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US High Yield Bond Funds See $128M Cash Withdrawal

U.S. high yield funds saw a net $128 million withdrawal the week ended June 21, ending three weeks of inflows into the asset class totaling $1.3 billion, according to Lipper weekly reporters.

US high yield fund flows

ETFs accounted for $82 million of this week’s withdrawal while high yield funds lost $46 million. Despite the dip, the four-week average rises to a $294 million net inflow, as a $567 million withdrawal the week ended May 24 rolls off this metric.

Year to date, U.S high-yield funds have seen a net $4.8 billion withdrawal, with ETFs seeing a small, $124 million net gain.

The change due to market conditions was a hefty $1.3 billion decline this week. Total assets at the end of the observation period were $207.9 billion, $46.7 billion via ETFs. — Staff reports

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Charter Communications Scraps Plans for $1.5B High Yield Bond Offering

Charter Communications has withdrawn a proposed offering for $1.5 billion of senior notes due to market conditions, the would-be borrower said in a statement.

The cable operator pitched the Credit Suisse–led transaction at the start of Wednesday’s session. Structured as 10.5-year (non-call five) bonds, guidance for the deal was set at the 4.75% area. Proceeds were earmarked to back general corporate purposes, including a potential buyback of stock.

“Today’s debt capital market conditions did not allow this segment of investor expectations and those of Charter to align,” said Christopher Winfrey, CFO of Charter Communications, in a June 21 statement. “We will continue to be highly disciplined in our approach to financings, and will return to the broader credit markets when market conditions meet our expectations.”

On Wednesday, crude oil prices touched lows not seen since August 2016, causing volatility to spill over into broader markets. The iShares fund HYG ended the session at $87.60 versus $88.11 at Tuesday’s close. Similarly, the SPDR fund JNK also dipped, to close yesterday at $36.87, from $37.10 one day prior.

Both funds were working to retrace losses early on in Thursday’s session, with the HYG up 0.08% at $87.67, and the JNK up 0.09% at $36.90. Also, West Texas Intermediate Crude was trading at $42.84 this morning, for a 0.73% gain.

Charter’s last unsecured print had been in March, when it completed a $1.25 billion add-on to existing 5.125% notes due 2027, priced at 100.5, for a 5.057% yield. Concurrently, the company placed $1.25 billion of crossover 5.375% secured notes due 2047, priced at 99.968 for a 5.377% yield. — Jakema Lewis

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Oil Dive Hits California Resources, Other Energy Sector High Yield Bond Names

California Resources notes tumbled today as oil hit its lowest level in more than five weeks following a steep decline in crude prices triggered by a bearish U.S. inventories report that showed stronger than expected gains in gas stockpiles alongside a sluggish reduction in crude inventories.

Crude prices fell 3.6% in midday trading, to $44.78 a barrel, based on U.S. benchmark West Texas Intermediate, after a report by the Energy Information Administration (EIA) said gas inventories for the week ended June 9 climbed 2.1 million barrels and crude stockpiles fell by 1.7 million barrels. This compares with a Reuters poll forecasting a decline of 500,000 barrels in gas inventories and drop of 2.7 million barrels in crude stockpiles.

California Resources, whose ability to delever has long hinged on a crude recovery since its ill-timed split from Occidental Petroleum in 2014, saw its 8% 2022 senior secured second-lien notes drops 3.25 points, to 65.75, in afternoon trades.

Corporate and bond ratings are CCC+/Caa2 and CCC+/Caa3, with negative outlooks and a 4 recovery rating on the second-lien notes by S&P Global Ratings.

California Resources shares (NYSE:CRC) were down 8.5% to $10.82 in midday trading.

Other major decliners in the sector included EP Energy’s 9.375% 2020 notes and 8% 2025 notes, which fell 3.75 points and 2.75 points, respectively, according to MarketAxess, to 85 and 79. MEG Energy 7% 2024 notes were also changing hands at a steady clip, losing 1.25 points, to 82, while Whiting Petroleum 5.75% 2021 notes slumped 1.25 points in an active session, to 95.

Offshore drillers also took it on the chin, as Transocean 9% 2023 notes fell 1.312 points, to 104, according to MarketAxess, and Shelf Drilling 9.5% 2020 notes slid three-quarters of a point, to 98.75. — James Passeri

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Yum Restaurant Group Lines up $500M High Yield Offering for Dividend, Loan Repay

yum logoYum Brands has guided a $500 million offering of ten-year (non-call five) notes in the 4.75% area, sources said. Books will close at 2 p.m. EDT, with pricing expected today via bookrunners Goldman Sachs (left), J.P. Morgan, Citi, Morgan Stanley, and Wells Fargo Securities.

Proceeds from the 144A-for-life offering will be used to repay roughly $260 million drawn under the company’s revolving credit facility during the second quarter. The balance will fund a cash distribution to the company’s parent to fund share repurchases, dividend payments, and potential repayment of further debt.

The planned new issue is rated BB/B1, according to the leads.

Comparables for the new bonds are the borrower’s own 5% notes due 2024 and 5.25% notes due 2026. The 2024s closed Friday’s session at 104.6, yielding 3.97%, and the 2026s changed hands on Monday afternoon at 105.375, yielding 4.35%, trade data show.

Earlier this month, Yum Brands disclosed that it had entered into a refinancing amendment to its credit agreement dated June 16, 2016, reducing pricing on its $500 million A term loan and $1 billion revolver by 75 bps, to L+150, and extending the maturity of the TLA and revolver to June 2022, from 2019. Note that pricing includes a step-down to L+125 in the event that the total-leverage ratio is less than 2.75x. Via the amendment, the leverage-based pricing grid now ranges from L+125–175, versus L+200–250 previously, as reported. In March, Yum Brands also repriced its then $1.99 billion B term loan due June 2023.

Yum Brands (NYSE: YUM) operates and franchises quick-service restaurants in three segments: KFC, Pizza Hut, and Taco Bell. — Rachel McGovern/Jakema Lewis

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S&P: US Distress Ratio Sinks to 6.8%, a 32-Month Low

The U.S. distress ratio has continued its downward trend and now stands at 6.8% as of May 15, 2017, from 7% as of April 17.

US distress ratio

This is its lowest level since September 2014 when the ratio stood at 5%, and marks a steady decline from its February 2016 peak when it reached 34%, according to S&P Global Ratings Fixed Income Research.

This decline reflects somewhat stabilized commodity pricing pressure but belies an increase in the distress ratio of the retail and restaurants sector, which now has a commanding lead of 20.6% with 21 distressed issues.

The ratio measures speculative-grade issues with option-adjusted composite spreads of more than 1,000 basis points relative to U.S. Treasuries, and indicates the level of risk the market has priced into its bonds.

By sector, retail and restaurants is followed by the oil-and-gas sector, which had the second-highest ratio at 10.6%. — Rachelle Kakouris

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US High Yield Bond Funds, ETFs see $586M Investor Cash Inflow

U.S. high-yield funds recorded an inflow of $586 million for the week ended June 7, according to weekly reporters to Lipper only. This is the second straight week of inflows into the asset class for a total of $1.1 billion over that period.

US high yield fund flows

Mutual funds made up the bulk of the inflow this week, at $355 million, while $231 million flowed into ETFs. That compares to last week’s exit of $617 million from mutual funds against a $1.1 billion inflow into ETFs.

The year-to-date total outflow is now $4.9 billion, reflecting a $4.8 billion exodus from mutual funds and an $85 million exit from ETFs.

The four-week trailing average is now in positive territory, after being in the red for five straight weeks, climbing to positive $297 million from negative $280.5 million last week.

The change due to market conditions this past week was a rise of $154 million, making four consecutive weeks in the black. Total assets at the end of the observation period were $207 billion. ETFs account for about 23% of the total, at $47.6 billion. — James Passeri

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This story is taken from analysis which 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.