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S&P: 91 Corporate Defaults So Far This Year, Up From 54 YTD 2015

global corporate defaults YTD

There have been 91 corporate defaults so far in 2016, the most at this point in a year since 2009 – when there were a whopping 170 defaults – according to S&P Global Fixed Income Research.

The first-half 2016 tally is up from 54 in the first half of last year.

Of the 91 defaults, 60 were based in the U.S., with 16 from emerging markets, S&P says. Thirty-five of the issuers defaulted due to missed interest payments while 24 defaulted because of distressed exchanges.

The full analysis is available to subscribers here, via S&P’s Global Credit Portal. It was written by Diane Vazza and Sudeep Kesh.

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S&P: European Union Downgraded to AA from AA+ due to Brexit Vote

Editor’s note:The European Union (EU) supranational borrows on the capital markets to lend
to member states and certain other governments on a back-to-back basis. The
long-term rating on the EU partly relies on the capacity and willingness of
its 28 members to support it. We currently rate the EU at ‘AA’.)

Overview

  • After the decision by the U.K. electorate to leave the EU as a consequence of the June 23 consultative referendum, we have reassessed our opinion of cohesion within the EU, which we now consider to be a neutral rather than positive rating factor.
  • We think that, going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will be subject to greater uncertainty.
  • As a consequence, we are lowering our long-term rating on the supranational European Union to ‘AA’ from ‘AA+’ and affirming the ‘A-1+’ short-term rating.
  • The outlook is stable, reflecting our opinion that under most scenarios, including a U.K. withdrawal from future (though not current) budgetary commitments, our anchor ratings on the EU will remain at the current level of ‘AA/A-1+’.

Rating Action

On June 30, 2016, S&P Global Ratings lowered its long-term issuer credit
rating on supranational institution, the European Union (EU), to ‘AA’ from
‘AA+’. The ‘A-1+’ short-term rating was affirmed. The outlook is stable.

Rationale

The rating action stems from S&P Global Ratings’ view that the U.K.
government’s declared intention to leave the union lessens the supranational’s
fiscal flexibility, while reflecting weakening political cohesion. As a
consequence of the decision by the U.K. electorate to leave the EU following
the June 23 referendum, we have reassessed our previously favorable opinion of
solidarity within the EU to neutral from positive. Our baseline scenario was
previously that all 28 member states would remain inside the EU. While we
expect the remaining 27 members to reaffirm their commitment to the union, we
think the U.K.’s departure will inevitably require new and complicated
negotiations on the next seven-year budgetary framework, known as the
Multiannual Financial Framework (MFF), from 2021-2027. Going forward, revenue
forecasting, long-term capital planning, and adjustments to key financial
buffers of the EU will in our view be subject to greater uncertainty.

The long-term rating on the EU relies on the capacity and willingness of the
10 wealthiest EU members that are net contributors to the EU budget. We
calculate the anchor rating on the EU by determining the GDP-weighted rating
of these net contributors, which is now ‘AA’. We can modify this anchor rating
up or down according to our assessment of:

  • The EU’s fiscal flexibility;
  • The EU’s large and underfunded pension and other employee liabilities of €58.6 billion as of end 2014 (2015 financial statements have yet to be released);
  • The EU’s guarantees given or received;
  • Our view of the permanence of the political cohesion in the EU, and the risks to it;
  • Revenue forecasting and long-term capital planning; and
  • Effective fiscal headroom (accessible committed funds from members) in relation to debt maturities.

The decision to lower the rating reflects our view that the above modifiers
now have an overall neutral rather than positive effect.

On June 27, 2016, we lowered the rating on the second-largest net contributor
to the EU budget–the U.K.–to ‘AA’ from ‘AAA’ following the U.K. electorate’s
decision to leave the EU. That departure will also complicate budgetary and
policy priorities among the 27 remaining members of the EU, in our opinion,
weakening the EU’s fiscal flexibility and introducing uncertainty into
budgetary forecasts. Our baseline expectation is that gross payments of
remaining budgetary contributors are likely to be cut in the next MFF as the
overall budget is downsized, while wealthier members’ proportional
contributions will likely rise to replace lost net financing from the U.K.

We view the EU as the most prominent of the European supranationals. Founded
in 1958 by the Treaty Establishing the European Community (The Treaty of
Rome), the EU manages a common budget for its members. It administers transfer
programs that are policy priorities for its member states; maintains a customs
union; and sets common social, environmental, and regional policies. As a
lender, the EU focuses on providing financial assistance, primarily (although
not exclusively) to EU member states in economic difficulty with limited
access to commercial bond markets.

The EU’s financial arrangements are complex. Its liabilities substantially
exceed its assets (by €58 billion at year-end 2014). This large net liability
position includes material non-current payables and, in particular, future
pension payments, a large part of which we believe would be subordinated to
debt-servicing requirements if necessary (Treaty on the Functioning of the
European Union, Articles 310.1 and 323). This baseline assumption–the
priority of debt payments over current expenditures–is a key rating support.

We use our principles of credit ratings to assess the EU as a supranational
borrower, owing to the uniqueness of its structure. Although the EU lends to
member states, the EU does not resemble a bank: it has no paid-in equity (nor,
technically, any callable capital, although it can–as established in the
Treaty of the European Union–call upon the resources of member states to
service its debt). At the same time, our high credit rating partly recognizes
the EU’s de facto preferred creditor treatment. The EU also benefits from
several lines of explicit and implicit support by EU member states as
stipulated in the Treaty of the European Union.

Unlike most financial entities, including the European Financial Stability
Facility (EFSF)–another supranational that has lent to program countries in
Europe–the EU does not engage in maturity transformation. All of its loans
are equally matched back-to-back by same-maturity borrowings in the market.
The EU lends primarily to member states through its balance-of-payments loans
to and via its European Financial Stabilization Mechanism (EFSM), lending to
two members states, Ireland and Portugal (86.7% of the EU’s loan book), as
well as to non-member states via its small-scale macrofinancial lending to
Serbia, Bosnia, Macedonia, Albania, Armenia, and Ukraine. The EU also extends
its guarantees to several European Investment Bank (EIB) lending programs.

The EU benefits from several credit strengths. The size of the EU’s overall
risk assets is limited when compared to EU-28 GDP (€13 trillion or 0.6%) or
the EU government bond market (equivalent to €8.4 trillion or 0.9%). We also
expect the EU’s lending activities will likely gradually decline, now that the
European Stability Mechanism (ESM) is prepared and amply capitalized to
provide financial assistance to eurozone member countries. Last year’s bridge
loan from the EU to Greece for €7.2 billion was paid back on time and in full,
and the EU has no outstanding exposures to Greece.

We expect that the average maturity at disbursement of the EU’s EFSM loan
portfolio will increase to 19.5 years (from 12.5 years in 2013), once it
extends advances to Ireland and Portugal (assuming their governments make this
request as and when current loans from the EU come due). We expect that the EU
will continue its back-to-back lending and that it will roll over its debt to
match the maturity extensions anticipated in the Irish and Portuguese Troika
lending programs. We view as remote the EU not being able to access capital
markets.

The EU’s budget consists of annual revenues that we expect will total just
under 1% of the total gross national income (GNI) of its member states (€1
trillion) over the 2014-2020 MFF. In case of need, a large part of these
revenues could be reallocated for debt service instead of transfers and other
current expenses. To ensure funds would be available in such a scenario, the
EU has scheduled its debt maturities at the beginning of the month, when its
cash balances are maximal. Over the past two years, the beginning-of-month
cash balance has been almost always higher than €10 billion. The maximum
yearly debt redemption of the EU over the next five years is €7.7 billion.

In addition to these recurrent cash receipts, the EU has a contingent claim
(“fiscal headroom”) on EU members, which we expect will average 0.28% of GNI
(or about €30 billion annually) over the 2014-2020 MFF. EU members have made
this pledge for the express purpose of backing the EU’s financial obligations.

Both this pledge and any budgetary payments are joint and several obligations
of EU members. We believe, however, that the willingness of sovereigns rated
at or above the level of the rating on the EU to fulfill this joint and
several pledge might be tested if some other members are unwilling to honor a
capital call on a pro-rata basis.

The EU’s annual budget is set according to the terms of the MFF. As part of
the MFF, member states agree to commitments for individual budgetary line
items and to disbursements under these commitments. The commitments and
payments are both subject to ceilings.

In particular, the amounts paid in by EU members, from taxes and levies that
fund the EU’s commitments, must not exceed the MFF payment ceiling. As per an
EU council regulation, these amounts paid into the EU’s “own resources”
account are adjusted retrospectively to reflect the actual value-added-tax
base, as well as backward revisions to GNI as and when they are determined.
Our rating on the EU reflects our assumption that member states will fulfil
these obligations in accordance with retrospective revisions.

Germany, France, and the U.K. contribute 21%, 16%, and 13%, respectively, of
net transfers to the EU budget (2016).

Outlook

he stable outlook reflects our opinion that the rounded average GDP-weighted
rating on the EU’s budgetary contributors will stabilize at current levels of
‘AA’ for the next two years under most possible scenarios, including a U.K.
departure from the EU. This is the case even if the ratings on the two net
contributing sovereigns with negative outlooks were both lowered [France
(AA/Negative/A-1+) and Finland (AA+/Negative/A-1+)]. The stable outlook also
reflects our view that no other member states will leave the EU, and that the
27 remaining EU members will reaffirm their support to the EU and its key
spending programs, although following a U.K. exit we expect the absolute level
of spending will decline during the next MFF (2021-2027).

Rating pressure could build if the GDP-weighted average rating on net EU
contributors continued to decline, or if we perceived more doubtful support
from EU members for the union’s key policies.

Rating upside appears remote at this point, but could come from a combination
of a higher weighted-average rating on net EU contributors or strengthened political cohension in the block.

The full analysis is available here. 

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Bankruptcy: High Yield Bond Issuer Triangle USA Petroleum Files Chapter 11

Triangle USA Petroleum today filed for Chapter 11 in bankruptcy court in Wilmington, Del., to implement the terms of a plan-support agreement with unsecured noteholders, the company announced.

The company’s publicly traded parent, Triangle Petroleum Corp. is not a part of the filing, the company said.

The company further said it has about $88 million in cash, which it added was “more than adequate liquidity to fund its operations during the restructuring process.” The company said it did not expect to seek DIP financing.

The PSA is supported by holders of roughly 73% of the company’s $381 million of 6.75% unsecured notes due 2022. Under the plan contemplated by the PSA, the notes would be converted into equity and a new-money rights offering for $100 million, which will be backstopped by a commitment from certain noteholders.

The company’s existing reserve-backed credit facility will be paid in full from a new revolving credit facility, existing cash at emergence, and proceeds of the new-money rights offering, the company said.

The company said it plans to continue discussions with other stakeholders, including other noteholders, the bank group in its senior reserve-backed credit facility, and parties with which the company currently has midstream agreements, including affiliates of Caliber Midstream Partners, L.P.

Finally, the company said it named John Castellano of AP Services, LLC, as its chief restructuring officer.

The company added that it intended to complete the restructuring “as soon as possible.”

Skadden, Arps, Slate, Meagher & Flom is the company’s legal counsel, PJT Partners is serving as its financial advisor, and AP Services, LLC is its restructuring advisor. — Alan Zimmerman

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S&P: 37 Corporate Defaults in 2016’s First Quarter. That’s the most since 2009

corporate defaults

Fueled by a struggling energy industry, there were 37 corporate defaults world-wide in 2016’s first quarter, the most since the third quarter 0f 2009, in the wake of the Lehman-inspired financial crisis.

The first-quarter number is down from the 30 defaults during the previous three months and from the 22 defaults in the first quarter of 2015, according to S&P Global Fixed Income Research. Of the 37 1Q defaults, 17 were from the energy/natural gas sectors; 29 were from issuers domiciled in the U.S.

The full Global Corporate Quarterly Default Update is available to S&P Global Fixed Income Research subscribers here. It was written by Diane Vazza, Nick Kraemer, and Zev Gurwitz

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Bankruptcy – Caesars: Talks with First-Lien Noteholders on Restructuring Agreement are ‘Ongoing’

Caesars Entertainment Operating Corp. (CEOC) and its parent, Caesars Entertainment Co. (CEC), remain in ongoing negotiations with the ad hoc committee of first-lien noteholders in CEOC’s Chapter 11 case concerning a new restructuring support agreement, the company said in an amended disclosure statement filed on June 28.

Caesars Entertainment logoAs reported, the company has recently entered into new or amended restructuring support pacts with several key creditors constituencies, including first-lien bank lenders, the unsecured creditors’ committee, and holders of subsidiary guarantee notes, in connection with its efforts to confirm a reorganization plan.

As also reported, according to gaming news site CalvinAyre.com an attorney for a group of first-lien noteholders said at a court hearing last week that a deal with the company was close.

The Chicago bankruptcy court on June 22 approved the adequacy of the company’s disclosure statement, clearing the way for creditors to vote on the company’s proposed reorganization plan. The voting deadline is Oct. 31, and a plan confirmation hearing is set for Jan. 17, 2017.

As reported, the company’s reorganization strategy is to position itself to cram down its reorganization plan on second-lien lenders, which so far have rejected the company’s reorganization and settlement proposals as inadequate, in the hopes of either using the cram-down threat to force second-lien lenders to reach a deal more favorable to the company or, alternatively, to simply confirm a reorganization plan.

The first-lien noteholders’ support is essential to the company’s reorganization strategy, however, because of the significant risk that the company would be unable to cram down a plan on them, given that their claims are secured and part of their recovery is comprised of equity in the reorganized company.

The ad hoc noteholder group controls roughly 54% of the company’s first-lien notes, a more than ample blocking position.

The company and the first-lien noteholder group had previously entered into an RSA, but that deal was terminated after the company failed to meet certain milestone deadlines.

According to the company’s updated disclosure statement filed on June 28, the deal currently being negotiated with the ad hoc noteholder group could provide for certain modifications to the company’s proposed reorganization plan including, among other things, “some amount of additional CEC bond consideration … to holders of secured first-lien notes claims in the event that the holders of second-lien notes claims in Class F vote as a class to reject the plan,” as well as additional payment to the ad hoc group’s financial advisor.

The deal could also provide that the non-termination of the eventual RSA reached with noteholders be a condition precedent to the company’s emergence from Chapter 11, the disclosure statement said. — Alan Zimmerman

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S&P: Financials Top List of 2016 Fallen Angels (and ‘Potential’ Fallen Angels)

global fallen angels financials

Financial institutions – which were battered especially hard after Great Britain’s Brexit vote on Thursday – might find a relatively rough road ahead for the rest of 2016, in terms of credit downgrades.

According to S&P, a full 25% of ‘potential fallen angels’ globally – 17 of 68 – hail from the financial sector. Of that number, 10 are from the U.S.

‘Potential fallen angels’ are issuers rated BBB- with either negative outlooks or ratings on CreditWatch with negative implications.

“Negative outlooks and CreditWatch negative placements are good leading indicators of downgrades because they are strong predictors of rating actions in the aggregate and when broken out by rating category, region, or sector,” according to S&P. “Hence, the financial institutions sector may play a strong role in future downgrades.” – Tim Cross

The full Fallen Angel analysis is available to S&P Global Fixed Income Research subscribers here. It was written by Diane Vazza, Sudeep Kesh, and Gregg Moskowitz

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Brexit: S&P Downgrades United Kingdom Sovereign Debt to AA from AAA

In the nationwide referendum on the U.K.’s membership of the European Union (EU), the majority of the electorate voted to leave the EU. In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating.

The downgrade also reflects the risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements.

The vote for “remain” in Scotland and Northern Ireland also creates wider constitutional issues for the country as a whole.

Consequently, we are lowering our long-term sovereign credit ratings on the U.K. by two notches to ‘AA’ from ‘AAA’.

The negative outlook reflects the risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the U.K. if there is another referendum on Scottish independence.

Rating Action
On June 27, 2016, S&P Global Ratings lowered its unsolicited long-term foreign and local currency sovereign credit ratings on the United Kingdom to ‘AA’ from ‘AAA’. The outlook on the long-term rating is negative. We affirmed the unsolicited short-term foreign and local currency sovereign credit ratings on
the U.K. at ‘A-1+’.

We also lowered to ‘AA’ from ‘AAA’ our long-term issuer credit rating on the Bank of England (BoE) and the ratings on the debt programs of Network Rail Infrastructure Finance PLC. We affirmed the short-term ratings on the BoE and Network Rail Infrastructure Finance debt programs at ‘A-1+’. The outlook on the long-term rating on the BoE is negative.

As a “sovereign rating” (as defined in EU CRA Regulation 1060/2009 “EU CRA Regulation”), the ratings on the United Kingdom, are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see “Calendar Of
2016 EMEA Sovereign, Regional, And Local Government Rating Publication Dates,” published Dec. 22, 2015, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons
for the deviation. In this case, the reason for the deviation is the U.K.’s referendum vote to leave the EU. The next scheduled rating publication on United Kingdom will be on Oct. 28, 2016.

Rationale
The downgrade reflects our view that the “leave” result in the U.K.’s referendum on the country’s EU membership (“Brexit”) will weaken the predictability, stability, and effectiveness of policymaking in the U.K. and affect its economy, GDP growth, and fiscal and external balances. We have revised our view of the U.K.’s institutional assessment and we no longer consider it to be a strength in our assessment of the U.K.’s key rating factors. The downgrade also reflects what we consider enhanced risks of a
marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements (as a share of current account receipts and usable reserves). The Brexit result could lead to a deterioration of the U.K.’s economic performance, including its large
financial services sector, which is a major contributor to employment and public receipts. The result could also trigger a constitutional crisis if it leads to a second referendum on Scottish independence from the U.K.

We believe that the lack of clarity on these key issues will hurt confidence, investment, GDP growth, and public finances in the U.K., and put at risk important external financing sources vital to the financing of the U.K.’s large current account deficits (in absolute terms, the second-largest globally
behind the U.S.). This includes the wholesale financing of the U.K.’s commercial banks, about half of which is denominated in foreign currency. Brexit could also, over time, diminish sterling’s role as a global reserve currency. Uncertainty surrounding possibly long-lasting negotiations around
what form the U.K.’s new relationship with the EU will look like will also pose risks, possibly leading to delays on capital expenditure in an economy that already stands out for its low investment/GDP ratio.

Detailed negotiations are set to begin, with a great deal of uncertainty around what shape the U.K.’s exit will take and when Article 50 of the Lisbon Treaty will be triggered. While two years may suffice to negotiate a departure from the EU, it could in our view take much longer to negotiate a successor
treaty that will have to be approved by all 27 national parliaments and the European parliament and could face referendums in one or more member states. While some believe the U.K. government can arrive at a beneficial arrangement with the EU, others take the view that the remaining EU members will have no incentive to accommodate the U.K. so as to deter other potential departures and contain the rise of their own national eurosceptic movements.

In particular, it is not clear if the EU–the destination of 44% of the U.K.’s exports–will permit the U.K. access to the EU’s common market on existing (tariff-free) terms, or impose tariffs on U.K. products. Future arrangements regarding the export of services, including by the U.K.’s important financial
services industry, are even more uncertain, in our view. Given that high immigration was a major motivating issue for Brexit voters, it is also uncertain whether the U.K. would agree to a trade deal that requires the country to accept the free movement of labor from the EU. The negotiation
process is therefore fraught with potential challenges and vetoes, making the outcome unpredictable.

We take the view that the deep divisions both within the ruling Conservative Party and society as a whole over the European question may not heal quickly and may hamper government stability and complicate policymaking on economic and other matters. In addition, we believe that Brexit makes it likely that
the Scottish National Party will demand another referendum on Scottish independence as the Scottish population was overwhelmingly in favor of remaining within the EU. This would have consequences for the constitutional and economic integrity of the U.K. There may be also be similar constitutional
issues around Northern Ireland.

These multiple and significant challenges will likely be very demanding and we expect them to take precedence over macroeconomic goals, such as maintaining growth, consolidating public finances, and the importance of finding a solution to worsening supply bottlenecks in the U.K. economy. Lack of clarity while negotiations ensue will also significantly deter private investment.

The U.K. benefits from its flexible open economy and, in our view, prospered as an EU member. We believe that the U.K. economy was able to attract higher inflows of low-cost capital and skilled labor than it would have without the preferential access that EU membership delivers. We consider that significant
net immigration into the U.K. over the past decade helped its economic performance. EU membership also helped enhance London’s position as a global financial center.

We believe that the U.K.’s EU membership, alongside London’s importance as a global financial center, bolstered sterling as a reserve currency. When we assess the U.K.’s external picture, we incorporate our view that the U.K. benefits from its reserve currency status. This leads us to make a supportive
external assessment, despite the U.K.’s very large external position in terms of external liabilities and external debt, on both a net and gross basis. Under our methodology, were sterling’s share of allocated global central bank foreign currency reserve holdings to decline below 3%, we would no longer
classify it as a reserve currency, and this would negatively affect our external assessment. Sterling’s share was 4.9% in the fourth quarter of 2015, according to International Monetary Fund data.

Furthermore, since having joined the European Community 43 years ago, the U.K. has attracted substantial foreign direct investment (FDI), which has helped to solidify its role as a global financial center. High FDI inflows increased the capital stock in an economy that is notable for its low investment levels; FDI was an estimated 18% of GDP in 2015. This underscores the high importance of FDI inflows for the growth prospects of the U.K. economy.

About two-thirds of all FDI into the U.K. represents investment in the financial services sector. Most investment into the financial services sector is channeled into London. The U.K. financial system, measured by total assets, stands at about 4.5x GDP and foreign banks make up about half of U.K. banking assets on a residency basis. Foreign branches account for about 30% of total U.K. resident banking assets. Brexit could lead financial firms, especially foreign ones, to favor other destinations when making investment decisions.

The full rationale is available via S&P Global’s Credit Portal, here. 

 

WEBCAST DETAILS

S&P Global Ratings will hold a webcast on Tuesday June 28, 2016, at 2:00 p.m.
GMT / 9:00 a.m. EST, during which senior analysts will discuss the impact of
the referendum vote.

You can register for this webcast by clicking on the link below:
http://event.on24.com/wcc/r/1217054/50797011DA9088CFBDE74625D73D9253

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Europe: Crossover Index widens roughly 100 bps as UK Votes to Leave

So there we have it – the U.K. has done what many in the financial markets thought it wouldn’t, and voted to leave the E.U. Early reactions from those awake as the outcome became clear in the early hours ranged from disbelief, to sadness, to a sense of real uncertainty as to what lies ahead. Some were simply lost for words.

The markets, however, have been very clear in their reaction with the Market iTraxx Crossover Index pointing the way to what is expected to be a volatile and difficult trading session. The index widened out by up to 130 points by 6 a.m. BST following the pound’s cliff-edge nose-dive during the night to its lowest point in over three decades. It has since recovered some of that ground and is currently roughly 30 bps off the morning’s wides.

High-yield is expected to take its lead from equities, and Ineos’ bonds were already off five points by 6 a.m., with sources saying roughly a quarter of market players were already at their desks judging by the green dots on Bloomberg. Sources say that actual trading activity is taking place, which at least suggests the secondary market is functioning.

The loan market tends to be less reactionary – aside from those names with bonds outstanding – but even loan names were one-to-three points lower across the board, sources say.

Uncertainty is likely to be the most overused word of the day, and the 51.8% to 48.2% Vote in favour of Leaving is certainly close, prompting much discussion about what happens next – will the Vote actually lead to a Brexit, will it trigger a chain reaction across Europe, what next for Scotland, will there be a recession, what will happen to the City, and its financial institutions, will David Cameron step down?

It is not for LCD to comment on these much bigger questions, but we will endeavour to publish some constructive commentary on the implications for the leveraged finance market during today’s session. In brief, expect volatility to be the order of the day in secondary, while primary markets will pause to take stock, although for how long remains to be seen. — Sarah Husband

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US High Yield Bond Market Adjusting To Brexit, With Large Gaps Lower

Almost every asset class globally is volatile this morning after the United Kingdom voted in favor of exiting the European Union, and the U.S. high yield market is adjusting accordingly with significant prices declines. Trading volume is restrained thus far, but market participants are keeping an eye on cashflow—there are already several bid-wanted lists making the rounds—and eyes of course are on big losses in equities overseas, oil pricing, and the U.S. Treasury rally, which has sent yield to roughly four-year lows.

In the cash market, prices of widely held names have dropped. Examples include Frontier Communications 11% notes due 2025 trading two points lower, at 102; the Sprint 7.875% notes due 2023 changing hands in blocks at 80, versus 82.5 yesterday; Post Holdings7.375% notes due 2022 pegged two points lower, at 104.5/105.5; andUnited Rentals 5.75% notes due 2024 down the same amount, at 99/100, according to sources and trade data.

Commodities have fallen more. Chesapeake Energy 8% second-lien notes due 2022 were in a bit of price discovery in the mid-80s, from quotes of 87.5/88.5 going out last night, while Freeport McMoRan4% notes due 2021 traded down fully five points, at 87, data show.

As for recent new issues, Dell 7.125% notes due 2024 traded off two points, at 102, while Weatherford International 7.75% notes due 2021 were lower by three points in a wider market quote of 95/97, according to sources.

In the synthetics market, the unfunded HY CDX 26 index dropped 1.688 points, or approximately 1.6%, to a 101.625 context. This is the largest one-day decline dating to a 1.9% plunge on Dec. 11, 2015, and it marks a five-week low.

Over in CDS, it was also red across the board this morning. Some notables include five-year protection on J.C. Penney, which was 32% wider, at 6.4/7.9 points upfront; Teck Resources, which was out 29%, at 9.625/11.625 points upfront; and AK Steel, which pushed out roughly 18%, to 18.4/20.4 points upfront, according to Markit. All quotes are with 500 bps running. — Matt Fuller

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US High Yield Funds See 2nd Straight Cash Withdrawal ($766M This Time)

U.S. high-yield funds recorded an outflow of $766 million in the week ended June 22, according to the weekly reporters to Lipper only. This is the second-consecutive outflow, after $1.8 billion last week, for a total of roughly $2.6 billion over that span.

US high yield fund flowsThe influence of ETFs was significantly diminished this past week, at just 20% of the sum, versus 87% of the outflow last week.

Whatever that might say about fast money, hedging strategies, and other market-timing efforts, this week’s fresh net outflow drags the trailing four-week average deeper into the red, at negative $419 million, from negative $368 million last week and from positive $366 million two weeks ago.

The year-to-date total infusion contracts a bit to $4.9 billion, with only 6% ETF-related. Last year at this point, after 25 weeks, the $4.2 billion net inflow was 22% ETF-related.

The change due to market conditions this past week was positive $1.2 billion, or roughly 0.6% against total assets of $190.7 billion at the end of the observation period. The ETFs account for about 20% of the total, at $37.4 billion. — Matt Fuller

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

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