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Nathan’s Famous Wraps $150M High Yield Bond to Slash Borrowing Costs

nathans logoNathan’s Famous (Nasdaq: NATH) today placed $150 million of eight-year secured notes at the tight end of talk, sources said. Jefferies was sole bookrunner for the offering. Proceeds will be used to refinance the company’s 10% secured notes due 2020, to partially fund a dividend to shareholders, and for general corporate purposes, which may include working capital. The borrower in its February 2015 market debut placed $135 million of the 2020 notes, also to back a dividend. These bonds will become callable at 105 on Nov. 15, 2017. Jericho, N.Y.–based Nathan’s Famous owns and franchises restaurants under the Nathan’s Famous brand name, and sells products bearing the Nathan’s Famous trademarks through various channels of distribution. Terms:

Issuer Nathan’s Famous
Ratings B–/B3
Amount $150 million
Issue Secured (144A/Reg S for life)
Coupon 6.625%
Price 100
Yield 6.625%
Maturity Nov. 1, 2025
Call non-call three (first call @ par+50% coupon)
Trade Oct. 18, 2017
Settle Nov. 1, 2017 (T+10)
Sole bookrunner JEFF
Price talk 6.75% area
Notes Up to 35% equity claw @ 106.625 until Nov. 1, 2020; change of control put @ 101; make-whole @ T+50

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Yum Restaurant Group Lines up $500M High Yield Offering for Dividend, Loan Repay

yum logoYum Brands has guided a $500 million offering of ten-year (non-call five) notes in the 4.75% area, sources said. Books will close at 2 p.m. EDT, with pricing expected today via bookrunners Goldman Sachs (left), J.P. Morgan, Citi, Morgan Stanley, and Wells Fargo Securities.

Proceeds from the 144A-for-life offering will be used to repay roughly $260 million drawn under the company’s revolving credit facility during the second quarter. The balance will fund a cash distribution to the company’s parent to fund share repurchases, dividend payments, and potential repayment of further debt.

The planned new issue is rated BB/B1, according to the leads.

Comparables for the new bonds are the borrower’s own 5% notes due 2024 and 5.25% notes due 2026. The 2024s closed Friday’s session at 104.6, yielding 3.97%, and the 2026s changed hands on Monday afternoon at 105.375, yielding 4.35%, trade data show.

Earlier this month, Yum Brands disclosed that it had entered into a refinancing amendment to its credit agreement dated June 16, 2016, reducing pricing on its $500 million A term loan and $1 billion revolver by 75 bps, to L+150, and extending the maturity of the TLA and revolver to June 2022, from 2019. Note that pricing includes a step-down to L+125 in the event that the total-leverage ratio is less than 2.75x. Via the amendment, the leverage-based pricing grid now ranges from L+125–175, versus L+200–250 previously, as reported. In March, Yum Brands also repriced its then $1.99 billion B term loan due June 2023.

Yum Brands (NYSE: YUM) operates and franchises quick-service restaurants in three segments: KFC, Pizza Hut, and Taco Bell. — Rachel McGovern/Jakema Lewis

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CBS Radio Rolls Out $460M High Yield Bond Offering

CBS Radio is shopping $460 million of eight-year (non-call three) notes via lead bookrunner Deutsche Bank and joint bookrunners J.P. Morgan, Citi, Bank of America Merrill Lynch, Credit Suisse, and Wells Fargo, sources said. Roadshows will run from Sept. 28 to Oct. 6, with pricing to follow thereafter.

Ratings for the 144A-for-life notes are B–/B3. The deal includes a first call premium at par plus 75% of the finalized coupon and an equity claw of up to 35% of the notes at par plus coupon for the first three years.

Proceeds will be used for general corporate purposes and to fund a dividend to parent company CBS Corp. in connection with a planned spin-off of the radio broadcasting business.

Earlier this week, CBS Radio also launched a $1 billion, seven-year B term loan through arranger J.P. Morgan in connection with the spin-off.

CBS Radio is a national media company with 117 radio stations and digital properties in 26 radio markets as of June 30, according to the company’s S-1 filing. The company has filed for an IPO of its common stock. — Jakema Lewis/Jon Hemingway

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Steak n Shake Lines Up $400M High Yield Deal Backing Dividend

Steak n Shake is serving up a $400 million secured offering of seven-year (non-call three) bonds. Jefferies is sole bookrunner on the deal. A roadshow will run from today through next Wednesday, for pricing thereafter.

Proceeds will refinance the borrower’s credit facility and finance a dividend.

The new paper does not have registration rights, while the first call is at par plus 50% coupon.

This appears to be the company’s first bond issue, while its last visit to the loan market was in 2014, when it issued a $220 million B term loan arranged by Jefferies. The covenant-lite loan was non-callable for one year, and then at par. The financing also included a $30 million, five-year revolver. Proceeds from that deal were earmarked to refinance existing debt and fund a dividend to owner Biglari Holdings.

The issuer operates and franchises the Steak n Shake brand of restaurants, with a classic American diner design and a full menu featuring burgers, sandwiches, and milkshakes. — Luke Millar

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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.

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Yum! Brands Preps $2.3B of Fallen Angel High Yield Bonds Backing Dividend/Recap

Yum! Brands earlier this week announced its intent to sell $2.3 billion of senior notes as part of its dividend recapitalization ahead of the separation of its businesses in China, according to a company statement. Management has not yet stepped forward with any transaction details, but recall that Goldman Sachs will hold a lender meeting on Monday to launch a coordinated $1.5 billion term loan B, with J.P. Morgan as left lead on the accompanying pro rata facilities, a $1 billion revolver and an $800 million term loan A, which are both rated BBB–, with a 1 recovery rating.

“The new debt is intended to fund the return of capital to shareholders, repay borrowings under the company’s existing revolving credit facility, pay associated transaction fees and expenses, and support general corporate purposes,” according to the statement.

yumS&P Global Ratings has already weighed in on the bond effort, assigning BB issue-level and 3L recovery ratings to the deal, indicating an expectation for the lower end of meaningful recovery (50–60%) in the event of default. At the same time, S&P lowered the fast-food chain’s legacy notes to B+, from BB, and revised the recovery rating to 6, indicating expectation for negligible recovery (0–10%) in the event of default, from 3 prior, due to a view that the new issuance will be structurally senior to the existing paper.

Existing bonds include the fallen angel issuer’s 3.875 notes due 2023, which are pegged on either side of 94, yielding about 4.85%, and the long-tenor 5.35% bonds due 2043, which are marked 80/82, offering about 5.875%, according to sources. The $325 million and $275 million issues, respectively, represent Yum!’s last visit to market, which was in late 2013 with BBB/Baa3 ratings and issuance just under par via a Citi-led syndicate.

Of course, the paper is now B+/B1 since the fallen angel downgrades, and recall that earlier this year after the downgrades, the debt was transitioned to high-yield indexes and portfolios alike. See “HY CDX 26 revision of constituents outlined ahead of March 28 roll,” LCD News, March 15, 2016.

As for the upcoming primary market efforts, Yum! has previously noted it would refinance a $2 billion unsecured term loan with a securitization facility, enter into a new credit facility, and issue high-yield notes as part of a plan to “optimize its capital structure.” The securitization of $2.3 billion covers Taco Bell’s U.S. royalties.

Yum explained that “a key aspect of the company’s strategy is to optimize its capital structure,” further explaining that it’s targeting a company-wide leverage goal of roughly 5x and returning $6.2 billion of capital to shareholders prior to the separation of its China business. And as the next step in this plan, subsidiaries that operate Yum’s KFC, Pizza Hut, and Taco Bell (excluding the Taco Bell subsidiaries included in the securitization facility) businesses would enter into a new senior secured credit facility and issue new high-yield notes, with its legacy publicly traded notes remaining in place as unsecured obligations. — Staff reports

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Inaugural Paddle Battle Tournament charity event to be held on Nov 5

RBC Capital Markets is partnering with the private equity community to host an inaugural charity ping pong tournament to support NYC Youth, which will be held on Nov. 5, 2015.

The money raised by the event will be split evenly among four charity partners: Harlem RBI, The Opportunity Network, The TEAK Fellowship, and Youth INC. The winning two-person team of the tournament will receive a $25,000 grant in their name to a youth-oriented charity of their choice.

The Paddle Battle Tournament will be held at SPiN NYC on 23rd Street, beginning at 6 p.m. EDT. There will be a full bar and heavy hors d’oeuvres served.

Registration is open and teams should be finalized by Oct. 22. For more information and to register or donate, go to RBC Paddle Battle. — Staff reports

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LCD’s High Yield Market Primer/Almanac Updated with 3Q Charts

LCD’s online High Yield Bond Market Primer has been updated to include third-quarter 2015 and historical volume and trend charts.

The Primer can be found at HighYieldBond.com, LCD’s free website promoting the asset class. HighYieldBond.com features select stories from LCD news, weekly trends, stats, and analysis, along with recent job postings.

 

We’ll update the U.S. Primer charts regularly, and add more as the market dictates (new this time around: an historical look at Fallen Angels, courtesy S&P).

Charts included with this release of the Primer:

  • US High Yield Issuance – Historical
  • 2015 High Yield Issuance, by Purpose
  • High Yield LBO Issuance
  • Fallen Angels – Historical
  • Cash Flows to High Yield Funds, ETFs
  • PIK Toggle Issuance (or lack thereof)
  • Yield to Maturity: Historical, Recent

LCD’s Loan Market Primer and High Yield Bond Market Primer are some of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, they are widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.

Check them out, and please share them with anyone wanting an excellent round-up of or introduction to the leveraged finance market.

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Niska Gas bonds, shares soar on sale of co. to Brookfield

Niska Gas Storage bonds traded up over 20 points this morning, and shares nearly tripled in value, on news the company agreed to be sold to investment-grade conglomerate Brookfield Infrastructure Partners. The 6.5% notes due 2019 traded up 21 points, at 94.5, and shares were trading up roughly 185%, at $3.75 per, trade data show.

Brookfield will pay $4.225 per Niska common, for a transaction valued at approximately $912 million, including the assumption of Niska debt, according to a company statement. Closing is expected to occur in the second half of 2016 and is subject to customary closing conditions and regulatory approvals, including approval by the California Public Utilities Commission, the filing showed.

In connection with the deal, Brookfield has committed to lend up to $50 million to Niska under a short-term credit facility to be used for working capital purposes. Controlling shareholder, 53% owner Riverstone Investment Group, has agreed to the deal, the filing showed.

Evercore Partners is financial advisor to Niska and Riverstone, and Vinson & Elkins and Stikeman Elliot are legal advisors to the pair.

Norton Rose Fulbright is acting as legal advisor to Brookfield, and Greenhill & Co. is serving as financial advisor to the Niska conflicts committee. Additionally, Richards, Layton & Finger is legal counsel to the conflicts committee, according to the company.

The news essentially closes a loop on the credit reportedly on the block with the assistance of Evercore Partners and via controlling equityholders Riverstone and Carlyle Group. See “Niska Gas Storage bonds off lows as reports flag co. is on the block,” LCD News, April 22, 2015.

Recall that Niska bonds and shares fell hard earlier this year after the company announced the suspension of its common unit distribution and reported disappointing third-quarter results for fiscal 2015 (see “Niska Gas Storage bonds slide on Q3 results, distribution suspension,” LCD News, Feb. 2, 2015).

Houston-based Niska Gas Storage Partners owns and operates natural gas-storage assets in North America. The $575 million of CCC+/Caa2 senior notes were issued in March 2014, at par, with B/B2 ratings at the time, via an RBC-led underwriting team as part of a plain-vanilla bond-refinancing exercise. – Matt Fuller

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

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This month in the high yield bond market: Energy issuance, returns blossom in rangebound market

High-yield issuance was $35.5 billion in May, surpassing initial estimates of $25-30 billion, but representing a small $1.8 billion decline month-over-month and falling short of the $37 billion total from May 2014 and $43.5 billion total from May 2013, LCD data shows.

high yield bond issuance

The high-yield market was generally rangebound in May, despite volatility in stocks and Treasuries mid-month and a net retail cash outflow of $2 billion from the asset class for the month, according to Lipper, with one week of inflows flanked by three weeks of outflows.

After spiking to 2.28% mid-month, the 10-year Treasury yield fell back to 2.12% at the end of the month, although yields have been rising in early June. By comparison, the yield-to-worst on the S&P U.S. Issued High-Yield Index generally held in a tight range at 5.90-5.99%, only spiking to 6.02% in mid-May and ending the month lower at 5.87%. The option adjusted spread was similarly stable, ending the month at T+463, from T+461 at the start of May. Bankers said investors were constructive on the new-issue market despite the peripheral volatility, with plenty of cash stockpiled in preparation for the busy month.

 

Large deals anchoring May volume included a $2.1 billion M&A transaction from The Chemours Company, a $2 billion, two-part M&A deal for CommScopeAltice/Suddenlink’s $1.72 billion three-part issue, and Spectrum Brands’ $1 billion issue. Billion-dollar-plus refinancing deals were placed by Burger KingHCAAlly FinancialEnergy Transfer EquityMarkWest Energy, and SandRidge Energy.

Energy issuers came out of the woodwork to post 25% of total issuance, with companies bringing both short-dated secured offerings and longer-dated senior notes, and demand was strong. To be sure, market participants are diving back into the sector as it outperforms the broad index, marking a turnaround from the end of last year. According to S&P, the energy sector has returned 6.23% in 2015 through the end of May, versus 4.08% for the U.S. issued high-yield index.

A few of the energy deals in May were short-dated secured issues targeting the repayment of RC debt. Participants say these transactions are viewed as transitional debt instruments as energy companies seek to shore up balance sheets until industry conditions turn more positive. Indeed, bankers say to expect more first- and second-lien secured energy offerings targeting the reduction of revolver debt as companies face extra liquidity pressure amid the current re-determination period.

The average bid of LCD’s flow-name sample was up modestly on the month, gaining 11 bps to 101.96% of par on May 28, from 101.85% of par on April 30. The reading of 101.96 on May 28 set the average option-adjusted yield to worst at 6.21% and spread to worst at T+469, down from 6.23% and T+474 at the end of April.

The S&P U.S. Issued High Yield Corporate Bond Index closed on May 30 at a weighted-average price of 100.58, offering a yield-to-worst of 5.87%, or T+463. By comparison, the price was 100.85 at the end of April, offering a yield to worst of 5.90%, or T+470. Year-to-date returns on the index advanced to 4.08%, versus 3.75% at the end of April. The month-over-month return was 0.32%, a drop from 1.13% in April, but outperforming March’s negative 0.47%.

Just one deal was scrapped during the month. World Acceptance Corp. postponed its $250 million offering of senior notes mid-month, according to a company press release. Talk on the offering of five-year senior notes was set at 9% area after the call period was lengthened by a year, to non-call three, but the company pulled the issue, saying the deal was opportunistic and that it could return when terms are more favorable in the future. Interestingly, the company’s CEO A. Alexander McLean is stepping down this week.

Refinancing activity shot up in May, to 62% of total use of proceeds, from 54% in both April and March. M&A also advanced month-over-month, representing 29% of issuance, up from 26% in April but below March’s 32%. May’s M&A results include 21% from acquisitions and 7.6% from spin-offs. LBO issuance ended the month at just over 3%, up from 1.6% in April. While M&A and refinancings took larger slices of the pie, corporate purposes accounted for just 1% of total use of proceeds, down from 16% in April and 6% in March. Combined recapitalizations, which includes general recapitalizations, dividends, and stock repurchases, made up roughly 5%, a 3% uptick from April but down from 8% in March.

In terms of sector, Oil & Gas led by a huge margin with 25% of total issuance for the month. This was followed by Services & Leasing, at 13%, and Chemicals, at 9%. Healthcare, which led in April, at 17.5%, represented just under 7% of total issuance.

Indeed, sixteen Oil & Gas issuers priced deals in May for a combined $9 billion, the largest of which were MarkWest Energy, SandRidge Energy, and Energy Transfer Equity. By comparison, seven Oil & Gas deals were priced in April, for a combined $3 billion, LCD data shows.

Within the credit spectrum, BB issuance knocked single-B issuance out of the lead spot, which it had held for five months. BB paper amounted to 37% of supply, up 10% month-over-month, followed by single-B issuance, at 32%, up 2% from April. Split-rated BB/B volume represented 14% of issuance, down from 23% in April. CCC and B/CCC issuance was basically unchanged from April, at 6.5% and just over 7% of total issuance, respectively.

Looking ahead, the shadow calendar holds about $30 billion of volume, with Charter Communications adding an anticipated $13.8 billion of secured and senior debt after the company announced its $56 billion acquisition of Time Warner Cable, although it is expected that the $6 billion of secured debt will be assigned investment-grade ratings. Frontier Communications is also on the shadow calendar with roughly $11.6 billion as part of its acquisition of some of Verizon Communications’ wireline operations. Timing is undetermined.

For June, bankers estimate $35-40 billion of issuance, with this week’s calendar already at $8.4 billion from 14 issuers, including LBO supply from Life Time Fitness and Informatica, along with M&A offerings from Tenet Healthcare and NXP B.V. Bankers expect M&A supply to continue to grow, although LBO volume is not expected to pick up meaningfully.

The U.S. trailing-12-month speculative-grade corporate default rate is estimated to have increased to 2.0% in May, from 1.8% in April, according to S&P Global Fixed Income Research (S&P GFIR). The current observation represents the highest level in 17 months, or since the rate was at 2.2% in December 2013.

There were eight corporate defaults in May, and all were public. Magnetation and Patriot Coal filed for bankruptcy; Colt Defense and Tunica-Biloxi Gaming Authority/Paragon Casino skipped bond coupons; Warren Resources and Midstates Petroleum inked sub-par bond exchanges; and SandRidge Energy and Halcon Resources completed bond-for-equity exchanges, also below par.

The S&P GFIR forecast for the U.S. speculative-grade default rate is for a modest increase, to 2.5% by December 2015 and 2.8% by March 2016.

Looking ahead, the market awaits word of any development out of American Eagle Energy, which skipped its first coupon ever on March 1, meaning the 30-day grace has long since passed. KKR-controlled Samson Resources has warned that a Chapter 11 reorganization could be “expeditious,” while Colt Defense has netted funding for a prepackaged bankruptcy just as it extended for a fourth time a deeply distressed exchange offer on its $250 million issue of 8.75% unsecured notes. Meanwhile, rare-earth-minerals company Molycorp skipped its June 1 coupon amid restructuring talks reportedly with a bondholder group led by JHL Capital Group. – Joy Ferguson/Matt Fuller

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Michael Baker shops $125M of senior PIK toggle notes to pay dividend

Michael Baker is in market this afternoon with a $125 million offering of senior PIK toggle notes via sole bookrunner Jefferies, according to sources. A global investor call is scheduled for 10:00 a.m. EDT tomorrow, April 3, with pricing expected tomorrow as well.

The notes are structured as five-year (non-call two), with proceeds being used to fund a dividend to sponsor DC Capital Partners, in a return to market just six months after the company was purchased. The issuer’s last tap, which was a $350 million five-year (non-call three) secured offering, also through Jefferies, was used to fund DC Capital’s buyout of the company. That B+/B2 issue priced at 8.25% at par.

The offering sets up as the seventh PIK toggle deal in 2014, for a pro forma $1.43 billion in supply, and the 125th PIK toggle offering on record. Last year, the segment nearly doubled to $11.61 billion from 30 credits, from $6.25 billion and 19 deals in 2012, according to LCD.

Headquartered in Moon Township, Pa., Michael Baker is a provider of high-end engineering, development, intelligence, and technology products and services. – Joy Ferguson