 in 2014.

Even as its first-quarter results revealed brisker-than-expected headwinds for its top line, Apple yesterday raised its overall program of direct returns to shareholders to $250 billion, from $200 billion. It boosted its share buyback authorization by $35 billion, to raise the total plan to $175 billion, as the program builds rapidly from an initial $10 billion amount announced in March 2012. Through March 26 this year, buybacks under the plan totaled $117 billion, according to S&P Capital IQ.

Apple also raised its dividend for the fourth time in less than four years, boosting the quarterly payout by 10% to $0.57 per share while stating plans for further annual increases.

For reference, Apple bought back more than $7 billion of its shares over the latest quarter and roughly $37 billion over the last 12 months, up from $34 billion over the year-earlier period. (At all-time peak levels, Apple repurchased $45 billion of its shares over the 2014 calendar year.)

Even so, the company continues to generate free cash. The combined $60 billion across buybacks, dividends, and capital spending over the last 12 months was still less than Apple’s $67.5 billion of operating cash flow. Notably, the company’s balance of cash and marketable securities increased by $17 billion over the latest quarter to roughly $233 billion, 90% of which was held offshore, the company said.

But while the pace of capital returns has been aggressive ahead of this latest boost, Apple may be tapping the brakes going forward, after operating cash flow declined 12% over the last 12 months from the year-earlier period. The company’s targeted $87 billion of investor returns over the next eight quarters compares with $94 billion over the last eight periods, filings show.

The AA+/Aa1 ratings profile on Apple senior debt includes stable outlooks on both sides, and both agencies today affirmed ratings following the boost to capital returns. “Although total shareholder returns may exceed discretionary cash flow on occasion, robust overall cash generation affords the company the flexibility to return large amounts of cash to shareholders without detracting from the overall credit quality,” S&P stated today, characterizing Apple’s financial policy as “conservative” and its financial risk as “minimal.” — John Atkins

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BlueScope Steel sets price talk on bond deal; pricing tomorrow

BlueScope Steel is shopping at 6.5–6.75% an upsized $500 million offering of five-year (non-call two) senior notes, and books close at 10 a.m. EDT tomorrow morning, according to sources. The deal was boosted from $300 million. Credit Suisse and HSBC are bookrunners, and pricing is expected tomorrow afternoon.

Proceeds from the 144A-for-life deal will be used to refinance short-term acquisition facilities previously drawn for an acquisition of a former joint venture named North Star from Cargill for $720 million, taking BlueScope’s holding to 100%, and additional proceeds raised in the upsize will be used to call for redemption of some of the company’s extant senior notes. Take note that the first call for the new deal is at an issuer-friendly par plus 50% coupon despite the short schedule, although it’s become almost the norm on five-year deals of late, as compared to rarer on short-call seven- and eight-year deals.

Ratings were assigned to the new issue as BB/Ba2, with a 4H recovery rating by S&P indicating expectation for the higher end of average recovery (40–50%) in the event of default, and a stable outlook on both sides for the BB/Ba2 credit rating. Assignment by Moody’s came after the credit and the existing senior notes were each upped one notch, from Ba3, reflecting a strengthening financial profile, and the outlook was revised from positive.

The borrower was last seen issuing bonds in April 2013, when it completed a $300 million series of 7.125% notes due 2018 at par, the tight end of talk at the time. Those are its only outstanding bonds, they are callable at 103.563, and they are pegged at 101.5, according to S&P Global Market Intelligence.

Australia-based BlueScope Steel makes products for residential, industrial, building, and manufacturing industries worldwide. In February, BlueScope released first-half numbers showing that underlying EBIT was up 35% year-on-year at $230 million, and forecast second-half EBIT will be 60% higher than that of 2H15. — Luke Millar/Matt Fuller

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High yield bond prices decline modestly, withdrawing from 2016 peak

The average bid of LCD’s flow-name high-yield bonds slumped 69 bps in today’s observation, to 96.18% of par, yielding 7.64%, from 96.87 on Thursday, yielding 7.46%. Performance within the sample was broadly negative, with 11 decliners against three unchanged and a sole gainer.

This is an initial reading in the red after a steady run higher over the past month. It wipes out the gain of 18 bps on Thursday, for a net decline of 51 bps week over week for the twice-weekly measurement. But with the recent market advance, the average bid still positive 80 bps dating back two weeks, and higher by 311 bps reaching back four weeks.

Today’s modest retreat pulls the average bid off of a 2016 peak that was 179 bps above the previous near-term high of 95.08 on March 22 and up 182 bps from 95.05 on March 3. And with today’s move lower, the average is up 389 bps in the year to date.

Within the 15-bond sample, the lone gainer was Valeant Pharmaceuticals International 5.875% notes due 2023, which added 1.5 point, to 85, after investors learned the embattled company hired a new chief executive from a rival. Recall this is the latest news in a now-seven-month saga for Valeant.

With today’s fall in average bid price, the average yield to worst jumped 18 bps, to 7.64%, but the average option-adjusted spread to worst pushed outward by just 12 bps, to T+605. The larger move of spread as compared to yield can be linked to the U.S. Treasury market weakness of late, as rising underlying yields encourages spread-to-Treasury compression. Regardless of that observation, take note that both yield metrics in today’s observation increase from the tightest levels this year and, technically, the tightest levels since late October.

Given a smaller sample of high-beta credits, the LCD flow names have been variable against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Monday, April 25, with a 7.43% yield to worst, but an option-adjusted spread to worst of T+759.

Bonds vs. loans
The average bid of LCD’s flow-name loans was steady in today’s reading, at 99.23% of par, for a discounted loan yield of 4.24%. The gap between the bond yield and the discounted loan yield to maturity is 340 bps. — Staff reports

The data:

  • Bids decrease: The average bid of the 15 flow names declined 69 bps, to 96.18.
  • Yields increase: The average yield to worst jumped 18 bps, to 7.64%.
  • Spreads increase: The average spread to U.S. Treasuries widened 12 bps, to T+605.
  • Gainers: The sole gainer was Valeant 5.875% notes due 2023, which recouped 1.5 points, to 85.
  • Decliners: The largest of the 11 decliners Scientific Games 10% notes due 2022, which shed three full points, to 83, and Sprint 7.875% notes due 2023, which dropped 2.5 points, 76.5.
  • Unchanged: Three of the 15 constituents were steady in today’s reading.
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Swift Energy emerges from Chapter 11

Swift Energy today emerged from Chapter 11, the company announced this morning, adding that it closed on a new $320 million senior secured credit facility in connection with the emergence.

As reported, proceeds of the exit facility were used to repay holders of the company’s prepetition $330 million RBL. The company did not provide further details of the exit facility.

As also reported, the Wilmington, Del., bankruptcy court overseeing the company’s Chapter 11 confirmed the company’s reorganization plan on March 30.

Under the plan, senior notes will be exchanged for about 96% of the reorganized company’s equity, subject to dilution on account of the equitization of the company’s $75 million DIP facility via a rights offering.

According to court documents, the DIP equitization will dilute the distribution to senior noteholders by 75%. Consequently, after giving effect to the rights offering backstop fee of 7.5% of the equity, the final equity distribution to noteholders on account of their claims will be 22.1%, resulting in a recovery rate of 4.6–12.8%, depending upon plan equity value.

At a midpoint value of $680 million, court documents show, the senior notes recovery rate stands at 8.7%.

Existing equityholders retained 4% of the reorganized company’s equity, subject only to a proposed new management-incentive program. In addition, existing equityholders are also to receive warrants for up to 30% of the post-petition equity exercisable upon the company reaching certain benchmarks. — Alan Zimmerman

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S&P cuts Hercules Offshore to CCC– on forbearance agreement

Standard & Poor’s has lowered its corporate credit rating on Hercules Offshore to CCC–, from CCC+, after the Houston-based offshore-drilling contractor announced that it entered into a forbearance agreement and first amendment to its credit agreement with the agent and certain lenders.

The rating outlook is negative, reflecting S&P’s belief that that there is a high likelihood of default or restructuring over the next six months, according to the report. Recall, Hercules emerged from Chapter 11 less than six month ago following a Chapter 11 reorganization that converted approximately $1.2 billion of unsecured debt to equity and provided for a new $450 million first-lien term loan to fund the remaining construction cost of the Hercules Highlander.

During the forbearance period, the company will be unable to access the $200 million portion of the term loan proceeds placed in escrow, which could potentially delay delivery of the new build and impact the company’s contract for the Hercules Highlander rig. Also, the cash flows of Hercules Offshore are highly dependent upon the delivery of the Highlander rig, to wit the company expects the rig to go into operation during the third quarter 2016, according to S&P.

As part of the amendment, lenders have agreed to forbear from exercising their rights stemming from the alleged a failure by Hercules Offshore to comply with certain specified affirmative covenants under the credit agreement, including failure of Hercules Offshore Nigeria Ltd. to deliver a certificate of registration on the vessel mortgage, and the failure of Hercules Offshore to use its best efforts to cause the Gibraltar Guarantor to dissolve, merge or consolidate with or into another loan party within the required time period.

During the forbearance period, which expires April 28, the company has agreed with lenders to negotiate in good faith an agreement with respect to a potential recapitalization, business combination or other alternative strategic transaction, including a potential restructuring of the loans. — Rachelle Kakouris

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US High Yield Bond Fund Inflow Streak Continues, Thanks to ETFs

U.S. high-yield funds recorded an inflow of $410 million in the week ended April 20, according to Lipper. The positive flow is up from $85 million last week and down from $1.2 billion weeks ago, but it’s nonetheless a third inflow over the past four weeks for an infusion of $1.7 billion over that span.

US high yield fund flows

However, take note that it was all related to ETFs. In fact, there was just inflows of $24 million this past week to mutual funds and an inflow of $386 million to ETFs. Last week’s $85 million inflow was based on outflows of $416 million from mutual funds filled back in by inflows of $501 million to ETFs.

The year-to-date inflow figure of $9.4 billion remains ETF-heavy as well, at 54% of the sum. Last year at this juncture, the net inflow was $11.3 billion, with 48% linked to ETFs.

The four-week-trailing average shrank to positive $283 million per week this past week, from positive $719 million last week and positive $1.1 billion two weeks ago.

The change due to market conditions this past week was positive $1.9 billion, representing a gain of roughly 1% against total assets, which were $190.9 billion at the end of the observation period. ETFs account for about 21% of the total, at $40.7 billion. — Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.
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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.