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NII Holdings ad hoc noteholder group slams plan settlement proposal

nii-holdings-logo

 

An ad hoc group of senior noteholders at NII Holdings unit NII International Telecom slammed the company’s recently announced proposed reorganization settlement and plan support agreement in a Nov. 30 court filing, calling it “the product of an inherently flawed process that improperly shifts significant value away from … the senior creditor constituency in this bankruptcy to a more junior creditor constituency.”

While the approval of the proposed settlement is not yet technically before the Manhattan bankruptcy court – the ad hoc group’s filing addresses certain preliminary issues of corporate governance related to the plan support agreement, or PSA, as opposed to the PSA itself – the filing nonetheless clearly suggests that the company’s reorganization proposal faces significant opposition.

According to court filings, the ad hoc group is comprised of Golden Tree Asset Management, Benefit Street Partners, Empyrean Capital Partners, Whitebox Advisors, KLS Diversified Asset Management, and JMB Capital Partners. In the aggregate, the group holds almost $300 million of NII International Telecom’s $900 million of 11.375% senior unsecured notes due 2019, issued in February and April of 2013, and about $212 million of NII International Telecom’s 7.875% senior unsecured notes also due 2019, $600 million of which were issued in May of 2013.

According to the term sheet for the company’s proposed reorganization plan, which is premised on a reorganized equity value of $2.421 billion, holders of the NII International Telecom notes (sometimes referred to in court filings as the “LuxCo notes”) would receive 63.51% of the reorganized company’s new stock (subject to dilution from a rights offering and a management incentive plan), along with participation rights in a $250 million rights offering with an exercise price calculated at a 40% discount to the plan equity value.

Meanwhile, holders of about $1.36 billion of notes at NII Capital due 2016 and 2019, respectively, would receive 25.43% of the new equity, while holders of about $1.5 billion of NII Capital notes due 2021 would receive 11.06% of the equity. Holders of all three issues would also have participation rights in the rights offering.

The reorganization proposal also settles certain litigation claims that have been asserted against the company by NII Capital noteholder Aurelius Capital Management, most notably the claim that the parent guarantees granted in connection with the 2013 issuance of notes by NII International Telecom could be avoided by the company as a fraudulent conveyance.

According to an 8-K filed by the company last week with the Securities and Exchange Commission, the PSA, is supported by holders of roughly 65% of the NII Capital notes, including the largest holder, Capital Research and Management, or CRM, and holders of about 35% of the NII International Telecom notes, as well as the unsecured creditors’ committee in the case.

But according to the ad hoc noteholders group, “although the debtors describe the PSA as a ‘settlement,’ it is no such thing.” According to the filing, “The PSA ignores the priority upon which the company raised its capital and re-routes hundreds of millions of dollars around [International Telecom] for the benefit of [NII Capital] creditors. The parties to the PSA justify this re-ordering of the absolute priority rule based on litigation claims suggested by [NII Capital] creditor Aurelius Capital Management. But these claims are meritless.”

According to the court filing, the $1.6 billion of notes issued by NII International Telecom in 2013 were by their terms expressly senior to the company’s prior debt. The ad hoc group said the proceeds of the notes were used to pay down debt at the company’s operating units (which are not debtors in the case) and to fund the build out of a 3G network for the company, uses which benefited the entire company, including existing noteholders at NII Capital.

As the ad hoc group sees it, the PSA was not driven by the settlement of Aurelius’ litigation claim, but rather by CRM which, as the company’s largest creditor, holds a blocking position at NII Capital. “Without [CRM],” the ad hoc group said, “the company cannot confirm a [NII Capital] plan and, therefore, cannot obtain releases and other protections for the officers and board members of [NII Capital]”.

But, the ad hoc group continues, the company could not settle the guarantee claims without Aurelius, “the consequence of which would require a plan to put substantial amounts of equity in a reserve pending the outcome of litigation on the guarantee claims.” CRM, which would wind up the largest owner of the reorganized company, did not want a substantial part of its recovery tied up in a reserve pending the guarantee litigation.”

The ad hoc group argued that the only way to thread this needle and gain Aurelius’ support for a proposed reorganization plan – given the position of the company and, according to the ad hoc group, virtually every other party in the case that the Aurelius litigation claim was weak – “was to end run the absolute priority rule and strip value from LuxCo by assigning higher probabilities to the Aurelius claims than they merit, or that [CRM] or the company had ever espoused before.”

As noted, the proposed settlement is not before the bankruptcy court at this time. Rather, the ad hoc group’s filing is a response to an oral motion made by the company at a status hearing on Nov. 24 for the appointment of an independent director at NII International Telecom to review the proposed settlement.

According to the ad hoc panel, however, the request was too late – the time for an independent director was prior to the company signing off on the settlement. What’s more, the group said, the limitations the company would place on such a director even at this point, in terms of allotted time for a review of the deal and the scope of authority, are too strict and not in compliance with Luxembourg law governing the fiduciary duties of directors.

“The governance process outlined by the debtors,” the ad hoc group said, “is an attempt at window dressing.”

Alternatively, the group asked the bankruptcy court to set a schedule that “will permit the parties to litigate expeditiously the disputed issues in conjunction with plan confirmation,” noting that “there is no question that these issues must be resolved before a plan can be confirmed.”

Indeed, the group argues, resolving these plan issues now would eliminate the need for an independent director, adding, however, that if the court determines an independent director is needed, he should be “truly independent” and able to act in accordance with Luxembourg law.

“What cannot happen,” The group said, “is the blessing of a PSA whereby two junior creditors agree to a ‘settlement’ of worthless litigation claims so that they can flip the capital structure to maximize their recoveries by taking value away from the unrepresented (but senior) creditor group, and the debtors go along without any proper fiduciary review of that agreement.” – Alan Zimmerman

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High yield bond trading prices hit 29-month low (led by energy co, of course)

The average bid of high-yield flow-name bonds fell 162 bps in today’s reading, to a fresh 29-month low of 97.96%, yielding 7.91%, from 99.58, yielding 7.19%, on Nov. 25, according to LCD. It was a broad-based slump for the 15-bond sample, with 11 issues in the red against four unchanged.

The observation represents a week-over-week move lower due to the Thanksgiving break. It’s the deepest such one-week decline in seven weeks, or since the mid-October nosedive. The average is now down 65 bps from the prior 2014 low of 98.61 recorded on Oct. 16, according to LCD.

The average declined 224 bps during the month of November. The weakness was widespread, with a notable 14-point plunge for Samson Resources, to 54, for a net 23.5-point decrease over the past month.

The big declines in recent days came after OPEC last week decided not to reduce oil production and instead let the marketplace handle what’s moved into roughly a six-month bear market for the commodity. The floor fell out from under energy credits, and the broad market felt the pressure. Solid credits in the energy space were off 2-5 points and weaker names were down more, like Samson.

However, market participants relay that “irrational” price declines throughout the secondary high-yield market over the past two sessions have finally come to an end, and the broad market this morning was rangebound within the context of the new valuation. Going forward, eyes are on the performance of a number of high-yield ETF bid lists that are out and about and on the ongoing volatility in oil prices, according to sources. – Staff Reports

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November High Yield Bond Volume Tops $30B as Investors Return to Market

hy bond issuance 11.30.14

High yield bond volume in the U.S. totaled $30.7 billion in November, up from the $27 billion recorded in October, according to S&P Capital IQ/LCD. With the monthly activity, year-to-volume stands at $306.7 billion. That’s up from the $297.6 billion recorded at this point last year.

With just three viable weeks for business remaining in the year, estimates are for another $10 billion of issuance, assuming market conditions hold, according to LCD’s Matt Fuller and Joy Ferguson. That $317 billion in issuance would be the third-highest full-year total ever, behind the $321 billion last year and the record $344 billion in 2012, according to LCD.

The increased issuance comes as investors, for the most part, return to U.S. loan funds. Despite a relatively small investor withdrawal for the week ended Nov. 20, the trailing four-week average stood at a healthy $1.2 billion inflow, according to Fuller, citing Lipper (there was a small – $44 million – cash inflow last week).

As cash flows into market, yields are widening, from 5.74% on Nov. 3 to an even 6% today, according to the S&P High Yield Corporate Bond Index. (That figure is a yield-to-worst.) – Tim Cross

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HD Supply 7-year high yield bonds (B+/B1) price to yield 5.25%

hd-supply_200x200HD Supply this afternoon completed its offering of seven-year (non-call three) secured notes via a Bank of America-led bookrunner squad, with joint books Barclays, J.P. Morgan, Goldman Sachs, and Wells Fargo. Terms were finalized at the tight end of talk following roughly three-times over-subscription, sources said. The return to market comes after a hiatus of nearly two years, and proceeds will be used to refinance pari passu 8.125% notes due 2019. The paper is not callable until next year, at par plus 75% coupon, but it already trades around a T+50 make-whole valuation, at 108.25, yielding about 2.5%, trade data show. Take note that the offering is under Rule 144A for life, and that the pitch is for a larger-than-typical equity clawback option for three years, at up to 40% of the issue, at par plus coupon, according to sources. Terms:

Issuer HD Supply
Ratings B+/B1
Amount $1.25 billion
Issue secured (144A)
Coupon 5.25%
Price 100
Yield 5.25%
Spread T+323
Maturity Dec. 15, 2021
Call nc-3
Trade Nov. 19, 2014
Settle Dec. 4, 2014 (T+10)
Bookrunners BAML/Barc/JPM/GS/WFS
Co-Managers Baird/BB&T/Citi/CS/DB/RayJay/STRH/UBS
Price talk 5.375% area
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Connacher Oil high yield bonds plumb trading lows after going-concern warning

Connacher Oil and Gas bonds today traded at fresh record lows for a second consecutive session after the company reported third-quarter results that included a going concern warning. The 8.5% second-lien notes due 2019 changed hands at an all-time low of 54.5 earlier today, for a net decline of 10 points since the report, according to sources and trade data.

For the third quarter, production increased 20% to a record of 14,163 barrels per day, but costs also increased due to higher natural gas pricing. Costs were up 29% year over year, to $26.4 million, according to a company filing.

The Nov. 13 report carried an ominous warning that stated the following: “The company’s current debt structure and limited access to additional financing … create material uncertainties that may cast significant doubt about the company’s ability to continue as a going concern.”

Management additionally warned about an ability to service debt given the current projected cash flows from operations, the filing shows. To this end, Feb. 1 coupons loom for the abovementioned secured notes as well as a C$350 million series of 8.75% second-lien notes due 2018, which have also sunk to the 50s, according to sources.

Management furthered stated that they will “continue to monitor” capital balances and commitments amid “changing economic and risk conditions,” the filing shows. Based on current projections, the company will need additional funds in 2015, according to the firm.

The two series of B/Caa3 second-lien notes date to May 2011 issuance via Credit Suisse and RBC as part of a refinancing exercise on previously outstanding 11.75% first-lien notes due 2014 and 10.25% second-lien notes due 2015. Pricing was par apiece, which was an eighth wide of guidance, with split ratings of BB-/Caa2 at offer.

Calgary-based Connacher is an oil company focused on harvesting bitumen with principal assets at the Great Divide oil sands property near Fort McMurray, Alberta, as well as Thornbury and Quigley lands. The company trades publicly in Toronto under the symbol CLL. Large current and pending investors include Audley Capital Advisors, Fidelity Management & Research Company, Pinetree Capital, and West Face Capital, according to S&P Capital IQ. – Matt Fuller

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

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High Yield Bond Funds Net $890M Investor Cash Inflow; 4th Straight Gain

high yield fund flows

Retail-cash inflows to high-yield bond funds were $890 million in the week ended Nov. 12, according to Lipper. This is a fourth consecutive net inflow to the asset class, for an infusion of $6.6 billion over that span.

Moreover, the inflow is light on the exchanged-traded front in a third consecutive week, at just approximately 10% of the inflow, or $93 million this past week. The prior two weeks were just 6% of the inflows, but it was ETF-heavy three weeks ago, at roughly half of the $1.7 billion inflow in the week ended Oct. 22.

With a fourth large inflow, the trailing-four-week average builds to positive $1.7 billion per week, from positive $1.3 billion last week and negative $254 million just four weeks ago.

The full-year reading rises to $1.1 billion, with 11% tied to ETF inflows. Recall that the figure flipped back into positive territory last week for the first time since the record-shattering outflow of $7.1 billion in the week ended Aug. 6.

One year ago at this time flows were positive $1.57 billion, and 98% was ETF-related, or $1.54 billion of the total.

Despite the solid inflow this week, change due to market conditions was negative $40 million, but that’s essentially nil against total assets, which stood at $182.7 billion at the end of the observation period, with 20% tied to ETFs, or $36.9 billion. Recall that a surge in market value by $3.3 billion three weeks ago was the largest upside move in three years.

Total assets are up $6.9 billion in the year to date, reflecting a gain of roughly 4% in 2014. – Matt Fuller

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Supervalu 8-year high yield bonds (B-/B3) price to yield 7.75%

supervalu logoSupervalu yesterday afternoon completed its SEC-registered offering of senior notes via bookrunners Goldman Sachs, Credit Suisse, Morgan Stanley, and Barclays, along with co-managers Bank of America and Wells Fargo, according to sources. Terms were finalized at the tight end of talk. Supervalu is using proceeds, along with borrowings under its amended and restated $1 billion asset-based revolving credit facility, to fund the redemption of the $350 million of 8% notes due 2016. Note the ratings are B-/B3, which reflects an upgrade from Caa1 at Moody’s.

Terms:

Issuer Supervalu
Ratings B-/B3
Amount $350 million
Issue senior (SEC Reg.)
Coupon 7.75%
Price 100
Yield 7.75%
Spread T+557
Maturity Nov. 15, 2022
Call nc-4 @par+50%
Trade Nov. 10, 2014
Settle Nov. 14, 2014 (T+3)
Bookrunners GS/CS/MS/Barc
Co-Managers BAML/WFS
Price talk 7.75-8%
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DISH Network $2B upsized bullet notes (BB-/Ba3) price to yield 5.875%

dish_network_logoDISH Network via its typical issuer entity DISH DBS Corp. this afternoon completed an offering of senior unsecured bullet notes via sole bookrunner Deutsche Bank, according to sources. Terms were finalized at the middle of talk after a $750 million upsizing, to $2 billion. With ratings of BB-/Ba3 and proceeds aimed to support general corporate purposes, the satellite-broadcast-network operator is the latest opportunist to take advantage of strong demand for BB and crossover paper this fall. More specifically, proceeds will help replenish cash used for repayment of a $900 million of 6.625% notes that matured last month, as well as prefunding a $650 million of 7.75% notes due in May. Terms:

Issuer DISH DBS Corp.
Ratings BB-/Ba3
Amount $2 billion
Issue senior notes (144A)
Coupon 5.875%
Price 100
Yield 5.875%
Spread T+352
Maturity Nov. 15, 2024
Call nc-life
Trade Nov. 5, 2014
Settle Nov. 20, 2014 (t+10)
Sole Bookrunner DB
Price talk 5.875% area
Notes upsized by $750 million.
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General Motors prices $2.5B bond offering at tight end of talk

General Motors Company today completed its three-part offering of SEC-registered senior bullet notes via J.P. Morgan (B&D), Goldman Sachs, and Morgan Stanley, according to the firm. Terms on the 10-, 20-, and 30-year tranches were finalized at the tight end of talk. Proceeds will be used to redeem the automaker’s series A cumulative perpetual preferred shares on or after Dec. 31, 2014. Excess capital will back general corporate purposes, filings show. Terms:

Issuer General Motors Company
Ratings BBB-/Ba1/BB+
Amount $500 million
Issue senior notes (SEC Reg.)
Coupon 4%
Price 99.273
Yield 4.087%
Spread T+175
Maturity April 1, 2025
Call nc-life
Trade Nov. 4, 2014
Settle Nov. 12, 2014 (t+5)
Bookrunners JPM/GS/MS
Co-Managers n/a
Price talk T+180 bps area
Notes carries T+25 make-whole call provision.
Issuer General Motors Company
Ratings BBB-/Ba1/BB+
Amount $750 million
Issue senior notes (SEC Reg.)
Coupon 5%
Price 98.795
Yield 5.099%
Spread T+205
Maturity April 2, 2035
Call nc-life
Trade Nov. 4, 2014
Settle Nov. 12, 2014 (t+5)
Bookrunners JPM/GS/MS
Co-Managers n/a
Price talk T+210 bps area
Notes carries T+30 make-whole provision.
Issuer General Motors Company
Ratings BBB-/Ba1/BB+
Amount $1.25 billion
Issue senior notes (SEC Reg.)
Coupon 5.2%
Price 99.266
Yield 5.25%
Spread T+220
Maturity April 1, 2045
Call nc-life
Trade Nov. 4, 2014
Settle Nov. 12, 2014 (t+5)
Bookrunners JPM/GS/MS
Co-Managers n/a
Price talk T+225 bps area
Notes carries T+35 make-whole provision.
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As appetite for risk reappears, leveraged loan returns lag other asset classes in October

returns by asset class

 

Leveraged loans managed a 0.26% gain in October, lagging the four other asset classes tracked by S&P Capital IQ/LCD, as investor appetite for riskier assets began to re-emerge during the month, after a brutal September. (You’ll notice that, while they lost ground, leveraged loans fared better than the other asset classes in the decidedly risk-off month of September.)

The leveraged loan returns are per the S&P/LSTA Index.

For the year to date, leveraged loans trail the pack again, returning 2.38%, as declining Treasury rates impacted the market segment. Equities lead the way, of course, helped along by a stellar October, when they saw a 2.44% return.