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High Yield Energy Debt Rallies in Trading as Oil Climbs

Commodity and energy names rallied as much as 10 points this week as oil climbing to the highest level since June, and thermal coal prices hitting its highest level since the start of 2014, snapped yields tighter across the sector.

Coal mining concern Murray Energy 11.25% notes due 2021 have gained 10 points on the week after climbing another two points today, to 64.5.

Topping the actively traded list, now bankrupt Peabody Energy 6.25% notes due 2021, and 6% notes due 2018, are up seven and 10 points, respectively, on the week, at around 34.5.

Coal prices hit a 30-month high on Tuesday after surging more than 50% during the month of September following a series of rules and regulations in China that are expected to impact freight costs and production output.

In names tied to the oil-and- gas sector, Chesapeake 5.75% notes due 2023 are up more than seven points on the week after gaining more than 1.25 points today, to 86.5.

California Resources 6% notes due 2024 were up as much as six points in odd-lot clips. The new 8% second-lien exchange notes due 2022 gained one point, to 69.25.

Independent oil-and-gas company Denbury Resources 5.5% subordinated notes due 2022 meanwhile traded in a round lot at 77.75, up 2.75 points on the day and nearly eight points on the week.

Caa2/CCC+ EP Energy 6.375% notes due 2023 gained 2.75 points, to 63.75.

The recently issued Sabine Pass Liquefaction $1.5 billion of 5% secured notes due 2027 were up three-eighths of a point, at 103.375.

Bucking the trend, Dynegy 7.625% notes due 2024 are down half a point, at 98.5. The company is currently marketing a new $500 million offering of eight year senior notes, expected to price today around talk of 8.125% area to fund a buyout.

U.S. government data unexpectedly showing a large draw for a fifth straight week sent the underlying WTI gaining more than 2% and closing in on a key $50 barrier. Oil has jumped 13 percent over the past six sessions after the Organization of the Petroleum Exporting Countries announced plans to limit output.

Global mining giant Freeport-McMoRan notes remained steady after gold hit its lowest level since June on Tuesday. Freeport 4.55% notes due 2024 were up nearly a point on the day, at 91.125, after closing half a point lower on Tuesday.

Alcoa’s recent $500 million offering of 7% notes due 2026 were near unchanged, at 104.375, from par issuance late September.

Also helping to bolster performance is the relatively thin supply out of the primary market, with deal announcements on pause through the earlier part of the week until Dynegy launched a drive-by offering Wednesday morning.

Issuance for the week, and essentially the start of the fourth quarter, has been predominately muted. With the exclusion of the expected Dynegy paper, year-to-date volume totals $181.61 billion, a 20% decline from this same time last year. — Rachelle Kakouris/Jakema Lewis

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Rebound: US High Yield Bond Prices See Largest Gain 18 Months

The average bid of LCD’s flow-name high-yield bond sample has surged 282 bps since the previous reading, on Thursday, to 99.92% of par, yielding 6.75%, from 97.10, yielding 7.41%, on July 7. Performance within the sample was all positive, with gains of a full point or more for 13 of the 15 constituents.

This is the single-largest upside move for the twice-weekly measure in approximately 18 months, or since an advance by 307 bps recorded on Dec. 18, 2014, to 96.40 at the time. That was a snapback rally after a rough month due to the bear market mauling in oil and energy credits and heavy outflows; this time it’s a post-Brexit-vote relief rally alongside heavy inflows.

With the relatively huge gain in price, the average yield to worst plunged 66 bps, to 6.75%, and the average imploded by 76 bps, to T+566. The current observations are the thinnest in one year. – Staff reports

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US High Yield Bond Prices Rise in Secondary Amid Broad Market Lift

The average bid of LCD’s flow-name high-yield bonds rose 133 bps in Tuesday’s observation, to 96.96% of par, yielding 7.12%, from 95.63, yielding 7.88%, on June 30. Performance within the sample remained positive for all constituents for the second consecutive reading.

high yield stats

These stats are as of June 30 , 2016.

Gains continued as the market rebounds from the unexpected result of the Brexit vote at the tail-end of June. And, as the high-yield market moves forward from Britain’s decision to exit the European Union, there is only a difference of one basis point when compared to figures recorded two weeks ago.

With the increase in bid price, the average yield to worst has declined 76 bps, to 7.12%, and the average option-adjusted spread retracted 58 bps, to T+604. The last time the average option-adjusted spread tightened to this level was the April 28 reading of T+603.

The average bid continues to move wider when stacked up against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed on Friday, July 1, with a yield to worst of 6.77% and an option-adjusted spread to worst of T+584.

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Toys R Us High Yield Bonds, Leveraged Loans Soar on Word of Near-Term Refinancing

High yield bond and leveraged loan debt backing Toys ‘R’ Us jumped in the trading market this morning after the company announced plans to refinance the majority of its near-term unsecured debt maturities, of which $850 million is scheduled to come due in 2017 and 2018.

The targeted $448 million issue of 10.375% holdco notes due 2017 climbed more than eight points to 101, its highest level since Sept. 2013, trade data show. The company’s other pre-fallen-angel targeted notes, the $402 million issue of 7.375% holdco notes due 2018, changed hands in small clips around an 84 context.

Notably absent from the exchange, the $722 million 8.5% secured propco II notes due 2017 are up around two points on the news, trading in a 98–99 range, trade data show.

Sources speculate that the company could refinance those notes in the public market given J.C. Penny’s recent refinancing of its term loan facility.

On the derivatives front, the cost of a five-year credit default swap (CDS) for the issuer cratered by roughly 24%, to a 15.5/18.5-points-upfront market quote, according to Markit. That’s essentially $550,000 cheaper of an upfront payment, at $1.7 million at the mid-point, in addition to the $500,000 annual payment, to protect $10 million of Toys ‘R’ Us bonds. Moreover, it’s now about $3.1 million less expensive than records wides around 48 points upfront in December.

Over in the loan market, the Toys ‘R’ Us covenant-lite B-4 term loan due 2020 (L+875, 1% LIBOR floor) popped up to an 87.5/89.5 market, rising roughly three points on the news, sources said.

The company said it intends to refinance up to approximately 89% of the 2017 and 2018 holdco notes with new debt maturing in five years via an exchange offer, of which 50.2% have so far tendered. In addition, a third party has also agreed to purchase up to $50 million of new debt, filings show.

As per the terms of the offer, the holders of all the outstanding $402 million holdco notes due 2018, and up to $400 million of the $448 million holdco notes due 2017, will have the option to exchange for new 12.00% senior secured notes due 2021 issued through a new subsidiary “ExchangeCo,” with the maximum amount of new secured notes to be issued at $525 million; in addition to $50 million of privately placed notes.

Holders of the 2018 holdco notes will receive 90% of the new notes with no cash component for each $1000 tendered by the early tender date

Holders of the 2017 holdco notes have a “notes only option” to receive par payment in the new secured ExchangeCo notes if tendered by the early tender deadline, or a “notes plus cash” option for either 50% in cash with the balance paid in new secured notes at par if the 2017 notes participation level reaches 74.9% or above. Other scenarios are an option for 52.5% in cash and the balance paid in new secured notes at par if participation is within a range of 75–84.9%; 55% in cash with balance paid in new notes at 85% participation; or a pro rata share of $150 million in cash with the balance paid in new notes for participation above 85%.

Consideration for tenders after the early tender date will be 85% in the case of the 2018 notes and 95% in the case of the 2017 notes.

The new notes issued under the ExchangeCo entity will hold equity interests in the entities from the company’s Europe, Japan and Australia operations, as well as Wayne Real Estate Parent Company and the company’s 70% interest in Toys Asia JV.

Furthermore, the new secured notes will be guaranteed by the company and certain of the obligors under European ABL, and secured by a first-lien on all equity interests of ExchangeCo a second-lien on the equity interests of the collateral agent under the European ABL Facility.

The company will also assign the new ExchangeCo with up to $100 million of cash contributions to capitalize the new entity, to be funded by up to approximately $28 million from the Asia JV and up to approximately $24 million from Propco I, with the remainder funded by internal sources of cash.

Finally, the company also offered preliminary first-quarter results, estimating same-store sales growth of 0.9% and adjusted EBITDA of roughly $79 million, up 13% from the first quarter 2015.

Cash on balance sheet was roughly $680 million as of Jan. 30.

The $1.025 billion B-4 term loan was placed in June 2014 via Goldman Sachs, Bank of America Merrill Lynch, Wells Fargo, J.P. Morgan, Citigroup, and Deutsche Bank in part to repay the company’s 2016 debt maturities. The deal was seen as something of a “self-help” exercise by the market. Bank of America Merrill Lynch is administrative agent.

S&P Global ratings today affirmed its B– corporate credit rating on the issuer, while its corporate rating at Moody’s and Fitch remains B3 and CCC respectively.

Toys ‘R’ Us is working with Bank of America Merrill Lynch, Goldman Sachs, and Lazard. As reported, the company announced it had retained the group in February “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. – Rachelle Kakouris

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Bond prices notch small gain with broadly positive reading

The average bid of LCD’s flow-name high-yield bonds rose 25 bps in today’s observation, to 94.98% of par, yielding 8.01%, from 94.73, yielding 8.04%, on May 12. Performance was broadly positive, with nine gainers versus one unchanged issue and five decliners.

The modest gain builds on an increase of 23 bps in Thursday’s observation, for a net advance of 49 bps week over week on account of rounding. Going back two weeks, the average bid is still down 48 bps from 95.46 on May 3. Losses in late April still weigh heavily in the trailing four-week observation, which is negative 171 bps.

The advance over the past week comes amid some signs of cash returning to the asset class following heavy withdrawals earlier in the month, a rise in oil prices to the tune of 11–13% over the past week, and some strength in the U.S. Treasury markets, which lowered yields. As for the cash-flow figures, certainly the one-week measures by Lipper were deeply negative over the past two weeks, but day-to-day flows for exchange-traded funds suggest an incoming reversal, what with the largest, the iShares HYG, netting an infusion of approximately $746 million over the past four sessions, trade data show.

Recall that there was an initial reading in the red on April 26 after a steady run higher over the previous month to a 2016 peak of 96.87 on April 21. That reading was still 179 bps above the previous near-term high of 95.08 on March 22 and up 182 bps from the prior peak of 95.05 on March 3. The current bid price is now down 189 bps from that 2016 high.

With today’s modest gain in the average bid price, the average yield to worst slipped three basis points, to 8.01%, but the average option-adjusted spread to worst cinched inward by seven basis points, to T+655. As with the average price, both are two-week low metrics on the sample of 15 bonds.

Given a smaller sample of high-beta credits, the LCD flow names have been variable against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Monday, May 16 with a 7.31% yield to worst, but an option-adjusted spread to worst of T+617.

Bonds vs. loans
The average bid of LCD’s flow-name loans was essentially steady, but technically down one basis point in today’s reading, at 98.87% of par, for a discounted loan yield of 4.23%. The gap between the bond yield and the discounted loan yield to maturity is 378 bps. — Staff reports

  • The data: Bids increase: The average bid of the 15 flow names rose 25 bps, to 94.98.
  • Yields decrease: The average yield to worst slipped three basis points, to 8.01%.
  • Spreads decrease: The average spread to U.S. Treasuries ticked inward by seven basis points, to T+655.
  • Gainers: The largest of the nine gainers were equally 1.5 points to 81 apiece for Hexion 6.625% notes due 2020 andValeant Pharmaceuticals International 5.875% notes due 2023.
  • Decliners: The largest of the six decliners was Community Health Systems 6.875% notes due 2022, which shed 1.75 points, to 85.5.
  • Unchanged: Only Dish Network 5.875% notes due 2022 were unchanged, at 96.5.
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Claire’s announces PIK exchange of notes held by Apollo, CEO resigns

Claire’s Stores has entered into an agreement with funds managed by affiliates of Apollo to swap out their subordinated debt holdings for new PIK notes.

The agreement comes after the company’s equity sponsor acquired a significant portion of the existing debt through open market purchases, a move that would potentially give Apollo a greater position around the bargaining table in the event of a bankruptcy filing.

According to an 8-K form filed with the SEC, the company has agreed to exchange $174.4 million held by the funds of the $259.6 million 10.5% senior subordinated notes due 2017 for new $174.4 million of 10.5% PIK subordinated notes due 2017.

The new notes will be paid in kind with respect to the June 1 coupon, and may be PIK, paid in cash, or 50/50 on the Dec. 1, 2016 interest payment. Though the company will save some cash through this exchange, analysts at Citi expressed concern that this could suggest a need for liquidity to stay compliant with the first-lien leverage ratio, and also that Apollo is not jumping to equitize the subordinated notes, which has been part of its base case scenario.

Claire’s also announced today the appointment of Ron Marshall as its new CEO. Commenting on the hire, Citi Analysts note that Marshall has been at the helm of a number of struggling companies that no longer exist in their original form, including A&P, Pathmark, and Borders.

“We view both pieces of today’s news as potentially tactical on the sponsor’s part in terms of the decision and timing, as lower bond prices are preferable in the event Apollo buys back more bonds (to gain control elsewhere in structure and more optionality) or attempts to negotiate with existing lenders,” Citi analyst Jenna Giannelli said in a note.

“Our thesis has been one in which Apollo utilizes its leverage as the majority owner of the ’17s and agrees to equitize, in exchange for cooperation with existing lenders elsewhere in the capital structure. We don’t think it makes sense for the Sponsor to tap into the small basket available at International subs, given the little value it would recover on the notes, still looming ’19 maturities and over levered structure,” Giannelli said.

The first-lien 9% notes due 2019 traded down 2.5 points, at 67.5, trade data show. Unsecured 8.875% notes due 2019 were trading in small batches in the high 20s, which is unchanged from recent valuation, the data show.

Hoffman Estates, Ill.–based Claire’s Stores operates as a specialty retailer of fashionable jewelry and accessories for young women, teens, and children worldwide. The company was taken private by Apollo Management in early 2007 for roughly $3.3 billion. As of January 30, 2016, Claire’s total debt was approximately $2.41 billion, consisting of notes, U.S. credit facility, Europe credit facility, and a capital lease obligation. — Rachelle Kakouris

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PTC debut bonds price inside of talk, at par to yield 6%; terms

Engineering software company PTC this afternoon completed its debut in market via J.P. Morgan as sole bookrunner. Terms on the BB–/Ba3 transaction were finalized inside of talk by 12.5 bps, at 6%, and an early read from the gray market points to follow-on demand, with quotes up at least one point on the break, according to sources. Proceeds will be used to repay a portion of the amounts outstanding under the company’s bank credit facility, filings showed. Needham, Mass.–based PTC offers software and services tied to computer-aided design products and engineering calculation solutions. Terms:

Issuer PTC Inc.
Ratings BB–/Ba3
Amount $500 million
Issue senior notes (SEC reg.)
Coupon 6%
Price 100
Yield 6%
Spread T+434
Maturity May 15, 2024
Call nc3 @ par+75% coupon
Trade May 4, 2016
Settle May 12, 2016 (T+6)
Bookrunners JPM
Co-managers Barc, FTS, HSBC, JM, Key, RBC, RBS, Sant, STRH, TD, Hunt, USB
Price talk 6.25% area
Notes First call par+75% coupon; inside of talk by 12.5 bps.
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Denbury bonds slip, shares gain after distressed bond-and-stock swap

Bonds backing Denbury Resources slipped today after the company unveiled a privately negotiated, bond-uptier and shares debt exchange roughly three months since a prior debt swap was cancelled after investor resistance. In this new deal, the net consideration worked out of about 57% of par based on participation, but not including the value of equity, according to a company statement.

All three series were lower today after suppression within the capital structure. The 5.5% subordinated notes due 2022, for one, shed three points, to 58/60, while the 4.625% notes due 2023 gave up the same amount, to 54/56, according to sources.

Denbury shares, however, edged up roughly 3% this morning on the NYSE, to $3.72.

Under terms of the transaction as announced by the company, approximately $839.4 million of the three series of subordinated notes were swapped out for roughly $482.9 million of new 9% second-lien exchange notes due 2021 and 33.6 million shares of the Denbury common stock, the filing showed.

As for the three series, consideration was on $123.4 million of the $400 million of 6.375% notes due 2021; $301.7 million of the $1.25 billion of 5.5% notes due 2022; and $414.3 million of the $1.2 billion of 4.625% notes due 2023, according to a company statement.

The exchange offer followed open market repurchases of the three series during the first quarter of a net $152.3 million. With that and the bond swap, bond debt outstandings were reduced to $2.34 billion, from $2.85 billion, according to the company.

Recall that Denbury in late January cancelled a prior debt swap (see “Denbury cancels uptier bond swap after push-back, bond price drops,” LCD News, Jan. 21, 2016).

As reported, Denbury last month disclosed that it reduced the borrowing base under its revolver due December 2019 by $450 million, to $1.05 billion. Bonds were modestly higher at the time (see “Denbury Resources cuts revolver borrowing base by $450M, to $1.05B,” LCD News, April 19, 2016). — Matt Fuller

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US high yield fund flows stay positive in week, but against ETF outflows

U.S. high-yield funds recorded an inflow of $297 million in the week ended April 27, according to Lipper. This is a fourth-consecutive infusion to the asset class, but it’s down from $410 million last week. Regardless, with larger inflows prior, the trailing-four-week measurement expands to positive $493 million per week, from positive $283 million last week.

HY fund flows April 27 2016

However, take note that it was a larger inflow to mutual funds, at $555 million, that was dented by outflows of $259 million from the ETF segment. In contrast, last week’s inflow was almost all ETF-related, at 94% of the sum, while two weeks ago, it was mutual fund outflows filled back in by ETF inflows.

Whatever that might say about fast money, hedging strategies, and other market-timing efforts, this past week is a net inflow that boosts the year-to-date total infusion to $9.7 billion, with squarely 50% ETF-related. Last year at this point, after 17 weeks, the $10.5 billion net inflow was 45% ETF-related.

The change due to market conditions this past week was positive $618 million, which is not much against total assets of $191.8 billion at the end of the observation period, at positive 0.3%. ETFs account for about 21% of the total, at $40.6 billion. — Matt Fuller

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Bond prices rebound modestly, just shy of 2016 peak

The average bid of LCD’s flow-name high-yield bonds edged up 36 bps in today’s observation, to 96.54% of par, yielding 7.55%, from 96.18 on Tuesday, yielding 7.64%. Performance within the sample was mixed, with eight gainers against four unchanged and three lower.

The modest gain dents Tuesday’s decrease of 68 bps, for a net decline of 33 bps for the week. The average is essentially unchanged back two weeks, at negative three basis points, but it’s higher by 217 bps reaching back four weeks, as that observation includes more of the March rebound.

Recall that Tuesday was an initial reading in the red after a steady run higher over the past month to a 2016 peak of 96.87 recorded one week ago. That reading was 179 bps above the previous near-term high of 95.08 on March 22 and up 182 bps from the prior peak of 95.05 on March 3.

All said the average this week was essentially hovering just under the 2016 high, amid generally rangebound conditions amid a busy pipeline of first-quarter reports and with mixed cash flows to the asset class. The average is now up 425 bps in the year to date.

With today’s modest gain in average bid price, the average yield to worst slumped nine basis points, to 7.55%, but the average option-adjusted spread to worst cinched inward by just one basis point, to T+604. The smaller move of spread as compared to yield can be linked to the U.S. Treasury market strength of late, as falling underlying yields encourages spread-to-Treasury expansion. Take note that both 7.46% and T+593 one week ago at the 2016 peak price were appropriately the tightest levels this year but, technically, the tightest levels since late October.

Given a smaller sample of high-beta credits, the LCD flow names have been variable against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Wednesday, April 27, with a 7.31% yield to worst, but an option-adjusted spread to worst of T+895.

Bonds vs. loans 
The average bid of LCD’s flow-name loans was down eight basis points in today’s reading, to 99.15% of par, for a discounted loan yield of 4.25%. The gap between the bond yield and the discounted loan yield to maturity is 330 bps. — Staff reports

  • The data: Bids increase: The average bid of the 15 flow names advanced 36 bps, to 96.54.
  • Yields decrease: The average yield to worst slipped nine basis points, to 7.55%.
  • Spreads decrease: The average spread to U.S. Treasuries ticked lower by one basis point, to T+604.
  • Gainers: The largest of the eight gainers were equally two-point increases for Dish Network 5.875% notes due 2022, to 98, and Sprint 7.875% notes due 2023, to 78.5.
  • Decliners: The largest of the three decliners was Hexion 6.625% notes due 2020, which slipped one point, to 84.
  • Unchanged: Four of the 15 constituents were steady in today’s reading.