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US High Yield Funds See Massive $4.4 Billion Cash Withdrawal

US high yield fund flows

U.S. high-yield funds recorded an outflow of $4.4 billion for the week ended Nov. 15, according to weekly reporters to Lipper only.

Mutual funds made up the bulk of this week’s outflow, at $2.6 billion, while $1.8 billion exited ETFs.

The year-to-date total outflow is now roughly $13 billion, with a $14.7 billion outflow from mutual funds outweighing a roughly $1.7 billion inflow to ETFs.

The four-week trailing average is in the red for the third straight week, widening to negative $1.5 billion from negative $536 million last week.

The change due to market conditions this past week was a decrease of $1.9 billion. Total assets at the end of the observation period were $206.6 billion. ETFs account for about 24% of the total, at roughly $50 billion. — James Passeri

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Time HY Bonds Pop as Meredith Bid Said to Net Koch Brothers Backing

Bonds backing Time Inc. were among the top performers in the high-yield secondary this morning after news reports said billionaire industrialists Charles and David Koch have “tentatively agreed” to back Meredith Corp.’s renewed bid for the issuer with an equity injection of more than $500 million.

Time 7.5% notes due 2025 rose 5.625 points, to 106.25, according to MarketAxess. The notes traded as low as 99.375 in early November. Meanwhile, shares of Time (NYSE: TIME) rallied roughly 25%, to $15.80.

Sources estimate that the $500 million equity injection should provide the issuer, if a deal is completed, with a more stable leverage profile of roughly 3x, which is still on the high end of forecasts. Sources added that Time’s October refinancing transactions would have been unlikely to occur if active merger discussions were taking place at that time.

Meredith Corp., alongside suitors including Pamplona Capital Management, had reportedly been in talks earlier this year to acquire the New York media company, but Time’s board rebuffed offers in favor of its own strategic growth initiatives.

Time CEO Richard Battista, on a May earnings call with analysts, said that issuer had “thoroughly reviewed the expressions of interest,” adding the board “has determined that the best foot forward at this company was to continue with our own plan.”

Some investors expressed frustration over the board’s refusal to accept reports of Meredith’s premium valuation of the company, including activist Leon Cooperman of hedge fund Omega Partners.

“We read about Meredith’s interest in the company, that there were a number of interested parties, and here we have now a $13, $14 stock when somebody was willing to pay $18 for the company and we have a failed process,” Cooperman said on the company’s May earnings call with analysts. “And you don’t really talk about what the strategic plan really is. So I would encourage you to get quantitative, not qualitative,” he added.

Time Inc. last tapped the debt markets in early October, placing a $300 million issue of 7.5% notes due 2025 on Oct. 4, with proceeds earmarked to repay roughly $200 million of the issuer’s B term loan and to reduce by roughly $100 million by the end of 2017, in one or more transactions, the size of its term loan or outstanding notes.

Changes to the transaction were made on the covenants front, including a reduction to the credit facilities basket to $1.5 billion, from $2.4 billion. Also, the consolidated-net-leverage ratio for the debt-incurrence test (and also the governor for accessing the RP builder basket) was reduced to 3.5x, from 4.5x.

The company also on Oct. 6 placed a $464 million covenant-lite TLB (L+350, 1% LIBOR floor) to extend the maturity of its TLB to October 2024, from April 2021.

Corporate and bond ratings are B/B1 and BB–/B2, with a 4 recovery rating on the unsecured bonds by S&P Global Ratings. The covenant-lite term loan is rated BB–/Ba2, with a 1 recovery rating by S&P. — Staff reports

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Multiplan Readies $1.3B High Yield Deal with Rare PIK-Toggle Feature

mulitplanAmid broad talk of a high yield market under pressure and as a handful of recent bond offerings are scrapped due to ‘market conditions,’ healthcare management concern Multiplan today unveiled a $1.3 billion transaction sporting a PIK-toggle option, a feature usually found in bullish markets that allows the issuer to pay interest on the debt in cash, or with additional notes.

Proceeds of the offering include the backing of a dividend for the shareholder group, led by private equity firm Hellman & Friedman. The paper will be issued through Polaris International Corp. and comes with call protection at 102, 101, and par. Goldman Sachs (left), Barclays, and Bank of America Merrill Lynch are leading the deal.

To be sure, PIK toggle issuance has been rare of late, with just $1.1 billion of those deals so far this year (before Multiplan), according to LCD: a $550 million April offering backing a pharma/biotech concern Eagle Holding, and a $500 million deal for thermal management company Vertiv, in February.

The Multiplan notes follow a repricing, inked in June, of the company’s $3.2 billion leveraged loan, put in place in May last year to fund H&F’s buyout of the group. That exercise left the loan priced at L+300, with a 1% floor.

MultiPlan provides technology-enabled healthcare-cost-management solutions for the commercial, government, workers’ compensation, auto, and property and casualty markets. — David Cox

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NRG Energy Scraps $870M High Yield Bond Deal

Electric power concern NRG Energy has pulled an offering for $870 million of 10.25-year (non-call five) notes, according to a company statement. The cancellation was “in response to broader market conditions.”

Citi, Credit Agricole CIB, and Deutsche Bank were bookrunners on the deal, which sources say saw initial price talk at 5.75%. Proceeds would have been used to finance a tender offer for its $869 million of 6.625% notes due 2023, which has also been withdrawn.

Risk-on sentiments have waned in the high-yield market as of late, with U.S. high yield funds recording an outflow of $622 million for the week ended Nov. 8, following last week’s $1.2 billion withdrawal. Another sign of weakening was reflected in the Nov. 9 reading of LCD’s flow-name high-yield bonds, which showed the average bid for the 15-name sample dipping 114 bps, to 97% of par, for a new year-to-date low.

NRG’s would-be bond sale is the first to be pulled since Charter Communications scrapped its offering in June. — Jakema Lewis

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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.