High yield bond prices fall further as some constituents notch large declines

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

The data

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.


With Veritas in Mind, Leveraged Loan, High Yield Bond Issuers Proceeding Cautiously

leveraged finance issuance

The U.S. leveraged finance market logged $8.2 billion in new-issue volume last week, $2.75 billion from leveraged loans and $5.45 billion in high yield bonds, according to S&P Capital IQ LCD.

That’s the smallest amount since the end of the summer, as leveraged loan players, in particular, proceeded deliberately last week after Veritas cancelled a planned $5.3 billion debt package backing Carlyle’s LBO of the company.

The high yield market also had Veritas in mind, though a host of issuers drove by the market last week to complete deals, according to LCD’s Matt Fuller. – Staff reports



JC Penney plans RC increase to pay off asset-based term loan

J. C. Penney will pay off its asset-based term loan with proceeds from an increase to its asset-based revolver. The term loan – which totals roughly $495 million – was set to mature in June 2019.

The $500 million increase will take the retailer’s asset-based revolver to $2.35 billion. Wells Fargo, J.P. Morgan, Barclays, Bank of America Merrill Lynch, Citizens Bank, Regions Bank, and HSBC are arranging the revolver increase. Closing is expected in December.

The ABL term loan is priced at L+400, with a 1% LIBOR floor.

J.C. Penney last week reported results for its third quarter ended Oct. 31, reporting net sales of $2.88 billion, up from $2.80 billion in the same quarter last year, and ahead of the S&P Capital IQ average estimate of $2.86 billion. Same-store sales increased 4.1%. The company’s operating loss of $38 million in the latest quarter represents a 46% improvement from last year. Adjusted EBITDA was $134 million, up from $39 million in the year-ago quarter, and above the S&P Capital IQ estimate of $107 million.

Looking ahead, the company improved its SG&A and EBITDA guidance for the remainder of 2015. EBITDA is estimated at $620 million for the full year, compared to previous expectations of $600 million. SG&A expenses are expected to decrease by roughly $120 million, an improvement from the prior forecast for a $100 million decrease, filings show.

The Plano, TX.-based company is rated CCC+/Caa2, with positive and stable outlooks, respectively. — Staff reports


Scientific Games bonds slip further on CFO resignation

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


As Risk Appetite Returns, Leveraged Loans Lag High Yield, Equities in October

Equities and high yield returns popped in October as investors piled back into risk assets. The same trend carried high-grade bond returns into the black in October even as the 10-year Treasury yield ticked up to 2.16% from 2.06% at the end of September. As a result, loans outperformed only 10-year Treasuries among the five asset classes LCD tracks here monthly.

This table is part of LCD’s monthly loan return analysis, which is available to LCD News subscribers here. 



RAAM Global files Ch. 11, negotiating credit bid with term lenders

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


Leveraged Loan, High Yield Bond Players Take Pause Amid Choppy Markets

It was a light slate of leveraged finance issuance last week as loan and high yield bond players alike navigate an unsettled market while keeping watch on debt issuers such as Valeant, which helped put the entire pharmaceutical segment under a spotlight.

leveraged loan high yield bond issuance

On the leveraged loan side just four issuers braved the market with deals totaling $2.1 billion, down from a relatively healthy $8.7 billion the previous week. Much of the market is focusing on loans already launched into syndication, with many undergoing ‘price-discovery’, and subsequent changes.

“Few deals made it to the finish line unscathed,” writes LCD’s Chris Donnelly. “Virtually all the action was in clean-up.”

With the unsettled atmosphere – and with continued demand for higher-rated credits – yields on lower-rated loans (those stamped B+ or B by S&P) now are yielding 5.91% in the new-issue market, up from 5.8% the previous week, according to S&P Capital IQ LCD. Higher-rated credits (BB) continue to yield 4.23%.

The leveraged loan price discovery comes as investors continue to take cash out of the asset class. Indeed, U.S. loan funds last week saw their 13th straight withdrawal, totaling $5.6 billion. As well, assets under management at U.S. loan funds recently hit a 28-month low.

Year to date, U.S. leveraged loan volume totals $369 billion, compared to $476 billion at this point in 2014.

The choppy high yield bond market continues to plod along with a thin $1.8 billion in new issuance last week. That’s actually up from each of the previous three weeks (including a rare issuance-free week).

At the current pace, October will be the slowest month of the year for the asset class. There has been $3.7 billion in issuance so far this month, says LCD’s Matt Fuller. Year-to-date U.S. issuance is $229 billion, down 15% from the pace seen in 2014.

One potential bright spot: U.S. investors poured a whopping $3.3 billion into high yield funds last week, the most since 2011.


LCD’s High Yield Market Primer/Almanac Updated with 3Q Charts

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, LCD’s free website promoting the asset class. 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.


European High Yield Bond Funds Record €254M Outflow

J.P. Morgan’s weekly analysis of European high-yield funds shows a €254 million outflow for the week ended Oct. 7. The reading includes a €126 million net outflow from ETFs, and a €38 million net inflow for short duration funds. The reading for the week ended Sept. 30 is revised from a €323 million outflow to a €340 million outflow.

The provisional reading for September is a €696 million outflow, marking the fourth consecutive monthly outflow. August saw an outflow of €1.1 billion, the largest on record, with July and June having recorded €260 million and €702 million outflows, respectively. March’s €3.1 billion influx remains the largest monthly inflow on record. January and February both registered a €1.9 billion monthly inflow, while April’s inflow was €1.4 billion, and May’s inflow was €550 million.

Inflows for 2015 through September are €6.3 billion, versus full-year inflows of €4.15 billion and €8.94 billion in 2014 and 2013, respectively. Inflows for 2015 peaked at €9 billion through the end of May.

With secondary rallying last week, and cash balances building through coupons, a lack of primary, and some redemptions, outflows remain the most significant negative technical in the market. Still, with ETFs accounting for nearly 50% of the latest weekly outflow, versus an average 21% contribution since the start of June, there are hopes that managed accounts are seeing outflows slow. Moreover, there are signs primary issuance is re-awakening, with a £790 million two-part deal from Lowell currently marketing, and up to €700 million of secured notes expected to be launched soon from Verisure.

Retail cashflow for U.S. high-yield funds turned back into positive territory with a net inflow of $735 million in the week ended Oct. 7, according to Lipper. The inflow barely dents the $2.2 billion withdrawal the week before, but it’s the fourth inflow over the past five weeks for a net outflow of $977 million over that span. The net inflow masks an underlying dynamic that could suggest market-timing, hedging strategies, and fast-money investors in the asset class. The mutual fund segment was negative $675 million in the latest reading, but it was filled in and overblown by a whopping $1.4 billion infusion to exchange-traded funds. The full-year reading is now negative $4.3 billion, with just 7% of that ETF-related.

J.P. Morgan only calculates flows for funds that publish daily or weekly updates of their net asset value and total fund assets. As a result, J.P. Morgan’s weekly analysis looks at around 55 funds, with total assets under management of €38 billion. Its monthly analysis takes in a larger universe of 100 funds, with €52 billion of assets under management. For a full analysis, please see “Europe receives HY fund flow calculation.” –Luke Millar

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