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Dollar Tree inks $3.25B high yield bond offering at tight end of price talk

Dollar Tree this afternoon completed its two-part senior notes offering backing its acquisition of rival Family Dollar, via J.P. Morgan, along with joint books Wells Fargo, Bank of America, RBC, and U.S. Bancorp. Terms were finalized at the tight end of guidance, and tighter than early market chatter, but a read from the gray market points to enduring demand, with some quotes up over two points. Leads added the five-year (non-call two) tranche this week after downsizing the concurrent B term loan and upsizing the A term loan. Family Dollar shareholders approved the transaction last month, and closing is expected in March. The combination of Dollar Tree and Family Dollar would create the largest discount retailer in North America by number of stores. Terms:

Issuer Family Tree Escrow
Ratings B+/Ba3
Amount $2.5 billion
Issue senior (144A)
Coupon 5.75%
Price 100
Yield 5.75%
Spread T+391
Maturity March 1, 2023
Call nc-3 @ par +75% coupon
Trade Feb. 6, 2015
Settle Feb. 23, 2015 (T+10)
Bookrunners JPM/WFS/BAML/RBC/USB
Price talk 5.75-6%
Notes
Issuer Dollar Tree
Ratings B+/Ba3
Amount $750 million
Issue senior (144A)
Coupon 5.25%
Price 100
Yield 5.25%
Spread T+391
Maturity March 1, 2020
Call nc-2
Trade Feb. 6, 2015
Settle Feb. 23, 2015 (T+10)
Bookrunners JPM/WFS/BAML/RBC/USB
Price talk 5.375% area
Notes Five-year tranche added after initial launch.

 

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Speculative-grade default rate rises to 13-month high, says S&P GFIR

The U.S. trailing-12-month speculative-grade corporate default rate is estimated to have increased to 1.8% in January, from 1.5% in December, according to S&P Global Fixed Income Research (S&P GFIR). Domestically, Verso Paper and two confidential issuers defaulted during the month.

The current observation is at its highest level in 13 months, or since it was at 2.2% in December 2013.

The S&P GFIR forecast for the U.S. speculative-grade default rate is for a modest increase, to 2.4% by September 2015.

“Standard & Poor’s Ratings Services upgraded 17 companies with total debt of about $67 billion, and downgraded 27 companies with total debt of about $82 billion in January,” said Diane Vazza, head of S&P GFIR.

Today’s report, titled “The U.S. Speculative-Grade Corporate Default Rate Rose To 1.8% In January,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436.

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Hi-grade: Apple prints 3rd blockbuster bond deal – $6.5B – in as many years

Apple today placed $6.5 billion offering of SEC-registered senior notes, in an upsizing from an initially proposed $5 billion amount, as the company continues to buy back its shares at an aggressive pace. It inked the issues at L+25 for $500 million of five-year FRNs, T+42 for $1.25 billion of same-dated 1.55% fixed-rate notes, T+67 for $1.25 billion of 2.15% seven-year notes, T+85 for $1.5 billion of 2.5% 10-year notes, and T+125 for $2 billion of 3.45% 30-year bonds.

Traders at the time of pricing reported initial grey-market indications 2-5 bps through reoffer levels.

The deal is the largest this year and the biggest since Medtronic on Dec. 1 last year placed a $17 billion, M&A-driven offering. Over the last three years, there have been only 18 larger offerings, including two by Apple that rank among the six largest since the financial crisis, LCD data show.

Spreads were set north of previous blockbuster offerings over the last two Aprils. In April 2014, the company inked a $12 billion offering that included five-year floating-rate notes at L+30; 2.1% five-year fixed-rate notes at T+37.5; 2.85% seven-year notes at T+60; 3.45% 10-year notes at T+77; and 4.45% 30-year bonds at T+100.

In April 2013, Apple inked $17 billion of notes as it embarked on its shareholder-return program, printing issues including five-year notes at L+25 for FRNs and T+40 for a 1% issue; 2.4% 10-year notes at T+75; and 3.85% 30-year bonds at T+100.

For reference, the 2.1% notes due May 2019 changed hands on Friday at date-adjusted levels in the mid-T+30s, while the 2.85% seven-year issue traded in the mid-T+50s, the 3.45% 10-year issue traded in the low T+70s, and the 4.45% 30-year issue traded near T+120, trade data show.

The company has established among the lowest funding costs on record for shorter-dated issues since 2013, including two of the five tightest initial reoffer spreads ever recorded for three-year issues. But the company’s new-issue spread curve tended to be steeper than some similarly rated companies in recent years, including Wal-Mart and Exxon Mobil.

Apple bought back roughly $45 billion of its shares over the 12 months through Dec. 27, 2014, the most in its history, according to S&P Capital IQ. It bought back $26 billion over the year-earlier period, after repurchasing less than $2 billion in 2012.

However, the company still generated more in operating cash flow ($70.8 billion) over the 12 months through Dec. 27 last year than the combined $67 billion sum of capital spending ($10.8 billion), share buybacks, and common dividends ($11.2 billion).

Ratings agencies have maintained stable outlooks on the double-B profile through the ramp in shareholder returns.

“We view Apple’s financial risk profile as ‘minimal,’ reflecting operating margins and return on capital in excess of 30% in recent years. We expect Apple to maintain conservative financial policies, including maintenance of a very significant surplus cash position,” S&P stated in ratings rationale published in December.

“Our rating and outlook incorporate the company’s substantial share repurchases and intention to increase dividends on an annual basis. Although total shareholder returns may moderately exceed discretionary cash flow on an annual basis, robust overall cash generation affords the company the flexibility to return large amounts of cash to shareholders without detracting from the overall credit quality. Furthermore, Apple’s substantial net cash position relative to funded debt provides considerable debt capacity within the rating,” S&P analysts added. The agency today reiterated those views in rating the new bond offering.

Of note, Apple last year incurred its first significant short-term borrowings since the mid-1990s, reporting a record-high $6.3 billion as of Sept. 27, according to S&P Capital IQ.   

“Based on estimates of the decline in domestic cash, Moody’s estimated that Apple could borrow an incremental $25 billion to fund the share purchases, which should be accommodated within the expectations of the Aa1 long-term rating,” Moody’s analysts wrote last April.

“However, if debt going forward is increased meaningfully more than the $25 billion now expected by Moody’s, that would be negative and could pressure the rating down,” Moody’s added. Terms:

Issuer Apple Inc.
Ratings AA+/Aa1
Amount $500 million
Issue SEC-registered senior notes
Coupon L+25
Price 100
Maturity Feb. 7, 2020
Call nc-life
Px Talk guidance and IPT: LIBOR equivalent of fixed-rate pricing level
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1.25 billion
Issue SEC-registered senior notes
Coupon 1.55%
Price 99.78
Yield 1.596%
Spread T+42
Maturity Feb. 7, 2020
Call make-whole T+10
Px Talk guidance T+45 area (+/- 3 bps); IPT T+55 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1.25 billion
Issue SEC-registered senior notes
Coupon 2.15%
Price 99.981
Yield 2.153%
Spread T+67
Maturity Feb. 9, 2022
Call make-whole T+10
Px Talk guidance T+70 area (+/- 3 bps); IPT T+80 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $1.5 billion
Issue SEC-registered senior notes
Coupon 2.50%
Price 99.859
Yield 2.516%
Spread T+85
Maturity Feb. 9, 2025
Call make-whole T+15
Px Talk guidance T+85 area (+/- 3 bps); IPT T+95 area
Issuer Apple Inc.
Ratings AA+/Aa1
Amount $2 billion
Issue SEC-registered senior notes
Coupon 3.45%
Price 99.113
Yield 3.498%
Spread T+125
Maturity Feb. 9, 2045
Call make-whole T+20
Trade Feb. 9, 2015
Settle Feb. 9, 2015
Books DB/GS
Px Talk guidance T+125-128; IPT T+137.5 area
Notes proceeds for general corporate purposes, including share repurchases and dividends, working capital, capital spending, and debt repayment

 


 

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US High Yield Distress Ratio Opens 2015 at Elevated 13.4%

The U.S. corporate bond distress ratio opened the new year at an elevated 13.4% as of Jan. 14, according to S&P’s Global Fixed Income Research Group. Distress ratio credits are compiled as those trading at T+1,000 or greater.

The distress ratio is a hair lower than 13.8% in December, but represents a big expansion from 8.1% in November, 5% in September, and a recent low of 4.7% in June, according to S&P GFIR reports.

“Recent drops in oil prices have impacted the profitability of oil and gas companies (particularly the exploration and production segment), whose spreads have widened considerably, and that spread expansion had a spillover effect to the broader speculative-grade spectrum as a whole,” said Diane Vazza, head of S&P GFIR.

The distress ratio generally trended lower since the second half of 2012, however, as noted above, and it’s been at an elevated level since October. It’s a leading indicator and typically a precursor to more defaults.

The lagging indicator is S&P’s trailing-12-month U.S. corporate default rate, which slipped to 1.5% in December, from 1.6% in November.Caesars Entertainment and LBI Media defaulted in December, but larger year-ago defaults rolled out of the calculation.

Today’s report, titled “Distressed Debt Monitor: The U.S. Distress Ratio Remains Elevated, At 13.4%,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports

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US High Yield Bond Issuance Hit $4.8B Last Week; $13.4B YTD

US high yield bond issuance.JPG

 

It was another relatively quiet week in the U.S. high yield bond market, with six issues accounting for nearly $5 billion in volume. Investors continue to trend toward quality, with lower-rated issuers forced to pay-up significantly, according to LCD’s Joy Ferguson. (Indeed, a CCC rated deal for Presidio was scrapped today; that issue was shopped to investors at upwards of 11%.)

Year to date, US issuance lags, with some $13.4 billion booked so far in 2015, compared to $19.6 billion at this point in 2014, according to LCD. – Tim Cross

 

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Presidio shelves $400M high yield bond offering amid insufficient investor demand

Presidio this morning postponed its $400 million offering of senior notes backing its purchase by Apollo Global Management from American Securities due to insufficient demand at price talk, according to sources.

This is the second postponed deal of the year after Koppers withdrew its $400 million, five-year offering last week. Last year, 17 deals were postponed for a total of $5.825 billion, with the bulk occurring between September and December.

Presidio, via issuing entity Aegis Merger Sub, had emerged last Wednesday with talk of 10.75-11%, inclusive of its OID, on its eight-year (non-call three) offering, which was well wide of initial thoughts in the low 9% range, sources had indicated.

Barclays (B&D), Credit Suisse, Citi, Goldman Sachs, and RBC were joint bookrunners, joined by co-managers Apollo and Natixis.

Ratings on the offering had been assigned at CCC+/Caa1. Additionally, S&P assigned a 6 recovery rating to the issue. Note the deal came with a larger-than-typical equity clawback of up to 40% for the first three years at par plus the coupon.

Last Wednesday, arrangers on the concurrent loan revised pricing upward. The $600 million seven-year covenant-lite term loan was widened to L+575, offered at 97, from L+475, with a 1% LIBOR floor, and offered at 99. The financing also includes a $50 million revolver. The loan is allocating today, sources said.

Presidio, an IT infrastructure-solutions provider for approximately 6,000 clients across the U.S., assists clients in designing, procuring, implementing, and managing IT infrastructures that deliver tangible business value. – Joy Ferguson

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Nexstar Broadcasting inks $275M high yield bond deal (B+/B3) to yield 6.125%

Nexstar Broadcasting has completed its offering of senior notes via Wells Fargo, Deutsche Bank, RBC, Morgan Stanley and SunTrust Robinson Humphrey, according to sources. Terms were finalized at the tight end of guidance, along with a $25 million upsizing. Nexstar is using proceeds to back the proposed acquisition of three television stations.

S&P today upgraded the company’s senior unsecured debt one notch to B+ and raised the unsecured recovery rating to 4, from 5. The rating agency also revised its outlook to positive, from stable, due to Nexstar’s increased size and scale as a result of the latest acquisitions. Terms:

Issuer Nexstar Broadcasting
Ratings B+/B3
Amount $275 million
Issue senior (144A-life)
Coupon 6.125%
Price 100
Yield 6.125%
Spread T+450
Maturity Feb. 15, 2022
Call nc-3 @par+50%
Trade Jan. 21, 2015
Settle Jan. 29, 2015 (T+6)
Jt. Bookrunners WFS/DB/RBC/MS/STRH
Co-Managers Barc/CS/RBS
Price talk 6.25% area
Notes Upsized by $25 million; first call at par +50% coupon

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Valeant Pharmaceuticals (B/B1) high yield bonds price to yield 5.5%

Valeant Pharmaceuticals this afternoon completed its $1 billion offering of senior notes via Barclays, RBC, Deutsche Bank, DNB, HSBC, MUFG, and Morgan Stanley. Terms were finalized at the tight end of talk, and heavy demand allowed for a revision of the first call premium to a more-issuer-friendly par plus 50% coupon, from par plus 75% coupon at launch. Valeant is seeking proceeds to redeem its outstanding 6.875% senior notes due 2018, to repay all or a portion of the amounts drawn under the revolving credit facility, and for general corporate purposes, including acquisitions, according to sources. The 6.875% notes are callable on Feb. 12 at 103.44, according to S&P Capital IQ. Note the first call at par plus 50%. Terms:

Issuer Valeant Pharmaceuticals
Ratings B/B1
Amount $1 billion
Issue senior (144-life)
Coupon 5.5%
Price 100
Yield 5.5%
Spread T+386
Maturity March, 1, 2023
Call nc-3 @par+50% coupon
Trade Jan. 15, 2015
Settle Jan. 30, 2015 (T+10)
Bookrunners Barc/RBC/DB/DNB/HSBC/MUFG/MS
Co-Managers Citi/JPM/STRH
Price talk 5.5-5.625%
Notes First call at par +50%
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Aristotle Credit Partners launches bond/loan mutual fund

Aristotle Credit Partners has launched its first mutual fund, the Aristotle Strategic Credit Fund, a year after the credit platform first formed.

Typically, the fund will invest a minimum of 80% of its net assets in debt securities, including U.S. and non-U.S. corporate bonds and loans, as well as securities in both developed and emerging markets. The institutional no-load share class will trade under the symbol ARSSX.

Currently sized at $1.7 million, the open-ended fund is set to increase to $2 million shortly. Aristotle Credit’s affiliate Aristotle Capital Management has two equity mutual funds (Aristotle International Equity Fund and Aristotle/Saul Global Opportunities Fund) that bring the total for all Aristotle branded mutual funds to roughly $50 million.

Douglas Lopez, Michael Hatley, and Terence Reidt are the Portfolio Managers, responsible for the day-to-day management of the Fund. The executives currently direct various strategies at Aristotle Credit, where they serve as Principals, Portfolio Managers, and members of Aristotle Credit’s research team.

Based in Los Angeles, Aristotle Credit Partners, LLC is an institutional asset management firm focused on value-added credit strategies. – Sarah Husband

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McDermott, distressed debt pros launch debtstream sales & trading platform

Jay McDermott, a well-known figure in the world of distressed debt, has partnered with a team of capital market professionals to launch Debtstream Corp., a distressed debt boutique based in New York City.

The new venture is aimed at supporting distressed debt managers by providing a sales, sourcing, and trading platform focused solely on private debt. CEO Jay McDermott founded the firm to help clients find solutions to reposition risk, enhance value, and monetize existing portfolio opportunities.

The elimination of prop desks as a result of financial regulation, and a slowdown in the distressed market has had a fundamental impact on the sourcing business, McDermott says.

“We see that there is a void in the sourcing market that an intermediary can fill to help the repositioning of risk from banks and claim holders,” says McDermott, who believes 2015 could be the early part of the next cycle for distressed investing.

Debtstream aims to add liquidity by identifying situations, building the credit story, and developing the market. This, McDermott says, helps original lenders monetize their distressed assets while creating opportunities for hedge funds and other distressed buyers who have differing recovery time horizons and risk appetites.

McDermott has over 15 years management experience supervising trading, sales, research, loan closing, and operation professionals and marketing distressed capabilities and products to hedge funds. McDermott’s career highlights include building and managing the distressed business for global bank offering commercial services at RBS. Prior to that, he was head distressed private trader at Bear Stearns.

The firm is founded by McDermott and partners Rick KammlerTina LeungRich FurlongMarie BakerJohn Mori, and Francesca Sena. – Rachelle Kakouris