Bond prices surge again, reach 2.5-week high with broad gains

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

The data:

  • 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.

Vantage Drilling bonds drop amid restructuring discussions

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




Oil & gas cos could see near 40% decline in borrowing base-survey

Nearly 80% of exploration-and-production energy companies are expecting a reduction in their borrowing base, according to a survey published by Haynes and Boone.

The New York law firm – which conducts the survey twice a year before the spring and fall re-determination season – compiled 182 responses from a wide range of oil-and-gas professionals in September including oil firm executives and financiers from commercial and investment banks and private equity firms, among others.

As a result of slumping oil prices, key players in oil-and-gas financing are predicting a decrease in the ability to borrow against reserves by an average of 39%, according to the survey.

In contrast, a similar survey conducted during the spring found that the same borrowers and lenders believed there would be an average of a 25% decrease in borrowing bases. The percentage of borrowers predicting a base decrease has grown from 68% in the spring, to 79% in the fall, according to the survey.

Houston Partner Jeff Nichols said most producers have already begun to reduce discretionary capital expenses and negotiate with their oilfield-service providers.

“Producers can look to other assets that they may own that do not contribute to their borrowing base such as drilling and production equipment, midstream assets, and undeveloped reserves,” Nichols said.

Typically, banks do their credit facility re-determinations in April and November with one random re-determination if needed. The risk here is that low oil prices could lead to a further reduction in the October re-determination as banks are expected to lower their price decks and thus reduce borrowing-base availability.

Distressed issuers Swift Energy, Energy XXI and Linn Energy are among that will face a re-determination of borrowing basis in October.

If companies are overdrawn due to a borrowing base re-determination, they typically are given the option to pay the difference immediately or pay it back in equal installments over a six-month period. – Rachelle Kakouris


Middle Market: 2Q 2015 BDC portfolios now available on LCD

The 2Q 2015 portfolios of 46 publicly listed and non-listed BDCs are now available for download on LCD’s new Middle Market landing page.

In addition to the 2Q 2015 portfolios, the file now includes all historical BDC portfolio data to make searching and historical comparisons easier.

Once again, MVC Capital’s portfolio is absent due to delayed filings as the company works through accounting and control issues at MVC Auto, a European unit. Click here to read more details.

Non-accrual investments have been tallied as a percentage of all debt investments, at cost.

View the FAQ tab for answers to frequently asked questions. – Kelly Thompson

Follow Kelly on Twitter @MMktDoyenne for middle-market financing news

To view a sample of the data, contact Marc Auerbach at 212-438-2703


Caesars Entertainment restructuring agreement fails to garner needed support

Caesars Entertainment Co. (CEC) said that its restructuring agreement with a group of second-lien lenders of bankrupt unit Caesars Entertainment Operating Corp. (CEOC) has failed to attract sufficient support from second-lien lenders, and therefore has expired and will not become effective.

The company said in a Form 8-K filed Sept. 21 with the Securities and Exchange Commission that it had been in discussions with second-lien lenders to extend the restructuring pact, but was unable to agree upon terms to do so. The company added, however, that notwithstanding the agreement’s expiration, it would “continue to engage in discussions with junior creditors on the terms of a consensual plan of reorganization for CEOC.”

The company also noted that the expiration of the RSA with second-lien lenders would “not affect” the separate restructuring pacts the company has entered into with first-lien noteholders and first-lien bank lenders, respectively.

As reported, the company announced the restructuring agreement with second-lien lenders on July 21, but said that it would not go effective until holders of more than 50% of the second-lien notes signed on.

The company did not disclose the level of support for the pact, but a report from Bloomberg at the time said that the noteholders agreeing to the pact held about 30% of the second-lien notes, and included names like Paulson & Co., Canyon Partners, and Soros Management.

“With the public announcement of the terms of this enhanced restructuring agreement, Caesars Entertainment and CEOC will seek to gain further support,” the company said at the time. Indeed, the pact included numerous provisions designed to induce support for the pact from lenders, including, on the carrot side, payment of potential forbearance fees and distributions of additional equity if second lien lenders sign on to the agreement, and on the stick side, threats of a cram down if they were to oppose the plan.

At the time it disclosed the agreement, the company was engaged in a last-ditch effort to convince a Chicago bankruptcy court judge to stay several lawsuits that had been filed against CEC by second-lien lender groups, even though CEC was not itself in Chapter 11, by arguing, among other things, that a consensual resolution of the issues being raised by second-lien lenders in the case was within reach.

Alternatively, the company warned that CEC could be forced to join its unit CEOC in bankruptcy if the lawsuits were allowed to proceed.

Second-lien holders have been a particular thorn in the company’s side, contending that a series of transactions entered into by the company over the past two years have been aimed at transferring valuable assets away from CEOC to the benefit of CEC’s shareholders, ultimately at the expense of CEOC’s second-lien lenders.

On July 22, however, the bankruptcy court ruled against the company, and allowed the lawsuits, pending in both New York and Delaware, to proceed. – Alan Zimmerman


Cowen forms special situations group; announces new hires

Cowen and Company has established a Special Situations product group that will broaden its investment banking business to include restructuring and recapitalization advisory services, the company said in a statement on Wednesday.

Lorie Beers joins the firm as Managing Director and Head of Special Situations. Beers, who has 28 years of experience, including, most recently, as Head of Restructuring at StormHarbour Securities, will be supported by Jeff Knopping – a Managing Director within the team – and new hire Randy Lederman. Prior to joining Cowen in 2014, Knopping was a Managing Director at KCAP Financial where he led the origination and markets team. Lederman, who joins the firm as a Director, was previously at StormHarbour Securities where he served as Managing Director in the energy capital markets group.

The group will be based in New York and will report to Kevin Raidy, Head of Investment Banking.

“We believe these capabilities will be highly relevant in the current market environment, particularly in certain industry sectors such as energy and retail/consumer products, and complement our existing debt and equity capital markets capabilities,” said Raidy.

Cowen Group provides alternative asset management, investment banking, research, and sales and trading services through its two business segments: Ramius and its affiliates make up the company’s alternative investment segment, while Cowen and Company and its affiliates make up the company’s broker-dealer segment. – Rachelle Kakouris

Follow Rachelle on Twitter for distressed debt market news and insight.


Buyers of Patriot Coal assets clear one hurdle, reach deal with union

The United Mine Workers of America (UMWA) has reached “prospective collective bargaining agreements in principal” with both Blackhawk Mining and the Virginia Conservation Legacy Fund (VCLF), the expected purchasers of the assets of Patriot Coal, the union announced yesterday.

As reported, Patriot’s proposed assets sales to Blackhawk and VCLF, which lie at the heart of the company’s reorganization plan, are both conditioned on Patriot either agreeing with the union on new labor accords, or successfully rejecting the existing labor and pension contracts and unilaterally imposing new work conditions.

As also reported, the company had already filed a motion seeking court approval of its rejection of its labor and pension agreements. A hearing began on Sept. 1, but the bankruptcy court judge overseeing the case in Richmond, Va., delayed the hearing for two days, sending the parties back to the negotiating table.

The union did not release any details of the new pact.

In a statement, UMWA president Cecil Roberts said, “There is still more work to do on the actual language of these prospective agreements, and there are several more legal hurdles that must be resolved in bankruptcy court before we would be able to take these prospective agreements to our membership for ratification. Should we clear those hurdles and move forward with ratification, no details of these prospective agreements will be publicly released prior to our members’ ratification vote.”

Roberts added, “Because there are still details to be worked out and the legal process needs to be finished, it is not yet clear when that vote will be.”

It is unclear whether the new deal also resolves outstanding issues with respect to the company’s pension obligations, or whether litigation aimed at the company’s rejection of those obligations will have to continue. – Alan Zimmerman


Loan default rates climb in August amid weakness in Energy sector

After a two-month absence, default activity resumed in August, when two energy names – Samson Resources and Alpha Natural Resources – defaulted on $1.6 billion of S&P/LSTA Index loans. As a result, the lagging-12-month default rate climbed to a five-month high of 1.30% by amount, from July’s 33-month low of 1.11%, and to 0.78% by number of issuers, from a 7.5-year low of 0.57%.

Loan index defaults Aug 2015


U.S. speculative-grade corporate default rate hits two-year high

The U.S. trailing-12-month speculative-grade corporate default rate increased to 2.4% in August, reflecting seven defaults during the month, according to estimates by Standard & Poor’s global fixed income research. The latest reading represents the highest level for the default rate in the past two years.

Alpha Natural Resources Inc., ASG Consolidated LLC, SandRidge Energy Inc., Samson Resources Corp., Wilton Holdings Inc.,SAExploration Holdings Inc., and Halcon Resources Corp. each defaulted in August.

The rating agency expects the U.S. trailing-12-month speculative-grade corporate default rate to rise to 2.9% by June 30, 2016.

At the same time, the Standard & Poor’s U.S. distress ratio rose to 15.5% in August, its highest level in more than four years, as plunging oil prices caused spreads of Oil & Gas issues to widen considerably (see “Oil & Gas issues push S&P U.S. distress ratio to 4-year high,” LCD News, Aug. 27, 2015.)

According to S&P, the U.S. investment-grade spread expanded to 211 bps as of Aug. 31, from 196 bps as of July 31, while the speculative-grade spread widened considerably to 643 bps, from 607 bps. – Rachelle Kakouris


Oil & Gas companies account for more than a quarter of 2015 defaults

The global corporate default tally climbed to 70 issuers after two U.S.-based exploration-and-productions companies triggered a default in the past week. Oil & Gas companies now account for more than a quarter of defaults so far this year, according to a report published by Standard & Poor’s on Friday.

SandRidge Energy entered into an agreement to repurchase a portion of its senior unsecured notes at a significant discount to par, prompting S&P to lower its corporate credit rating on Aug. 14 to D, from CCC+, on what the agency considers to be a distressed transaction and “tantamount to a default”.

Samson Resources failed to make the interest payments due on its $2.25 billion of 9.75% unsecured 2020 notes due Aug. 15. Standard & Poor’s subsequently lowered Samson’s corporate credit rating to D, from CCC-.

Of the 70 defaulting entities, 40 are based in the U.S., 14 in emerging markets, 12 in Europe, and 4 in the other developed nations. By default type, 22 defaulted due to missed interest or principal payments, 19 because of distressed exchanges, 14 reflected bankruptcy filings, seven were due to regulatory intervention, six were confidential defaults, one resulted from a judicial reorganization, and one came after the completion of a de facto debt-for-equity swap.

Standard & Poor’s Global Fixed Income Research estimates that the U.S. corporate trailing-12-month speculative-grade default rate will rise to 2.8% by March 2016, from 1.8% in March 2015 and 1.6% in March 2014. – Staff reports