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Colt again extends deadline on distressed bond swap, Ch. 11 vote

Colt Defense for a third time extended by another week, to 5:00 p.m. EDT on June 2, the deadline to participate in a deeply distressed uptier exchange offer on its $250 million issue of 8.75% unsecured notes due 2017, according to a company statement. As of last night’s deadline, just 5.7% of bondholders put in for the deal, up from 5.65% last week and 5.1% a week prior, but well beneath the closing condition for 98% participation.

Under the terms of the deal, bondholders are offered an uptier-exchange at deeply distressed levels into new 10% junior-lien notes due Nov. 15, 2023. The consideration offered under terms of the deal is at a pro rata 35% of par, inclusive of a 5% of par consent payment, for each $1,000 face-value Colt bond issue, according to the filing.

As reported, the deal is an effort to restructure the company’s balance sheet and puts the gun maker “in a better position to attract new financing in the years to come,” according to a corporate filing. Moreover, the transaction is an effort to “address key issues relating to Colt’s viability as a going concern,” the filing shows.

That said, the company is also soliciting consents from bondholders to approve a prepackaged plan of reorganization under Chapter 11 in the event that the debt swap fails, and here, too, the deadline for votes was extended a week. In that scenario, the old notes would be cancelled and bondholders would receive their pro rata share of the new notes at the prescribed ex-consent-payment level, or at 30% of par, the filing shows.

As reported, the launch of the distressed swap comes roughly a month after the company announced it reached agreements with its two loan agents to provide an extension of the deadline for the company to deliver its annual results to June 14, according to an SEC filing. The waiver came with a variety of amendments to a $33 million loan with its “rescue-loan” agent Cortland Capital Market Services and a $70 million “lifeline” term loan facility with Wilmington Savings Fund Society and Morgan Stanley (see “Colt Defense nets loan waivers to extend 10-K deadline to June 14,” LCD News, April 9, 2015).

Colt’s sole outstanding bond issue – the $250 million series of 8.75% notes – has wallowed around 30 in recent weeks and traded flat, or without accrued interest, according to sources. Market sources quoted the paper at 28.5/30.5 last week, and a small lot changed hands yesterday at 24.

As reported, the company recently hired turnaround and advisory firm Mackinac Partners as restructuring financial advisor and appointed Mackinac’s Keith Maib to serve as chief restructuring officer.

Colt Defense is rated CC/Caa3. The company was split off from 160-year-old Colt’s Manufacturing in 2002 and serves the law enforcement, military, and private security markets worldwide. The two eventually recombined. The company is controlled by Sciens Capital Management, and Blackstone Group joined with a $30 million equity stake alongside a dividend recapitalization in 2007. – Matt Fuller/Rachelle Kakouris

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Gym operator Life Time Fitness to debut in bond market

Life Time Fitness has launched a $600 million offering of eight-year (non-call three) senior unsecured notes via bookrunners Goldman Sachs, Deutsche Bank, Jefferies, Bank of Montreal, RBC, Macquarie, Nomura, and Mizuho.

A roadshow begins tomorrow in New York, before moving to New Jersey on Thursday, and Boston on Friday. Roadshows will also be held on the West Coast on June 1-2, and in the Midwest on June 3, for pricing thereafter.

The aforementioned banks have also arranged a $1.1 billion, seven-year covenant-lite term loan B, which includes a $250 million revolver. A Deutsche Bank-led arranger group last Monday set price talk on the term loan B at L+350-375, with a 1% LIBOR floor and an OID in the 99.5 area. With the loan already in market, the notes have been assigned ratings of CCC+/Caa1.

Proceeds from the RegS/144a-for-life offering will be used – together with equity contributions from sponsors, proceeds from a $900 million sale-leaseback deal, cash on balance sheet, and the new credit facility – to fund the buyout of the company by Leonard Green & Partners and TPG.

The deal marks the company’s first foray into the bond markets.

Life Time Fitness operates high-end fitness clubs throughout the U.S., primarily in suburban locations. – Oliver Smiddy

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Bond prices rise, returning to levels last seen a month ago

The average bid of LCD’s flow-name high-yield bonds advanced 31 bps in today’s reading, to 102.01% of par, yielding 6.21%, from 101.70% of par, yielding 6.28%, on May 21. Performance within the sample was broadly positive, with 10 gainers against four unchanged and a lone decliner.

A modest gain wiped out the small decline of six basis points in Thursday’s reading, for a net gain of 25 bps week over week in the twice-weekly observation. Dating back two weeks, the average is up 80 bps, while dating back four weeks, it’s down 26 bps, as it includes the steep drop on May 7 when the market was being modestly revalued against rising U.S. Treasury rates, heavy supply, and retail cash outflows.

In contrast, rates are lower this week, with the yield on the 10-year note, for one, down in a 2.16% context, from 2.21% going out last week and 2.29% one week ago, and cash has been coming back into the asset class. Last week, for example, Lipper reported a $906 million inflow to mutual funds and ETFs.

At 102.01, the average edged above the 102 mark for the first time in a month. The average hasn’t been atop 102 since a reading of 102.27% recorded on April 28. And it’s now up 86 bps from a recent low of 101.15 on May 7.

For the year, the average has risen 631 bps. Recall that prior to sample revisions at the start of the year, the average plunged to a three-year low of 93.33 on Dec. 16. However, there was a snap-back rally to follow, and the average closed the year at 96.4, for a total loss of 536 bps in 2014.

With today’s gain in average bid price, the average yield to worst slipped seven basis points, to 6.21%, while the average option-adjusted spread to worst tightened eight basis points, to T+465.

Today’s reading is slightly wide to the broader index yield, but fairly in line with spreads. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Friday, May 22, with a 5.94% yield-to-worst and an option-adjusted spread to worst of T+459.

For further reference, take note that a June 24, 2014 reading of 106.98 – close to the February 2014 market peak of 107.03 – had the flow-name bond average yield at 5.02%, which was an all-time low, but spreads weren’t quite there. Indeed, the average yield was 7.63% at the prior-cycle peak in 2007, and the average spread at the time was T+290.

Bonds vs. loans
The average bid of LCD’s flow-name loans dropped one basis point in today’s reading, to 99.93% of par, for a discounted loan yield of 4.12%. The gap between the bond yield and discounted loan yield to maturity stands at 209 bps. – Staff reports

The data:

  • Bids rise: The average bid of the 15 flow names advanced 31 bps, to 102.01.
  • Yields fall: The average yield to worst slipped seven basis points, to 6.21%.
  • Spreads tighten: The average spread to U.S. Treasuries cinched inward by eight basis points, to T+465.
  • Gainers: The largest of the 10 gainers was Scientific Games 10% notes due 2022, which added two points, to 97.
  • Decliners: The sole decliner was California Resources 6% notes due 2024, which ticked down an eighth of a point, to 92.5.
  • Unchanged: Four of the 15 constituents were steady.
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Retail cash returns to high yield bond funds with largest inflow in six weeks

Retail cash stopped flowing out of U.S. high-yield bond fund for the first time in five weeks as investors plowed a net $906 million into the asset class in the week ended May 20, according to Lipper. It wipes out last week’s $89 million outflow, dents the $2.7 billion outflow the week prior, and is the largest single inflow dating back six weeks.

HY fund flows May 21 2015

 

The influence of exchange-traded funds was solid, at 49% of the inflow, or $445 million. It’s been much greater in recent weeks, such as 79% of the $2.7 billion outflow two weeks ago and 84% of the net outflow of $859 million three weeks ago.

With a fresh reversal to inflows, the trailing four-week average moderates to negative $697 million per week, from negative $964 million last week. The latter observation was the deepest in the red in 16 weeks.

The inflow boosts the full-year reading to inflows of $8.5 billion, with 35% ETF-related. Last year, after the first 20 weeks, there was a net $4.9 billion inflow, with 12% related to ETFs.

The change due to market conditions this past week was positive $61 million. It’s essentially nil against total assets, which were $208.7 billion at the end of the observation period. ETFs account for $40.6 billion of total assets, or roughly 19% of the sum. – Matt Fuller

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Apollo Investment moves Venoco to non-accrual; Magnetation is next

Apollo Investment Corp. moved Venoco to non-accrual status in the most recent quarter, and it plans to move bankrupt Magnetation to non-accrual status in the next fiscal quarter.

Apollo Investment’s non-accrual investments totaled 1.3% on a cost basis as of March 31, 2015, up from 1% at the end of the December quarter. The current level is 0.1% at fair value.

Apollo Investment’s investment in Venoco comprised a $55 million holding in its 8.875% notes due 2019, marked at $28.6 million at fair value as of March 31. In addition, the investment portfolio included $9.6 million of 12.25% senior PIK toggle notes due 2018 via issuer subsidiary Denver Parent. This holding was marked at $1.46 million at fair value at the end of the recent quarter.

Apollo Investment booked a net change in unrealized loss of $35 million for its Venoco investment for fiscal 2015, the largest net change of unrealized losses for a single investment which totaled $139.2 million net.

Last month, Venoco completed a sub-par debt swap. Standard & Poor’s cut the oil and gas exploration and production company’s 8.875% bonds to D, saying the transaction was tantamount to default because unsecured noteholders realized a meaningful loss of principal.

Apollo Investment’s investment in Magnetation comprised a $38.5 million holding of 11% notes due 2018, marked at $20 million at fair value as of March 31.

Apollo Investment booked a net change in unrealized losses of $22 million for its Magnetation investment for fiscal 2015.

Magnetation filed for Chapter 11 early this month with an agreement from holders of more than 70% of its 11% senior secured notes due 2018 to restructure the company’s balance sheet. Grand Rapids, Minn.-based Magnetation is an iron ore mining company.

Apollo Investment, a BDC that trades on Nasdaq under the symbol AINV, invests in senior loans, subordinated and mezzanine debt, and equity of middle-market companies. – Abby Latour

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Energy Transfer slates benchmark-size bond offering backing loan repay

Energy Transfer Equity is back in market after a year with a benchmark-size offering of 12-year senior notes in an effort to repay bank debt, according to SEC filings. Morgan Stanley (B&D) leads the syndicate, with joint bookrunner Deutsche Bank, and pricing is expected following an 11:30 a.m. EDT investor call, according to sources.

Existing ETE senior note ratings are BB/Ba2. With that profile expected, the pitch is for bullet bonds carrying an investment-grade-style par-call window three months prior to maturity, the filing shows.

ETE seeks capital to partially repay term debt and borrowings under a revolving credit facility and to fund general partnership purposes, the filing shows. As of May 5, the company showed $1.4 billion outstanding under one term loan facility due 2019 and $850 million outstanding under another term loan facility that also matures in 2019.

ETE was last in market one year ago with a $700 million add-on offering of 5.875% bullet notes due 2024. Pricing was at 102, to yield 5.6%, and it is now pegged at 106, yielding about 5%, according to S&P Capital IQ.

The natural-gas company trades on the NYSE under the ticker ETE, with an approximate market capitalization of $37 billion. Trailing-12-month net revenue of roughly $55.7 billion turned out about $4.6 billion in EBITDA, according to S&P Capital IQ. – Matt Fuller

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After credit downgrades, McDonald’s markets bond deal

On the heels of downgrades across all three ratings agencies, McDonald’s (NYSE: MCD) is in market today with a benchmark offering of SEC-registered senior notes across five-, 10-, and 30-year issues via bookrunners BAML, Goldman Sachs, J.P. Morgan, and Morgan Stanley, sources said. The U.S. dollar deal was announced as the quick-service restauranteur concurrently placed €2 billion of intermediate notes overseas.

Initial whispers for today’s U.S. dollar offering were reported in the areas of T+80, T+120, and T+170, respectively. For reference, the issuer last June placed $500 million of 3.25% 10-year notes due June 10, 2024 at T+67, and the issue changed hands earlier this month at wider date-adjusted levels near T+90.

On April 29, 2014, McDonald’s inked a $500 million, “no-grow” offering of 3.625% bonds due May 2043 at T+83. That issue changed hands last week at date-adjusted levels in the low T+140s, and in the low T+150s this morning.

McDonald’s recently named a new CEO amid slumping sales trends and tension with franchisees, and the new officer quickly announced plans to refranchise materially more company-owned restaurants under a simplified menu offering, while pulling forward direct returns to shareholders to this year.

Ratings agencies responded to the capital-return plan earlier this month with downgrades to A-/A3/BBB+, from A/A2/A. Outlooks are stable at the lower ratings.

“The return to shareholders of about $8.5 billion this year will necessitate higher leverage than we forecast and represents a more aggressive shift toward shareholders returns than we previously assumed,” S&P stated on May 4. “While we see credit and cash flow benefits from refranchising, lower capital spending and cost reductions, these are largely offset by our current assumption that absent specifics on longer term financial policy, the company will return much of this cash to shareholders and credit measures will not return to the low-2x area.”

A year ago, McDonald’s announced plans to return $18-20 billion to shareholders through 2016 via share repurchases and dividends. For reference, bought back roughly $3.4 billion of its shares over the 12 months through March this year, up from $1.9 billion over the year-earlier period, while paying out more than $3.2 billion of dividends over the latest 12-month period, according to S&P Capital IQ.

The company’s share buybacks peaked at $5.2 billion over the 12 months ahead of the collapse of Lehman Brothers in September 2008, filings show. – John Atkins

 

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Burger King reigns in HY bonds during busiest week in 6 months

Sixteen issuers waded into the high-yield bond market this week, for the busiest period by number of deals in six months. The largest deal was restaurant chain Burger King/Tim Hortons, which issued $1.25 billion of bonds to refinance other debt.

It was the busiest week since Nov. 17, 2014 by number of deals, though not the highest by volume. Volume for the week is expected at $8.915 billion, short of last week’s $9.475 billion.

US high yield bond volume May 2015

Besides Burger King/Tim Hortons, the largest deals of the week were electricity generator PPL Energy Supply, insurer CNO Financial Group, Black and Decker toolmaker Spectrum Brands, car loan provider Ally Financial, and Energizer Holdings. Most of them were for debt repayment.

Energizer was an exception. The company, which trades on the New York Stock Exchange under the ticker symbol ENR, sold $600 million of 10-year notes to fund a spinoff of its Household Products business, as announced in April 2014. The company manages business in two units: personal care, which includes shaving and infant care, and household products, which includes batteries and flashlights.

The new bonds this week are brought by Energizer SpinCo (New Energizer), the recently formed holding company for the Household Products business of Energizer Holdings, with proceeds being used by Energizer Holdings (ParentCo) to fund the tax-free spin-off of the business. As part of the deal, ParentCo will be renamed Edgewell Personal Care Company, and New Energizer will be renamed Energizer Holdings, Inc., according to filings.

By rating, the junk bonds issued this week were concentrated as single- and double-B rated issues. However, insurance broker NFP Corp. and HRG Group, the holding company previously known as Harbinger Group, priced lower-rated triple-C offerings. Notably, Spectrum Brands, the Wisconsin-based company whose products range from Rayovac batteries to Cutter-branded mosquito repellent, received an investment by HRG Group this week with proceeds from its $300 million, two-part offering.

Interestingly, issuers continue to have success placing longer-dated 10-year offerings, despite ongoing volatility in Treasury and equity markets, and growing investor caution toward longer-dated bonds.

The surge in high-yield issuance comes alongside a rush by higher-rated counterparts to sell bonds before underlying interest rates rise more. In the high-grade market, companies have been rushing to issue bonds as Treasury yields march higher. The yield on the 10-year Treasury is 2.14% today, after touching 2.35% on May 12, versus 1.90% on April 15.

This week, 10-year bonds were sold by CNO Financial Group, PPL Energy Supply, Spectrum Brands, Energizer Holdings, andFelcor Lodging, which is a publicly traded REIT whose properties include the Knickerbocker Hotel in New York.

Last week, 10-year bonds were sold by drug clinical trial provider Quintiles Transnational, aircraft component supplierTransDigm, and oil-and-gas producers Range Resources and SM Energy. The bookrunners on Quintiles marketed the 10-year tranche in terms of spread, not yield, investor sources say.

Demand was strong for the marquee high-yield bond offering this week, Burger King’s issue of secured notes due 2022. J.P. Morgan led the deal. Talk emerged in the 4.75% area, slightly inside of 4.75-5% whispers, and sources relay that the order book reached north of $4 billion. Proceeds, along with cash on hand, will be used to repay roughly $1.5 billion of bank debt. The bonds priced at par to yield 4.625%.

The issuer of the debt, Restaurant Brands International, trades on the New York Stock Exchange under the ticker QSR with an approximate market capitalization of $19.5 billion.

Restaurant Brands was created in December 2014 through the merger of Burger King Worldwide and Canadian coffee and breakfast chain Tim Hortons, with over 19,000 restaurants in 100 countries and U.S. territories. Warren Buffet’s Berkshire Hathaway acquired $3 billion of preferred shares in the transaction.

Burger King is no stranger to the junk bond market. In September 2014, Burger King issued $2.25 billion offering of second-lien secured notes yielding 6% to fund the acquisition of Tim Hortons.

The new Burger King bonds stayed in demand as they began trading in the secondary market. They were quoted steady today, at 100/100.5. Buying interest also remained for other new issues.

Ally Financial, whose ratings are both junk and low-tier investment grade, were also bid higher. The 3.6% notes due 2018 that were sold at 99.44, to yield 3.8%, gained from those levels to a 100 mid-point, sources said. Ally 4.625% notes due 2022 were sold at 98.39, to yield 4.9%, and traded as high as par earlier today, trade data showed. – Joy Ferguson/Matt Fuller

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World Acceptance Corp. postpones $250M high yied bond offering

Consumer finance firm World Acceptance Corp. announced this morning it has postponed its $250 million offering of senior notes, according to a company press release.

This is the ninth postponement or withdrawal in 2015, although two of those deals returned, from Fortescue Metals Group and Presidio, leaving a total withdrawn amount of $1.91 billion, according to LCD.

The offering of five-year senior notes was announced one week ago, with talk set at 9% area on Wednesday after the call period was lengthened by a year, to non-call three. But yesterday, investor sources said the bulk of demand came north of 9% and it was uncertain if the company was willing to come at that level.

Indeed, World Acceptance stated today that the financing was opportunistic and it could wait. “While we are interested in diversifying our capital structure in order to maintain long-term flexibility, we can afford to be patient, as this offering was opportunistic in nature,” said Sandy McLean, chief executive officer. “While a transaction could have been completed, we believe that the terms could be more favorable in the future, and we will potentially revisit an offering as appropriate.”

Wells Fargo and BMO were leading the deal, which targeted the repayment of borrowings under an amended senior secured revolving credit facility, according to the company statement. Ratings of B/B3 had been assigned.

Greenville, S.C.-based World Acceptance offers short- and medium-term consumer installment loans and a variety of insurance products, including credit insurance, tax-return services, and automobile club memberships. It serves individuals with limited access to consumer credit.

The company trades on the Nasdaq under the symbol WRLD, with an approximate market capitalization of $885 million. The company has trailing-12-month net revenue of approximately $618 million and roughly $192 million in EBITDA, according to S&P Capital IQ. – Joy Ferguson

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JC Penney bonds gain on earnings, loan investors eye call protection

Bonds backing J .C. Penney advanced this morning, just as credit protection cheapened, after the retailer reported better-than-expected quarterly results. Shares dropped, however, with JCP trading on the NYSE roughly 7% lower, at $8.07 per.

The 8.125% notes due 2019 advanced two points, to 101/101.5, while the 5.65% notes due 2020 ticked up half of a point, to 87/88, according to sources. Long-tenor 7.4% bonds due 2027 changed hands in blocks at 83.5, which is up roughly two points from recent prints, trade data show.

Over in the CDS marketplace, five-year protection on the credit tightened roughly 19% this morning, to 4.8/5.7 points upfront, according to Markit. That’s approximately $125,000 cheaper upfront, with a mid-point $520,000 initial payment, in addition to the $500,000 annual expense, to protect $10 million in J.C. Penney bonds.

The company reported net sales of $2.86 billion during its fiscal first quarter ended May 2, up from $2.8 billion in the year-ago fiscal first quarter, according to a corporate filing. Results were in line with the S&P Capital IQ consensus estimate for sales; however, the adjusted EBITDA result of $82 million in the quarter was well ahead of the consensus estimate of $29 million.

Looking ahead, the company tightened its 2015 full-year guidance for a sales increase by 4-5%, from 3-5% previously, and put forth an estimate for $600 million in EBITDA, versus none prior, filings show.

Over in the loan market, J.C. Penney’s covenant-lite term loan due 2018 (L+500, 1% LIBOR floor) was little changed on the news, quoted at 99.875/100.25, according to sources. On yesterday’s conference call, CFO Edward Record noted that the 101 hard call protection rolls off the loan this month.

“It’s something we continue to look at,” Record said, according to a transcript of the call provided by S&P Capital IQ. “We know it is probably over-collateralized, and there may be some opportunity there. We also know that it doesn’t come due to 2018, so we don’t have a gun to our head to have to do anything any time soon. We’ll continue to monitor rates and see if there’s any opportunity to do something there.”

The loan, originally $2.25 billion, was placed in May 2013; it originally included 102, 101 call premiums. Goldman Sachs is administrative agent.

The Plano, Texas-based company is rated CCC+/Caa2, with positive and stable outlooks, respectively. – Matt Fuller/Kerry Kantin

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