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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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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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US High Yield Funds See Cash Inflow Courtesy Big ETF Gain

high yield fund flows

U.S. high-yield funds recorded an inflow of $122 million for the week ended Oct. 25, according to weekly reporters to Lipper only. This comes on the heels of last week’s outflow of $450 million.

ETFs drove the action this week with an inflow of $530 million, while $407 million exited mutual funds.

The four-week trailing average fell to positive $321 million from positive $399 million last week, and has now remained in the black for six consecutive weeks.

The year-to-date total outflow is now $6.7 billion, with an $11.6 billion outflow from mutual funds outweighing a $4.9 billion inflow to ETFs.

The change due to market conditions this past week was a decrease of $216 million, snapping a streak of eight consecutive weeks of increases. Total assets at the end of the observation period were $215 billion. ETFs account for about 25% of the total, at $53.8 billion. — James Passeri

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Fridson: High Yield Bond Covenant Quality Hits All-Time Low

The covenant quality of high-yield new issues reached an all-time low in the third quarter, as measured by the FridsonVision series. Moody’s series, of which ours is a refinement, bottomed out in the second quarter. For reasons detailed below, the two series diverged in September, with FridsonVision’s showing minor improvement versus August’s reading, while the Moody’s series deteriorated slightly, month over month.

cov quality 3

To provide background, “Covenant quality decline reexamined” ($) 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.

cov quality

The opposite of the effect described just above occurred in September (see chart below). As the double-B component expanded from 24.0% of all issues in August, to 38.2% in September, Moody’s series worsened from 4.54, to 4.59 (1 = Strongest, 5 = Weakest). Filtering out the impact of monthly variations in ratings mix, the FridsonVision series showed a similarly sized improvement from 4.59, to 4.55.

On a quarterly basis, though, the pattern was reversed. The FridsonVision series deteriorated from 4.37 in August to an all-time low of 4.44 in 3Q17. This series’ previous worst score was 4.38 in 1Q15. Meanwhile, the Moody’s series improved slightly from its all-time quarterly worst 4.49 in 2Q17 to 4.47 in 3Q17 (see chart below). That seeming improvement in covenant quality reflected an unusually heavy concentration of issuance in the double-B category in 2Q17 and a return to about an average concentration in 3Q17. – Martin Fridson

This analysis was excerpted from Marty’s regular weekly column, available to LCD News subscribers. 

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US High Yield Bond Funds See $450M Investor Cash Withdrawal

Investors withdrew $450 million from U.S. high-yield funds this week, ending a four-week run of inflows totaling nearly $3 billion, according to Lipper. With the recent activity, the four-week average dips to a $399 million inflow, down from $728 million a week ago.

high yield fund flowsHigh-yield funds proper took most of the hit during the week, with a $281 million outflow, while ETFs saw a $169 million withdrawal.

Year-to-date, U.S. high-yield funds and ETFs have seen $6.8 billion of outflows, thanks to the funds, which have been hit with $11.2 billion of withdrawals so far in 2017. High-yield ETFs have seen $4.3 billion of inflows.

The change due to market conditions during the week was positive $169 million, marking the eighth straight advance. Total assets at the end of the observation period are $212.2 billion, with ETFs accounting for $53.3 billion of that. — Staff reports

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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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Default Protection Costs on Nordstrom Debt Tumble After Co. Shelves Take-Private

Credit spreads referencing department store operator Nordstrom (NYSE: JWN) firmed after the company today confirmed recent speculation that the Nordstrom family had suspended its going-private bid for the balance of the year.

Five-year protection costs on Nordstrom debt tumbled by 40 bps to indications of 246 bps, marking a 14% decline. Readings had hovered near 350 bps last month before press reports surfaced that private-equity interest was wavering as financing conditions grow more onerous for brick-and-mortar retailers, particularly following the unnervingly rapid unraveling of Toys R Us.

However, CDS was substantially lower on June 7, at 170 bps, just before the company announced its ambitions to take the storied retailer private. Readings were at 110 bps in early December 2016 before rounds of sector-rattling reports regarding weak holiday shopping results.

Nordstrom 4% notes due March 15, 2027 changed hands this morning at T+175, after trading as wide as T+200 one month ago, trade data show. The 4% 2027 issue dates to pricing on March 6 this year at a tighter T+155 level.

Nordstrom said it would take up its efforts to take the company private “after the conclusion of the holiday season.” Company co-Presidents Blake W. Nordstrom, Peter E. Nordstrom, and Erik B. Nordstrom, President of Stores James F. Nordstrom, Chairman Emeritus Bruce A. Nordstrom, and Anne E. Gittinger made the notification to the Special Committee of the Board of Directors of Nordstrom.

The present BBB+/Baa1/BBB+ ratings on Nordstrom reflect stable outlooks at Moody’s and Fitch, but a negative outlook at S&P Global Ratings since August 2016 due to ongoing sale-store declines across the department-store sector.

S&P Global Ratings in June said the going-private proposition had no immediate effect on ratings, though it assumed any sale would represent a leveraged transaction (in the context of  adjusted debt-to-EBITDA of roughly 2x as of April), and said it would likely place the ratings on CreditWatch with negative implications on the announcement of a specific transaction.

Nordstrom is at present rated higher than its more down-market peers Macy’s (BBB–/Baa3/BBB) and Kohl’s (BBB–/Baa2/BBB), both of which are fallen-angel candidates with negative outlooks on the cusp-level grades at S&P Global Ratings.

Prior to the recent declines, Nordstrom’s go-private strategy had vaulted its debt-protection costs north of the current five-year readings for Macy’s (roughly 300 bps), which reflect both brutal operating progressions and a simmering perception of potential LBO risk. Nordstrom’s CDS also remains more expensive that the 200 bps currently bandied for protection on the debt of Kohl’s, according to Markit. — John Atkins

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