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S&P: $10.3T of Corporate Debt Set to Mature Over Next 5 years

rated debt schedule to mature

The wall of global corporate debt coming due is growing.

There is some $10.3 trillion in corporate rated debt worldwide scheduled to mature by 2021, according to S&P. That’s a 4% increase from the figure one year ago, when S&P estimated some $9.9 trillion that was scheduled to mature through 2020.

U.S. based corporates account for the biggest slice of the global debt pie, at 45%.

Of the $10.3 trillion maturing by 2021, 26% is speculative grade, S&P says. – Tim Cross

This analysis is taken from a longer piece of research, available to subscribers to S&P’s Global Credit Portal. It was written by Diane Vazza, Nick Kramer, Evan Gunter, and Andrew South.

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Diamond Resorts Launches $600M High Yield Bond Offering Backing Apollo LBO

Diamond Resorts is offering $600 million of eight-year (non-call three) unsecured notes, sources say. Bookrunners on the deal are RBC Capital Markets (left), Barclays, and Jefferies.

A roadshow for the offering will run Aug. 1–4, sources noted. The proceeds will be used to back Apollo Management’s $2.2 billion purchase of Diamond Resorts. Apollo in late June agreed to acquire the company for $30.25 per share. At the time the deal was announced, the company said closing was expected over the next few months.

Take note, the issuer is also shopping a $1.2 billion seven-year term loan B and a $100 million revolver to fund the buyout. Price talk for the loan has been set at L+500, with a 1% LIBOR floor and a 99 offer price.

Expected ratings for the notes are CCC+/Caa1. On July 25, S&P Global Ratings lowered its corporate credit rating for Diamond Resorts to B from B+, noting the incremental leverage and the company’s financial sponsor ownership.

Diamond Resorts International operates a network of more than 420 vacation destinations located in 35 countries throughout the continental U.S., Hawaii, Canada, Mexico, the Caribbean, South America, Central America, Europe, Asia, Australasia, and Africa. — Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Post Holdings High Yield Bonds Price to Yield 5%

Post logoPost Holdings yesterday completed a drive-by offering of high yield bonds via bookrunners Barclays, Bank of America Merrill Lynch, Credit Suisse, and Goldman Sachs. Terms on the B/B3 transaction were finalized at the tight end of price talk after a $250 million upsizing, to $1.75 billion. Proceeds from the cereals icon’s return to market after one year will be used to refinance $1.375 billion of outstanding 7.375% notes due 2022 via a tender offer. Issuance is under Rule 144A for life, and also take note of a 40% equity clawback option. Terms:

  Issuer Post Holdings
Ratings B/B3
Amount $1.75 billion
Issue senior notes (144A-life)
Coupon 5%
Price 100
Yield 5%
Spread T+348
Maturity Aug. 15, 2026
Call nc5 @ par+50% coupon
Trade date July 25, 2016
Settlement date Aug. 3, 2016 (T+7)
Joint bookrunners BARC/BAML/CS/GS
Co-managers BMO, DB, JPM, MS, NOM, RABO, STRH, UBS, WFS
Price talk 5-5.25%
Notes upsized by $250 million.

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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US High Yield Bond Funds See Another Cash Inflow (Though Only $323M this Week)

U.S. high-yield funds recorded an inflow of $323 million for the week ended July 20, according to the weekly reporters to Lipper only. This builds on the second-largest inflow on record, at $4.35 billion, last week.

high yield fund flowsThe influence of ETFs was significant this week, as there was inflow of $839 million to mutual funds this past week against outflow of $518 million from ETFs.

Whatever that might say about hedging strategies, market timing, and fast money momentum, the inflow and the huge net infusion last week last week that inflates the trailing-four-week observation to positive $1.1 billion, from positive $939 million last week and from negative $599 million two weeks ago.

The year-to-date total inflow expands to $9.7 billion, with 44% ETF-related. A year ago at this juncture, the inflow was $2.6 billion and 43% ETF-related.

The change due to market conditions this past week was positive $572 million, for essentially nil against $200.4 billion of total assets at the end of the observation period. The ETFs account for about 21% of the total, at $42.4 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 www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Revlon Prices Upsized (to $450M) High Yield Bond Offering Backing Elizabeth Arden Buy

Revlon Consumer Products yesterday placed bonds via Bank of America Merrill Lynch as left lead and joint bookrunners Citigroup, Credit Suisse, Deutsche Bank, Macquarie, and Barclays. The bonds came at the tight end of guidance and were upsized by $50 million. Revlon will use the proceeds, revlonalongside borrowings under new senior credit facilities and cash on hand, to refinance certain existing Revlon debt, repay and retire all of Elizabeth Arden’s existing debt, and fund the $870 million purchase of Elizabeth Arden. Revlon is also set to allocate today a $1.8 billion, seven-year term loan B at L+350, with a 0.75% LIBOR floor, at 99.5. The New York–based company sells beauty and personal care products. Terms:

Issuer Revlon Escrow Corp
Ratings B+/B3
Amount $450 million
Issue Senior
Coupon 6.25%
Price 100
Yield 6.25%
Spread T+481
Maturity Aug 1, 2024
Call nc3
Trade July 21, 2016
Settle Aug 4, 2016 (T+10)
Jt Books BAML (left), Citi, CS, DB, Macq, Barc
Px talk 6.25–6.5%
Notes Upsized by $50M

 

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Fridson: US High-yield Bond Market Overvaluation Hits “Staggering” Level

A strong rebound from the brief selloff that followed the U.K.’s June 23 Brexit vote increased the high-yield market’s already extreme overvaluation.

Between May 31 and June 30, the option-adjusted spread (OAS) on the BAML High Yield Index widened from 597 bps to 621 bps, but over the next two weeks, through July 15, it tightened to 542 bps. That spread-narrowing more than offset the reduction in our Fair Value Model’s indicated spread from 806 bps to 787 bps between May 31 and June 30.

On June 30, the difference between the actual OAS (621 bps) and our fair value estimate (787 bps) was –166 bps (the following chart provides historical perspective). That put the fever line well below the horizontal line that marks –1 standard deviation (–126 bps), by which we define an extreme overvaluation. The July 15 OAS of 542 bps was a still more staggering –245 bps (1.9 standard deviations) from fair value.

fridson

By way of background, our basis for determining whether the U.S. high-yield market is fairly valued is the methodology introduced in “Determining fair value for the high-yield market”. (This report is also available at highyieldbond.com.) We are now using an updated analysis to reflect revisions to originally reported economic data, based on a historical observation period of December 1996 to December 2012.

In brief, we find that 81% of the historical variance in the BofA Merrill Lynch US High Yield Index’s OAS is explained by five variables:

  • Credit availability, derived from the Federal Reserve’s quarterly survey of senior loan officers
  • Capacity utilization
  • Industrial production
  • Current speculative-grade default rate
  • Five-year Treasury yield

Between May and June, capacity utilization increased from 74.9% to 75.4% and industrial production rose from –0.4% to 0.6%. The resulting declines in the fair value spread were partly offset by a drop in the five-year Treasury yield—which is inversely correlated with the spread—from 1.36% to 1.02%. The default rate, a backward-looking indicator with minimal impact on the spread, rose immaterially from 4.1% to 4.3%.

One caveat in the analysis is that the most powerful variable, credit availability, is reported only once a quarter and June was the last month within the reporting period. Very extreme overvaluations in such months sometimes appear overstated in retrospect, as the next quarter’s figure moves sharply in the direction of greater credit availability. (Presumably, the large shift to easier credit in those cases did not occur entirely in the first month of the subsequent reporting period.)

This analysis is part of a weekly research piece on LCD News, authored by high yield expert Martin Fridson. Marty also publishes a monthly analytical piece on LCD News.

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S&P: Growth in Global Credit Demand to Continue. Then: Slow Burn or ‘Crexit’?

corporate debt levels

S&P sees global corporate credit demand growing over the next few years, to $62 trillion by the end of the decade, including some $24 trillion in “new” debt (as opposed to refinancings).

At the same time, borrower credit quality is weakening , thanks largely to “monetary expansion” in various countries.

This combination of factors leads S&P to a pair of scenarios, with the assumption that a credit correction of some kind is inevitable:

  • A slow burn, where weak companies fall over gradually (this is the base case assumption)
  • “Crexit”: A system-wide credit contraction, prompted by a series of economic/political shocks. Brexit, for instance … – Tim Cross

 

The full report, Global Corporate Credit: Despite An Inevitable Credit Correction, Debt Demand Will Swell To $62 Trillion Through 2020, is available to S&P Global Credit Portal Subscribers. It was written by Terry Chan, Diego Ocampo, David Tesher, and Paul Watters. It details:

  • Global corporate credit demand, by country
  • New corporate credit demand
  • Corporate credit growth cycle
  • Debt/GDP vs Credit growth
  • Financial risk trends of global corporate sample
  • Distribution of FFO/debt risk categories, by country/industry

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James Hardie Prices $75M Bond Offering to Yield 5.33%

Building-products company James Hardie Industries today completed a fully fungible add-on offering of 5.125% senior notes via Bank of America, HSBC, and Wells Fargo. Terms on the quick tap were finalized at the tight end of talk, and the add-on puts the total outstanding in the series under Rule 144A for life at $400 million. The original $325 million was the company’s market debut in February 2015. Ireland-based James Hardie manufactures and sells fiber cement products and systems for interior and exterior building construction primarily in the U.S., Canada, Australia, New Zealand, the Philippines, and Europe. The company trades on the NYSE under the symbol JHX, with an approximate market capitalization of $9.8 billion. Terms:

Issuer James Hardie Int’l Finance
Ratings BB/B1/BBB–
Amount $75 million
Issue add-on senior notes (144A-life)
Coupon 5.875%
Price 103
Yield 5.327%
Spread T+395
Maturity Feb. 15, 2023
Call nc1.5 @ par+75% coupon (orig. nc3)
Trade July 19, 2016
Settle July 22, 2016 (T+3)
Books BAML/HSBC/WFS
Px talk 102.5-103
Notes first call par+75% coupon; total now $400 million; original $325 million priced @ 99.21 in February 2015.

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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NRG Energy Drives By High Yield Bond Mart with $1B Offering

NRG Energy is driving by with a $1 billion offering of 10.5-year (non-call five) senior notes. Morgan Stanley, Barclays, J.P. Morgan, BNP Paribas, Citi, Commerzbank, Credit Suisse, Deutsche Bank, ING, MUFG, Natixis, and SMBC are joint bookrunners. Pricing will follow a 10:30 a.m. EDT investor call.

NRG logoProceeds will be used to finance the full redemption of its $817.5 million of 8.25% notes due 2020, and the partial redemption of its $888 million of 7.875% notes due 2021. The 2020s are currently callable at 104.125, but the call price steps down on Sept. 1 to 102.75. The 2021s hit their first call of 103.938 in May.

Current ratings are BB–/B1.

The new bonds will extend the curve beyond the company’s 6.25% notes due 2024 and the 7.25% notes due 2026. Those bonds closed last night at 101.25 yielding 6%, and 105.4 yielding 6.5% respectively, according to S&P Global Market Intelligence.

The company was seen last month issuing a $1.9 billion B term loan. The seven-year paper pays L+275, with a 75 bps floor, and the loan allocated at 99.5. NRG’s last foray to the bond market was in May with the aforementioned 2026 notes.

NRG Energy is an integrated competitive power company. The company trades on the NYSE under the ticker NRG and has a market cap of roughly $4.9 billion. — Luke Millar

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.