With Market Rebound, High Yield Bonds Return to ‘Extreme Overvaluation’ Status

As we’ve seen, the U.S. high yield bond market has had an impressive rebound of late. That’s good news, right? Yes, but ...

As LCD’s Martin Fridson explains, the recent junk bond run has once again landed the asset class in extremely overvalued territory:

“Between March 15 and April 15, 2016, the option-adjusted spread (OAS) of the BAML High Yield Index narrowed from 684 to 662 bps. Over the same interval, our Fair Value estimate increased from 775 to 794 bps. The net change was an increase in the high-yield market’s overvaluation from 91 to 132 bps. That pushed the degree of overvaluation into extreme territory, which we define as an OAS of at least 126 bps (one standard deviation in our valuation model) tighter than Fair Value.

“That is the bad news.”

There’s more, of course, as you have to take the volatile energy/commodities sectors into account here. Fridson:

“The worse news is that to obtain even the meager OAS of the BAML Index, an investor must own a full complement of the distressed commodity industries, Energy and Metals/Mining.”

So, Investors who are wary of undue exposure to the energy and commodities market segments will want to consider how well they are being compensated for the risk of the high yield universe, excluding those buckets. Why? As Fridson explains, that compensation is a ‘whopping’ 232 bps below what investors historically have been paid to own high yield bonds, with risk at present levels. – Tim Cross

For more on how Marty determines “Fair Value.”

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This story first appeared on It is part of Marty’s weekly high yield analysis. is LCD’s subscription site, offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


Altice Prices Upsized $2.7B High Yield Bond Offering

France-based cable network operator Altice last night completed an offering of secured notes under Rule 144A for life via a large syndicate led by bookrunner Goldman Sachs. Terms on the deal were inked at the tight end of talk after a $500 million upsizing, to $2.75 billion, and an early read from the gray market points to follow-on demand, with break price indications at least half a point higher, according to sources. Take note that it’s just makes it in the top-25 largest single tranches ever sold, and that structure includes a 40% equity clawback option and 103 prepayment option for up to 10% of the series annually. As reported, proceeds will be used to redeem at current call prices the company’s two most pressing maturities—a $460 million issue of 7.875% secured notes due 2019, at 103.938, and a €210 million issue of 8% secured notes due 2019, at 104—as well as repay the entire $909 million outstanding under a 2013 term loan facility and prepay $475.6 million under a 2015 term loan facility. Terms:


Issuer Altice Financing
Ratings BB–(e)/B1
Amount $2.75 billion
Issue secured notes (144A-life)
Coupon 7.5%
Price 100
Yield 7.5%
Spread T+572
Maturity May 15, 2026
Call nc5 @ par+50% coupon
Trade April 18, 2016
Settle May 3, 2016 (T+10)
Co-managers n/a
Price talk 7.5-7.75%
Notes upsized by $500 million; first call par+50% coupon; w/ 40% equity claw; w/ 103 special call option for up to 10% annually.


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This story first appeared, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.


High Yield Bond Fund Flows Continue – Albeit Slight – Thanks to ETFs

U.S. high-yield funds recorded an inflow of $85 million in the week ended April 13, according to Lipper. The positive flow is a shadow of last week’s inflow totaling $1.2 billion, but it’s nonetheless another positive reading and the eighth net inflow over the past nine weeks, for positive $14.1 billion over that span.

US high yield fund flowsHowever, it was all related to the ETF segment. In fact, there was an outflow of $416 million this past week from mutual funds offset by an inflow of $501 million to ETFs, for the net positive reading of $85 million. In contrast, last week’s $1.2 billion inflow was only 28% linked to the ETF segment.

The year-to-date inflow figure of $8.9 billion remains ETF-heavy, at 52% of the sum. Last year at this juncture, the net inflow was $11.5 billion, with 46% linked to ETFs.

The four-week-trailing average shrank to positive $719 million per week, from positive $1.1 billion last week and positive $1.3 billion two weeks ago.

The change due to market conditions this past week was positive $2.2 billion, representing a gain of roughly 1.2% against total assets, which were $188.5 billion at the end of the observation period. ETFs account for about 21% of the total, at $39.9 billion. — Matt Fuller

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

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


Apollo Eyes $800M High Yield Bond Offering Backing The Fresh Market Buy

The Fresh Market is out with an $800 million offering of seven-year (non-call three) senior secured notes.

Barclays, RBC, Jefferies, Macquarie, and UBS are bookrunners on the transaction.

Roadshows are slated for Monday to Thursday of next week, with pricing expected thereafter.

Proceeds from the 144a for life offering will be used to finance the acquisition The Fresh Market by Apollo Global Management. The sponsors announced its $1.36 billion take-private of the specialty grocery retailer last month. The acquisition will also be financed by a $100 million revolving credit.

The sponsor would contribute $495 million of cash equity to the transaction, along with $131 million of rollover equity, to make a total equity contribution of $626 million.

The $28.50 per share all-cash offer by Apollo represents a premium of roughly 24% over The Fresh Market’s closing share price on March 11, 2016, and a premium of approximately 53% over the Feb. 10, 2016 closing share price (the day prior to press speculation regarding a potential transaction).

The company operates 186 stores in 27 states across the U.S. — Staff reports

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


Bond prices surge to fresh 2016 high with broad-based gains

The average bid of LCD’s flow-name high-yield bonds surged 119 bps in today’s observation, to 96.57% of par, yielding 7.54%, from 95.38 on Tuesday, yielding 7.86%. Performance within the sample was almost completely positive, with 13 gainers against two unchanged issues.

The increase builds on Tuesday’s 37 bps advance, for a net jump of 156 bps week over week. The average bid is now up 220 bps dating back two weeks, but higher by just 202 bps reaching back four weeks, as that observation grabs some of the post-rebound-rally suppression at the close of the first quarter.

Most notably, however, today’s advance vaults the average bid to a fresh 2016 peak that is 149 bps above the previous near-term high of 95.08 on March 22 and up 152 bps from 95.05 on March 3. The gains of late come amid signs of fresh retail cash inflows to the asset class and despite the biggest new-issue supply in five months, at $10.9 billion last week, including the record-setting, single-largest issuance ever, the $5.19 billion of first-lien 7.375% notes due 2026 from French cable network operator Numericable.

With today’s rise in the average bid, the average yield to worst dropped 32 bps, to 7.54%, and the average option-adjusted spread to worst cinched inwards by 35 bps, to T+608. Both are the tightest levels this year and, 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 13, with a 7.65% yield to worst, but an option-adjusted spread to worst of T+718.

Bonds vs. loans
The average bid of LCD’s flow-name loans rose 10 bps in today’s reading, to 98.83% of par, for a discounted loan yield of 7.54%. The gap between the bond yield and the discounted loan yield to maturity is 328 bps. — Staff reports

The data:

  • Bids increase: The average bid of the 15 flow names jumped 119 bps, to 96.57.
  • Yields decrease: The average yield to worst dropped 32 bps, 7.54%.
  • Spreads decrease: The average spread to U.S. Treasuries tightened 35 bps, to T+608.
  • Gainers: The largest of the 13 gainers were equally 2.5-point gains for Altice 7.75% notes due 2022, to 100.5;Community Health Systems 6.875% notes due 2022, to 92.5; and Scientific Games 10% notes due 2022, to 86.
  • Decliners: None.
  • Unchanged: Two of the 15 constituents were steady in today’s reading.

Breitburn Energy Skips Interest Payments, Enters Grace Period

Breitburn Energy Partners has elected to defer interest payments due today of approximately $33.5 million on its 7.875% notes due April 2022 and approximately $13.2 million on its 8.625% senior notes due October 2020, entering into a customary 30-day grace period as the company explores “strategic alternatives to strengthen its balance sheet.”

The aforementioned Breitburn 7.875% notes due 2022 are down almost four points, in a 7 context, trade data show, while the 8.625% notes due 2020 are nearly unchanged, with trades reported at 10–11.

If Breitburn decides not to make the interest payments by the end of the grace period, an event of default will also result in a cross-default under Breitburn’s revolving credit facility and its 9.25% senior secured second-lien notes due May 2020, the company said in a press release today.

Breitburn further disclosed that it has initiated discussions with its secured debtholders “related to alternatives to improve Breitburn’s long-term capital structure.”

The company has retained Lazard as its financial advisor and Weil, Gotshal & Manges as its legal advisor to assist with the strategic review process. In addition, Jefferies LLC will provide Breitburn with corporate and financial advisory services, the company said.

Los Angeles–based Breitburn is an independent oil-and-gas company with properties in Michigan, California, Wyoming, Florida, and Kentucky. — Rachelle Kakouris

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


S&P: Distressed Exchanges on the Rise as Issuers, Creditors Ride Rocky Markets

distressed exchanges

In an analysis of defaults dating back to 2007, distressed exchanges are the second-most common reason for defaults in this period, exceeding bankruptcy filings and only surpassed by missed interest and/or principal payments, according to S&P.

Standard & Poor’s Ratings Services views distressed exchanges as tantamount to default, so they are included in default rates and other statistics. – Staff reports

This chart is part of a longer analysis via Standard & Poor’s Ratings Services. It is available to S&P Global Credit Portal subscribers here. 

That analysis also details

  • Speculative-grade spreads vs distressed exchanges
  • Distressed issuers/distressed exchanges
  • Spec-grade default rate/weakest links
  • Distressed exchanges – Leisure/Media, Energy



LCD’s Free Online US Loan Primer/Almanac Updated With 1Q Charts

LCD’s popular online Loan Market Primer/Almanac has been updated to include first-quarter 2016 and historical U.S. volume/trend charts.

If you haven’t checked out the Primer, take a look. It’s a great promotion for the asset class and resource for newcomers or those interested in the leveraged loan market. We hope you’ll share it with anyone who might find it useful.

The Primer can be found at, LCD’s free website featuring select stories from LCD News, as well as loan market trends, stats, and analysis.

Along with updated charts we’ve added to the Primer another excellent video from Paddy Hirsch, who explains just what leveraged finance is, and how it comes in handy (to private equity firms undertaking a big LBO, for instance).

Paddy’s explainer videos make a great introduction to the asset class (check out “What is a Leveraged Loan?” on the Primer).

Among the charts included with this release of the Primer:

The Loan Market Primer is one of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, it is widely used by originating banks, institutional investors, private equity shops, law firms, and business schools worldwide.

Here’s the Primer table of contents (see the submenus for each category online):

  • What is a Leveraged Loan?
  • Market Background
  • Leveraged Loan Purposes
  • How are Loans Syndicated?
  • Types of Syndications
  • The Bank Book
  • Leveraged Loan Investor Market
  • Public vs. Private Markets
  • Credit Risk – Overview
  • Syndicating a Loan – by Facility
  • Pricing a Loan – Primary Market
  • Types of Syndicated Loan Facilities
  • Second-Lien Loans
  • Covenant-Lite Loans
  • Lender Titles
  • Secondary Sales
  • Loan Derivatives
  • Pricing Terms/Rates
  • Fees
  • Original-Issue Discounts
  • Voting Rights
  • Covenants
  • Mandatory Prepayments
  • Collateral
  • Spread Calculation
  • Default/Restructuring
  • Amend-to-Extend

Pinnacle Entertainment Bonds Price to Yield 5.625%

Pinnacle Entertainment this afternoon completed an offering of senior notes via bookrunners J.P. Morgan, Goldman Sachs, Bank of America, Fifth Third, U.S. Bancorp, Credit Agricole, Deutsche Bank, and Wells Fargo. Terms were inked at the tight end of talk after a $75 million upsizing, just as $50 million was shifted away from the coordinated loan financing and an extra $25 million goes to support the company’s general corporate purposes, according to sources. As reported, net proceeds will be used to refinance a portion of debt assumed by the Pinnacle Entertainment operating company as its spins off real estate property company assets to Gaming & Leisure Properties. Terms:

Issuer Pinnacle Entertainment/PNK Entertainment
Ratings BB–/B2
Amount $375 million
Issue senior notes (144A)
Coupon 5.625%
Price 100
Yield 5.625%
Spread T+399
Maturity May 1, 2024
Call nc3 @ par+75% coupon
Trade April 12, 2016
Settle April 28, 2016 (T+12)
Price talk 5.75% area
Notes first call par+50% coupon; upsized by $75 million.

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


Virgin Media Drives by High Yield Bond Mart with $500M Offering

Virgin Media Secured Finance is in market with a $500 million offering of 10-year (non-call five) secured notes. J.P. Morgan (B&D), BNP Paribas, Barclays, HSBC, Bank of America Merrill Lynch, Credit Agricole CIB, and Mediobanca are bookrunners. Pricing will take place later today following a 10 a.m. EDT investor call.

Proceeds from the 144A-for-life offering will be used to repay drawings under the RCF, and for general corporate purposes.

The new bonds will extend its dollar curve beyond the 5.5% notes due January 2025 and 5.25% notes due January 2026, which closed last night respectively at 102.5 yielding 4.9%, and 100.06 yielding 5.24%, according to S&P Capital IQ. Note that it has sterling-denominated bonds maturing in January 2027 and March 2029, so the new issue will not be its longest-dated maturity.

The company was last in the bond market in April last year with a $500 million add-on to the aforementioned 2026s. That came just a couple of weeks after it issued the original $500 million series.

Banks are guiding accounts to expected ratings of BB–/Ba3.

The bonds carry some issuer-friendly features, namely a first call at par plus 50% coupon, and the ability to redeem 10% of the bonds each year of the non-call period at 103. Both are standard features on Liberty Global–owned companies’ new issues.

Virgin Media is a U.K.-headquartered business providing digital cable, broadband internet, fixed-line telephony, and mobile services in the U.K. to residential and business customers. — Luke Millar

This story first appeared on, LCD’s subscription site offering 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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