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Momentive Performance Materials emerges from Chapter 11

momentive-logoMomentive Performance Materials Inc. emerged from Chapter 11, the company announced on Friday.

The company said it emerged with liquidity of about $360 million after eliminating roughly $3 billion in debt via its Chapter 11 proceeding. The company said it would have about $1.2 billion of post-emergence pro forma debt.

As reported, several appeals remain to be resolved in the case regarding whether make-whole payments are due on the company’s first- and 1.5-lien notes ($1.1 billion of 8.875% first-priority senior notes due 2020 and $250 million of 10% senior secured notes due 2020, respectively), and whether holders of the notes are entitled to a market rate of interest in the cram-down replacement notes being issued to them under the company’s reorganization plan.

The White Plains, N.Y., bankruptcy court confirmed the company’s reorganization plan on Sept. 11.

As reported, under the company’s proposed plan, holders of the first- and 1.5-lien notes will receive replacement notes paying interest at fixed rates calculated at T+200 for first-lien noteholders, and T+275 for holders of the 1.5-lien notes, at the time of emergence.

As reported, in arriving at that cram-down interest rate, Bankruptcy Court Judge Robert Drain rejected the argument that holders were entitled to a market rate of interest and held that, under Supreme Court precedent, the cram-down interest rate need only equal a risk-free base rate plus a risk premium of 1%-3%. Drain’s ruling has proved controversial, however, because of his application of the Supreme Court precedent, which involved a Chapter 13 proceeding, to a Chapter 11 case.

Beyond the plethora of issues involving the senior debt, second-lien lenders ($1.161 billion of 9% second-priority springing lien notes due 2021 and €133 million 9.5% second-priority springing lien notes due 2021) are to receive all of the equity in the reorganized company (after giving effect to the subordination provision of the subordinated notes), along with participation rights in a $600 million rights offering at a price per share determined by using the pro forma capital structure and an enterprise value of $2.2 billion, applying a 15% discount to the equity value. – Alan Zimmerman

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Fish nor fowl: Know what junk-bond funds are—and aren’t

high yield fund returnsWith the recent sell-offand rebound – in the high yield bond market, junk bond funds (and ETFs) have been in a very bright spotlight lately, as investors who have had a nice ride throughout much of 2014 have started seeing something called negative returns (that can happen, apparently).

Where do high yield fund returns stand, compared to traditional bond funds and equities? The Wall Street Journal has a graphic today. The answer: pretty much in the middle.

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Fridson: After sell-off, high yield bonds now cheap. (Or undervalued, anyway)

After a drastic sell-off, the high-yield market is undervalued for the first time since May 2012. The decline also returned the distressed sector to the fairly valued zone. During the first half of October, the price of the BofA Merrill Lynch US High Yield Index plummeted at a 28% annualized rate. Over that span, the index’s option-adjusted spread (OAS) increased by 68 bps. As of Sept. 30 the index’s year-to-date return stood at 3.61%. The two-week bear market shaved 1.11 percentage points off that figure to leave it at 2.50%.

High-yield now cheap
After being extremely overvalued for much of the year (and more recently moderately overvalued), the BofA ML High Yield Index has swung to moderately undervalued following the recent sell-off. The high-yield spread-versus-Treasuries has not been wider than fair value at month-end since May 2012. Our econometric model of the index’s OAS, introduced in “Determining fair value for the high-yield market” ($), now puts fair value at 442 bps.

That’s down from 479 bps a month ago, thanks in particular to the improvement in Industrial Production announced on Oct 16. The actual OAS as of Oct. 20 was 468 bps, up from 397 bps on Sept. 20. Accordingly, the spread is 26 bps (0.20 standard deviations) wider than our fair-value estimate.

Fridson 2014-10-21 chart 1

Note: Our model is not the simplistic and wrong breakeven analysis (spread – default rate + recoveries = fair-value spread). Rather, it summarizes total risk of the high-yield asset class at a point in time – reflecting liquidity risk as well as default risk – based on five explanatory factors. An extreme misvaluation occurs when the actual spread diverges from the fair-value spread by one standard deviation (130 bps) or more. - Martin Fridson

This analysis is part of a longer research effort by Marty for LCD News, available to subscribers here. Marty’s bond market analysis is available on LCD News each week. He also writes a monthly high yield market column. To subscribe, contact Marc Auerbach

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Peabody Energy high yield bonds gain, CDS tightens after results beat expectations

Debt backing Peabody Energy strengthened this morning, just as credit protection costs fell, after the coal credit beat Street estimates for its third-quarter 2014 results. The 6% notes due 2018, for one, traded up two points, at 97.5, while the 6.25% notes due 2021 changed hands at 94, versus 91.5 Friday and as low as 87.688 at the depths of the recent sell-off earlier last week, according to trade data.

Shares were off about 1% on the news, at $10.93, but debt and debt derivatives continued to outperform. Indeed, five-year CDS in the name tightened roughly 11% this morning, to 542/592 bps, according to Markit.

In the loan market, Peabody’s covenant-lite term loan due 2020 (L+325, 1% floor) ticked up a quarter point to 95.25/96.25 this morning, sources said. The loan, originally $1.2 billion, was issued in September 2013 at 99.

Peabody reported first-quarter revenue of $1.72 billion, down from $1.8 billion in the year-ago period, primarily due to lower pricing in Australia markets, according to a company statement. However, results were approximately 5% better than the S&P Capital IQ adjusted mean estimate for $1.65 billion.

Results turned out adjusted EBITDA of approximately $216 million, down from $312 million in the year-ago third quarter and a hair higher sequentially, filings show. Moreover, the earnings figure was 10% higher than the S&P Capital IQ consensus mean estimate for $197 million.

“While global coal markets continue to reflect oversupply and concerns over Chinese coal imports, we are seeing some favorable industry indicators,” offered CEO Gregory Boyce in today’s statement. Boyce specifically flagged growth of imports in India. – Matt Fuller/Kerry Kantin

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

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GT Advanced Technologies creditor committee appointed; full list

GT-Advanced-Technologies

 

The U.S. Trustee for the bankruptcy court in New Hampshire named an official creditors’ committee in the Chapter 11 proceedings of GT Advanced Technologies. Committee members and their contact information are as follows

(NOTE: The only contact information provided were a contact name and mailing address):

 

  • Manz, AG, Steigaeckrstr. 5, 72768 Reutlingen, Germany, Attn: Mr. Martin Hipp, CFO
  • U.S. Bank National Association, as Trustee, 60 Livingston Avenue, St. Paul, MN 55107, Attn: Mr. Barry Ihrke, vice president
  • Fidelity Financial Trust: Fidelity Convertibles Securities Investment Fund, 245 Summer Street, Boston, MA, 02110, Attn: Mr. Nate Van Duzer, managing director
  • Elmet Technologies, 1560 Lisbon Street, Lewiston, Maine, 04240, Attn: Mr. Shaun Martin, CRO
  • Meyer Burger AG, Schorenstrasse 39, CH-3645 Gwatt (Thun), Switzerland, Attn: Mr. Derek B. Taylor, CFO for subsidiary, Diamond Materials Tech
  • SGL Carbon LLC, 10130 Perimeter Parkway, Suite 500, Charlotte, N.C., 28216-2442, Attn: Mr. Jason Lang
  • Sanmina Corporation, 2700 N. First Street, San Jose, Calif., 95134, Attn: Mr. Edward T. Attanasio, vice president and legal counsel

Court filings show that the committee retained Kelley, Drye & Warren as legal counsel, with Devine, Millimet & Branch, a firm located in Manchester, N.H., serving as local counsel. – Alan Zimmerman

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US high yield bond issuance hits $12B (thanks to Dynegy)

US high yield bond issuance.JPG

High yield bond issuance in the U.S. last week totaled $12 billion, the most recorded in a week since May, though the bulk of the recent activity was courtesy energy concern Dynegy, which priced on Friday a $5.1 billion offering. The Dynegy issue was the largest dollar offering this year and the 10th-largest on record, according to S&P Capital IQ/LCD.

For more high yield bond news, data, and analysis check www.highyieldbond.com, a free site powered by LCD to promote the asset class.

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Largest YTD US dollar-only financing in 2014; Dynegy places $5.1B high yield bond offering

150px-Dynegy_Logo.svgDynegy Finance this afternoon completed its jumbo $5.1 billion, three-tranche offering of senior notes via Morgan Stanley, Barclays, Credit Suisse, RBC and UBS. Terms on the B+/B3 deal were finalized at the middle of talk for two tranches and the tight end of talk for the 10-year series, though wide of whispers amid the market downturn this week. Sources said at the talk level, interest was strong and it was oversubscribed despite deteriorating market conditions. The transaction was initially lumped on the backlog in late August, when the iconic issuer announced that it agreed to acquire certain Midwest generation assets from Duke Energy for $2.8 billion, as well as EquiPower Resources and Brayton Point Holdings from Energy Capital Partners for $3.45 billion. The deals are expected to close in the first quarter of 2015, according to the firm.

Take note that this is the 10th largest high-yield deal on record, and it’s the largest U.S. dollar-only financing in completed in the year to date. Terms:

Issuer Dynegy
Ratings B+/B3
Amount $2.1 billion
Issue senior notes (144A)
Coupon 6.75%
Price 100
Yield 6.75%
Spread T+511
Maturity Nov. 1, 2019
Call nc2.5
Trade Oct. 10, 2014
Settle Oct. 27, 2014 (t+10)
Bookrunners MS/Barc/CS/RBC/UBS
Co-Managers BNP, BAML,CAG, DB, JPM, MUFG, STRH
Price talk 6.75% area
Notes first call par+50% coupon.
Issuer Dynegy
Ratings B+/B3
Amount $1.75 billion
Issue senior notes (144A)
Coupon 7.375%
Price 100
Yield 7.375%
Spread T+523
Maturity Nov. 1, 2022
Call nc4
Trade Oct. 10, 2014
Settle Oct. 27, 2014 (t+10)
Bookrunners MS/Barc/CS/RBC/UBS
Co-Managers BNP, BAML,CAG, DB, JPM, MUFG, STRH
Price talk 7.375% area
Notes first call par+50% coupon.
Issuer Dynegy
Ratings B+/B3
Amount $1.25 billion
Issue senior notes (144A)
Coupon 7.625%
Price 100
Yield 7.625%
Spread T+531
Maturity Nov. 1, 2024
Call nc5
Trade Oct. 10, 2014
Settle Oct. 27, 2014 (t+10)
Bookrunners MS/Barc/CS/RBC/UBS
Co-Managers BNP, BAML,CAG, DB, JPM, MUFG, STRH
Price talk 7.75% area
Notes first call par+50% coupon.
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Even as take-private deals thin, private equity taps high yield bond, leveraged loan marts

While public-to-private buyouts – the signature deal for private equity firms – have been rare this year, sponsors hardly have been sitting on their hands.

Via a combination of non-P2P LBO and M&A-related transactions, as well as recaps and refinancing deals, PE-backed issuers have tapped the leveraged credit markets for $314.4 billion of new financing this year, including $260.4 billion of loans and $54.1 billion of high-yield bonds. That is down just slightly from last year’s record pace of $343.7 billion, split between $271.2 billion of loans and $72.5 billion of bonds.

– Steve Miller

Follow Steve on Twitter for an early look at LCD analysis, plus market commentary.

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BreitBurn Energy shelves $400M high yield bond offering; 10th scrapped deal YTD

BreitBurn Energy Partners has shelved its plans to offer $400 million of 8.5-year senior notes due to market conditions. Price talk was in the 8.25% area, and proceeds were to fund an RC-repayment effort.

This is the tenth cancelled bond deal in the year to date, for a net $4.3 billion of withdrawn offerings, according to LCD. Most were opportunistic refinancing deals that couldn’t secure an appropriate rate, and one M&A deal, the Jupiter Resources financing, was successful in an eventual return to market.

BreitBurn was in market with the B-/B3 transaction via a Citi-led bookrunner team that includes BMO, Credit Suisse, J.P. Morgan, RBC, RBS, and Wells Fargo. Amid the marketing efforts there was a small revision to the call schedule. The initial pitch was for the new classic, with a first call premium at par plus 75% coupon after three years, but it was rejiggered to a first call at par plus 50% coupon after 4.25 years, according to sources.

Los Angeles-based BreitBurn is an independent oil-and-gas company with properties in Michigan, California, Wyoming, Florida, and Kentucky. The company trades on the Nasdaq under the symbol BBEP, with an approximate market capitalization of $2.4 billion. – Matt Fuller

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

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Jefferies Finance $425M upsized high yield bonds (B/B1) price to yield 7.5%

jefferies_logo_1950Jefferies Finance this afternoon completed an offering of senior notes under Rule 144A for life via sole lead Jefferies, according to sources. The commercial finance firm is back in the market after seven months with another offering to support general corporate purposes. Take note that ratings of B/B1 that were assigned this week came with an S&P revision of the outlook for the credit to positive due to reduced leverage and improved liquidity.

Terms:

Issuer Jefferies Finance
Ratings B/B1
Amount $425 million
Issue senior notes (144A-life)
Coupon 7.5%
Price 100
Yield 7.5%
Spread T+549 / 7-year
Maturity April 15, 2021
Call nc3 @ par+75% coupon
Trade Oct. 8, 2014
Settle Oct. 14, 2014 (t+3)
Bookrunners Jefferies
Price talk 7.5% area
Notes upsized by $25 million; first call par+75% coupon