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.


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


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


LINN Energy reduces RC borrowing base to $3.6B

LINN Energy disclosed yesterday that the borrowing base under its revolving credit facility due April 2019 was reduced to $3.6 billion and netted an amendment that, among other things, relaxes its interest coverage covenant. It was previously $4.05 billion, an SEC filing shows.

LINN’s undrawn capacity was $790 million, based on outstanding borrowings as of Sept. 30.

Subsidiary Berry Petroleum’s borrowing base was reduced to $900 million, including $250 million of restricted cash previously posted as collateral with lenders, the company notes. It was previously $1.2 billion. Lenders also approved a potential combination of LINN and Berry’s facilities, subject to a combined borrowing base of $4.05 billion.

Pricing on both facilities is in a range of L+150–250. Commitment fees are 37.5–50 bps.

With the amendment, LINN and Berry reduced minimum interest coverage to 2x, from 2.5x, through Dec. 31, 2016, with steps to 2.25x through June 30, 2017, and back to 2.5x on July 1, 2017. The amendment also allows LINN and Berry to incur junior-lien debt of up to $4 billion and $500 million, respectively, subject to borrowing base reductions. LINN also gained flexibility to divest assets that do not contribute to its borrowing base, the company said.

Houston-based Linn Energy is an independent oil and natural gas company that trades on the Nasdaq under the ticker LINE. LINN acquired Berry Petroleum in 2013. Corporate ratings are B+/B2. — Jon Hemingway



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