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Free LCD/S&P Global Market Intelligence Webinars

Free Webinar: 1Q 2018 US/Europe High Yield Analysis (Fridson)

LCD/S&P Global Market Intelligence’s webinar detailing the First-Quarter 2018 High Yield Markets is now available to view, on-demand.

This complimentary presentation features analysis from Marty Fridson of LCD and Lehmann, Livian, Fridson Advisors, along with John Atkins, Luke Millar, and Ruth Yang of LCD.

You can view the webinar here.

In this quarter’s presentation:

  • Treasury yields rise while high yield sinks
  • High yield upholds hybrid reputation
  • High yield returns favor shorter maturities
  • Better-rated credits underperform
  • High yield outperforms vs better-quality comps
  • In the red: a look at industry returns
  • US high yield volume, pricing
  • Europe high yield volume, LBO activity
  • Spreads, Europe vs US

LCD presents these high yield market updates each quarter.

The charts used in the presentation are available for download.


The Global Credit Markets – 10 Years After the Credit Crunch

LCD and SP Global Market Intelligence are pleased to present a free replay of our in-depth analytical look at how today’s leveraged finance market compares to that of 2007–08, before the onset of the credit crisis: 10 Years Down the Road: The U.S. Leveraged Finance Markets, Then vs Now

This in-person complimentary event features analysis from high-yield bond market expert Martin Fridson and LCD’s Marina Lukatsky, as well as a discussion on the state of today’s market, featuring Crescent Capital Managing Director Jonathan Insull, LSTA Executive Director Lee Shaiman, Progow Executive Chairman Peter Gleysteen, and LCD Senior Editor/CLO market reporter Andrew Park. The panel is moderated by LCD Managing Director Ruth Yang.

A link for the replay is here.
The replay is free, and after registering for the presentation users can download the slides used for the analysis. These include:

  • A brief history of the leveraged finance market, over the past 10 years (Yang)
  • A look at credit quality progression in the high yield bond market (Fridson)
  • The effect of record-low volatility (?) and reduced liquidity in the high yield market (Fridson)
  • Evolution of the US leveraged loan mart: size, issuer quality, covenant-lite (Lukatksy)
  • Risk vs Reward: Now, compared to pre-Lehman (Lukatsky)
  • That state of the CLO market (Shaiman, Gleysteen, Park)

Global High Yield Markets: 2017 Review/2018 Outlook

January 23, 2018

Featuring LCD’s high yield expert Martin Fridson. Some of the topics covered:

  • Yields
  • Return vs risk, by asset category (with surprising results re distressed debt)
  • Total return, by industry
  • Default rate forecast
  • Poll: Will US HY spreads go up/down/unchanged in 2018?

webinar chart 1

As well, the webinar features reviews/outlooks of the U.S. leveraged loan market, along with the European high yield and leveraged loan markets.


Leveraged Finance Yields (and CLOs): How Low Can They Go?

July 12, 2017

Featuring LCD CLO reporter Andrew Park. Some of the topics:

  • A look at record-low yields in the leveraged loan market
  • Analysis of loan market supply (new loan issuance) vs Demand (retail investment + CLO issuance)
  • Specifics on CLO formation
  • Cost of borrowing: US (cheap) vs Europe (not cheap)
  • Why CLOs are attractive investments

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It’s Official: US Leveraged Loans Are a $1 Trillion Market

index trillion

It’s official: The U.S. leveraged loan market is a $1 trillion asset class.

As of April 27, the amount of outstanding institutional credits underlying the S&P/LSTA Index topped that milestone, after growing uninterrupted every year since hitting a post-crisis low of $497 billion in 2010. It has since doubled to its current size.

Another milestone: The loan market comprises more than 1,000 issuers (1,025 to be exact), up 56% from the 658 at the end of 2010.

These two headline numbers are only the latest highlights for a market that has been running at breakneck speed over the last two years.

In 2017 the U.S. loan market printed a record $503 billion of institutional loans, exceeding by 10% the prior high of $455 billion in 2013, according to LCD. While last year’s super-charged conditions contributed to the growth of the Index, however, they did not push it across the $1 trillion mark because 48% of 2017 issuance backed refinancings and recaps. On a net basis, the Index grew by $75 billion last year, roughly half of the $131 billion expansion in 2013.

The growth in the U.S. leveraged loan market over the past few years has coincided with increased interest in the asset class from retail investors into loan mutual funds/ETFs, and via the formation of collateralized obligation vehicles (CLOs), which buy portions of large corporate loans.

One reason for the increased enthusiasm from investors is interest rate hikes by the Fed. Floating-rate assets, such as loans, tend to fare better in a rising-rate environment than do fixed-rate assets, such as high yield bonds.

CLO issuance in 2017 totaled $118 billion, easily outstripping projections made at the start of the year and nearing the record $124 billion in 2014, according to LCD. And CLO investors have only picked up the pace this year; so far in 2018 there has been $40.3 billion of new CLOs issued, compared to $25.2 billion during the same period in 2017. – Staff reports

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LCD comps is 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.

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Riskier Borrowers Fuel Leveraged Loan Growth in Europe

Europe loan growth

Over the last 12 months, the European leveraged loan market has undergone a growth spurt, which expanded the size of the S&P European Leveraged Loan Index (ELLI) by 24%, to a record-setting €150 billion.

However, it was the borrowers at the riskier end of the credit-quality spectrum that drove this growth.

In the 12 months through March 31, the size of the single-B rated market grew by €30.5 billion—a 38% increase in total par amount—while the size of the better-quality, BB rated sub-index contracted by €3 billion (a 9% decrease).

Of course, the lower-rated names have always dominated the European loan market, and their par amount outstanding outweighs that of the higher-rated cohort by over four times, at €111 billion to €26.2 billion, respectively. However, in 2017 both sub-indices expanded in size on a trailing-12-month basis. This year, their paths have diverged, with the riskier issuers gobbling up market share. – David Cox/Marina Lukatsky

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LCD comps is 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.

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PetSmart High Yield Debt Dips After Underwhelming 4Q Numbers

High yield debt backing PetSmart declined Thursday after the privately held issuer again rolled out underwhelming quarterly results.

For its fiscal fourth quarter, sources said PetSmart on Wednesday booked adjusted EBITDA of roughly $203 million on revenue of about $2.5 billion. One buysider noted that while the adjusted EBITDA performance for the period fell shy of Street expectations, earnings overall were buoyed by improved sales at Chewy.com.

PetSmart 5.875% first-lien notes due 2025 and 8.875% senior notes due 2025—both of which priced at par in May as part of a $2 billion offering backing the roughly $3.4 billion purchase of Chewy.com—fell by 2.75 points and 0.75 points, respectively, according to MarketAxess, to 70.5 and 56.25. The issuer’s 7.125% notes due 2023 lost 2.5 points, to 55.

Meanwhile, the issuer’s B term loan due March 2022 (L+300, 1% LIBOR floor) fell to quotes of 77.25–78.125, sources noted, indicating a decline on the day of roughly 2.5 points from Tuesday’s levels.

The company’s Chewy.com bonds first slipped into distressed territory in December on the heels of lackluster third-quarter results and a ratings downgrade by S&P Global Ratings. PetSmart reported third-quarter adjusted EBITDA of roughly $189 million in December, a performance that was also shy of expectations, according to sources. S&P Global Ratings on Dec. 19 lowered the issuer’s secured and unsecured bond ratings to CCC+ and CCC–, respectively, from B and CCC+, while maintaining a negative outlook.

PetSmart notes also tumbled in March on news of the departure of Ryan Cohen, the co-founder and CEO of Chewy.com, and again earlier this month in response to relatively weak comparable-store sales and a 15% quarterly decline in EBITDA at industry peer PetCo Holdings. — James Passeri

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LCD comps is 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.

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Europe: Subordinated Debt on Rise thanks to Uptick in M&A

Subordinated debt is back.

Driven by an uptick in European M&A activity, private equity shops are tapping strong demand from investors for second-lien loans and high yield bonds, both of which sit behind first-lien term debt in a deal’s capital structure.

Specifically, by the end of 2018’s first quarter, 58.5% of European private equity borrowers raised all of a deal’s financing solely in the senior loan market, according to LCD. That’s the lowest post-crisis (2008-09) share since 2014, and is down from a post-crisis peak of 77.5% in 2016.

Looking more closely at the subordinated debt: At €24.8 billion, 2017 hosted the second-highest annual total (after 2013) for sponsor-driven bond issuance since LCD began tracking this data in 2006. And second-lien has made a resurgence recently — albeit mostly in pre-placed form with direct lenders, as opposed to more broadly syndicated second-lien. According to data collected by LCD on the middle-market in Europe, second lien pre-placed with direct lenders reached €2.4 billion in 2017, up from €745 million in 2016. – Taron Wade

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LCD comps is 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.

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WeWork Wraps Debut High Yield Offering at $702M

WeWork has completed its first-ever bond print—$702 million of seven-year notes—at the mid-point of price guidance, sources said. J.P. Morgan was lead bookrunner for the bullet paper, which was upsized amid investor demand from $500 million. Proceeds will be used for general corporate purposes. The New York–based company provides workspaces, community, and services for customers that range from entrepreneurs, freelancers, startups, artists, small businesses, and divisions of large corporations. In an April 24 report, analysts at S&P Global Ratings said the B corporate rating assigned to WeWork reflects the borrower’s “substantial growth investments and resulting negative cash flow, duration mismatch between its long term lease obligations and short term member contracts, exposure to an entrepreneurial workforce vulnerable to economic cycles, and participation in a relatively early stage, highly competitive, and low-barrier-to-entry market.” The rating agency added that these risks, however, are partially offset by WeWork’s large cash position, positive working capital, technological capabilities, operational and cost efficiencies, solid position in developed markets, growing scale within the co-working space and associated network benefits. Moody’s and Fitch have assigned B3/BB– corporate ratings to WeWork. – Jakema Lewis

 

Issuer WeWork Companies
Ratings B+/BB–/Caa1
Amount $702 million
Issue Senior (144A/Reg S-for-life)
Coupon 7.875%
Price 100
Yield 7.875%
Spread T+491
Maturity May 1, 2025
Call non-call life
Trade April 25, 2018
Settle April 30, 2018 (T+3)
Joint bookrunners JPM/C/DB/GS/HSBC/BAML//MS/UBS/WF
Price talk 7.75-8.00%
Notes Upsized from $500 million; up to 30% equity claw @ 107.875 until May 1, 2022; make-whole @ T+50; change of control put @ 101

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LCD comps is 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.

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WeWork, in High Yield Market Debut, Eyes $500M

WeWork is circulating talk for its debut offering of $500 million of seven-year (non-call life) notes at 7.75–8.00%, aligning with early market whispers, sources said. Books will close tomorrow, April 25 at 1 p.m. EDT.

Pricing is also now expected during Wednesday’s session, accelerated from Thursday, as initially planned,, sources note. Bookrunners are J.P. Morgan, Bank of America Merrill Lynch, Citi, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, UBS, and Wells Fargo.

Proceeds of the 144A/Reg S-for-life bonds will be used for general corporate purposes.

New York–based WeWork provides workspaces, community, and services for customers that range from entrepreneurs, freelancers, startups, artists, small businesses, and divisions of large corporations.

Analysts at S&P Global Ratings have assigned B+ and 2 recovery ratings to the deal, as well as a B corporate rating. S&P Global Ratings has a stable outlook for the issuer.

Fitch today assigned a BB– issuer rating to WeWork and the proposed unsecured issue, with a stable outlook. In its report, the rating agency noted the company’s existing debt includes a $650 million revolving credit facility and $500 million letter of credit reimbursement facility, which matures on Nov. 12, 2020. — Jakema Lewis

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LCD comps is 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.

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US Leveraged Loan Issuance Tops $20B

leveraged finance issuance

It was a busy week in the U.S. leveraged loan market, with new-issue activity totaling $20.5 billion, according to LCD.

While that’s a hefty figure, $5 billion of that amount is in the form of a revolving credit – as opposed to a more richly-priced institutional term loan – part of a debt package backing the merger of the Albertsons supermarket group with the Rite Aid pharmacy chain.

Year to date, U.S. leveraged loan volume totals $207 billion, $154 billion of which are institutional term loans. – Staff reports

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LCD comps is 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.

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Netflix Investors Binge on High Yield Offering After Increase to $1.9B

Netflix (Nasdaq: NFLX) has placed $1.9 billion of 10.5-year bullet notes at the mid-point of guidance, sources said. Joint bookrunners for the deal, which was completed with a $400 million upsize and serves as the borrower’s largest bond print, were Morgan Stanley, Goldman Sachs, J.P. Morgan, Deutsche Bank, and Wells Fargo. All proceeds will be used for general corporate purposes. Today’s tap comes shortly after the streaming services powerhouse on April 11 scored one-notch corporate and unsecured ratings upgrades to Ba3 from Moody’s, on expectations for continued strong momentum of global subscriber and revenue growth for the intermediate-term, and that 2018 will be the negative cash flow trough for the company.

Meanwhile, analysts at S&P Global Ratings today said that “pro forma for the debt issuance, the company’s adjusted leverage will remain about 4.1x (as of March 31, 2018),” and that it expects the company’s adjusted leverage to increase slightly to the low- to mid-4x area as it continues to rely on debt issuance to invest heavily in content in 2018. Netflix had last accessed the market in October 2017, when it placed $1.6 billion of 4.875% notes due 2028. – Jakema Lewis

Issuer Netflix
Ratings B+/Ba3
Amount $1.9 billion
Issue Senior (144A/Reg S-for-life)
Coupon 5.875%
Price 100
Yield 5.875%
Spread T+291
Maturity Nov. 15, 2028
Call non-call life
Trade April 23, 2018
Settle April 26, 2018 (T+3)
Joint bookrunners MS/GS/JPM/DB/WF
Price talk 5.75-6%
Notes Upsized from $1.5 billion; make-whole @ T+50; change of control put @ 101

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LCD comps is 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.

 

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Video: Global Leveraged Loan Market Analysis – 1Q 2018

In this month’s Capital Markets View video, LCD’s Taron Wade and S&P Global’s Chris Porter do their first quarterly comparison of the U.S. and European markets. (This will be an ongoing quarterly feature of the video.)

Discussed this month:

  • The first quarter of 2018 was a strong one for loan volume in Europe, matching the 1Q17 tally, though the U.S. supply was down a little from last year’s record effort.
  • The long-promised uptick in M&A volume has finally arrived, driven in part by activist investors pushing for corporate disposals.
  • European repricing volume was lower in the first quarter than in 4Q17, though such supply remains strong in the U.S. This can be explained by divergence between the regions’ interest-rate environments.
  • On a rolling three-month measure, the all-in yield to maturity (for TLBs rated B) was much higher in the U.S. than in Europe, at 5.66% versus 4.17%, respectively.
  • Weighted average spreads are closer between the two regions, though they’ve headed up in Europe and down in the U.S., which helps explain the repricing dynamic (see above).
  • There is also divergence in some credit metrics, with the total-debt-to-EBITDA multiple slightly higher in Europe than it is stateside, while the former region also hosted less senior debt as a share of overall volume in 1Q18 than previous periods.
  • Total cross-border volume was higher in 1Q18 than the year-ago period, despite such supply hitting a record in 2017.
  • The CLO market enjoyed a very strong first quarter on both sides of the pond, supported by strong demand, and could see some new managers emerge this year.
  • The URL for the video: https://www.spratings.com/en_US/video/-/render/video-detail/capital-markets-view-april-2018

Taron Wade heads up LCD’s European Research efforts. Chris Porter is Head of Loan Recovery & CLO Business Development, S&P Global.

As ever, please feel free to contact Taron or Chris if you’d like a particular topic discussed in next month’s video.

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LCD comps is 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.