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Amid Debt Binge, US Leverage Levels Reach Record Highs

spec grade leverageU.S. corporate leverage levels have reached record highs, helped in large part by today’s excessive liquidity and low borrowing costs in the capital markets, S&P says.

Both the overall leverage level, and those for U.S. speculative-grade companies (above), saw the median debt to EBITDA ratio increase to the highest level seen over the past 10 years, according to a research report released by S&P today.

From the report:

Key debt and leverage levels among U.S. corporate entities excluding financial institutions are at record highs, suggesting that these borrowers—particularly those at the lower end of the credit spectrum—are as vulnerable to downgrades and defaults as they were in the period leading up to the Great Recession—and perhaps more so.

S&P Global Ratings sees a clear cause for concern as aggregate debt levels and leverage components that we use to help determine the financial profile of rated companies now exceeds that which we saw just prior to the most recent economic and financial crisis.

The full report is available to S&P Global Credit Portal subscribers here. It also details corporate FFO ratios, cash & debt, hi-grade corporate debt levels, newly rated issuers by rating, and more. The report is written by Jacob Crooks and David Tesher. – Tim Cross

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HCA Launches $1B Secured Bond Offering to Refinance Bank Debt

HCA has launched a $1 billion offering of 10.5-year (non-call life) secured notes. J.P. Morgan, Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, RBC, SunTrust Robinson Humphrey, UBS, and Wells Fargo are bookrunners. Pricing will take place today, following an 11 a.m. EDT investor call.

Proceeds from the SEC-registered deal will be used to refinance a portion of the borrower’s outstanding TLB-4, and for general corporate purposes.

HCA logoHCA last week allocated an upsized $1.2 billion term loan (L+275, 0% LIBOR floor), with proceeds used to refinance a portion of its $2.3 billion B-4 term loan (L+275), which matures in May 2018.

The company’s last visit to the bond market was in March, when it issued 5.25% notes due 2026. These bonds closed on Friday at 107 yielding 4.3%, according to S&P Global Market Intelligence.

While the new notes are described as non-call life, they include an investment-grade-style par call window, in this case six months prior to maturity. The aforementioned 2026 notes carry the same feature.

Banks are guiding investors to expected ratings of BBB-/Ba1. That is the same as HCA’s outstandings, which also carry a BB+ rating at Fitch.

HCA trades on the New York Stock Exchange, with an approximate market capitalization of $29.9 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.

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Investors Withdraw Hefty $2.5B from US High Yield Bond Funds

U.S. high-yield funds recorded an outflow of $2.5 billion for the week ended Aug. 3, according to the weekly reporters to Lipper only. This was the second straight net outflow, following the $175 million redemption last week, after three weeks of inflows prior to that totaling $6.5 billion.

US high yield fund flows

Most notable, however, is that the outflow was $2.3 billion from the ETF segment, the largest on record, trailing the prior record of $2.2 billion in the week ended May 6, 2015.

The big outflow lowers the trailing four-week figure to positive $508 million per week, from positive $1.6 billion last week—the largest in 18 weeks at the time.

The year-to-date total inflow is now $7.1 billion, with 20% ETF-related. A year ago at this juncture, the measure was an outflow of $352 million, with 98% ETF-related.

The change due to market conditions this past week was negative $283 million, which is negligible against the $195.7 billion of total assets at the end of the observation period. The ETFs account for about 20% of the total, at $39.3 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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Avon Products Prices $500M High Yield Bond Offering

avon logoAvon Products via issuer subsidiary Avon International Operations today completed an offering of secured notes via a Bank of America–steered syndicate, according to sources. Avon seeks capital to fund a tender offer addressing up to $650 million of its 5.75% unsecured notes due 2018; 4.2% unsecured notes due 2018; 6.5% unsecured notes due 2019; and 4.6% unsecured notes due 2020, according to S&P Global Ratings, which has a 1 recovery rating on the new secured debt, indicating expectation for very high recovery (90–100%) in the event of a default. Terms:

Issuer Avon International Products
Ratings BB–/Ba1
Amount $500 million
Issue secured notes (144A-life)
Coupon 7.875%
Price 100
Yield 7.875%
Spread T+669
Maturity Aug. 15, 2022
Call nc3 @ par+50% coupon
Trade Aug. 4, 2016
Settle Aug. 15, 2016 (T+7)
Bookrunners BAML/CITI/GS
Senior co-managers HSBC, STRH, SANT
Co-manager Williams
Price talk n/a
Notes first call par+50% coupon.

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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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S&P: 107 Global Corporate Defaults so far in 2016

defaults by region

The global corporate default tally has grown to 107 as of yesterday, compared to 68 at this point in 2015, according to S&P Global Fixed Income Research. The last time the corporate default count was this high? In 2009, when there were a whopping 194.

The bulk of the 2016 defaults – 72 – come from the U.S., according to S&P. – Staff reports

This analysis is part of S&P Global Fixed Income’s weekly default analysis, which also details default by sector, a list/xls of 2016 defaults, and other analysis. It is available to S&P Global Credit Portal subscribers here.

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Albertsons Returns to High Yield Bond Mart with $750M Offering

Albertsons Companies is back in market after just over two months for capital to refinance more of its debt. Market sources relay that it’s today’s business via a Bank of America–led bookrunner squad that includes joint books Credit Suisse, Citi, Morgan Stanley, Goldman Sachs, Deutsche Bank, and Barclays, with an investor call planned for 11 a.m. EDT.

albertsons logoThe pitch is for a $750 million offering of 8.75-year (non-call three) senior notes, according to sources. Terms are set to include a March 15, 2025 maturity, a first call in September 2019 at par plus 75% coupon, and a three-year equity clawback option for up to 40% of the issue.

Proceeds will be used to pay down ABL borrowings and approximately $500 million under a B-6 term loan, according to sources. Existing senior note ratings are currently B+/B3.

That’s the profile on the company’s $1.25 billion issue of 6.625% notes due 2024, which were issued at par in late May, but now are pegged on either side of 106, offering about 5.375%, according to sources. Pricing was at the tight end of guidance, and terms were also including a par-plus-75% coupon first call after three years and a 40% equity claw.

Those bonds backed refinancing of acquired Safeway debt and are structurally senior to all other unsecured debt by virtue of a full guarantee package. They sit inside the capital structure and the tenor of the $200 million of Albertsons 7.75% notes due 2026, which are pegged at par, sources added.

Albertsons operates as a food and drug retailer in the U.S. The company is privately held and based in Boise, Idaho. — 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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Bankruptcy: Penn Virginia Resolves Spat with Ad Hoc Equity Committee

An ad hoc committee of equity holders in the Chapter 11 proceedings of Penn Virginia has agreed to withdraw its objection to confirmation of the company’s proposed reorganization plan and its bid for official committee status in the case, in exchange for the company’s agreement to pay the ad hoc panel’s legal fees, according to court filings.

The fees amount to $195,000 for the law firm representing the committee, LeClair Ryan.

As reported, the company’s reorganization plan does not provide any recovery for equity.

penn virginiaWhile individual creditors have filed other objections to the company’s proposed reorganization plan, the settlement effectively clears the way for confirmation of the plan, which is set for a hearing on Aug. 11.

The company said it would file an amended reorganization plan reflecting the settlement with the ad hoc committee by tomorrow.

As reported, the ad hoc panel had insisted that there was residual enterprise value in the company for equity holders, despite the company’s valuation estimates showing equity far out of the money.

The ad hoc panel filed a motion on July 14 seeking its appointment as an official committee, arguing that it needed the benefits of such status, most significantly the payment of its expenses by the company, in order to mount an effective valuation challenge to the company’s proposed reorganization plan.

But ahead of the ad hoc panel’s motion, the company preempted the group’s strategy by asking the bankruptcy court to confirm the existing plan confirmation timetable, which slated a plan confirmation hearing for Aug. 11.

The bankruptcy court issued such an order on July 6 (see “Penn Virginia’s Aug. 11 plan hearing left in place,” LCD News $). Then, two weeks later on July 20, the bankruptcy court refused to hear the ad hoc group’s motion for official status on an expedited basis, instead setting a hearing on the motion for Aug. 4, only a week before the scheduled confirmation hearing. That left the ad hoc panel in a bind, facing the possibility that it would have to run up significant costs in an effort to establish its valuation case, both for the purpose of obtaining official status and of derailing the proposed reorganization plan, without any assurance that the company would eventually cover such costs. — Alan Zimmerman

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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 Issuance Dips to $15B in July

us high yield issuance monthly

High yield bond issuance in the U.S. declined to $14.9 billion in July from $21.8 billion in June, according to LCD, an offering of S&P Global Market Intelligence.

The July figure is the smallest monthly total since February’s $9.4 billion. Year-to-date U.S. issuance totals $134 billion, down 32% from the $196 billion at this point in 2015. – 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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High Yield Bond Funds See Cash Outflow as ETFs Take Hit

high yield fund flows

U.S. high-yield funds recorded an outflow of $175 million for the week ended July 27, according to the weekly reporters to Lipper only. This was the first net outflow after three weeks of inflows totaling $6.5 billion.

The influence of ETFs was again significant this week. The net outflow figure was based on inflows of $336 million to mutual funds buffeted by outflows of $512 million from ETFs. Last week featured a similar pattern, but ETF outflows of $518 million didn’t technically overflow the mutual fund inflow of $839 million.

The net outflow doesn’t ratchet the four-week-trailing figure because a large outflow five weeks ago falls out of the calculation. The figure rises to positive $1.6 billion per week—the largest in 18 weeks—from positive $1.2 billion last week.

The year-to-date total inflow is now $9.5 billion, with 39% ETF-related. A year ago at this juncture, the inflow was just $849 million and 39% ETF-related.

The change due to market conditions this past week was negative $417 million, which is negligible against the $198 billion of total assets at the end of the observation period. The ETFs account for about 21% of the total, at $41.8 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.