content

Investors Steer Clear of High Yield Bond Fund for 3rd Straight Week

hy fund flows

U.S. high-yield funds recorded an outflow of $48.3 million for the week ended Oct. 26, according to weekly reporters to Lipper only. This is the third straight week of outflows for a total of $280.7 million in that span.

Positive ETF flows of $177.4 million were more than offset by $225.65 million leaving mutual funds.

With this result, the four-week trailing average dropped to positive $406.9 million, from $921.8 million last week. Despite three straight negative weeks, which were mild in size, a large inflow four weeks ago is keeping the average positive.

The year-to-date total inflow is now $10.9 billion, with 43% ETF-related. A year ago at this juncture, the measure was an inflow of $2.59 billion; $453.5 million mutual fund outflows against ETF inflows of $3.05 billion.

The change due to market conditions this past week was a $104.4 million decrease. Total assets at the end of the observation period were $207.6 billion. ETFs account for about 21% of the total, at $43.98 billion. — Jon Hemingway

Try LCD for Free! News, analysis, data

Follow LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Sterigenics Tests US High Yield Bond Mart with Pay-in-Kind Deal

Sterigenics-Nordion is driving by the high-yield bond market with $350 million of five-year (non-call one) PIK-toggle notes, sources said. An investor call was set for 11 a.m. EDT today through bookrunners J.P. Morgan, Jefferies, Credit Suisse, Goldman Sachs, and RBC Capital Markets.

PIK notes – as in pay-in-kind – allow an option whereby the coupon on the note can be paid via additional bonds, as opposed to cash. You can read more about this type of debt here.

The borrower will use the proceeds to fund a dividend and for general corporate purposes. Banks are guiding the 144A-for-life notes with expected CCC+/Caa2 ratings.

The PIK-toggle notes will have the first payment in cash. The deal’s structure is said to also include an equity claw of up to 100% at 102.

Sterigenics-Nordion last tapped the bond market in May 2015 to place $450 million of 6.5% notes due 2023. This offering makes the company the latest borrower to utilize the PIK structure.

Last month, the largest-ever cross-border PIK-toggle transaction (€3.59 billion/US$4.02 billion) was completed by Schaeffler. Additionally, Ardagh issued $770 million of 7.125% PIK-toggle notes due 2023, in a deal which also included €845 million of 6.625% PIK notes due 2023.

Deerfield, Ill.–based Sterigenics-Nordion provides contract sterilization and ionization services for the medical device, pharmaceutical, food safety, and high performance/specialty materials industries in the U.S. and internationally. The company has $36.6 million in total debt, and a market cap of $212 million, according to S&P Global Market Intelligence. Warburg Pincus acquired a majority stake in the company last year.  Jakema Lewis

Try LCD for Free! News, analysis, data

Follow LCD News on Twitter. LCD is an offering 0f S&P Global Market Intelligence.

content

Murray Energy High Yield Debt Advances on Word of Oil Reserve Selloff

Debt backing Murray Energy advanced following the news that the coal company is selling off nearly 6,000 acres of its Utica Shale natural gas and oil reserves for $63.6 million.

murray energyThe 11.25% second-lien notes due 2021 backing Murray Energy initially gained as much as 5/8 of a point on the news, to 75.875, before giving back the gains to trade in and around 75.25, trade data show. The bonds are currently sitting close to 15-month highs after trading down to just 12 cents on the dollar amid litigation woes and plunging coal prices.

Murray’s B-2 term loan due 2020 (L+650, 1% floor) was at a 91 bid today, up about a point and a half from yesterday, sources said.

Murray didn’t name the buyer for the eastern Ohio assets in the announcement, but said it expects to receive $48.6 million when the sale closes, and two other payments of $7.5 million each in 2017 and 2018.

As reported, Foresight Energy, part owned by Murray Energy, completed its out-of-court restructuring of more than $1.4 billion in indebtedness in August after the Delaware Chancery Court in December ruled that a revised “partnership” deal implemented by part-owner Murray Energy demonstrated a “de facto” change in control, putting Foresight on the hook to repay a $600 million bond issue at 101%.

With long-term debt of $1.5 billion and a cash position of $16.2 million as of March 31, Foresight did not have sufficient liquidity to repay the debt in the event of acceleration.

Murray Energy is a coal company with mining operations in Ohio, Illinois, Kentucky, Utah, and West Virginia. — Kelsey Butler/Rachelle Kakouris

Try LCD for Free! News, analysis, data

Follow LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Netflix Drives by High Yield Bond Mart for $800M

Netflix is driving by with an $800 million offering of 10-year (non-call five) senior notes. Morgan Stanley, J.P. Morgan and Goldman Sachs are joint books. An investor call is slated for today at 11 a.m. EDT.

Proceeds are for general corporate purposes.

netflixThe new notes will extend the company’s cash curve beyond the 5.75% notes due 2024, and 5.875% notes due 2025, which closed on Friday at 110.5, yielding 4.08%, and 112, yielding 4.1%, according to S&P Global Market Intelligence.

The 2025s, along with 5.5% notes due 2022, were issued in February and mark the company’s last visit to market.

Terms on the B+/B1 transaction were finalized at the middle of guidance after a net $500 million upsizing. The ratings were assigned after a downgrade on the credit by S&P Global Ratings to B+, from BB–, due to an expectation that “Netflix will incur significant discretionary cash flow deficits over the next several years and that debt leverage will be high during that time.”

Netflix is an online provider of films and television programs. The company trades on NASDAQ under the ticker NFLX, with a market capitalization of roughly $54.6 billion. That is almost twice as high a market cap as when it came to market in February. Indeed, its share price rocketed almost 30% in the last month thanks to solid third-quarter results. — Luke Millar

Try LCD for Free! News, analysis, data.

Follow Luke and LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Global S&P Default Tally Grows to 136 Courtesy Oil & Gas additions

global default tally

The 2016 global corporate default tally climbed to 136 issuers after three Oil & Gas companies defaulted this week, according to S&P Global Fixed Income Research. Oil & Gas companies account for 57, or 42% of the 136 defaults.

Of the 136 defaults so far this year, more than half (57%) have come from the Energy and Natural Resources sector. As of Aug. 31, 2016, the global speculative-grade default rate for Energy and Natural Resources was 17.9% compared with the global speculative-grade default rate for all other sectors of only 2.4%.

The default tally in 2016 has already surpassed the 113 defaults in full-year 2015 and now stands at its highest point since 2009, when it reached 236 during the financial crisis. The default count is 53% higher than it was at this time in 2015.

The new additions to the default list include Oil & Gas exploration and production company Bonanza Creek. S&P Global Ratings lowered its corporate credit rating on the Denver-based company to D, from CC, following the issuer’s missed interest payment on its 6.75% senior unsecured notes due 2021.

S&P Global also lowered its long-term rating on U.K.-based EnQuest PLC to Selective Default (SD), from B–, after the issuer failed to make its interest payment due Oct. 17, 2016, on its $650 million notes, while Nigeria-based oil-and-gas exploration-and-production issuer Seven Energy International’s corporate credit rating was lowered to D, from CCC– at S&P Global, after the issuer missed the interest payment on its $300 million and $100 million senior notes issues.

S&P Global expects the U.S. corporate trailing-12-month speculative-grade default rate to rise to 5.6% by June 2017 from 4.3% in June 2016 and 2.0% in June 2015, and the 12-month default rate for speculative-grade European financial and nonfinancial corporate issuers to rise to 1.8% by June 30, 2017, up marginally from 1.6% in 2015. A copy of the full report is available here via the S&P Global Credit Portal. — Rachelle Kakouris

Try LCD News/Research for Free

Follow LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Fridson: The Incredible Expanding High-Yield Overvaluation

Only on the brink of the massive price collapse of the Great Recession in 2008 has the high-yield market ever been as overvalued as it currently is, according to our Fair Value Model.

As of Sept. 30, the option-adjusted spread (OAS) on the BofA Merrill Lynch US High Yield Index was 497 bps. That amounted to a gap of negative 265 bps versus our fair value estimate of 762 bps, a difference of –2.1 standard deviations, where one standard deviation equals 126.3 bps. (Grantham, Mayo, Van Otterloo has proposed a general definition of a bubble in financial markets as a divergence of –2 standard deviations from intrinsic value.)

By Oct. 14, the OAS on the BAML High Yield Index was down to 472 bps, a gap of –290 bps or –2.3 standard deviations.
fridson spread

As detailed above, the present shortfall from fair value was greater only in April 2008 (–300 bps or –2.4 standard deviations) and May 2008 (–321 bps or –2.5 standard deviations).

Following the record overvaluation of the spring of 2008, the high-yield market did not return to fair value until October 2008, when the BAML High Yield Index’s OAS widened by an astounding 521 bps in a single month. Ominously, from April 30 to Oct. 31, 2008, the BAML High Yield Index returned –25.94% while the BofA Merrill Lynch US Treasury Index returned 1.79%. We do not foresee conditions comparable to those of 2008 any time soon, but high-yield’s currently extreme overvaluation nevertheless sounds a loud cautionary note.

By way of background, our basis for determining whether the U.S. high-yield market is fairly valued is the methodology introduced in “Determining fair value for the high-yield market.” We are now using an updated analysis to reflect revisions to originally reported economic data, based on a historical observation period of December 1996 to December 2012. – Martin Fridson

Try LCD for free!

Follow LCD News on Twitter.

This story is part of Marty’s weekly high yield analysis, available to subscribers at www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

Rackspace Tapping High Yield Bond Market for $1.2B Backing Apollo LBO

Rackspace Hosting’s pitch for $1.2 billion of eight-year (non-call three) notes backing the company’s upcoming buyout has hit the market via lead bookrunner Deutsche Bank, sources said. Roadshows will run Oct. 17–24, with pricing scheduled for Oct. 25, sources added.

Additional bookrunners for the 144A-for-life offering are Citi, Barclays, RBC Capital Markets, and Credit Suisse. The notes are structured with a first call at par plus 75% of the finalized coupon, and an up to 40% equity clawback at par plus coupon for the initial three years. Ratings are B+/B3/BB-.

The proceeds are earmarked to help finance the $4.4 billion leveraged buyout of the company by Apollo Global Management. A Citi-led $2 billion, seven-year, covenant-lite B term loan, talked at L+425 with a 1% LIBOR floor, is also backing the transaction.

Rackspace made its debut in the high-yield market last September when the company printed $500 million of 6.5% notes due 2024 for general corporate purposes and to repay debt. These notes will be refinanced as part of the buyout.

San Antonio, Texas–based Rackspace (NYSE: RAX) provides cloud computing and information-technology solutions. The company has a market cap of $4 billion, according to S&P Global Market Intelligence. — Jakema Lewis/Jon Hemingway

Try LCD News for free!

Follow LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

With PetroQuest, That’s 133 Defaults So Far in 2016

high yield default rate

The global speculative-grade default count has climbed to 133 so far in 2016, with PetroQuest Energy the latest issuer to join the list, according to S&P.

Defaults so far in 2016 already have topped the 2015 full-year total of 113. As is brutally clear in the chart, the energy sector has struggled most this year, with 71 of the 133 global defaults (53%).

Looking ahead, S&P Global Fixed Income Research expects the U.S. high yield default rate to increase to 5.6% by June 2017. It was 4.3% in June 2016.

Want to see more high yield analysis? You can try LCD News for free

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

Follow LCD News on Twitter. LCD is an offering of S&P Global Market Intelligence

content

After 2-Week Surge, Investors Take Pause from US High Yield Bond Mart

hy fund flows

U.S. high-yield funds recorded an outflow of $72.4 million for the week ended Oct. 12, according to weekly reporters to Lipper only. While mildly negative, it is the second outflow of the past four weeks and follows two straight weeks of healthy inflows totaling $3.9 billion.

Looking inside the number, ETF flows were positive at $314.6 million but were more than offset by $387 million leaving mutual funds.

Despite this result, the four-week trailing average rose to positive $893.4 million, from $298.3 million last week, as a large outflow rolled off.

The year-to-date total inflow is now $11.1 billion, with 43% ETF-related. A year ago at this juncture, the measure was an outflow of $2.8 billion, while ETF flows were positive at $780 million.

The change due to market conditions this past week was negligible $9 million increase. Total assets at the end of the observation period were $204.85 billion. ETFs account for about 21% of the total, at $43.9 billion. — Jon Hemingway

Want to see more high yield analysis? You can try LCD News for free

Follow LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

content

US Leveraged Loan, High Yield Bond Issuance – Oct. 7, 2016

US leveraged finance issuance

It was status quo issuance-wise in the U.S. leveraged finance market.

There was a relatively healthy $12.6 billion of leveraged loans issued last week, as borrowers continue to take advantage of an accommodating lending market. Year to date, U.S. loan issuance now totals $366 billion, up slightly from the pace set last year, amid a surging September 2016 market.

U.S. high yield bond issuance was relatively quiet for a second straight week, with $2.9 billion of offerings priced. Year to date, U.S. high yield volume totals $184 billion, down nearly 20% from this point in 2015. – Staff reports

Follow LCD News on Twitter.

This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.