content

US High Yield Bond Funds See $433M Investor Cash Inflow

high yield fund flows

U.S. high-yield funds this week saw a $433 million cash inflow from retail investors, following up on an $866 million inflow last week, according to Lipper.

This week’s gain puts the four-week moving average at $461 million, up from $284 million a week ago. ETFs are entirely responsible for the inflow, as investors poured $590 million into those entities this week, while withdrawing $157 million from high-yield funds proper.

The change due to market conditions was $137 million to the upside (a 0.7% increase); it is the fifth-straight gain from market conditions, totaling $2.2 billion over that span.

High-yield fund assets now total $213 billion, with $51.7 billion via ETFs, or 24% of the total. — Staff reports

Try LCD for Free! News, analysis, data

Follow LCD News on Twitter.

LCD comps is 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: High Yield Bond Covenant Quality See Record Plunge in August

The covenant quality of high-yield new issues suffered its biggest month-over-month decline ever in August. That plunge brought quality almost to the weakest covenant quality score on record. On a scale of 1 (strongest) to 5 (weakest), the FridsonVision version deteriorated by 0.73 points, to 4.59, from July’s 3.86 (see chart below). The worst score ever recorded was just a hairsbreadth worse, at 4.61 (June 2015).

hy cov quality

To provide background, “Covenant quality decline reexamined” (LCD News, Oct. 1, 2013) describes how we modify the Moody’s CQ Index to remove noise arising from month-to-month changes in the calendar’s ratings mix. On average, covenants are stronger on triple-Cs than on single-Bs, and stronger on single-Bs than on double-Bs. Therefore, for example, if issuance shifts downward in ratings mix in a given month, without covenant quality changing within any of the rating categories, the Moody’s CQ Index will show a spurious improvement. We eliminate such false signals by holding the ratings mix constant at an average calculated over a historical observation period.

In August, Moody’s version of the index worsened by 0.49 points, to 4.54, from July’s 4.05. The rating agency’s slightly more upbeat score (4.54 versus FridsonVision’s 4.59) reflected the distorting impact of a below-average concentration of issuance in the Ba category in August (24.0% versus historical mean of 32.4%). That effect was partially offset by a below-average concentration in Caa issues (20.0% versus a historical mean of 18.6%).

August’s precipitous month-over-month drop in covenant quality resulted from an across-the-board worsening in each rating category. By rating, the July and August average scores were as follows:

In short, issuers took full advantage of the shift in market conditions in their favor, as evidenced by a pickup in primary activity, from just 13 issues in July to 25 in August.

An across-the-board deterioration similar to last month’s contributed to the all-time record one-month plunge in the Moody’s version of the covenant quality index—0.76 percentage points in May 2016. That number was exaggerated by a large month-over-month increase in Ba concentration. Filtering out that effect, the FridsonVision series showed a deterioration of 0.68 points in May 2016, somewhat short of the record of 0.73 points posted in August 2017.

Try LCD for Free! News, analysis, data

Follow LCD News on Twitter.

LCD comps is 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

S&P European High Yield Default Rate Could Hold at 2%

S&P Global Ratings said today that it expects the 12-month default rate for speculative-grade European financial and nonfinancial corporate issuers that it rates to remain close to 2.0% by the end of June 2018, continuing the recent trend (see “The European Corporate Speculative-Grade Default Rate Should Remain Close To 2% Through June 2018”). This forecast remains significantly below the average 12-month trailing default rate of 3.2% between January 2002 and June 2017.

european hy default rate

“European macroeconomic trends and credit conditions continue to support a low default rate,” according to the agency. “For example, eurozone GDP growth will likely reach 2% in 2017 and is becoming more geographically balanced. Monetary policy should stay accommodative, as inflationary pressures remain low. And debt issuance from speculative-grade European corporates has been increasing, while the European Central Bank’s (ECB) survey on lending standards suggests that credit conditions for large firms continue to loosen on aggregate.”

S&P Global goes on to say, however, that some credit factors are more negative. S&P Global expects a more moderate growth trajectory for the U.K., as Brexit uncertainties dampen investment and higher inflation curbs household spending. In addition, its ratings-based indicators of European credit performance present a mixed picture. While the negative ratings bias among speculative-grade corporates has been stable in recent months, the ratings distribution is becoming more concentrated on lower rating levels, suggesting rising aggregate credit risk, S&P Global comments.

Based on credit-related and macroeconomic factors, S&P Global believes the default rate should remain low over the coming months. S&P Global determines its default rate forecast for speculative-grade European financial and nonfinancial corporates based on a variety of quantitative and qualitative factors.

“Projecting to the end of June 2018, we expect the 12-month trailing default rate for speculative-grade European financial and nonfinancial corporates will remain at about 2% in our baseline scenario, with 13 issuers defaulting,” S&P Global says. Under its optimistic scenario, the speculative-grade default rate would be 1.0% (six issuers), while in its pessimistic scenario, the default rate would be 3.2% (20 issuers). — Luke Millar

Try LCD for Free! News, analysis, data

Follow LCD News on Twitter.

LCD comps is 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

Investors Pour $866M into US High Yield Bond Funds

high yield fund flows

U.S. high-yield funds saw an $866 million inflow of investor cash this week, the largest gain since the whopping $2.2 billion in mid-July, according to Lipper. ETFs were the story this week, accounting for $852 million of the increase.

With this week’s inflows, the four-week moving average returns to the black, at $284 million, versus negative $186 million last week. In the year to date, of course, high-yield funds remain heavily in the red, with a net outflow of $8.4 billion.

The change due to market conditions was a healthy $463 million this week, the fourth straight gain in this category. Total assets now are $206.6 billion, with ETFs accounting for $51 billion of that amount, according to Lipper. — Staff reports

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

Armstrong Energy Again Extends Forbearance re Missed High Yield Bond Coupon

Armstrong Energy has again extended its forbearance agreement with bondholders after the company failed to make good on a missed interest payment within the 30-day grace period that expired on July 17, 2017.

The forbearance with respect to calling an event of a default will now run until 12:01 a.m. EDT on Sept. 24, 2017, according to a company statement filed with the Securities and Exchange Commission.

Approximately 78% of existing noteholders are party to the agreement.

As reported, Armstrong elected not to make an $11.75 million interest payment on the $200 million of 11.75% senior secured notes as it continues to discuss the terms of a restructuring with lenders.

Armstrong Energy had a cash position of approximately $58.8 million as of March 31, which it expects will allow it to continue to fund its ongoing operations and meet all of its current obligations to pay suppliers, employees, vendors, and others.

Armstrong Energy produces thermal coal from surface and underground mines located in the Illinois Basin coal region in western Kentucky. The company operates five mines, including three surface mines and two underground mines located in Muhlenberg and Ohio Counties, Ky. — 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

Investors Return to US High Yield Bond Mart with $641M Cash Infusion

high yield bond flows

U.S. high-yield funds recorded an inflow of $641 million for the week ended Sept. 6, according to weekly reporters to Lipper only. This comes on the heels of three consecutive weekly exits that combined for a total outflow of $3.5 billion over that span.

ETFs made up $364 million of the inflow this week, while $277 million flowed into mutual funds.

The four-week trailing average stayed in the red for a fourth straight week, narrowing to negative $709 million, from negative $838 million last week.

The year-to-date total outflow is $9.2 billion, with a $11 billion outflow from mutual funds offset by a $1.8 billion inflow to ETFs.

The change due to market conditions this past week was an increase of $1.1 billion. Total assets at the end of the observation period were $209 billion. ETFs account for about 24% of the total, at $50.1 billion. — James Passeri

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

Toys ‘R’ Us High Yield Bonds Sink in Trading Mart Amid Bankruptcy Mention

Near-term debt of Toys ‘R’ Us went into a tailspin today after news reports that the company has hired Kirkland & Ellis to assist in a restructuring also made mention of a possible bankruptcy filing.

The company’s $208 million of 7.375% senior unsecured holdco notes due 2018 hit a 19-month low of 75, versus quotes of 95 on Tuesday, according to sources.

Such a massive deterioration could, of course, facilitate a take-out of the bonds at much more favorable price, a debt exchange being one strategy that Fitch Ratings said in a note this morning the company could employ.

“Fitch expects the $208 million of 7.375% senior unsecured holdco notes to be paid down through future exchanges into other debt or by transferring cash from various operating entities through restricted payment and investments baskets,” analyst Monica Aggarwal said in today’s report.

The company’s $450 million of debt maturities coming due in 2018 consists of a €48 million French PropCo facility due February 2018, the $208 million of holdco notes due October 2018, and $186 million of B-2/B-3 term loans due May 2018.

Toys ‘R’ Us issued the following statement to LCD, but did not immediately respond with a comment on reports that it has hired Kirkland & Ellis or to reports that it is weighing bankruptcy as an option.

“As we previously discussed on our first-quarter earnings call, Toys ‘R’ Us is evaluating a range of alternatives to address our 2018 debt maturities, which may include the possibility of obtaining additional financing. We expect to provide an update about these activities, as well as the many initiatives underway to provide an outstanding customer experience in our global retail locations and webstore during the holiday season, during our second-quarter earnings call on September 26th,” Toys ‘R’ Us communications officer Amy Von Walter said in the emailed statement.

The issuer’s covenant-lite B-4 term loan due April 2020 was quoted at a 74.75 bid today, down nearly two points from the last session, sources said.

The company last year successfully completed a series of transactions to address its looming debt maturities after the toy retailer hired advisors, including Lazard, to assist in the refinancing of its capital structure.

Wayne, N.J.–based Toys ‘R’ Us is controlled by Bain Capital, KKR, and Vornado Realty Trust. Ratings are B–/B3 CCC. — Rachelle Kakouris/Kelsey Butler

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

Hi-Grade: Apple Extends Epic 2017 Bond Issuance Run with $5B Print

Apple (Nasdaq: AAPL) today placed $5 billion of senior notes in its fourth benchmark offering of the year, across $1 billion of 1.5% two-year notes due Sept. 12, 2019 at T+25; $1 billion of 2.1% five-year notes due Sept. 12, 2022 at T+48; $2 billion of 2.9% 10-year notes due Sept. 12, 2027 at T+85; and $1 billion of 3.75% 30-year bonds due Sept. 12, 2047 at T+110. The notes were inked 12.5–15 bps through initial whispers.

Last year, Apple’s U.S. bond offerings totaled an outsized $22.5 billion over the full 12-month period, and today’s offering moved Apple’s 2017 total north of that, to $23 billion. Apple had already inked a $1 billion, “no-grow” offering on June 13 of 3% 10-year “green” senior unsecured bonds due June 20, 2027 at T+82, after larger-scale offerings this year in February ($10 billion in nine parts) and May ($7 billion in six parts), which furthered the steady debt financing of the company’s now $300 billion capital-return program, while also addressing a quickening cadence of debt maturities. Apple also inked $1 billion of Formosa bonds in February, €2.5 billion of notes in May, and C$2.5 billion of 2.513% notes due Aug. 19, 2024 last month, the latter representing the biggest single tranche of debt placed buy a foreign issuer on Canada’s Maple bond market.

For reference, Apple 2.3% notes due May 11, 2022 traded on Friday at T+39, or a G-spread of 44 bps (before accounting for roughly two basis points on the curve), from pricing in May at T+45. The 3.2% notes due May 11, 2027, which were priced at T+85, traded last week and today near T+80, and the 4.25% bonds due Feb. 9, 2047, which were placed in February at T+115, traded late last week at T+105, and today at T+112.

As with previous offerings, proceeds will be used for repurchases of the company’s common stock and payment of dividends under its program to return capital to shareholders, and as funding for working capital, capital expenditures, acquisitions and repayment of debt, filings show.

Apple’s ever-expanding capital returns program was boosted again in May, including $35 billion added to the share-repurchase plan (now $210 billion) and 10.5% added to the dividend payout. The total size of the capital-return scheme is $300 billion through March 2019 (the horizon was extended by four quarters), and S&P Global Market Intelligence back in May had estimated roughly $56 billion remaining under that plan.

The outlook remains stable across the AA+/Aa1 ratings profile. “Despite the maturing smart phone market, we expect Apple to generate revenue growth near the mid-single digits in fiscal 2017. We believe the 10th-anniversary edition of the iPhone, expected to launch later this year, will spur further growth into fiscal 2018,” S&P Global Ratings stated in June, noting a third-quarter revenue rise of 7% to $45.4 billion on growth in iPhone, Mac and iPads, as well as a 22% expansion in services, offset continued weakness in Greater China. Terms:

Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1 billion
Issue SEC-registered senior notes
Coupon 1.500%
Price 99.914
Yield 1.544%
Spread T+25
Maturity Sept. 12, 2019
Call make-whole T+3
Px Talk guidance T+25 (the number); IPT T+37.5 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1 billion
Issue SEC-registered senior notes
Coupon 2.100%
Price 99.882
Yield 2.125%
Spread T+48
Maturity Sept. 12, 2022
Call make-whole T+7.5 until notes are callable at par from one month prior to maturity
Px Talk guidance T+50 area (+/- 2 bps); IPT T+62.5 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $2 billion
Issue SEC-registered senior notes
Coupon 2.900%
Price 99.888
Yield 2.913%
Spread T+85
Maturity Sept. 12, 2027
Call make-whole T+15 until notes are callable at par from three months prior to maturity
Px Talk guidance T+87.5 area (+/- 2.5 bps); IPT T+100 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1 billion
Issue SEC-registered senior notes
Coupon 3.750%
Price 99.429
Yield 3.782%
Spread T+110
Maturity Sept. 12, 2047
Call make-whole T+17.5 until notes are callable at par from six months prior to maturity
Trade Sept. 5, 2017
Settle Sept. 12, 2017
Books BAML/DB/GS
Px Talk guidance T+112.5 area (+/- 2.5 bps); IPT T+125 area
Notes proceeds for share repurchases and payment of dividends under its program to return capital to shareholders, and GCP including funding for working capital, capital expenditures, acquisitions, and repayment of debt

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.