content

Investors Pour $1.2B into US High Yield Bond Funds

high yield bond flows

U.S. high-yield funds recorded an inflow of $1.2 billion in the week ended April 6, according to Lipper. The positive flow figure wipes out last week’s $545 million outflow, and it’s the seventh net one-week inflow over the past eight weeks, for positive $14 billion over that span.

The influence of ETFs was just 28% this past week, or $333 million of the infusion. In contrast, the ETF influence of last week’s outflow was all-encompassing, at negative $596 million, against a tiny inflow of $51 million to mutual funds, or inverse 109%.

Whatever that might suggest about fast money, market timing, and hedging strategies, it’s dissipated this past week. Still, the year-to-date inflow figure of $8.9 billion remains ETF-heavy, at 47% of the sum. Last year at this juncture, the net inflow was $10.7 billion, with 45% linked to the ETF segment.

The four-week-trailing average shrank to positive $1.1 billion per week, from positive $1.3 billion last week and positive $2.6 billion two weeks ago.

The change due to market conditions this past week was positive $1.2 billion, representing a gain of roughly 0.6% against total assets, which were $186.9 billion at the end of the observation period. ETFs account for about 21% of the total, at $39.9 billion. — Matt Fuller

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

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

content

Bond prices creep higher toward 2016 peak

The average bid of LCD’s flow-name high-yield bonds advanced 61 bps in today’s observation, to 95.01% of par, yielding 7.95%, from 94.40 on Tuesday, yielding 8.10%. Performance within the sample was mostly positive, with 11 gainers, one unchanged, and three decliners.

The solid increase gain builds on Tuesday’s tiny, three basis points move higher, for a net 64 bps advance week over week. The gain vaults the average bid price closer to the 2016 peaks, which were 95.08 on March 22, and 95.05 on March 3.

Dating back two weeks, the average is up 119 bps, but reaching back four weeks, the average only up 43 bps. Still, the current observation is up a whopping 738 bps from the 2016 low of 87.63 recorded on Feb. 11 at the bottom of the double-dip that previously troughed at 88.77 on Jan. 21.

Gains of late come despite mixed retail cash flows and the biggest new-issue supply in five months, at $10.74 billion this week, including the record-setting, single-largest issuance ever, the $5.19 billion of first-lien 7.375% notes due 2026 from France-based cable network operator Numericable.

With today’s measurable gain in the average bid price, the average yield to worst fell 15 bps, to 7.95%, and the average option-adjusted spread to worst tightened 12 bps, to T+657. The former is just a second sub-8% reading in the past five weeks, with the prior being likewise 7.95% on March 22.

Given a smaller sample of high-beta credits, the LCD flow names have been variable against broader market averages. For example, the S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed Wednesday, April 6, with a 7.92% yield to worst but an option-adjusted spread to worst of T+719.

Bonds vs. loans
The average bid of LCD’s flow-name loans edged up five basis points in today’s reading, to 98.62% of par, for a discounted loan yield of 4.28%. The gap between the bond yield and the discounted loan yield to maturity is 367 bps. — Staff reports

The data:

  • Bids increase: The average bid of the 15 flow names advanced 61 bps, to 95.01.
  • Yields decrease: The average yield to worst slipped 15 bps, 7.95%.
  • Spreads decrease: The average spread to U.S. Treasuries tightened 12 bps, to T+657.
  • Gainers: The largest of the 11 gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which surged 2.75 points, to 82.25, after netting a loan waiver regarding late financial reports.
  • Decliners: The largest of the three decliners was Altice 7.75% notes due 2022, which fell 1.5 points, to 97, as parent Numericable moved in market with a huge new issuance.
  • Unchanged: Just Frontier Communications 11% notes due 2025 were steady, at 99.75.
content

Numericable Prices Upsized, $5.2B Bond Offering to Yield 7.375%

French cable network operator Numericable this afternoon completed an offering of first-lien notes via bookrunners J.P. Morgan, BNP Paribas, Deutsche Bank, Barclays, Bank of America, Credit Agricole, Goldman Sachs, and Morgan Stanley. Terms on the B+/B1 transaction under Rule 144A for life were finalized at the tight end of talk after a huge upsizing to $5.2 billion, from $2.25 billion, amid just under 24 hours of marketing efforts. It’s the largest high-yield issuance on record, surpassing the vintage 2008 Caesars/Harrahs buyout bonds and more recently the $4.25 billion GCP deal from Sprint in late 2013. As reported, proceeds from Numericable’s return to the Yankee-bond market will be used to repay drawings under its RCF and to redeem in full its $2.4 billion 4.875% secured notes due 2019. Terms:

Issuer Numericable SFR
Ratings B+/B1
Amount $5.19 billion
Issue secured notes (144A-life)
Coupon 7.375%
Price 100
Yield 7.375%
Spread T+562
Maturity May 1, 2026
Call nc5 @ par+50% coupon
Trade April 6, 2016
Settle April 11, 2016 (T+3)
Bookrunners JPM/BNP/DB/Barc/BAML/CAG/GS/MS
Price talk 7.5% area
Notes Upsized by $2.94 billion; w/ 40% equity clawback option for three years @107.375.

 

Follow LCD on Twitter or learn more about us here

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

content

Numericable prepares to sell $2.25B of secured notes for refi plan

French cable network operator Numericable is back in market after two years with a $2.25 billion offering of secured notes as part of a bond-and-loan refinancing effort. The deal is being pitched with the old standard structure, as 10-year (non-call five) notes, and issuance under Rule 144A for life, according to sources.

J.P. Morgan leads the bookrunner group, with joint books BNP Paribas, Deutsche Bank, Barclays, Bank of America, Credit Agricole, Goldman Sachs, and Morgan Stanley. An investor call is scheduled for 4:15 p.m. EDT this afternoon, with pricing to follow on Wednesday, April 6, according to sources.

Existing Numericable secured note ratings are B+/B1. That’s the profile on the company’s $1.375 billion issue of 6.25% secured notes due 2024, which trade around 99, offering about 6.4%, trade data show.

That issuance was two years ago as part of a €7.9 billion-equivalent, five-part crossborder offering of secured notes via global coordinators J.P. Morgan, Deutsche Bank, and Goldman Sachs. Proceeds, along with €3.7 billion of covenant-lite six-year cross-border term loans, as well as a €4.7 billion rights issue financed via €4.15 billion of cross-border bonds by Altice, were used to finance the cash consideration of Numericable’s purchase of SFR from Vivendi (€13.5 billion), and to refinance debt (€2.53 billion). — Staff reports

content

Allergan, Awaiting Pfizer Deal, Sees Bonds Surge Wider as US Targets Tax Inversions

Bonds backing Allergan (NYSE: AGN) gapped wider today after the U.S. Department of the Treasury and the Internal Revenue Service (IRS) yesterday announced a new round of tougher-than-expected measures to curb corporate tax inversions, in a new threat to the company’s planned all-equity merger with Pfizer (NYSE: PFE).

The proposed merger—valued at roughly $160 billion—was projected to significantly bolster Allergan’s credit profile, which had dropped from single-A to the cusp of investment grade status in recent years following a string of debt-financed M&A plays. All sides of Allergan’s BBB–/Baa3/BBB– ratings profile are at present under review for upgrades to reflect the potential “moderately leveraging” combination with the significantly larger and more diverse Pfizer, which is currently rated AA/A1/A+, and Allergan’s expectation of $40 billion in proceeds from the sale of its generic drug business.

When the much-anticipated merger with Pfizer was formally announced last November, AGN notes traded 15–20 bps tighter on the day and 30–35 bps tighter month to month, driving trades in the AGN 3.8% 10-year issue due March 15, 2025—which date to issuance on March 3, 2015 at T+175—to the low-to-mid T+140s.

But that 3.8% issue, which changed hands below T+130 as recently as mid-March this year, vaulted 30–35 bps wider this morning to trades in the low-to-mid T+170s, trade data show. Other AGN long-term bond issues also generally widened 30–40 bps this morning.

Under the now-imperiled merger plan, the combined entity would be renamed Pfizer plc and trade on the NYSE under the PFE ticker, though it would be combined under the existing Allergan entity and retain AGN’s current Irish legal domicile and principal executive offices, the companies said.  Pfizer plc would have its global operational headquarters in New York.

To limit inversions, the U.S. Treasury yesterday stated that it would disregard foreign parent stock attributable to recent inversions or acquisitions of U.S. companies. “This will prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition,” Treasury stated, adding that it would continue to explore new ways to combat the practice.

Allergan’s deal with Pfizer was the latest in a rapid series of big M&A developments. The 3.8% notes due 2025 came as part of a $21 billion, 10-part deal via Actavis—the third-largest corporate offering on record—backing its $66 billion acquisition of Allergan, before a name change to the latter in June last year, and after Actavis in July 2014 acquired Forest Laboratories for roughly $25 billion. But it was its $8.7 billion acquisition of Dublin-based Warner Chilcott in October 2013 that set in motion the events leading up to New York-based Pfizer’s inversion bid last year.

The Treasury said yesterday that it would also attack the befits of post-inversion “earnings stripping” by targeting transactions that generate large interest deductions to avoid U.S. taxation, while also allowing the IRS to divide debt instruments into part debt and part equity for tax treatment, as opposed to the current system that treats them as “wholly one or the other.”

Allergan and Pfizer said, in a joint statement yesterday, that they are conducting a review of the Treasury’s actions. “Prior to completing the review, we won’t speculate on any potential impact,” the companies stated.

Moody’s last November affirmed the A1 rating on PFE, with a stable outlook, noting that the deal would reduce exposure to “patent cliffs” while also bolstering cash prospects on inversion tax benefits.

S&P’s current downgrade review on PFE’s AA rating takes into account Pfizer’s share-repurchase ambitions, which include an accelerated $5 billion buyback announced on March 9 and a new $11 billion, open-ended authorization. S&P said it expected Pfizer to lean on its pro rata $70 billion of cash on hand to fund some of the “significant” repurchase activity in the years to follow a merger with Allergan, in a bid to combat post-merger dilution.

However, S&P estimated that the combined cash and cash flows of Pfizer and Allergan—coupled with assumed synergies—would likely facilitate at least $80–85 billion of buybacks over a three-year period without straining the double-A rating, “absent any major operational setbacks and debt-financed acquisitions.”

In light of the Treasury notice, S&P today stated today that it would likely remove Pfizer’s rating from CreditWatch and affirm the existing ratings should the transaction be terminated.

S&P also said its upgrade review on Allergan will continue, as it dates to Allergan’s announcement last July that it would sell its generic drug business to Teva Pharmaceutical Industries for $40 billion, with proceeds earmarked for deleveraging and acquisitions to bolster the remaining specialty pharmaceutical franchise. — John Atkins

twitter iconFollow LCD News on Twitter

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

content

Fridson: Energy, Commodities High Yield Bonds See Lofty Returns in March

The energy and commodities sectors led the stomach-churning plunge in high yield during the second half of 2015, so it stands to reason that those market segments had the most upside as the first quarter of 2016 progressed. Indeed, as Martin Fridson notes, commodities and energy bonds saw eye-popping (and even unprecedented) gains last month:

In March the commodities industries recorded their highest monthly returns since industry performance on the BofA Merrill Lynch US High Yield Index became available in June 1996. The BofA Merrill Lynch US High Yield Energy Industry returned 16.07%, and the BofA Merrill Lynch US High Yield Metals/Mining Industry returned 8.86%. Those two returns topped the month’s league table for performance among the 20 largest high-yield industries.

This story is part of Marty’s weekly high yield bond analysis which appears on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

twitter icon Follow LCD News on Twitter

content

Target eyes $1.8B of high-coupon debt with new $2B launch

Big box retailer Target (NYSE: TGT) has launched a $2 billion offering of SEC-registered senior notes, after splitting the deal evenly across $1 billion each of 10-year notes at T+72 (versus guidance in the T+75 area, plus or minus three basis points, and initial whispers in the T+90 area) and 30-year bonds at T+105 (from guidance in the T+110 area, and initial whispers from T+125–130). The issues are on track for reoffer yields near 2.5% and 3.65%, respectively.

As with the company’s last offering, in June 2014, proceeds of today’s deal will back a concurrent tender offer for outstanding high-coupon debt and other general corporate purposes, according to regulatory filings. The company today commenced a tender offer for up to $1.8 billion of its outstanding debt, including up to $1 billion across its 6.5% notes due 2037, 7% notes due 2038, 6.35% debentures due 2032, 7% debentures due 2031, 6.65% debentures due 2028, and 6.75% debentures due 2028; and up to $800 million across its 6% notes due 2018 and 5.375% notes due 2017.

But today’s offering also comes amid a material ramp in share-repurchase activity, which totaled more than $3.4 billion over the 12 months through January, after no repurchases over the year-earlier period, according to S&P Capital IQ. Buybacks over the latest period—during which the company doubled its authorization to $10 billion—were the most since its record-high $4.35 billion repurchased over the 12 months ahead of the collapse of Lehman Brothers in September 2008.

Active bookrunners for the offering are Barclays, Citi, and J.P. Morgan, along with passive bookrunners BAML, Deutsche Bank, and Goldman Sachs. The issues are subject to make-whole call provisions and ratings-sensitive, change-of-control puts at 101.

The Minneapolis-based issuer’s last offering in June 2014 was for $2 billion in an even split across 2.3% five-year notes due June 26, 2019 at T+60 and 3.5% 10-year notes due July 1, 2024 at T+90.

The credit profile includes stable outlooks on the respective A/A2 ratings at S&P and Moody’s, and a positive at Fitch on the lower A– rating.

Fitch revised the outlook up from stable on Feb. 10 this year, citing “improving comparable sales and margins along with Fitch’s expectation that total adjusted debt/EBITDAR will be maintained around 2.0x.” It also noted an increased focus on core operations—following the early 2016 exit from its Canadian business, late 2015 divestiture of its pharmacy operations, and 2013 sale of its credit card business—and characterized financial policy as “balanced,” despite expectations for roughly $3 billion of buybacks yearly, and incremental debt to partially support those returns beyond 2016.

S&P, which earlier this year also noted that the company’s decision to exit its Canadian operations was a boon to its credit ratios, last month said its stable outlook incorporates its view “that Target will now focus financial and managerial resources on improving its domestic business,” facilitating stable adjusted debt to EBITDA in the high-1x area. — John Atkins

content

MGM Growth Properties Launches $1.05B Bond Offering Backing Spinoff from MGM Resorts

MGM is in the market with a $1.05 billion offering of eight-year (non-call life) senior notes via bookrunners J.P. Morgan, Bank of America Merrill Lynch, Barclays, Citi, Deutsche Bank, BNP Paribas, Fifth Third, and Morgan Stanley. Pricing is expected on Friday.

Proceeds, along with those from term loans and $800 million of equity, will be used to finance the spinoff of MGM Growth Properties from MGM Resorts.

MGM Growth Properties is a recently formed real-estate-investment trust owned by MGM Resorts International. The business has filed for an initial public offering, with a $100 million placeholder. MGM Resorts would maintain control of the REIT following the offering. The underwriters on the offering are Bank of America Merrill Lynch, J.P. Morgan, Morgan Stanley, Evercore ISI, Barclays, Citigroup, and Deutsche Bank.

As reported, last Friday a Bank of America Merrill Lynch-led arranger group launched a $1.85 billion, seven-year B term loan for MGM Growth Properties, setting price talk at L+400–425, with a 0.75% LIBOR floor and 99 offer price, sources said. The term loan will be covenant-lite and includes six months of 101 soft call protection. At current guidance, the term loan would yield roughly 5.02–5.28% to maturity.

MGM Growth Properties also detailed in a regulatory filing that it is seeking a $300 million, five-year A term loan, a $600 million, five-year revolver, and $1.05 billion of senior unsecured notes to be issued in a private placement. The company noted that lenders have committed to provide the TLA, and that pricing on the term loan and revolver would open at L+275. The company also said that $150 million is expected to drawn from the revolver at closing.

Standard & Poor’s on Friday assigned a B+ corporate rating to MPG and a BB issue-level rating, and a 1 recovery rating to the senior secured credit facility. S&P also assigned a B+ issue level rating and 3 recovery rating to the proposed senior unsecured notes and revised Las Vegas-based MGM Resorts’ B+ rating outlook to positive stable. MGM Resorts is rated B2 by Moody’s and B+ by Fitch. — Staff reports

twitter icon Follow LCD News on Twitter

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

content

Speculative-grade default rate at nearly 6-year high, S&P GFIR says

The U.S. trailing 12-month speculative-grade corporate default rate is estimated to have increased to 3.8% in March, from 3.28% in February and 2.82% in January, according to S&P Global Fixed Income Research (S&P GFIR). The current observation estimate represents the highest level in nearly six years, or since the rate was at 4.17% in September 2010.

There were 12 corporate defaults during the month. Sub-par debt buybacks produced defaults for mortgage lender Prospect Holdings and Town Sports International; skipped interest spurred defaults for Chaparral EnergyForesight Energy, Linn EnergyTemplar Energy, and auto-parts company UCI Holdings; bankruptcies were Aspect Software and Southcross EnergyAmerican Media completed yet another distressed exchange; Peabody Energy didn’t make a coupon during the grace period and warned of the ability to continue as a going concern; and Nuverra Environmental Solutions completed an out-of-court restructuring.

Downgrades outpaced upgrades. S&P Ratings Services upgraded 19 companies with total debt of about $207.3 billion and downgraded 48 companies with total debt of about $62.4 billion in March, according to S&P GFIR.

“The resulting downgrade ratio for the month by count is 2.53 to 1. In comparison, the downgrade ratio was 2.2 to 1 for full-year 2015, 1.02 to 1 for full-year 2014, and 0.9 to 1 for full-year 2013,” explained Diane Vazza, head of S&P GFIR.

Looking ahead, the S&P GFIR holds firm its forecast for the U.S. speculative-grade default rate to increase to 3.9% by the end of 2016.

Today’s report, titled “The U.S. Speculative-Grade Corporate Default Rate Grew To 3.8% In March,” 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

content

S&P: US Speculative-Grade Default Rate Climbs to 3.8%, Highest Point in Nearly 6 Years

high yield default rate

The U.S. trailing 12-month speculative-grade corporate default rate is estimated to have increased to 3.8% in March, from 3.28% in February and 2.82% in January, according to S&P Global Fixed Income Research (S&P GFIR). The current observation estimate represents the highest level in nearly six years, or since the rate was at 4.17% in September 2010.

There were 12 corporate defaults during the month. Sub-par debt buybacks produced defaults for mortgage lender Prospect Holdings andTown Sports International; skipped interest spurred defaults for Chaparral EnergyForesight Energy, Linn EnergyTemplar Energy, and auto-parts company UCI Holdings; bankruptcies were Aspect Software and Southcross EnergyAmerican Media completed yet another distressed exchange; Peabody Energy didn’t make a coupon during the grace period and warned of the ability to continue as a going concern; and Nuverra Environmental Solutions completed an out-of-court restructuring.

Downgrades outpaced upgrades. S&P Ratings Services upgraded 19 companies with total debt of about $207.3 billion and downgraded 48 companies with total debt of about $62.4 billion in March, according to S&P GFIR.

“The resulting downgrade ratio for the month by count is 2.53 to 1. In comparison, the downgrade ratio was 2.2 to 1 for full-year 2015, 1.02 to 1 for full-year 2014, and 0.9 to 1 for full-year 2013,” explained Diane Vazza, head of S&P GFIR.

Looking ahead, the S&P GFIR holds firm its forecast for the U.S. speculative-grade default rate to increase to 3.9% by the end of 2016.

Today’s report, titled “The U.S. Speculative-Grade Corporate Default Rate Grew To 3.8% In March,” 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