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Intelsat debt, shares edge higher on 1Q results, new bond guarantee

Intelsat debt and shares advanced today after the satellite giant reported better-than-expected first-quarter results and reaffirmed its 2016 sales and earnings outlook based on the ongoing demand for broadband data, a heavy backlog of contracts, the successful launch of a new satellite last month, and preparation for the launch of more of its next generation fleet.

Most notably, however, investors heard that that a first-lien guarantee is now in place on a previously non-guaranteed series of Intelsat Jackson 6.625% senior notes due 2022, and that CC/Caa3 paper surged six points, to 64/65, according to sources.

Other bonds at various spots in the multi-tiered issuer were mixed. The previously guaranteed Intelsat Jackson 5.5% senior notes due 2023, which are notched higher, at CCC/Caa2, slipped two points, with trades reported on either side of 63, while the same entity’s first-lien 8% notes due 2024 dipped three quarters of a point, to 103.25/103.75, according to sources and trade data.

Meanwhile, at parent Intelsat Luxembourg 8.125% notes due 2023, which are a deeper step lower, at CC/Ca, the paper advanced two points, to 28.5/29.5, according to sources. And other “Jackson” bonds were steady, like the 7.5% notes due 2021, which held 69.5/70.5, the sources added.

Over on the NYSE, the company’s shares, which trade under the symbol “I,” increased roughly 6.5% this morning, to $3.93.

In the loan market, the Intelsat’s B-2 term loan due 2019 (L+275, 1% floor) was marked 94.125/94.625 on the results, up from either side of 94 prior, albeit a 95 context a week ago, according to sources.

Revenue in the quarter was $552.6 million, which was down from $602.3 million in the year-ago first quarter, but roughly 2% higher than the S&P Global Market Intelligence consensus estimate for $542.8 million, filings showed. As for the EBITDA result, first-quarter earnings were $407.5 million, which was down from $460.5 million last year, but right in line with the S&P GMI consensus mean estimate for $408.4 million.

Looking ahead, the company left unchanged via reaffirmation its full-year 2016 outlook for revenue of $2.14–2.20 billion and adjusted EBITDA to $1.625–1.675 billion, filings show.

Recall that the abovementioned, first-lien 8% notes were issued at par last month, with B–/B1 ratings, via Goldman Sachs and Guggenheim to support general corporate purposes, including prepayment in full of an intercompany loan of $360 million that upstreamed a dividend to parent “Luxembourg.” That issuance halted access to the “Jackson” undrawn revolver and triggered the guarantee to the 6.625% notes, according to a company statement.

Luxembourg-based Intelsat completed its IPO in April 2013, but a BC Partners–led group named Serafina still owns a majority of the satellite concern’s common shares. Prior to today’s rally, the company’s market capitalization on the NYSE was approximately $400 million. — Matt Fuller/Kerry Kantin

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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ExamWorks nets financing for buyout by Leonard Green

Bank of America Merrill Lynch, Barclays, and Deutsche Bank have committed to provide the debt financing that will back the roughly $2.2 billion buyout of NYSE-listed ExamWorks by Leonard Green & Partners. Details of the financing are not yet available.

The private equity firm would pay $35.05 per share, according to the company. The acquisition, which was announced this morning, is expected to be completed in the third quarter, subject to shareholder approval and customary closing conditions.

ExamWorks has $500 million outstanding of 5.625% notes due 2023. That deal priced in April 2015 via a Bank of America Merrill Lynch–led bookrunner group with proceeds earmarked to refinance existing debt. The B–/B3 notes changed hands last week in a 103.25-103.5 context, trade data shows.

Atlanta, Ga.–based ExamWorks is a provider of independent medical examinations, peer reviews, bill reviews, Medicare compliance, case-management, and other related services. The company recorded $140.7 million of adjusted EBITDA in 2015 on revenue of $819.6 million. Existing corporate ratings are B+/B2. — Jon Hemingway

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Leveraged Finance Fights Melanoma benefit planned for May 24

The fifth annual Leveraged Finance Fights Melanoma benefit and cocktail party is planned for May 24 at the Summer Garden and Sea Grill at Rockefeller Center. Funds raised at the event will support the Melanoma Research Alliance (MRA), the world’s largest private funder of melanoma research, which was founded in 2007 by Debra and Leon Black under the auspices of the Milken Institute.

Since this event was launched in 2012, the leveraged finance community has come together and generously supported over $5 million of cutting-edge cancer research. These funded studies have accelerated advances in immunotherapy treatments that have led to breakthroughs like anti-PD-1 agents which are being used to treat melanoma, were recently approved to treat lung cancer, and are now being tested in other tumors including bladder, blood, and kidney cancers.

The event co-hosts are Brendan Dillon from UBS; Lee Grinberg from Elliott Management; George Mueller from KKR; Jeff Rowbottom from PSP Investments; Cade Thompson from KKR; and Trevor Watt from Hellman & Friedman. Attendees include the biggest names in leveraged finance, from all of the top banks, many investment houses, several law firms, select issuers, and some private equity sponsors. As with the prior events, LCD is a proud sponsor.

Due to ongoing operational support from its founders, 100% of donations to MRA go directly to support research programs working toward a cure for melanoma, the deadliest type of skin cancer. Since MRA began its work, 11 new treatments have been approved by the FDA.

Funds raised from prior year events have supported six MRA research awards at institutions spanning the U.S. These projects focus on targeted and immunotherapy treatments, which boost the immune system to fight off cancer more effectively. The studies address critical research questions to advance the development of new therapies for melanoma patients and inform progress against cancer as a whole.

“We’re making tremendous breakthroughs in understanding and treating melanoma, including several new therapies that could be game-changers for the entire field of oncology,” said Jeff Rowbottom, LFFM co-host and MRA board member. “The Leveraged Finance Fights Melanoma events have supported important research that is enabling innovations in the way we treat cancer.”

The objectives for the 2016 LFFM event are to increase awareness, to raise funds to further advance research, and to save lives. Melanoma awareness and early detection are vital when it comes to combating the disease; if melanoma is detected early—before it has spread beyond the skin—it is almost always treatable. Past events have led to many members of the leveraged finance community seeing dermatologists for skin checks and even to the discovery and treatment of several early stage melanomas.

Tickets are $300. For further information about the event and to purchase tickets, please visitcuremelanoma.thankyou4caring.org/lffm2016. Those seeking information about the event and sponsorship opportunities can contact Rachel Gazzerro of MRA at (202) 336-8947 or [email protected]. — Staff reports

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Valeant debt edges off lows following reports of SEC investigation

Debt backing Valeant Pharmaceuticals International today edged off lows touched late yesterday after news reports circulated that the company is under investigation by the SEC. The headlines late yesterday contributed to the latest bout of volatility in the credit, which had been under pressure earlier in the day after the company Sunday night said it would withdraw prior guidance, and last week, on news that it will restate some of its prior financial results.

In the loan market, the company’s F term loan due 2022 (L+325, 0.75% LIBOR floor) recovered to a 92/92.75 market this morning after being quoted around 90/91.5 late yesterday following the news reports, according to sources. Note the paper finished Friday in a 95/95.5 context, though it had slid to around 93/94 earlier in yesterday’s session after Valeant said Sunday that, in light of CEO J. Michael Pearson’s return from a medical leave, the company would reschedule its previously announced quarterly conference call and eliminate prior earnings guidance.

Over in the bond market, Valeant benchmark 6.125% notes due 2025 recovered one point, with trades reported at 82 this morning, for roughly a five-point decline on this week’s various news items. The short-tenor 6.75% notes due 2018 edged up a quarter of a point, quoted at 94.75/95.75 in the Street, for essentially a three-point decline this week, sources said.

Bloomberg News first reported on the SEC investigation, which the company confirmed with a statement on its website last night. “In response to media inquiries, Valeant confirmed that it has several ongoing investigations, including investigations by the U.S. Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress,” Valeant said. “With respect to the SEC investigation, the company confirmed that it received a subpoena from the SEC in the fourth quarter of 2015 and, in the normal course, would have included this disclosure in its 2015 10-K. We do not have further detail to provide at this time.”

Also, Moody’s yesterday placed Valeant’s rating, including its Ba3 corporate family rating, on review for a downgrade, citing concerns that the company’s operating performance is weaker than the rating agency’s previous expectations, which would potentially impede the company’s deleveraging plans.

Valeant is one of the largest issuers in the institutional loan market. As of Sept. 30, there was more than $8.5 billion outstanding under its four tranches of institutional loans, according to SEC filings. It was the most widely held obligor in 2.0 CLOs in the third and fourth quarter of 2015, according to Standard & Poor’s Ratings Services. Barclays is administrative agent on the loan.

Corporate ratings are B+/Ba3. The loans are rated BB/Ba1, with a 1 recovery rating from S&P. The senior notes are rated B–/B1. — Kerry Kantin/Matt Fuller

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PetSmart loan, bonds ease on news of cash-funded dividend

PetSmart term debt eased to a 96/97 market today following a Moody’s report stating the retailer’s owners plan to take an $800 million dividend funded by available cash. The roughly $4.3 billion term loan due March 2022 (L+325, 1% floor) was previously bracketing 97, sources said.

The company’s 7.125% notes due 2023 traded down 1.5 points in active trading, at 101, trade data show.

The planned dividend would be funded from proceeds from the sale of PetSmart’s minority interest in MMI Holdings, which operates veterinary hospitals inside PetSmart stores, to majority owner Mars Inc., sources said.

Ratings were not affected, Moody’s said. The issuer is rated B/B1. The term debt is rated BB–/Ba3, with a 2L recovery rating from Standard & Poor’s. The notes are rated B–/B3, with a 6 recovery rating.

Plans for the dividend were reported last week by Forbes.

PetSmart was purchased early last year by a consortium including funds advised by BC Partners, alongside several of its limited partners, including La Caisse de dépôt et placement du Québec and StepStone. Longview Asset Management rolled a roughly $250 million portion of its ownership stake. The sponsors, excluding Longview, contributed rough $1.83 billion of equity. — Staff reports

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Starbucks to buy back more shares with bond-sale proceeds

Starbucks (NASDAQ: SBUX) today completed a $500 million offering of 2.10% notes due Feb. 4, 2021 at T+75, or 2.112%, sources said. The issue was printed at the firm end of guidance in the T+80 area, and through early whispers in the T+95 area.

Proceeds will be used for general corporate purposes, including the repurchase of common stock under the company’s ongoing share-repurchase program, business expansion, payment of cash dividends, and/or financing possible acquisitions, according to regulatory filings.

As of Dec. 27, 2015, the company had bought back an equivalent of $5.86 billion of common stock, or nearly 252 million shares, under its share-buyback program dating to August 2006. When the program was initiated, the board authorized the repurchase of 25 million shares, and that has since grown to 300 million shares when the authorization was last increased on July 23 of last year, according to S&P Capital IQ.

The company spent roughly $1.5 billion on share buybacks over the 12 months through Dec. 27, 2015, the most in the company’s history after expenditures of $935 million in 2014 and $202 million in 2013, according to S&P Capital IQ.

Even so, the company’s free cash position remained constructive as Starbucks generated roughly $4 billion of operating cash flow last year, or more than the $3.8 billion of combined spending across share buybacks, capital expenditures ($1.34 billion), and common dividends ($986 million).

Earlier today, Standard & Poor’s and Fitch assigned A–/A ratings to the proposed 2021 issue. “Pro forma for the proposed debt issuance, adjusted debt to EBITDA will increase to 1.1x from 1.0x at Dec. 27, 2015,” S&P stated.

According to Fitch—which upgraded Starbucks’ rating to A, from A– in November—for the year ended Sept. 27, 2015, lease-adjusted leverage was 2.0x, down from 2.2x at the end of fiscal 2013. “Cash flow priorities are to invest in its business and return cash to shareholders. The company has maintained a dividend pay out to earnings in line with its 35–45% target and has been prudent with share repurchases, funding buybacks mainly with internally generated cash,” Fitch said.

In September 2015, Moody’s upgraded Starbucks’ senior unsecured rating to A2, from A3. “”The upgrade reflects Moody’s view that Starbucks measured growth strategy, product pipeline, digital initiatives and balanced financial policy will continue to drive operating earnings, credit metrics, liquidity and scale that is more reflective of an A2 rating,” Moody’s said at the time.

The ratings outlook is now stable on all three sides.

On Thursday, Starbucks announced quarterly earnings that beat analysts’ expectations on profits; however, its stock took a hit on that day, when its forecast for the current quarter lagged expectations.

The Seattle-based specialty coffee company last tapped the market in June 2015, when it completed an $850 million, two-part offering, including 2.7% notes due 2022 at T+78, or 2.703%, and 4.3% notes due 2045 at T+138, or 4.32%.

An infrequent issuer in the market, Starbucks in December 2013 completed a $750 million, two-part offering, including 0.875% three-year notes due 2016 at T+38, and 2% five-year notes due 2018 at T+63, or 2.04%. For reference, the 2018 issue changed hands a week ago at a G-spread equivalent of 36 bps, according to MarketAxess. Terms:

Issuer Starbucks Corp.
Ratings A-/A2/A
Amount $500 million
Issue SEC-registered senior notes
Coupon 2.10%
Price 99.943
Yield 2.112%
Spread T+75
Maturity Feb. 4, 2021
Call Make-whole T+15 until notes are callable at par from one month prior to maturity
Trade Feb. 1, 2016
Settle Feb. 4, 2016
Books GS/JPM/MS
Px Talk guidance T+80 area (+/– 5 bps); IPT T+95 area
Notes Proceeds will be used for general corporate purposes
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Third Ave’s liquidating debt fund holds concentrated, inactive paper

The leveraged finance marketplace is abuzz this morning ahead of a conference call to address to a plan of liquidation for the Third Avenue Focused Credit mutual fund following big losses this year, mild losses last year, heavy redemptions, and now a freeze on withdrawals. The news was publicly announced last night by the fund, and there will be a call at 11 a.m. EST for shareholders with lead portfolio manager Thomas Lapointe, according to the company.

Market sources yesterday relayed rumors of a near-$2 billion redemption from the asset class, and as one sources put forth, “the odd thing was it was difficult to trace the money that left, what was sold, and where it went.”

That was followed up by last night’s whopping, $3.5 billion retail cash withdrawal from mutual funds (72%) and ETFs (18%) in the week ended Dec. 9, according to Lipper, although it’s not entirely clear if that figure—the largest one-week redemption in 70 weeks—can be linked to Third Avenue. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

Nonetheless, it’s worthy of a dive into the open-ended fund, which trades under the symbol TFVCX. The fund shows a decline of 24.5% this year, versus the index at negative 2.94%, after a 6.3% loss last year, versus the index at positive 2.65%, according to Bloomberg data and the S&P U.S. Issued High Yield Corporate Bond Index.

It’s an alternative fixed-income fund that’s “extremely concentrated,” and “hardly representative of a ‘high yield’ or ‘junk bond’ fund,” outlined Brean Capital’s macro strategist Peter Tchir in a note to clients this morning. He highlighted that Bloomberg analytics show a portfolio that’s almost 50% unrated, nearly 45% tiered at CCC or lower, and just 6% of holdings rated BB or B.

The holdings are all fairly to extremely off-the-run, hence the trouble selling assets to meet redemption, and thus, the liquidation. The remaining assets have been placed into a liquidating trust, and interests in that trust will be distributed to shareholders on or about Dec. 16, 2015, according to the company.

Top holdings follow, and none have traded actively or very much in size of late, trade data show:

  • Energy Future Intermediate Holdings 11.25% senior PIK toggle notes due 2018; recent trades in the Ch. 11 paper were at 107.5.
  • Sun Products 7.75% senior notes due 2021; recent trades were at 87.5, versus 90 a month ago and the low 70s a year ago.
  • iHeartCommunications 14% partial-PIK exchange notes due 2021; block trades today were at 30 and 32, from 27 last month.
  • New Enterprise Stone & Lime 11% senior notes due 2018; odd lots traded recently in the low 80s, versus mid-80s last month.
  • Liberty Tire Recycling 11% second-lien PIK notes due 2021 privately issued in an out-of-court restructuring; trades reported in the mid-60s.

Amid those any many others of a similar ilk, the fund also reports a holding in Vertellus B term debt due 2019 (L+950, 1% LIBOR floor). The chemicals credits put the $455 million facility in place in October 2014 as part of a refinancing effort, pricing was at 96.5, and it’s now at 78/82, sources said.

“Investor requests for redemption … in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for FCF going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders,” according to the company statement.

“In line with its investment approach, FCF has some investments in companies that have undergone restructurings in the last eighteen months, and while we believe that these investments are likely to generate positive returns for shareholders over time, if FCF were forced to sell those investments immediately, it would only realize a portion of those investments’ fair value given current market conditions,” the statement outlined.

Further details are available online at the Third Avenue Management website. — Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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Huge high yield bond fund outflows: Why it’s not as bad as it seems

 

An LCD News story earlier today passed on incorrect information from data administrator Lipper regarding the Third Avenue Focused Credit fund that halted redemptions and is being liquidated. There was, in fact, a $111 million redemption from that fund this past week. A corrected story follows:

U.S. high-yield funds saw a net $3.5 billion retail cash withdrawal in the week ended Dec. 9, marking the largest one-week redemption since the record $7.1 billion outflow 70 weeks ago, or since the week ended Aug. 6, 2014, but it’s not as bad as it seems. Lipper today clarified with LCD that mutual funds this past week reported large seasonal distributions, but reinvestment has not yet been recognized, so it’s essentially a mid-read and look for a “catch up” in the weeks ahead.

This is a time of year when distributions “wreak havoc” with the flows data, according to Lipper. It’s possible that we’ll see the reinvestment characterized as inflows next week, but there also may be more distributions, Lipper added.

As per the flurry of news surrounding the liquidation of the alternative fixed income mutual fund Third Avenue Focused Credit, Lipper relayed that the fund-management group overall reported multiple outflows this past week, with $111 million specifically pulled from that open-ended fund. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

As for the one-week figure, see “US HY funds report largest cash outflow since record 70 weeks ago,” LCD News, Dec. 10, 2015. — Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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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.