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Targa Resources Inks $1.5B High Yield Bond Offering

Targa Resources Partners has completed a $1.5 billion, evenly split, two-part offering of senior notes via lead Bank of America Merrill Lynch, sources said. The originally proposed 8.5-year bonds priced at the tight end of talk, while the 10-year maturity, which was added following strong investor demand and upsized by $250 million, priced at the middle of talk. The transaction ended a dry spell for U.S. high-yield issuance, which saw a print-free December 2018 due to an extended wave of market volatility.

Proceeds are earmarked for the full redemption of the issuer’s outstanding 4.125% notes due 2019, and for general partnership purposes, which may include repaying borrowings under its credit facilities or other debt, working capital, and funding growth investments and acquisitions. The issuer had last come to market in April 2018, when it placed $1 billion of 5.875% notes due 2026. Targa Resources Partners LP, a subsidiary of Targa Resources (NYSE: TRGP), owns, operates, acquires, and develops midstream energy assets in the U.S. – Jakema Lewis

Issuer Targa Resources Partners
Ratings BB/Ba3
Amount $750 million
Issue Senior (144A/ w. contingent reg. rights)
Coupon 6.5%
Price 100
Yield 6.5%
Spread T+381
Maturity July 15, 2027
Call non-call 3.5 (first call @ par 75% coupon)
Trade Jan. 10, 2019
Settle Jan. 17, 2019 (T+5)
Joint bookrunners BAML/JEFF/WF/CAPONE/GS/TD
Co-lead managers ABN/BBVA/ING/MUFG/Scotia/SMBC
Co-managers BB&T/BMO/CIBC/Citizens/FifthThird/USBank
Talk 6.625% area
Notes Make-whole  @ T+50; change of control put @ 101; up-to-35% equity claw @ 106.5 until Jan. 15, 2022
Issuer Targa Resources Partners
Ratings BB/Ba3
Amount $750 million
Issue Senior (144A/ w. contingent reg. rights)
Coupon 6.875%
Price 100
Yield 6.875%
Spread T+415
Maturity Jan. 15, 2029
Call non-call 5 (first call @ par +50% coupon)
Trade Jan. 10, 2019
Settle Jan. 17, 2019 (T+5)
Joint bookrunners BAML/JEFF/WF/CAPONE/GS/TD
Co-lead managers ABN/BBVA/ING/MUFG/Scotia/SMBC
Co-managers BB&T/BMO/CIBC/Citizens/FifthThird/USBank
Talk 6.875% area
Notes Upsized from $500 million; up-to-35% equity claw @ 106.875 until Jan. 15, 2022

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Amid New-Issue Drought, US High Yield Market Shrinks for 3rd Straight Year

In a little-heralded yet noteworthy development, the amount of outstanding U.S. high-yield debt declined for an unprecedented third year in a row in 2018. The face value of the ICE BofAML U.S. High Yield Index finished the year at $1.231 trillion. That was down from $1.283 trillion on Dec. 31, 2017. The 2018 year-end figure was 8.2% below the all-time year-end peak of $1.341 trillion in 2015.

Several forces drive year-to-year changes in the amount of outstanding high-yield debt.

These include both additions, i.e., new issuance (net of bond refinancing) and downgrades from investment-grade (“fallen angels”), and subtractions, i.e., maturing issues, partial redemptions, defaults, and upgrades to investment grade*.

An important factor in the most recent shrinkage was a decline in new issuance, due in substantial part to the diversion of primary activity to the leveraged loan market. At $169 billion, U.S. high-yield volume was the lowest full-year figure since 2009, according to LCD. The peak of $345 billion was recorded way back in 2012. – Martin Fridson

* Bonds are removed from the index depicted in the chart when their remaining life shortens to less than one year. Defaulted issues remain speculative-grade (D by S&P Global Ratings) but exit the index by virtue of turning from high-yield to no-yield bonds.

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US High Yield Funds Finish 2018 with Hefty $4B Retail Investor Withdrawal

high yield funds

U.S. high-yield funds wrapped up a grim 2018 with a $3.94 billion withdrawal for the week ended Dec. 26, bringing the full-year outflow figure to a whopping $35.3 billion, according to Lipper weekly reporters.

With the most recent withdrawal, the four-week trailing average steepens to a $1.9 billion outflow.

The retail activity was evenly split across the asset class, with high-yield funds accounting for $1.98 billion of outflows and ETFs accounting for a $1.96 billion withdrawal.

U.S. high-yield assets now stand at $179.5 billion, of which $36.9 billion come from ETFs. — Tim Cross

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US Leveraged Loans Return Slim 0.44% in 2018, tho Best Other Asset Classes

To be sure, it was risk-off in December, with increasing signals of instability creeping into the political and economic scenarios (and with a less-bullish picture emerging, as far as rate hikes are concerned). The rout was most pronounced in equities (down 9.03%) and in U.S. leveraged loans (a 2.5% loss, which is unusually large for the asset class), with high yield bonds sliding a not insignificant 2.19%.

Predictably, higher-quality assets fared better, with 10-Year Treasurys gaining 3% and investment-grade corporate bonds returning 1.5%.

For the full-year 2018, U.S. leveraged loans outperformed the other asset classes tracked for this analysis, even with a dismal 4Q showing. The 0.44% return was the only asset class in the black for the year, with only Treasurys coming close (negative 0.03%).

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Global High Yield Default Tally Dips to Lowest Level in 2 Years

The 2018 global corporate default tally remained at 76 this week, the lowest total for this point in December since 2015, according to a report by S&P Global Fixed Income Research.

The U.S. continues to hold the highest share of corporate defaults this year, with 44 (58% of the total), followed by emerging markets with 16, Europe with 11, and other developed markets (Australia, Canada, Japan, and New Zealand) with five.

By sector, oil and gas leads the default tally with 14 defaults, or 18% of the total, followed by retail and restaurants with 11, or 14% of the total.

Distressed exchanges continue to be the leading cause of defaults in 2018, with 27 defaults, followed by missed principal and interest payments (including defaults on debt obligations) with 24 defaults, bankruptcy with 16 defaults, and regulatory intervention with one default. The remaining eight defaults were confidential.

In terms of the trailing-12-month rate, the U.S. speculative-grade corporate default rate remained at an estimated 2.64% in November, while the European speculative-grade corporate default rate decreased to an estimated 1.93% in November, from 1.94% in October, according to S&P Global. — Rachelle Kakouris

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Volatility, Yes, though European Leveraged Loans Faring Well vs High Yield, Equities

europe nov asset growth

Sentiment in the European leveraged loan market has taken a turn for the worse over the last couple of weeks, forcing loan issuers and investors to adjust — sometimes sharply — as a result. Loan traders have led much of this volatility, although the market looks to be taking its cue from larger moves in high yield, equities, and the U.S. market.

The secondary market illustrates the sudden shift in loan sentiment, with average bids on the S&P European Leveraged Loan Index (ELLI) rising from a summer trough of 98.41 at the start of July to a peak of 99.20 in the middle of October. Since then it has since traded steadily lower, hitting a mid-98 level this week.

Compared with other asset classes, a 75 bps fall would not be much more than a rounding error, and loans remain relatively calm when contrasted with other markets.

“High yield and the U.S. markets are importing volatility into European loans,” said a London-based fund manager. “Conditions in Europe are tough, but the market is still functioning.” Indeed, mapping the comparative performances of equities, high yield, and loans shows how the latter asset class continues to avoid the swings seen in the more heavily traded markets. – David Cox

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US High Yield Bond Funds Hit With $1.2B Cash Withdrawal

high yield bond flows

U.S. high-yield funds reported an outflow of $1.2 billion for the week ended Nov. 28, according to weekly reporters to Lipper only. This marks the second consecutive negative reading, albeit milder than last week’s $2.2 billion exit.

The net withdrawal was largely the function of ETFs, which registered outflows totaling $719.5 million, while mutual funds recorded a $480.5 million outflow. The four-week trailing average was little changed at $465.9 million, from $426.7 million in the prior week.

This week’s result brings the year-to-date total outflow to roughly $27.7 billion. That is well ahead of 2017’s full-year outflow of roughly $14.9 billion, which stands as the largest exit on an annual basis to date.

The change due to market conditions was an increase of $124.1 million, a reprieve from large declines in the two prior weeks. Total assets at the end of the observation period were roughly $192.3 billion. ETFs account for roughly 21% of the total, at $41.2 billion. — Jon Hemingway

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Investors Withdraw $2.2B from US High Yield Bond Funds, ETFs

U.S. high-yield funds reported an outflow of $2.19 billion for the week ended Nov. 21, according to weekly reporters to Lipper only. This result reverses positive readings in the prior two weeks, and brings the year-to-date total outflow to roughly $26.5 billion.

us high yield flowsThe year-to-date total exit continues to mark an unprecedented outflow from high-yield funds, outpacing last year’s total outflow of roughly $14.9 billion, which stands as the largest exit on an annual basis to date.

Mutual funds led the way, posting their largest outflow since February at $1.51 billion. ETFs saw another $682.4 million pulled by investors during the observation period. The four-week trailing average narrowed marginally to negative $427 million, from negative $470 million in the prior week.

The change due to market conditions was a decrease of $1.49 billion, according to Lipper. Total assets at the end of the observation period were roughly $193.4 billion. ETFs account for roughly 22% of the total, at $41.8 billion. — Jon Hemingway

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US High Yield Bond Funds See $1B Investor Cash Inflow

hy funds
U.S. high-yield funds reported an inflow of about $1 billion for the week ended Nov. 7, according to weekly reporters to Lipper only, reversing last week’s outflow of roughly the same amount and narrowing the year-to-date total outflow to roughly $24.8 billion.

The year-to-date total exit continues to mark an unprecedented volume of outflows from high-yield funds (last year’s total outflow of roughly $14.9 billion stands as the largest exit on an annual basis to date).

ETFs led the inflow this week, with a gain of $631 million, while $409 million entered mutual funds.

The four-week trailing average narrowed to negative $480 million, from roughly negative $2 billion in the previous week.

The change due to market conditions was an increase of $1.15 billion, according to Lipper.

Total assets at the end of the observation period were $198.8 billion. ETFs account for about 21.8% of the total, at $43.3 billion. — James Passeri

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European Leveraged Loans Top Other Assets Classes in Rocky October

europe returns comps
The European leveraged loan market proved its resilience once again in October. Amid a sharp sell-off in global equity markets and losses in high-yield, European loans remained in the black, while its U.S. counterpart and other European asset classes dipped into the red.

Consequently, the S&P European Leveraged Loan Index (ELLI) gained 0.33% last month — down from 0.56% in September and the lowest reading since the 0.43% loss in June. Nonetheless, October’s return exceeded the monthly average so far this year of 0.27%, and the trailing 12-month average of 0.24%. For the year through Oct. 31 the ELLI was up 2.69%, lagging last year at this time, when it had returned 3.87%.

European high-yield bonds tracked by the Merrill Lynch European High-Yield Bond Index lost 1.22% in October, a five-month low, while equities were down 5.09%, for the worst decline since August 2015. As a result, European loans outperformed all the other asset classes that LCD tracks in October. – Marina Lukatsky

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