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Amid investor cash outflows, July US high yield bond issuance slips to $25B

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Amid a substantial investor retreat from the market, U.S. high yield bond issuance dipped to $25.3 billion in July, down from $29 billion in June, according to S&P Capital IQ/LCD. It is the smallest monthly tally since the $15.6 billion recorded in February.

The activity comes as investors, amid much talk of a market bubble, are pulling cash from high yield funds at a rapid clip. During the month there was a net $5.3 billion outflow from U.S. funds, largely offsetting $6.5 billion in cash inflows during the previous six months, according to Lipper,

To be sure, the market is more tentative, though there are deals getting done, as detailed by Matt Fuller and Joy Ferguson in LCD’s Weekly Wrap:

… recent geopolitical concerns and outflows – along with the usual summer slowdown – have created a more cautious tone overall. Deals typically priced at the midpoint or wide end of talk this week, but failed to pop in the secondary market, leading investors to be more selective.

Still, with weak break performances and a few loan refinancings getting sidelined, the big question is whether the balance of this week’s high-yield calendar – $3.1 billion, as of press time – is viable.

Of course, with investors becoming more selective, yields are rising, posting their largest weekly increase since May 2012, to 5.7%, from 5.3% on July 25, according to Bloomberg/Businessweek, per the Barclays U.S. Corporate High Yield Index.

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Energy Future exclusivity bid draws flak from EFIH 1st-lien trustee


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The indenture trustee for some of the first-lien debt of Energy Future Holdings unit Energy Future Intermediate Holdings (EFIH) filed a limited objection to the company’s motion for a six-month exclusivity extension, arguing that the extension should be limited to two months.

In a filing today with the bankruptcy court in Wilmington, Del., the trustee for EFIH’s first-lien 10% senior secured notes due 2020, CSC Trust Co. of Delaware, argued that the shorter extension would allow the company to provide more detail on its proposed marketing process for EFIH, and let “creditors and the court to determine whether that process merits a lengthy exclusive period.”

As reported, EFIH is an intermediate holding company that is the direct owner of the company’s 80% interest in regulated utility Oncor.

Specifically, CSC cited a lack of clarity with respect to how – or indeed, even whether — the company would pursue the NextEra bid for EFIH (see “NextEra, noteholder group up offer for Energy Future Holdings ,” LCD, July 17, 2014) as the cause for its concern. CSC noted that while the company has said it would conduct a “court supervised bid process with respect to” restructuring EFIH, it has not yet disclosed whether it would bring the NextEra offer forward as a stalking-horse bid, or what process or timeline the company would follow.

“Given the pendency of the NextEra bid, and the fact that the debtors have not disclosed whether their proposed process will effectively foreclose or risk the Next Era proposal, it is simply premature to grant a six month extension,” the objection said.

And citing bad blood that still lingers among the parties after more than a year of restructuring negotiations, CSC said it was concerned that the company would “reprise [its] prior conduct in this case” and disclose a transaction process in the week leading up to the exclusivity hearing, leaving creditors with no chance to respond before an exclusivity timetable is established.

“This case should not have another significant period pursuing a course of action only to find at the end that the proposal faces widespread creditor opposition,” the objection argued.

As reported, the company is seeking to extend the exclusive period during which only it could file a reorganization plan through Feb. 23, 2015. The company’s bid to extend exclusivity followed its decision, announced in bankruptcy court on July 18, to terminate its restructuring-support agreement with several creditor constituencies and “vigorously pursue” new potential reorganization transactions (see “Energy Future to scrap current reorg deal; sees potential new offers,” LCD, July 18, 2014). – Alan Zimmerman

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Warren Resources high yield bonds (B-/Caa1) price to yield 9.25%

Warren Resources this afternoon completed an offering of senior notes via joint bookrunners BMO, Jefferies, and Wells Fargo, according to sources. Terms on the B-/Caa1 market debut by the independent E&P were finalized at revised guidance, which was 100 bps higher than prior talk in the 8.25% area on account of the market turmoil since the deal launched two weeks ago. Warren seeks capital to fund a $352.5 million acquisition of Marcellus assets from Citrus Energy. Terms:

Issuer Warren Resources
Ratings B-/Caa1
Amount $300 million
Issue senior notes (144A)
Coupon 9%
Price 98.617
Yield 9.25%
Spread T+700
Maturity Aug. 1, 2022
Call nc3 @ par+75% coupon
Trade Aug 6, 2014
Settle Aug. 11, 2014 (t+3)
Bookrunners BMO/JEFF/WFS
Co-Managers CapOne, USB, BOSC, Comerica, KEY, SANT
Price talk 9.25% with OID (revised from 8.25% area)
Notes first call par+75% coupon.
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Bankruptcy: James River delays auction yet again as it pursues strategic transactions

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James River Coal Co. has postponed the auction of its assets once again, this time to Aug. 4, according to a notice filed Friday with the bankruptcy court in Richmond, Va.

This is the third delay of the auction. The auction had initially been set for July 8, according to the bidding procedures approved by the bankruptcy court, but was previously postponed to, first, July 21, and then a second time to July 28.

As with the previous delays, the notice didn’t provide a reason for the postponement. And the company again stated it made the decision to delay the auction and sale hearing “in consultation with” the unsecured creditors’ committee appointed in the case and its DIP lender.

As reported, the bankruptcy court on July 10 extended the exclusive period during which only the company could file a reorganization plan through Nov. 13, and extended the corresponding period for the company to solicit acceptances to a plan through Jan. 12, 2015.

As also reported, the company said in its motion seeking the exclusivity extension filed last month that it had “received various preliminary indications of interest from potential strategic and financial bidders and are continuing to make progress towards their goal of consummating a value-maximizing restructuring transaction in the near-term.”

Under the company’s bidding procedures, indications of interest were due by May 22 and bids were due by June 30.

– Alan Zimmerman

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Distressed Debt: 21st Century Oncology, seeking to avoid loan covenant breach, joins Restructuring Watchlist

21st Century Oncology this week earned its place on LCD’s Distressed Watchlist, which tracks companies that have recently hired restructuring advisers or entered into creditor negotiations, issuers with debt trading at deeply distressed levels, as well as those with recent credit defaults or downgrades into junk territory.

The troubles at 21st Century were revealed months ago. The provider of radiation-therapy centers withdrew a proposed concurrent $439 million B term loan in late May after shelving its IPO, citing unfavorable market conditions. Following that, the Center for Medicare and Medicaid Services proposed a payment reduction to radiation-therapy services on July 3, which sent the bonds lower. About 45% of the company’s U.S. net patient-service revenue comes from Medicare and Medicaid.

The company’s subordinated bonds suffered huge declines in the past couple weeks as it sought additional cash to avoid a covenant breach and hired advisors at Millstein & Co. in an effort to raise additional cash from investors and distressed lenders.

Although not enough to clear the company from the Watchlist, there was encouraging news today. Bonds backing 21st Century Oncology jumped this morning after the company reached two agreements with an ad hoc group of holders to provide additional liquidity.

The company stated in an 8K filing that it has been working with a number of its noteholders and lenders in the past month to recapitalize its balance sheet to provide financial flexibility to continue to grow its business. The company said it plans to obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before Oct. 1, 2014, or it will consummate a recapitalization, according to the 8K filing.

Yesterday, Medical Developers, a subsidiary of the company, and various lenders entered into an agreement to provide $17.5 million in A and B term loans in order to provide liquidity to negotiate the terms of the recapitalization.

21st Century Oncology is controlled by Vestar Capital Partners. S&P rates the company B- and revised its outlook to negative, from stable, on July 14, noting heightened risks to the forecast that near-term liquidity will remain adequate. LCD placed it on its Distressed Watchlist on July 25.

We will update the Restructuring Watchlist as events warrant. The Watchlist, which is published regularly in LCD’s Distressed Weekly, includes companies that have recently hired restructuring advisers or entered into creditor negotiations, issuers with debt trading at deeply distressed levels, as well as those with recent credit defaults or downgrades into junk territory. – Matt Fuller/Joy Ferguson

Contact Marc Auerbach for questions regarding the Watchlist or LCD Research.

 

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Level 3 upsized $1B 8-year #highyield bonds (B/B3) price to yield 5.375%

Level 3 Communications this afternoon completed its upsized $1 billion offering of eight-year (non-call three) senior notes via Citi (left), Bank of America Merrill Lynch, Morgan Stanley, Barclays, Goldman Sachs, Jefferies, and J.P. Morgan. Terms were finalized at the midpoint of talk, after a $400 million upsize. Proceeds from the deal – along with those from a covenant-lite B term loan – will be used to support Level 3′s planned $7.3 billion purchase of TW Telecom, the company disclosed in an SEC filing last month.

Terms:

Issuer Level 3 Escrow II
Ratings B/B3
Amount $1 billion
Issue senior (144A)
Coupon 5.375%
Price 100
Yield 5.375%
Spread T+324
Maturity Aug. 15, 2022
Call nc3
Trade July 29, 2014
Settle Aug. 12, 2014 (T+10)
Bookrunners Citi/BAML/MS/Barc/GS/Jeff/JPM
Price talk 5.375% area
Notes Upsized by $400 million
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Fridson: Cr-a-a-a-ck! Volatility returns to high-yield bond market

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Amid large cash outflows and widening spreads, volatility has returned to the U.S. high yield bond market, says LCD’s Martin Fridson:

For a few months, high-yield investors almost forgot what volatility looked like. In response to similar trends in a variety of markets, dealers complained that moribund prices were killing their trading profits. June began to solve those so-called problems; July reacquainted everybody with downside volatility …

The chart shows the difference between the largest and smallest daily option-adjusted spread (OAS) on the BofA Merrill Lynch US High Yield Index for each month of 2014. From a peak of 50 bps in February, the OAS range dropped steadily to 13 bps in May, the equivalent of a barely detectable pulse. Daily variability of the high-yield risk premium doubled to 26 bps in June and rose further to 36 bps in July, nearly matching January’s 39 bps.

This analysis is taken from Marty’s weekly commentary for LCD, available to subscribers. In it he also analyzes the influences on high yield volatility, the myth of deal attenuation of market drops, and whether the increased volatility of late implies a broad market retreat (spoiler: not necessarily).

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Bankruptcy: James River Coal auction delayed yet again, now set for Aug. 4

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James River Coal Co. has postponed the auction of its assets once again, this time to Aug. 4, according to a notice filed Friday with the bankruptcy court in Richmond, Va.

This is the third delay of the auction. The auction had initially been set for July 8, according to the bidding procedures approved by the bankruptcy court, but was previously postponed to, first, July 21, and then a second time to July 28.

As with the previous delays, the notice didn’t provide a reason for the postponement. And the company again stated it made the decision to delay the auction and sale hearing “in consultation with” the unsecured creditors’ committee appointed in the case and its DIP lender.

As reported, the bankruptcy court on July 10 extended the exclusive period during which only the company could file a reorganization plan through Nov. 13, and extended the corresponding period for the company to solicit acceptances to a plan through Jan. 12, 2015.

As also reported, the company said in its motion seeking the exclusivity extension filed last month that it had “received various preliminary indications of interest from potential strategic and financial bidders and are continuing to make progress towards their goal of consummating a value-maximizing restructuring transaction in the near-term.”

Under the company’s bidding procedures, indications of interest were due by May 22 and bids were due by June 30. – Alan Zimmerman

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GSE Environmental nets confirmation of reorganization plan

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The bankruptcy court overseeing the Chapter 11 proceedings of GSE Environmental today confirmed the company’s proposed bankruptcy plan, according to a court order filed on the court docket.

As reported, the bankruptcy court approved the disclosure statement on June 11. As also reported, the three classes of impaired creditors entitled to vote on the company’s proposed plan overwhelmingly voted to accept the plan (see “GSE Environmental creditors vote overwhelmingly for proposed plan,” LCD, July 23, 2014).

GSE filed for Chapter 11 on May 5 in Wilmington, Del., with a pre-arranged plan calling for the exchange of about $173.4 million of first-lien credit claims for 100% of the equity in the reorganized company. In addition, the plan, as confirmed, provides for up to $1.35 million in cash to pay general unsecured claims, which are estimated at about $1 million (excluding about $40 million of first-lien deficiency claims, which are being waived due to acceptance of the plan by holders of the GUCs). – Alan Zimmerman


 

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Capsugel inks add-on to PIK-toggle notes (B-/Caa1) at 101.75; backs refi, sponsor dividend

Capsugel this afternoon completed an add-on to its 7%/7.75% holdco PIK-toggle notes due 2019, via joint bookrunners Citi, Barclays, Deutsche Bank, KKR, Mizuho, SMBC, and UBS. Terms were finalized at the tight end of talk. Proceeds, along with those from a €355 million covenant-lite term loan, will be used to fully refinance the drug-capsule manufacturer’s €325 million issue of 9.875% notes due 2019, and fund a sponsor dividend. Commitments on the loans were accelerated to 5:00 p.m. EDT today, from July 28. Price talk is E+300, with a 1% Euribor floor and a 99.75 offer price. The issuer is also seeking to boost its revolving credit facility to $175 million, from $150 million, and extend the maturity by three years, to 2019, with a springing maturity to its 2018 term debt. Capsugel makes hard capsules and drug-delivery systems.

Terms:

Issuer Capsugel
Ratings B-/Caa1
Amount $415 million
Issue senior holdco PIK-toggle add-on (144A-life)
Coupon 7% cash/7.75% PIK
Price 101.75
Yield 6.16%
Spread T+446
Maturity May 15, 2019
Call nc4mos @102
Trade July 24, 2014
Settle July 31, 2014 (T+5)
Bookrunners Citi/Barc/DB/KKR/MIZ/SMBC/UBS
Price talk 101.5 area