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Risk-off: US High Yield Bond Funds See $2.2B Cash Withdrawal

US high yield bond flows
U.S. high-yield funds recorded an outflow of $2.2 billion for the week ended Aug. 16, according to weekly reporters to Lipper only. This comes on the heels of last week’s $123 million inflow.

ETFs accounted for the bulk of the outflow this week, with an exit of $1.25 billion, while mutual funds saw an outflow of $935 million.

The year-to-date total outflow is now $8.5 billion, including a roughly $9.6 billion outflow from mutual funds and $1 billion inflow to ETFs.

The four-week trailing average dipped into negative territory, after two consecutive weeks in the black, falling to negative $473 million, from positive $630 million last week.

The change due to market conditions this past week was a decrease of $346 million. Total assets at the end of the observation period were $207.8 billion. ETFs account for about 23.5% of the total, at $48.9 billion. — James Passeri

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Staples Wraps $1B High Yield Bond Offering Backing Sycamore LBO

Staples has completed a $1 billion offering of eight-year notes at the wide end of talk, sources said. Bank of America Merrill Lynch was lead on a bookrunner group that included 10 additional banks. Proceeds will be used to back the issuer’s $6.9 billion buyout by Sycamore Partners. The transaction was downsized from $1.3 billion. A concurrent first-lien term loan also backing the LBO transaction was increased by $200 million, to $2.9 billion. There has also been a $100 million decrease in funded debt, sources said. Prior to launching, the borrower had planned for $1.6 billion of the bonds, but steered $300 million to the TLB to meet investor demand. A $1.2 billion ABL facility will also be put in place to back the LBO. The buyout is expected to close in 2017. Terms:

Issuer Staples (Arch Merger Sub Inc)
Ratings B–/B3
Amount $1 billion
Issue Senior (144A/Reg S-for-life)
Coupon 8.5%
Price 100
Yield 8.5%
Spread T+637
Maturity Sept. 15, 2025
Call non-call three (first call at par + 50% of coupon)
Trade Aug. 14, 2017
Settle Aug. 28, 2017 (T+10)
Joint bookrunners BAML/UBS/DB/CS/RBC/JEFF/FifthThird/GS/C/KKR/ Natixis
Price talk 8.25% area
Notes Downsized from $1.3 billion; up to 40% equity claw @ 108.5 until Sept. 15, 2020; change-of-control put @ 101; make-whole @ T+50

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European High Yield Bond Funds See €112M Cash Inflow

J.P. Morgan’s weekly analysis of European high-yield funds shows an inflow of €112 million for the week ended Aug. 9. This figure includes a €38 million net inflow to ETFs, and a €54 million net outflow from short duration funds. The reading for the week ending Aug. 2 is unrevised from an inflow of €136 million. Note, the net weekly readings also include flows from long-only managed accounts.

The provisional reading for July is an outflow of €1.18 billion. This follows a €188 million outflow in June, a €296 million inflow in May, and a €548 million outflow in April. There was a €1.55 billion outflow in March, and €517 million and €218 million inflows in February and January. The total fund-flow reading for 2017 (including monthly reporting funds that have not yet released July figures) is an outflow of €2.286 billion.

In the U.S., high-yield funds recorded an inflow of $123 million for the week ended Aug. 9, according to the weekly reporters to Lipper only. This comes on the heels of the prior week’s $195 million inflow into the asset class. ETFs drove the gain, with an inflow of $97 million, while $26 million flowed into mutual funds. The four-week trailing average remains in positive territory for the second consecutive week, rising to positive $630 million from positive $313 million in the prior week.

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 80 funds, with €70 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation”. — Nina Flitman

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Staples Readies $1.3B High Yield Bond Offering Backing LBO by Sycamore

staplesStaples is on the cusp of kicking off roadshows for $1.3 billion of eight-year (non-call three) notes backing the buyout of the company by Sycamore Partners. An investor call and lunch is scheduled for tomorrow, Aug. 10 at 12:30 p.m. EDT. Pricing is expected next Monday.

Joint bookrunners on the deal are Bank of America Merrill Lynch, UBS, Deutsche Bank, Credit Suisse, RBC Capital Markets, Jefferies, Fifth Third, Goldman Sachs, Citi, KKR Capital Markets, and Natixis. The debt is being shopped with a first call at par plus 50% coupon and an up to 40% equity claw for the first three years. Issuance will come under Rule 144/Reg S-for-life.

S&P Global Ratings on Aug. 8 downgraded for the borrower’s corporate rating to B+, from BBB–. It has assigned a B–, with a 6 recovery rating, to the notes.

Similarly, that same day Moody’s lowered its unsecured rating for Staples to B3, from Baa2, and assigned a B1 corporate rating to the company.

The move from both agencies was triggered by Sycamore’s leveraged buyout of the company.

Meanwhile, the borrower today upsized a first-lien term loan by $300 million, to $2.7 billion. The same amount was removed from the notes offering, which was originally expected to be a $1.6 billion issue. A $1.2 billion ABL facility will also be put in place.

At closing of the acquisition, there will be an internal reorganization whereby the U.S. retail, Canadian retail, and the North American delivery businesses of Staples will be separated into standalone entities. The $5.2 billion debt package is for the financing of the North American delivery segment, which will leverage the business on a pro forma basis at approximately 4x, sources note. The transaction is expected to close in 2017.

Staples (Nasdaq: SPLS) in June disclosed that Sycamore would acquire the company in a $6.9 billion transaction. Under the terms of the agreement, Staples’ stockholders will receive $10.25 per share. — Staff reports

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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.