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US High Yield Bond Funds See $2.7B Retail Cash Withdrawal


us high funds

U.S. high-yield funds recorded an outflow of roughly $2.7 billion for the week ended Feb. 7, according to weekly reporters to Lipper only. This follows last week’s exit of about $1.7 billion and marks the fourth consecutive week of outflows, for a total of $8.7 billion over that span.

This week’s exit was fairly evenly split with a $1.4 billion outflow from mutual funds, while $1.3 billion exited ETFs.

The year-to-date total outflow from high-yield funds is now at about $5.9 billion.

The four-week trailing average declined to negative $2.2 billion for the period, from negative $825 million last week, and the change due to market conditions this past week was a decrease of $1.7 billion.

Total assets at the end of the observation period were $202.2 billion, indicating the lowest point since November 2016. ETFs account for about 23.5% of the total, at $47.6 billion. — James Passeri

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Amid Yesterday’s Market Rout, JW Aluminum Scraps $300M High Yield Deal

JW Aluminum has postponed its $300 million offering of eight-year secured notes, citing “adverse market conditions.” The decision comes amid the brutal equity sell-off, with the DJIA losing 7.9% yesterday and opening another 2% in the red this morning, before rebounding sharply.

As reported, the company roadshowed the deal all of last week via bookrunners Goldman Sachs (B&D), and Deutsche Bank. Whispers for the debt were in the 8% area, sources said.

According to sources, proceeds were earmarked to refurbish and expand the company’s capabilities at its manufacturing operations. Funds raised would also have been used to repay a $151.4 million secured term loan, as part of a refinancing effort that was expected to include an amendment to the company’s existing asset-based revolving credit facility to extend the maturity of that facility to 2023.

The borrower was also expected to fund the transaction with $35 million of shareholder equity.

S&P Global Ratings assigned a B– rating to the borrower’s proposed bond offering, with a 3 recovery rating. S&P Global analysts “expect adjusted debt to EBITDA of about 6x and adjusted EBITDA margins of about 10% over the next 12 months,” the Jan. 25 report notes.

The borrower is a wholly owned subsidiary of Goose Creek, S.C.–based JW Aluminum Holding Corp., which manufactures specialty flat-rolled aluminum products. — Luke Millar/Jakema Lewis

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S&P: As Oil & Gas Rebounds, US Distress Ratio Sinks to Lowest Level Since 2014

The U.S. distress ratio has dropped to its lowest level since September 2014, tightening to 6.5% in January, from 7.4%, amid strengthening commodity prices, according to S&P Global Fixed Income Research.

distress ratio“The oil and gas sector continued to improve throughout 2017 as hydrocarbon prices recovered and stabilized,” noted Diane Vazza, head of the S&P Global Fixed Income Research group, in a Feb. 1 report titled “Distressed Debt Monitor: Strengthening Commodities Sectors Compress The Distress Ratio To Its Lowest Level Since 2014.”

“Accordingly, since their highs in February 2016, the distress ratios for the oil and gas and metals, mining and steel sectors have steadily decreased,” Vazza said.

Moreover, the oil and gas sector accounted for the highest month-over-month decrease in the number of distressed credits, moving to 15, from 23. As such, the oil and gas sector’s distress ratio decreased to 7.9% as of Jan. 15, from 88.5% as of Feb. 16, 2016.

The outlook for the oil and gas sector in 2018 is generally stable, reflecting a continued flattening of oil and natural gas pricing, but performance will depend heavily on potential OPEC production cuts and price volatility, S&P Global says.

The distress ratio for the metals, mining and steel sector decreased to 5.6%, from 82.3% over the same roughly two-year period referenced above.

Distressed credits are speculative-grade (rated BB+ and lower) issues with option-adjusted composite spreads of more than 1,000 basis points relative to U.S. Treasuries. The distress ratio (defined as the number of distressed credits divided by the total number of speculative-grade issues) indicates the level of risk the market has priced into bonds.

As of Jan. 15, the retail and restaurants sector had the highest distress ratio at 17%, followed by the telecommunications sector at 15.9%. — Rachelle Kakouris

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US High Yield Bond Funds See $1.1B Investor Cash Withdrawal

high yield bond flows

U.S. high-yield funds recorded an outflow of roughly $1.1 billion for the week ended Jan. 24, according to weekly reporters to Lipper only. This week’s outflow follows last week’s exit of roughly $3.1 billion, and brings the total outflow from high-yield funds so far this year to about $1.4 billion.

ETFs made up the bulk of this week’s outflow, with an exit of roughly $621 million, while $510 million was pulled out of mutual funds.

The four-week trailing average widened to negative $342 million, from negative $119.5 million last week.

The change due to market conditions this past week was an increase of $123.5 million. Total assets at the end of the observation period were $207.8 billion. ETFs account for about 24% of the total, at $50.3 billion. — James Passeri

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Netflix Expects to Again Tap High Yield Markets, Highlighting Equity Cushion

Alongside Neflix’s fourth-quarter earnings rollout today, indicating adjusted EBITDA for the period above consensus forecasts, the issuer noted in a filing that it again intends to seek capital through high-yield markets, three months after the issuer placed $1.6 billion of unsecured bullet notes due 2028.

“We anticipate continuing to raise capital in the high yield market,” the company said in the Monday filing. “The new limitation on deductibility of interest costs is not expected to affect us. We are striving to make the right choices and investments to grow the value of the firm, and that is what also ultimately secures our debt. High yield has rarely seen an equity cushion so thick.”

Netflix 4.875% notes due 2028 rose 1.375 points on the day, to 99.875 in midafternoon trading, according to MarketAxess. Meanwhile, shares of Netflix (NYSE: NFLX) rose 9.3% in postmarket trading, climbing to about $248.50.

The streaming media provider booked adjusted EBITDA for the quarter of $312.9 million, topping analyst estimates by roughly 2.4%, based on consensus data provided by S&P Global Market Intelligence. Meanwhile, negative free cash flow of $524 million for the quarter topped forecasts of about negative $732.8 million. Netflix noted the FCF beat was largely due to the timing of content payments, which will now occur in 2018. Meanwhile, revenue of about $3.286 billion for the period fell roughly in line with estimates.

Netflix reported FCF for 2017 of about negative $2 billion, on the narrower of the issuer’s guidance of negative $2–2.5 billion, and above consensus estimates of roughly negative $2.175 billion for the period.

“In the near term, however, membership, revenue and original content spend are booming,” the company added. “We’re growing faster than we expected, which allows us to invest more in original content than we had planned, so our FCF will be around negative $3 billion to $4 billion in 2018.”

Netflix (Nasdaq: NFLX) is a Los Gatos, Calif.–based global streaming media provider. — James Passeri/ Jakema Lewis

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After Big Inflow, US High Yield Funds See $3.1B Investor Cash Withdrawal

high yield bond flows

U.S. high-yield funds recorded an outflow of roughly $3.1 billion for the week ended Jan. 17, according to weekly reporters to Lipper only.

This week’s outflow follows an inflow of $2.65 billion last week, and puts the total outflow so far this year at about $238 million.

ETFs accounted for roughly $2 billion of this week’s outflow, while $1.1 billion exited mutual funds.

The four-week trailing average swung to negative $120 million, from positive $371 million last week.

The change due to market conditions this past week was an increase of $316 million. Total assets at the end of the observation period were $208.8 billion. ETFs account for about 24% of the total, at $50.8 billion. — James Passeri

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Risk-On: US High Yield Bond Funds See $2.65B Investor Cash Inflow

us high yield flows

U.S. high-yield funds recorded an inflow of roughly $2.65 billion for the week ended Jan. 10, according to weekly reporters to Lipper only, marking the largest such inflow since December 2016. This follows last week’s inflow of $186 million, indicating a total inflow to high-yield funds of about $2.8 billion so far in 2018.

Mutual funds made up the bulk of this week’s inflow, taking in roughly $1.5 billion, while about $1.2 billion entered ETFs. This marks the largest inflow to mutual funds since roughly $1.9 billion for the week ended Dec. 14, 2016.

The four-week trailing average rose to positive $371 million, from negative $522 million last week, snapping a streak of ten consecutive weeks in the red.

The change due to market conditions this past week was an increase of $226 million. Total assets at the end of the observation period were $211.6 billion. ETFs account for about 25% of the total, at $52.8 billion. — James Passeri

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McGraw-Hill Unveils PIK Toggle Offering as High Yield Mart Heats Up

McGraw-Hill has set talk in the 9.5% area for a $250 million offering of five-year (non-call one) PIK toggle notes, sources say. Pricing is expected today, Dec. 7, via bookrunners Credit Suisse (lead) and Jefferies, following the closing of books at noon EST.

Proceeds, along with those from a term loan add-on, will be used to refinance $443.6 million of 8.5% PIK toggle notes due 2019.

The educational concern is the third issuer since the middle of November to come to the high yield market with a PIK toggle offering, which allows the issuer to pay interest with additional debt, as opposed to cash. The other two:

  • Technology/healthcare concern Multiplan last month issued $1.3 billion in PIK toggle notes backing a dividend to private equity sponsor Hellman & Friedman. The offering priced to yield 9.25% (8.5% if repaid in cash). Multiplan was the largest PIK toggle since the financial crisis. The issue was rated B-/Caa2.
  • Lab testing company Sotera in November completed a $75 million PIK toggle offering to yield 8.875% (8.125% if repaid in cash), backing a distribution to sponsor Warburg Pincus. The issue was rated CCC+/Caa2.

As reported, McGraw-Hill is currently in market with a $150 million incremental first-lien term loan. Price talk is for an issue price of 99.75. Commitments are due today. The add-on will be fungible with the existing covenant-lite TLB due May 2022, which is priced at L+400, with a 1% LIBOR floor.

The company has launched a tender offer for the $443.6 million outstanding of its 8.50%/9.25% PIK toggle notes due 2019 at total consideration of $1,002.75 per note, including a $30 consent payment for notes tendered by the early deadline of Dec. 12. Credit Suisse is running the tender. The bonds are also currently callable at par.

The new notes will slip behind its 7.875% senior notes due 2024, which closed last night at par, yielding 7.87%, according to S&P Global Market Intelligence. The 2024s mark its last visit to the bond market, in April 2016.

Current PIK toggle ratings are CCC+/Caa1/B, and term facility ratings are B+/B1, with a 2 recovery rating from S&P Global Ratings. Moody’s earlier this week downgraded the term loan facility rating by one notch. Corporate ratings are B/B2, with stable and negative outlooks.

McGraw-Hill Global Education Holdings is a provider of outcome-focused learning solutions, delivering curated content and digital products to students in higher education, K–12, professionals, and corporations across 140 countries. — Staff reports

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Valeant Pharma Prices $1.5B High Yield Offering to Refi Maturing Debt

Broad market issuer Valeant Pharmaceuticals today placed $1.5 billion of eight-year notes via sole bookrunner Barclays. Prior to pricing, the offering was upsized by $500 million. Proceeds will be used to fund a tender offer for the borrower’s 7%, 6.375%, and 5.375% notes due 2020. Valeant last month placed a $750 million add-on to its secured notes due 2025. Valeant Pharmaceuticals (NYSE:VRX) develops, manufactures, and markets pharmaceuticals worldwide. Terms:

Issuer Valeant Pharmaceuticals 
Ratings B–/Caa1
Amount $1.5 billion
Issue Senior (144A/Reg S for life)
Coupon 9%
Price 98.611
Yield 9.25%
Spread T+691
Maturity Dec. 15, 2025
Call non-call four (par +50% coupon)
Trade Dec. 4, 2017
Settle Dec. 18, 2017 (T+10)
Sole bookrunner Barc
Price talk n/a
Notes Upsized from $1 billion; change-of-control put @ 101; up to 40% equity claw

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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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