The Leveraged Loan Distress ratio is another story, however. This ratio tracks loans bid below 80% of par in the secondary market. As is evident in the chart, the Distress ratio has spiked noticeably since this summer. – Staff Reports
The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.
Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.
The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.
Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.
The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.
As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.
The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.
Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.
Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports
Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.
Two of Garrison Capital’s investments, Speed Commerce and Forest Park Medical Center, were on non-accrual status in the recent quarter.
The investment in Speed Commerce comprised a $12 million term loan due 2019 (L+1,100 PIK, 1% floor) as of Sept. 30, a 10-Q showed. The fair value was marked at $9.7 million as of Sept. 30, and it accounted for 3.9% of assets.
In November 2014, Garrison Loan Agency Services was agent on a $100 million credit facility. Proceeds backed an acquisition of Fifth Gear and refinanced debt. Speed Commerce, based in Texas, provides web design and warehouse logistics services.
Nasdaq-listed Speed Commerce announced in April it hired Stifel, Nicolaus & Company as an advisor to explore a possible recapitalization or a sale of the company. Lenders have amended the loan several times, culminating on Nov. 16, when lenders agreed to a covenant requiring a sale of the company by Dec. 11.
Garrison Capital’s non-accrual investment in Forest Park included a lease to the San Antonio, Texas hospital and a $1.95 million term loan. The hospital has filed for bankruptcy due to a liquidity shortfall stemming from delays in obtaining third-party insurance contracts, and has hired an advisor to sell the facility.
Garrison Capital’s net asset value per share totaled $14.92 as of Sept. 30, compared to $15.29 as of June 30.
Garrison management attributed nearly half of the decline to a restructuring of SC Academy. Last quarter, that investment, a loan to Star Career Academy, was the lone non-accrual investment in the portfolio.
Star Career Academy, based in Berlin, N.J., provides occupational training for entry-level employment in health fields, cosmetology, professional cooking, baking and pastry arts, and hotel and restaurant management.
Garrison Capital is an externally managed BDC that invests in debt securities and loans of U.S. middle market companies. Shares trade on Nasdaq under the ticker symbol GARS. For additional analysis of Garrison Capital’s investment portfolio, see also “ActivStyle, Connexity loans added to Garrison Capital portfolio,” LCD News, Nov. 17, 2015. — Abby Latour
City National Bank hired Cathy Chiavetta to source and underwrite asset-based loans.
She started this month and joined as a senior vice president, based in New York. She will report to Martin Chin, who is based in Los Angeles and manages the capital finance team.
Chiavetta is responsible for both large syndicated transactions and club deals.
Previously, Chiavetta was a managing director at Z Capital Partners, where she sourced distressed senior secured debt investments. She also held sales, capital markets, and underwriting roles at Banc of America Securities, CIT Group, and TD Securities. — Abby Latour
Bonds backing Scientific Games slipped further today after the company announced the resignation of its Chief Financial Officer, Scott Schweinfurth, according to a company release. The 10% notes due 2022 shed 2.5 points to 77.625, yielding 15%, according to trade data. Meanwhile, sources quote the 7% notes due 2022 at 96/97, down from trades at 97.50 on Friday. The company’s shares are down nearly 4% at $7.62 today.
As reported last week, Scientific Games debt and equity came under pressure after the gaming technology company released third-quarter results that came in shy of Street expectations. The 10% notes, for instance, had been trading in the high 80s prior to the earnings release, before shedding five points on the results to the mid-80s and ending the week at an 80 context.
Loans backing Scientific Games are little changed today, with the B-2 tranche due 2021 (L+500, 1% LIBOR floor) recently marked at 92.75/93.75, though note the loan is about 5.5 points lower since the earnings release. According to the statement, Schweinfurth will continue in his role through the year-end financial audit and filing of its Form 10-K and the appointment of his successor.
Conditions are soft today in the high-yield market, with the cash market down about a quarter of a point and ETF sellers circulating, sources relay. The HY CDX 25 is quoted at 101.25, unchanged today, but down 1.3% week-over-week.
B+/B2 Scientific Games placed the $950 million issue of 7% secured notes and a $2.2 billion issue of 10% unsecured notes in November 2014 via a J.P. Morgan–steered underwriting team to help fund the Bally acquisition. The company also placed the $2 billion B-2 term loan in September 2014 to support the Bally transaction; the loan was issued at 99. Bank of America Merrill Lynch is administrative agent on the term loan. —Staff reports
RAAM Global Energy filed for Chapter 11 today in Houston, court filings show.
According to court documents, the company is in the process of negotiating a stalking-horse credit bid purchase agreement with its term loan lenders that it hopes to unveil next week.
According to an affidavit in the case filed by the company’s chief restructuring officer, James Latimer, “a confluence of factors in 2014 and 2015 led to the [company’s] need to pursue a financial restructuring,” citing the “historic decline of crude oil and natural gas since the summer of 2014.”
In addition, Latimer pointed to the company’s September 2013 determination that it would be unable to meet financial certifications required to obtain permits to develop its offshore Ewing Banks 920 project in the Gulf of Mexico—as a result of which the project no longer met the requirements of reasonable certainty to remain booked as proved reserves—and the “catastrophic collapse” at the company’s Flipper Field in Texas in May 2013 that damaged four wells and cut the field’s production by 92%, to 166 BOEPD from 1,960 BOEPD, as “impairing” the company’s liquidity and “compelling” the company to restructure.
In explaining the decision to file for Chapter 11, Latimer said that the company’s proposed out-of-court exchange offer for its $238.4 million of 12.5% senior secured notes due 2019, launched in June and terminated on Aug. 20, failed to attract the requisite 99% participation, reaching only 94.77% participation (see “RAAM Global Energy cancels refi exchange as bond maturity looms,” LCD News, Aug. 24, 2015).
Further, Latimer said, the company has been unable to raise cash or identify other capital resources such as bank funding, private investments, or public debt and equity markets, “due to the current economic environment.”
As a result of the elimination of these restructuring alternatives, Latimer said, the company was “compelled … to negotiate with their creditors regarding Chapter 11 proceedings in order to address liquidity concerns and maximize the value of their assets for the benefit of their creditors and other constituencies.”
Latimer said the company was currently negotiating a stalking-horse credit bid purchase agreement with holders of about 99% of the $63.8 million of outstanding debt under the company’s term loan facility, adding that it was “seeking” to present the proposed purchase agreement and bidding procedures to the bankruptcy court by Nov. 6.
The company did not disclose any terms of the proposal, but said it would “create a defined sale process,” and that it “hoped that that interested parties will bid on its assets in such process.” — Alan Zimmerman
LCD’s online High Yield Bond Market Primer has been updated to include third-quarter 2015 and historical volume and trend charts.
The Primer can be found at HighYieldBond.com, LCD’s free website promoting the asset class. HighYieldBond.com features select stories from LCD news, weekly trends, stats, and analysis, along with recent job postings.
We’ll update the U.S. Primer charts regularly, and add more as the market dictates (new this time around: an historical look at Fallen Angels, courtesy S&P).
Charts included with this release of the Primer:
- US High Yield Issuance – Historical
- 2015 High Yield Issuance, by Purpose
- High Yield LBO Issuance
- Fallen Angels – Historical
- Cash Flows to High Yield Funds, ETFs
- PIK Toggle Issuance (or lack thereof)
- Yield to Maturity: Historical, Recent
LCD’s Loan Market Primer and High Yield Bond Market Primer are some of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, they are widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.
Check them out, and please share them with anyone wanting an excellent round-up of or introduction to the leveraged finance market.
Correctional health care provider Valitas could be at risk of breaching its financial covenant step-downs for the September testing period, according to Standard & Poor’s.
The rating agency on Thursday lowered its corporate credit rating on Valitas, and the company’s senior secured debt, to CCC from B-.
The ratings remain on CreditWatch with negative implications, reflecting S&P’s expectation that the company could be in covenant default in November, and could experience a liquidity event within the next year if it is unable to maintain revolver access.
In the secondary market, the term loan did not appear active following the downgrade, but note the off-the-run credit had recently been quoted in wide markets wrapped around 80, according to sources.
The loans were syndicated in May 2011 via Barclays Capital and Bank of America Merrill Lynch to back Valitas’ merger with America Service Group.
Lead credit analyst Shannan Murphy warns that the company’s ability to negotiate an amendment to these financial covenants is highly uncertain given the short time frame until its financial statements are filed, as well as some recent negative operating trends affecting the business, including the recent loss of a contract in New York and underperformance under the company’s Florida prison contract (its largest).
“Moreover, our rating action also reflects our expectation that the company will continue to require access to a revolving credit facility or other source of backup liquidity, especially in the first half of each fiscal year where cash flow is traditionally negative; without this access, we believe that the company could encounter a liquidity event due to normal month-to-month working capital swings,” Murphy said.
S&P expects low-double-digit EBITDA growth in 2015 and very modest EBITDA growth in 2016.
Valitas Health Services, Inc., through its operating subsidiaries, Corizon, Inc. and Corizon Health, Inc., is a provider of contract healthcare services to correctional facilities. Based in Brentwood, Tenn., Valitas is controlled by Beecken Petty O’Keefe & Company. — Rachelle Kakouris
The average bid of LCD’s flow-name high-yield bonds surged 154 bps in today’s reading, to 95.10% of par, yielding 7.62%, from 93.56% of par, yielding 8.05%, on Oct. 6. Performance within the 15-bond sample was broadly positive, with nine of the 14 gainers up more than a point, and a single constituent unchanged.
Today’s gain follows a 146 bps boost on Tuesday, for an overall rally of 300 bps this week. The advance puts the average at a 2.5-week high and 312 bps above the recent low of 91.98 recorded on Sept. 29, which itself was not just a 2015 trough, but also a four-year low, or the deepest average bid price since 91.25 on Oct. 6, 2011.
Dating back two weeks, however, includes some of the September slump, so the average is up just 66 bps over that span. And for the trailing four-week observation, the average is negative 334 bps.
As for the year to date, the average is down 60 bps, which is much moderated from the deeper negative year-to-date reading of 372 bps at the end of September. Recall that the 2014 decline was 536 bps, which followed a loss of 463 bps in 2014.
Today’s gain was driven by ongoing strength in heavily shorted names in sectors that have recently been under pressure, like Energy and Telecom. Today’s lead gainer was the Dish Network 5.875% notes due 2022, which jumped 6.5 points, to 95, after selling off heavily in recent weeks. Moreover, buying interest has been buoyed by heavy cash inflows to the asset class this week, with $1.1 billion plowed into the exchanged-traded fund JNK over the past three days alone.
With the solid rebound in the average bid price, the average yield to worst fell 43 bps, to 7.62%, and the average option-adjusted spread to worst cinched inward by 47 bps to 617 bps. Both are roughly 100 bps inside the observations at the recent trough, which were 8.62% and T+708, respectively.
The yield and spread in today’s reading are now back in line with the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed the last reading, Wednesday, Oct. 7, with a yield to worst of 7.61%, and an option-adjusted spread to worst of T+628.
Bonds vs. loans
The average bid of LCD’s flow-name loans was unchanged in today’s reading, at 97.20% of par, for a discounted loan yield of 4.35%. The gap between the bond yield and discounted loan yield to maturity is 327 bps. — Staff reports
- Bids rise: The average bid of the 15 flow names jumped 154 bps, to 95.10.
- Yields fall: The average yield to worst dropped 43 bps, to 7.62%.
- Spreads tighten: The average spread to U.S. Treasuries pulled inward by 47 bps, to T+617.
- Gainers: The largest of the 14 gainers was the Dish Network 5.875% notes due 2022, which surged 6.5 points, to 95.
- Decliners: None.
- Unchanged: The Fiat Chrysler 8.25% notes due 2021 were steady, at 106.5.
Debt backing Vantage Drilling dropped several points today after the company said in a presentation at the Deutsche Bank conference on Tuesday that, along with financial advisors Lazard and Weil, it is “discussing possible restructuring scenarios with large debtholders in order to strengthen the company’s balance sheet and reduce interest burden.”
The 7.5% secured notes due 2019 traded at fresh lows in small clips of 25 on Wednesday, from a single trade in a 32.5 context Tuesday morning, trade data show.
Also of note, the issuer’s term loan due 2017 (L+400, 1% LIBOR floor) and the longer-dated term loan due 2019 (L+450, 1.25% floor) are now trading on top of each other and are both quoted around a 33/35 market, according to sources. The loans on Friday were marked around 33/35 and 32/34 respectively, and prior to news that an ongoing bribery investigation had culminated in the cancelation of a valuable Petrobras drilling contract, the loans had been quoted with a 10 point differential, sources say. See “Vantage Drilling bonds, loans tumble on Petrobras contract loss”, LCD News, Sept. 3, 2015 and “Vantage Drilling bonds trade lower after co. retains Lazard,” LCD News, Jun 22, 2015.
As reported, Vantage in June retained Lazard “to evaluate financing opportunities, strengthen and expand management’s analysis of the changing marketplace and provide an independent resource for evaluating the company’s strategic plans.”
Houston, Texas-based Vantage Drilling was last in market in March 2013 with $775 million of 7.125% secured notes via a Citi-led bookrunner sextet. Pricing was at the tight end of talk, at par, and proceeds helped the issuer pay down costly pari passu 11.5% notes. – Rachelle Kakouris