Saratoga Resources nets new reprieve from lenders on defaulted bonds

Lenders to Saratoga Resources have agreed to extend forbearance after the company missed interest payments due at year-end to first- and second-lien noteholders.

Under a new amendment, lenders agreed to extend a forbearance agreement to June 12, 2015.

The company has two bond issues in default: $54.6 million of 10% secured notes due 2015, which were issued in November 2013 via a private placement exchange, and $125.2 million of 12.5% second-lien notes due 2016.

Saratoga Resources missed a $1.3 million interest payment due Dec. 31, 2014 to first-lien noteholders, and $7.8 million in interest due on Jan. 1. 2015 to second-lien noteholders. The company has received multiple extensions to its forbearance agreement since Jan. 30.

In March, the company announced it engaged Conway MacKenzie as financial advisor to assist in restructuring its senior debt. Saratoga Resources appointed Conway’s Jeff Huddleston as interim CFO, and John Young, also of Conway MacKenzie Management Services, as strategic alternatives officer with a view to “achieving a satisfactory restructuring or repayment of the senior debt.”

Texas-based Saratoga Resources is an independent oil-and-gas company with properties located in south Louisiana. – Abby Latour

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High yield bond funds see huge outflows, as investors flee ETFs

Investors pulled a whopping $2.56 billion out of U.S. high-yield funds for the week ended June 10, according to Lipper. It is the largest redemption from the asset class in five weeks and it erases last week’s $601 million inflow.

US-high-yield-bond-fund-flows June 10


The big outflow was heavy on the exchange-traded-fund front, at 68% of the sum, or $1.75 billion this past week. This is a return to the heavy-handedness of ETFs in recent months, in contrast to last week’s inflow, which was just 5% ETF-related.

Regardless of what that suggests about fast money, hedging, and market timing, it’s a net outflow for the week, and it drags the trailing-four-week average back into the red, at negative $291 million per week, from positive $327 million last week, although negative $510 million two weeks ago.

The big outflow drags down the full-year reading to inflows of $6.46 billion, with 17% ETF-related. Last year, after the first 23 weeks, there was a net $6.1 billion inflow, with likewise 17% related to ETFs.

The change due to market conditions this past week was also in the red, at negative $1.59 billion. That’s almost deterioration of 1% against total assets, which were $205.39 billion at the end of the observation period. ETFs account for $38.47 billion of total assets, or roughly 19% of the sum. – Matt Fuller

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Antares Capital to expand junior debt offering under new owner

Antares Capital will expand its product offering in subordinated, or junior debt under new ownership by the Canada Pension Plan Investment Board (CPPIB).

Antares Capital expects to underwrite, and potentially hold, second-lien and mezzanine debt as a result of the new partnership, according to David Brackett and John Martin, who will lead the group under its new owner. Historically, GE Capital and GE Antares had almost focused entirely on senior secure loans.

After weeks of speculation over who would buy the business, GE today announced plans to sell Antares Capital to CPPIB as part of a $12 billion transaction. Speculation had focused on a non-bank lender as the buyer of pieces of the GE Capital assets up for sale, including of a company trying to enter middle market lending.

In buying the GE business, CPPIB makes a debut in the U.S. middle market business with a splash. GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

Until now, CPPIB’s focus had been on larger deals. Its junior debt business included high-yield bonds and mezzanine debt. Since 2009, CPPIB’s credit investments have totaled $17 billion, through primary and secondary market purchases. CPPIB’s credit investments are managed by a team of 36 globally.

CPPIB will retain Antares’ team. Antares employs around 300, led by managing partners Brackett and Martin, who have led Antares since its formation. Antares will operate as an independent, stand-alone company.

Moreover, Antares will strengthen its unitranche loan product via the new partnership.

“CPPIB Credit Investments will stand ready to immediately invest follow-on capital into Antares post-closing to support origination of unitranche loans for its clients at scale, as we believe this is a differentiated product that will support Antares’ market leading position,” CPPIB said in a statement today.

Any impact on middle market lending overall as a result of GE Capital’s exit is likely to be minimal.

“There truly isn’t going to be any void. Whatever we’ve been able to provide in the past is what we’ll be able to provide in the future,” said Martin in an interview with LCD News.

The Antares purchase will open CPPIB’s credit investment portfolio to the U.S. middle market. GE Antares specializes in middle market lending to private-equity-backed transactions.

“They had been studying the market for some time and liked the risk-reward scenario. This gave them an opportunity to enter the market in a meaningful way, with scale,” said Brackett in the interview.

The geographic footprint of Antares will likely remain much as it is today, with its headquarters in Chicago, a significant presence in New York, and operations near Atlanta. Antares Capital will operate as an independent business, and retain the name.

The sale is expected to close in the third quarter.

The Senior Secured Loan Program (SSLP), so far not part of the sale, will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital. Without an agreement, the program may be wound down (see GE’s sale to CPPIB leaves fate uncertain for $9.6B SSLP partnership).

A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business and focus on its core industrial businesses. – Abby Latour

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Quiksilver bonds drop, shares plunge after fiscal 2Q miss

Quiksilver bonds were in price discovery, roughly 10-20 points lower, as shares plunged nearly 30%, to $0.88 yesterday, after the boardsports icon reported disappointing fiscal second-quarter results. Management cited a negative impact of currency fluctuations, said profit improvements didn’t materialize as quickly as expected, and rescinded fiscal 2015 guidance to reflect business conditions, filings showed.

The 7.875% first-lien notes due 2018 dropped roughly nine points, to 82/84, while unsecured 10% notes due 2020 were in a bit of price discovery in the low-to-high 40s, versus quotes at 62/65 prior, according to sources. No trades were reported as of midmorning on June 9.

Quiksilver for the quarter ended April 30 reported net sales of about $333 million, down from $397 million in the year-ago fiscal second quarter, and below both the management forecast for $340 million and the consensus mean estimate for $341 million, according to S&P Capital IQ.

Results turned out adjusted EBITDA of $6.2 million in the quarter, which was less than the consensus mean estimate for $7.1 million and the corporate forecast for $8 million, according to S&P Capital IQ.

Within the segments, Quiksilver revenue was down about 1% during the quarter, but the DC brand sales slumped roughly 9%, according to the firm. Female-centric Roxy product outperformed, with a modest 1% gain in sales during the quarter, the filing showed.

Recall that Quiksilver bonds were approximately 12 points and 30 points higher, respectively, earlier this year prior to news that the retailer replaced chief executive officer Andy Mooney with Quiksilver president Pierre Agnes (see “Quiksilver bonds slide on CEO replacement,” LCD News, March 27, 2015).

Huntington Beach, Calif.-based Quiksilver trades on the NYSE under the symbol ZQK, with an approximate market capitalization of $150 million. – Matt Fuller

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Murray debt slips after appeals court dismisses block of EPA rule

Murray Energy 11.25% second-lien notes due 2021 have traded down four points today on news that a federal court has dismissed an appeal by the coal credit and a dozen states to block a proposed Environmental Protection Agency rule that would limit carbon dioxide emissions from existing power plants. Block trades were reported this morning at 89, versus 90.5 late yesterday and 93 going out last week, trade data show.

In the loan market, Murray’s B-2 term loan due 2020 (L+650, 1% LIBOR floor) was quoted at 94/95 this morning, which compares with 95/95.75 at the beginning of the week, according to sources. The $1.7 billion loan was issued in April at 97 alongside the $1.3 billion bond deal, proceeds of which helped support a purchase of a stake in rival Foresight Energy.

Murray Energy, along with the states of West Virginia, Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota and Wyoming, argued that the Clean Air Act does not authorize the EPA to limit such emissions, and it sought to enjoin the EPA from issuing a final rule on the matter, according to court documents. But the EPA has so far only published a proposed rule, and the appellate court ruled that it had no authority to issue a ruling on the legality of a proposed rule, saying it is only authorized to review “final agency rules.”

Proposed rules are published by the government for the purpose of, among other things, obtaining public comment prior to final issuance. According to the Court of Appeals decision, the EPA has received more than two million comments on the proposed rule, and intends to issue a final rule this summer.

Yesterday’s ruling, however, is likely not the final word on the matter. The Court of Appeals ruling does not address the merits of the argument made by Murray and the states with respect to the legality of the rule under the Clean Air Act, and the final rule will presumably be subject to further legal challenge.

Murray Energy placed the $1.3 billion issue of 11.25% second-lien notes in April at 96.86, to yield 12%, after multiple revisions to covenants, size, structure, and price talk. Bookrunners on the B-/B3 deal were Deutsche Bank and Goldman Sachs, and terms were eventually finalized at the midpoint of re-launch talk. Proceeds, along with a coordinated loan effort, support the planned acquisition of a stake in Foresight Energy.

Changes were also made to the concurrent loan (see “Murray Energy sets revised TLs; revises Foresight Energy purchase,” LCD News, April 7, 2015). – Staff reports

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High yield bond prices tumble, in broad based decline, in second largest drop of 2015

The average bid of LCD’s flow-name high-yield bonds dropped 113 bps in today’s reading, to 100.56% of par, yielding 6.59%, from 101.69% of par, yielding 6.24%, on June 4. All 15 constituents were in the red, with 10 down by one point or more.

The steep drop follows a 45 bps slump on Thursday, for a net decline of 158 bps week over week. The average is down a bit less, at negative 145 bps, dating back two weeks, and lower by just 65 bps in a trailing-four-week observation.

Today’s slide in the average bid price of the twice-weekly measure is the second-largest of the year, trailing a 140 bps decline in the reading on March 10. Moreover, the drop breaks the average out of the roughly 101-102 range that’s been in place for the past seven weeks.

The market slump picked up momentum last Thursday afternoon and accelerated on Friday after a surprisingly strong May jobs report spurred a sell-off in government bonds, spiking yields. The yield on the 10-year note, for one, visited an eight-month high of 2.42% on the news, retreated, but then again moved into that context this week, marking a 30 bps surge since the outset of June.

As well, despite last week’s positive fund-flow figure last week out of Lipper, there have since been signs of deep outflows from high-yield ETFs, and more bid-wanted lists were making the rounds today. The largest of the lot, the iShares HYG, has itself shown about $941 million in redemption in the four sessions since the $601 million all-funds inflow posted by Lipper in the full-week ended June 3, trade data show.

The average is still up 486 bps in the year to date. 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 big move lower in the average bid price, the average yield to worst jumped 35 bps, to 6.59%, and the average option-adjusted spread to worst widened 25 bps, to T+487. The smaller widening of spread as compared to a higher change in yield can be linked to U.S. Treasury market weakness of late, as rising underlying yield encourages spread compression.

Today’s reading pushes the flow-name-bond average away from the broader index yield and spread, but, of course, the index averages moved fairly outwards, as well. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed yesterday, June 8, with a 6.18% yield to worst, from 5.99% at the prior flow-name reading June 3, and an option-adjusted spread to worst of T+465, from T+449, also from the prior flow-name reading.

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 fell nine basis points in today’s reading, to 99.72% of par, for a discounted loan yield of 4.10%. The gap between the bond yield and discounted loan yield to maturity stands at 249 bps. – Staff reports

The data:

  • Bids fall: The average bid of the 15 flow names dropped 113 bps, to 100.56.
  • Yields rise: The average yield to worst advanced 35 bps, to 6.59%.
  • Spreads widen: The average spread to U.S. Treasuries pushed outward by 25 bps, to T+487.
  • Gainers: None.
  • Decliners: All 15 constituents were lower, with 10 down by one point or more. The biggest decliner was the Intelsat 7.75% notes due 2021, which dropped three points, to 86.5,
  • Unchanged: None.

Harsco cancels high yield bond deal, terminates tender offer

Harsco Corp. late on Friday announced it decided to withdraw its $250 million offering of senior notes in response to market conditions, according to a company statement. As reported, the five-year (non-call two) transaction was being pitched at 6-6.25% via joint bookrunners Citigroup, Credit Suisse, HSBC, J.P. Morgan, MUFG, RBC, and U.S. Bancorp.

This is the ninth cancelled bond deal thus far in 2015, however two returned. Indeed, Fortescue revived and placed a $2.3 billion offering as part of a refinancing, and Presidio came back and inked its $400 million buyout deal, according to LCD.

Proceeds from the SEC-registered Harsco deal were aimed to repurchase the company’s 2.7% notes due 2015 pursuant to a tender offer, with the remaining proceeds slated to repay drawings under the revolver. In turn, the tender offer was terminated, according to the firm.

Camp Hill, Pa.-based Harsco provides industrial materials and equipment used in construction and infrastructure projects. It trades on the NYSE under the ticker HSC and has a market capitalization of roughly $1.3 billion. – Staff reports


European high yield bond prices fall in broad market decline, led by Altice

The average bid of LCD’s European high-yield flow-name bonds fell 40 bps over the past five trading sessions, to 103.8% of par (according to Bloomberg data), as 11 constituents declined. The average yield widened by nine basis points, to 4.27%.

Since the last reading in April the average bid has lost 40 bps, and it is now 83 bps higher in the year to date.

Volatility in Bund yields has been pronounced this week, causing weakness again in secondary. The 10-year Bund yield rose to an eight-month high yesterday, nearing 100 bps, and while it has since dropped back to 88 bps this morning that is still much higher than the 49 bps level at which it closed last week. Such volatility is playing havoc with secondary bond prices, and long-duration, low-coupon, and/or double-Bs have been impacted the most, with Telecom ItaliaPeugeot, and Tesco down 2-5 points. The rest of the market has generally been marked down by 0.5-1 points in sympathy.

There was one advancer in LCD’s composite – namely UPC, which added 37 bps to 108.838. Eleven constituents declined, led by Altice, which slipped 134 bps to 102.316.

The average spread for the composite tightened two basis points, to B+362 or E+327, swap-adjusted.

LCD’s European high-yield bond flow name composite consists of Cerba 7% notes due 2020, Hertz 4.375% notes due 2019,Schaeffler 3.5% notes due 2022, Ineos 6.5% notes due 2018, Matalan 6.75% notes due 2019, Bakkavor 8.25% notes due 2018, Pizza Express 6.625% notes due 2021, Altice 7.25% notes due 2022, UPC 6.375% notes due 2022, Virgin Media 6% notes due 2021, Ardagh 4.25% notes due 2022, and Wind Telecomunicazioni 4% notes due 2020. – Staff reports

The data:

  • Bids fall: The average bid of the 12 bond flow names fell 40 bps, to 103.8.
  • Yields rise: The average yield widened nine basis points, to 4.27%.
  • Spreads fall: The average spread for the composite tightened two basis points, to B+362 or E+327, swap-adjusted.
  • Advancers: UPC was the sole advancer, adding 37 bps to 108.838.
  • Decliners: Altice led the 11 decliners, slipping 134 bps to 102.316.
  • Unchanged: None