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.


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.

Loan bids extend decline with fifth-consecutive drop

The average bid of LCD’s flow-name composite fell 32 bps over the past few trading sessions, to 97.20% of par, from 97.52 on Oct. 1. Today’s drop marks the fifth-consecutive drop in the average bid, for a total decline of 128 bps over the 2.5-week span.

The average bid remains at its lowest level since December 2014, and of note, none of the 15 names in the sample are bid at par.

The composite remains biased towards the downside, with 12 loans lower, one unchanged and two higher; however, the two advancers gained a mere eighth of a point from the previous reading. The decliners, meanwhile, ranged from 0.125-1.75 points. Avaya’s typically volatile TLB-7 (L+525, 1% LIBOR floor) was responsible for the 1.75-point drop.

After a downcast session Friday, the market remains very choppy even as high-yield has clawed back some losses. While some loans have recovered from lows touched Friday, others continue to slide.

Traders continue to keep a close eye on the primary market, though there’s little clarity around clearing yields. Amid the recent volatility, several M&A/LBO transactions have gone into overtime and remain in price discovery, while three opportunistic transactions have been withdrawn all together.

With the average loan bid falling 32 bps, the average spread to maturity gained nine basis points, to L+461.

By ratings, here’s how bids and the discounted spreads stand:

  • 99.04/L+383 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+377.
  • 94.44/L+610 for the six loans rated B or lower by one of the agencies; STM in this category is L+568.


Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds advanced 146 bps, to 93.56% of par, yielding 8.05%, from 92.10 on Oct 1st. The gap between the bond yield and discounted loan yield to maturity stands at 371 bps. – Staff reports

To-date numbers

  • October: The average flow-name loan dropped 52 bps from the final September reading of 97.72.
  • Year to date: The average flow-name loan climbed 28 bps from the final 2014 reading of 96.92.

Loan data

  • Bids slip: The average bid of the 15 flow names tumbled 32 bps, to 97.20% of par.
  • Bid/ask spreads tighter: The average bid/ask spread tightened two basis points, to 36 bps.
  • Spreads grow: The average spread to maturity – based on axe levels and stated amortization schedules – increased nine basis points, to L+461.

Rolls-Royce acts on low U.S. yields in rare bond market appearance

Another muted primary-market session was enlivened by a $1.5 billion deal for RollsRoyce, a name last seen in the U.S. debt markets more than two decades ago. The company, which sought to bolster its liquidity position amid share buybacks and capital-spending plans, launched $500 million of five-year notes at T+105 and $1 billion of 10-year notes at T+160, or firm to guidance ranges and substantially through initial whispers in the areas of T+137.5 and T+187.5, respectively.

Moody’s today noted that the company was motivated to capitalize on “historically low yields available in the U.S. bond market,” and said the ratings outlook at the A3 level was unaffected despite the attendant rise in leverage for the infrequent borrower.

The deal also came as the CDX IG 25 was, on net, little changed today in the 87.5 bps area, with most single-name constituents tighter for a second straight session, and with the index down from recent multiyear highs near 95 bps. But while the footing is firmer week to week, issuers unencumbered by earnings blackouts still have every reason to proceed with caution: many recent new issues continue to trade wide of issuance, including long-dated bonds placed by Hewlett Packard Enterprise in a $14.6 billion, curve-spanning offering backing its spin-off from the hardware business, a deal that the company was forced to pay 40-70 bps in new-issue concessions to clear.

Meantime, five-year CDS referencing the debt of DuPont rose 11% today to a four-year high in the mid-80 bps area, after the company yesterday said it would replace CEO Ellen Kullman with Tyco International Chairman Edward Breen, who was recently added to DuPont’s board amid what the company described as a “challenging environment” necessitating a “deep dive” into the company’s cost structure. The move dovetailed with steady pressure from activist investors to explore ways to unlock value, including via a possible breakup of the company. DuPont spreads vaulted higher from a low base in July 2013, after activist Nelson Peltz’s Trian Fund Management took a big stake in the company, in what was considered a contributing factor in DuPont’s later decision to spin off its titanium dioxide unit to shareholders.

After inking a deal to acquire Pharmedium Healthcare for $2.575 billion, the five-year CDS referencingAmerisourceBergen was steady today in the 40 bps area, which is where it has been indicated throughout the year, trade data show. ABC in February placed a $1 billion offering backing its $2.5 billion acquisition of MWI Veterinary Supply, an animal-health distribution company.

Standard & Poor’s Ratings Services today affirmed the A- rating and stable outlook on ABC, citing expectations for a “modest” increase in leverage to 1.6x for fiscal 2016, pro forma for the latest acquisition, from 1.2x. ABC plans to secure a $1 billion, five-year term loan in support of the transaction, and will fund the balance with cash on hand and by utilizing its credit facility, the company said today.

Today’s only other primary-market highlight was provided by Royal Bank of Canada’s $1.75 billion offering of 2.1% covered bonds due October 2020, which was placed at 72 bps over mid-swaps, or 2.107%. The issue was printed in line with guidance and at the firm end of early whispers in the area of 75 bps plus mid-swaps. The new 2020 covered bonds were inked at levels above the Canadian bank’s last five-year secured offering, in January, when it placed a $2 billion offering of 1.875% covered bonds due February 2020 at mid-swaps plus 44, or 1.878%. – Staff reports


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




Loan bids post second-consecutive drop as high yield bonds, equities slide

Amid slightly softer market conditions, the average bid of LCD’s flow-name composite dipped 17 bps over the past two trading sessions, to 98.22% of par, from 98.39 on Sept. 22.

The composite was biased toward the downside, with decliners outnumbering advancers 12 to one; two loans were unchanged from the previous reading. The Neiman Marcus term loan due 2020 (L+325, 1% LIBOR floor) and theIntelsat term loan due 2019 (L+275, 1% LIBOR floor) posted the steepest losses at a half-point each, both dropping to a 98.25 bid.

The average bid is down 26 bps on the week, though remains seven basis points above its recent low of 98.15 on Aug. 26.

With high-yield and equities under pressure, the loan market has eased a bit after pushing higher earlier in the month, though the losses have been most heavily skewed toward certain high-beta names or those with headline risk, underscoring today’s heavily bifurcated market conditions.

While the weakness in high-yield and equities helped put a damper on sentiment in the loan market, it’s also worth noting that CLO issuance has slowed appreciably this month while outflows from loan mutual funds persist. So far in September, a mere $2.76 billion of deals have priced. Meanwhile, for the five business days ended Sept. 23, LCD data project a $419 million net outflow per the Lipper sample of weekly reporters.

The loan market overall, however, has well outperformed high-yield: the average bid of LCD’s flow-name bond composite tumbled 186 bps in today’s reading, to a fresh 2015 low of 94.44%.

With the average loan bid decreasing 17 bps, the average spread to maturity advanced five basis points, to L+432.

By ratings, here’s how bids and the discounted spreads stand:

  • 99.65/L+365 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+363.
  • 96.06/L+552 for the six loans rated B or lower by one of the agencies; STM in this category is L+520.

Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds dove 186 bps, to 94.44% of par, yielding 8.53%, from 96.30 on Sept. 22. The gap between the bond yield and discounted loan yield to maturity stands at 426bps. – Staff reports

To-date numbers

  • September: The average flow-name loan lifted seven basis points from the final August reading of 98.15.
  • Year to date: The average flow-name loan increased 130 bps from the final 2014 reading of 96.92.

Loan data

  • Bids lower: The average bid of the 15 flow names fell 17 bps, to 98.22% of par.
  • Bid/ask spreads wider: The average bid/ask spread widened one basis point, to 35 bps.
  • Spreads rise: The average spread to maturity – based on axe levels and stated amortization schedules – gained five basis points, to L+432.

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


High yield bond prices slide more amid commodity slump, growth concerns

The average bid of LCD’s flow-name high-yield bonds fell 58 bps in today’s reading, to 96.30% of par, yielding 7.76%, from 96.88% of par, yielding 7.57%, on Sept. 17. Performance within the sample was mixed, with four gainers, three issues unchanged, and eight decliners.

Today’s slide was led by California Resources 6% notes due 2024, which fell more than three points from last Thursday. Also continuing to decline were Sprint 7.875% notes, which slumped 7.25 points in last Thursday’s reading following a double-cut downgrade and then lost another 2.75 points today, to 88.25.

This latest drop builds on a 89 bps decrease in Thursday’s observation, for a net decline of 147 bps in the past week. Dating back two weeks, the average is down 176 bps, and it’s lower by 117 bps in a trailing-four-week measurement.

As for the year to date, the average is now up just 60 bps. Last year, the average lost 536 bps, following a decrease of 463 bps in 2013.

The weaker market conditions were again linked to the ongoing commodities-sector slump and persistent global growth concerns following the Fed’s decision to leave rates unchanged.

With the fresh decrease in the average bid price, the average yield to worst rose 19 bps, to 7.76%, and the average option-adjusted spread to worst widened 30 bps, to T+629. Those levels are 2015 wides for both yield and spread.

The yield and spread in today’s reading are a bit wider than the broad index. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed the last reading, Monday, Sept. 21, with a yield to worst of 7.16% and an option-adjusted spread to worst of T+570.

For further reference, take note that a June 24, 2014 reading of 106.98 – close to the February 2014 market peak of 107.03 – had the flow-name bond average yield at 5.02%, an all-time low, but spreads weren’t quite there. Indeed, the average yield was 7.63% at the prior-cycle peak in 2007, and the average spread at the time was T+290.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine basis points in today’s reading, to 98.39% of par, for a discounted loan yield of 4.26%. The gap between the bond yield and discounted loan yield to maturity is 350 bps. – Staff reports

The data:

  • Bids fall: The average bid of the 15 flow names fell 58 bps, to 96.30.
  • Yields rise: The average yield to worst rose 19 bps, to 7.76%.
  • Spreads widen: The average spread to U.S. Treasuries widened 30 bps, to T+629.
  • Gainers: The largest of the four gainers was Dollar Tree 5.75% notes due 2023, which rose three quarters of a point, to 105.50.
  • Decliners: The largest of the eight decliners was California Resources 6% notes due 2024, which fell 3.125 points, to 63.875.
  • Unchanged: Three of the 15 constituents were unchanged.

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


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