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After Big Inflow, US High Yield Funds See $3.1B Investor Cash Withdrawal

high yield bond flows

U.S. high-yield funds recorded an outflow of roughly $3.1 billion for the week ended Jan. 17, according to weekly reporters to Lipper only.

This week’s outflow follows an inflow of $2.65 billion last week, and puts the total outflow so far this year at about $238 million.

ETFs accounted for roughly $2 billion of this week’s outflow, while $1.1 billion exited mutual funds.

The four-week trailing average swung to negative $120 million, from positive $371 million last week.

The change due to market conditions this past week was an increase of $316 million. Total assets at the end of the observation period were $208.8 billion. ETFs account for about 24% of the total, at $50.8 billion. — James Passeri

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Risk-On: US High Yield Bond Funds See $2.65B Investor Cash Inflow

us high yield flows

U.S. high-yield funds recorded an inflow of roughly $2.65 billion for the week ended Jan. 10, according to weekly reporters to Lipper only, marking the largest such inflow since December 2016. This follows last week’s inflow of $186 million, indicating a total inflow to high-yield funds of about $2.8 billion so far in 2018.

Mutual funds made up the bulk of this week’s inflow, taking in roughly $1.5 billion, while about $1.2 billion entered ETFs. This marks the largest inflow to mutual funds since roughly $1.9 billion for the week ended Dec. 14, 2016.

The four-week trailing average rose to positive $371 million, from negative $522 million last week, snapping a streak of ten consecutive weeks in the red.

The change due to market conditions this past week was an increase of $226 million. Total assets at the end of the observation period were $211.6 billion. ETFs account for about 25% of the total, at $52.8 billion. — James Passeri

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McGraw-Hill Unveils PIK Toggle Offering as High Yield Mart Heats Up

McGraw-Hill has set talk in the 9.5% area for a $250 million offering of five-year (non-call one) PIK toggle notes, sources say. Pricing is expected today, Dec. 7, via bookrunners Credit Suisse (lead) and Jefferies, following the closing of books at noon EST.

Proceeds, along with those from a term loan add-on, will be used to refinance $443.6 million of 8.5% PIK toggle notes due 2019.

The educational concern is the third issuer since the middle of November to come to the high yield market with a PIK toggle offering, which allows the issuer to pay interest with additional debt, as opposed to cash. The other two:

  • Technology/healthcare concern Multiplan last month issued $1.3 billion in PIK toggle notes backing a dividend to private equity sponsor Hellman & Friedman. The offering priced to yield 9.25% (8.5% if repaid in cash). Multiplan was the largest PIK toggle since the financial crisis. The issue was rated B-/Caa2.
  • Lab testing company Sotera in November completed a $75 million PIK toggle offering to yield 8.875% (8.125% if repaid in cash), backing a distribution to sponsor Warburg Pincus. The issue was rated CCC+/Caa2.

As reported, McGraw-Hill is currently in market with a $150 million incremental first-lien term loan. Price talk is for an issue price of 99.75. Commitments are due today. The add-on will be fungible with the existing covenant-lite TLB due May 2022, which is priced at L+400, with a 1% LIBOR floor.

The company has launched a tender offer for the $443.6 million outstanding of its 8.50%/9.25% PIK toggle notes due 2019 at total consideration of $1,002.75 per note, including a $30 consent payment for notes tendered by the early deadline of Dec. 12. Credit Suisse is running the tender. The bonds are also currently callable at par.

The new notes will slip behind its 7.875% senior notes due 2024, which closed last night at par, yielding 7.87%, according to S&P Global Market Intelligence. The 2024s mark its last visit to the bond market, in April 2016.

Current PIK toggle ratings are CCC+/Caa1/B, and term facility ratings are B+/B1, with a 2 recovery rating from S&P Global Ratings. Moody’s earlier this week downgraded the term loan facility rating by one notch. Corporate ratings are B/B2, with stable and negative outlooks.

McGraw-Hill Global Education Holdings is a provider of outcome-focused learning solutions, delivering curated content and digital products to students in higher education, K–12, professionals, and corporations across 140 countries. — Staff reports

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Valeant Pharma Prices $1.5B High Yield Offering to Refi Maturing Debt

Broad market issuer Valeant Pharmaceuticals today placed $1.5 billion of eight-year notes via sole bookrunner Barclays. Prior to pricing, the offering was upsized by $500 million. Proceeds will be used to fund a tender offer for the borrower’s 7%, 6.375%, and 5.375% notes due 2020. Valeant last month placed a $750 million add-on to its secured notes due 2025. Valeant Pharmaceuticals (NYSE:VRX) develops, manufactures, and markets pharmaceuticals worldwide. Terms:

Issuer Valeant Pharmaceuticals 
Ratings B–/Caa1
Amount $1.5 billion
Issue Senior (144A/Reg S for life)
Coupon 9%
Price 98.611
Yield 9.25%
Spread T+691
Maturity Dec. 15, 2025
Call non-call four (par +50% coupon)
Trade Dec. 4, 2017
Settle Dec. 18, 2017 (T+10)
Sole bookrunner Barc
Price talk n/a
Notes Upsized from $1 billion; change-of-control put @ 101; up to 40% equity claw

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US High Yield Funds See Massive $4.4 Billion Cash Withdrawal

US high yield fund flows

U.S. high-yield funds recorded an outflow of $4.4 billion for the week ended Nov. 15, according to weekly reporters to Lipper only.

Mutual funds made up the bulk of this week’s outflow, at $2.6 billion, while $1.8 billion exited ETFs.

The year-to-date total outflow is now roughly $13 billion, with a $14.7 billion outflow from mutual funds outweighing a roughly $1.7 billion inflow to ETFs.

The four-week trailing average is in the red for the third straight week, widening to negative $1.5 billion from negative $536 million last week.

The change due to market conditions this past week was a decrease of $1.9 billion. Total assets at the end of the observation period were $206.6 billion. ETFs account for about 24% of the total, at roughly $50 billion. — James Passeri

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Time HY Bonds Pop as Meredith Bid Said to Net Koch Brothers Backing

Bonds backing Time Inc. were among the top performers in the high-yield secondary this morning after news reports said billionaire industrialists Charles and David Koch have “tentatively agreed” to back Meredith Corp.’s renewed bid for the issuer with an equity injection of more than $500 million.

Time 7.5% notes due 2025 rose 5.625 points, to 106.25, according to MarketAxess. The notes traded as low as 99.375 in early November. Meanwhile, shares of Time (NYSE: TIME) rallied roughly 25%, to $15.80.

Sources estimate that the $500 million equity injection should provide the issuer, if a deal is completed, with a more stable leverage profile of roughly 3x, which is still on the high end of forecasts. Sources added that Time’s October refinancing transactions would have been unlikely to occur if active merger discussions were taking place at that time.

Meredith Corp., alongside suitors including Pamplona Capital Management, had reportedly been in talks earlier this year to acquire the New York media company, but Time’s board rebuffed offers in favor of its own strategic growth initiatives.

Time CEO Richard Battista, on a May earnings call with analysts, said that issuer had “thoroughly reviewed the expressions of interest,” adding the board “has determined that the best foot forward at this company was to continue with our own plan.”

Some investors expressed frustration over the board’s refusal to accept reports of Meredith’s premium valuation of the company, including activist Leon Cooperman of hedge fund Omega Partners.

“We read about Meredith’s interest in the company, that there were a number of interested parties, and here we have now a $13, $14 stock when somebody was willing to pay $18 for the company and we have a failed process,” Cooperman said on the company’s May earnings call with analysts. “And you don’t really talk about what the strategic plan really is. So I would encourage you to get quantitative, not qualitative,” he added.

Time Inc. last tapped the debt markets in early October, placing a $300 million issue of 7.5% notes due 2025 on Oct. 4, with proceeds earmarked to repay roughly $200 million of the issuer’s B term loan and to reduce by roughly $100 million by the end of 2017, in one or more transactions, the size of its term loan or outstanding notes.

Changes to the transaction were made on the covenants front, including a reduction to the credit facilities basket to $1.5 billion, from $2.4 billion. Also, the consolidated-net-leverage ratio for the debt-incurrence test (and also the governor for accessing the RP builder basket) was reduced to 3.5x, from 4.5x.

The company also on Oct. 6 placed a $464 million covenant-lite TLB (L+350, 1% LIBOR floor) to extend the maturity of its TLB to October 2024, from April 2021.

Corporate and bond ratings are B/B1 and BB–/B2, with a 4 recovery rating on the unsecured bonds by S&P Global Ratings. The covenant-lite term loan is rated BB–/Ba2, with a 1 recovery rating by S&P. — Staff reports

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