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.


Petco nets financing commitments for $4.6B leveraged buyout

Petco Animal Supplies will be acquired by CVC Capital Partners and Canada Pension Plan Investment Board via a $4.6 billion agreement reached today with an owner group led by TPG and Leonard Green & Partners.

Debt financing for the transaction has been committed by Barclays, Citigroup, Royal Bank of Canada, Credit Suisse, Nomura and Macquarie, sources said. Financing specifics haven’t emerged yet.

The acquisition is expected to close in early 2016.

Based in San Diego, Petco is a leading specialty retailer of premium pet food, supplies and services. The company operates more than 1,400 locations across the U.S., Mexico and Puerto Rico, along with one of the leading e-commerce platforms in the pet industry.

Goldman, Sachs & Co. and J.P. Morgan Securities are acting as financial advisors to Petco. Ropes & Gray acted as legal counsel to Petco. Barclays, Citigroup and Moelis acted as lead financial advisors to CVC and CPPIB. Gibson Dunn acted as legal counsel to CVC and CPPIB. CPPIB was also separately advised by Torys LLP.

Petco last approached the loan market in early 2013 with a repricing of its then $1.2 billion covenant-lite B term loan due November 2017 to L+300, with a 1% LIBOR floor. — Chris Donnelly


Diebold lines up $2.8B of Debt for Wincor Nixdorf Acquisition

Security services and software provider Diebold disclosed that it has obtained committed financing totaling roughly $2.8 billion in connection with its planned acquisition of Wincor Nixdorf AG, a German-based IT company.

The financing includes a $1.591 billion, seven-year delayed-draw B term loan; $250 million, five-year delayed draw A term loan; and $500 million bridge loan.

Pricing on the TLB is outlined at L+375, with a 0.75% LIBOR floor. Pricing on the TLA, meanwhile, is tied to a leverage-based grid, at L+125–225, with ticking fees ranging from 15–35 bps. Pricing on the bridge loan is initially set at L+675, increasing 50 bps every three months.

J.P. Morgan and Credit Suisse are acting as joint lead arrangers.

The deal includes a leverage covenant that is initially set at 4.5x, but includes step downs to 4.25x at the end of 2017, 4x at the end of 2018, and to 3.75x by mid-2019. It also includes an interest coverage covenant set at 3x.

Diebold also expects to refinance its existing $520 million revolver and $230 million A term loan, which are both due in August 2019, with a new, equally sized revolver and TLA that will have the same terms as the existing deal, but with the same covenant package as the new delayed-draw term deal.

Under the terms of the acquisition, Diebold will launch a voluntary public tender offer to all shareholders of Wincor. Diebold will offer Wincor shareholders 38.98 in cash plus 0.434 Diebold common shares per Wincor Nixdorf share. This transaction values Wincor Nixdorf, including net debt, at approximately $1.8 billion, or €1.7 billion. The combined company had pro forma revenue of approximately $5.2 billion, or €4.8 billion, for the trailing 12 months ended Sept. 30, according to a company statement. Tender offer expected to commence in early 2016.

Leverage will be roughly 4x at closing, according to an investor presentation. However, Diebold is targeting leverage to fall below 3x after three years.

Following the completion of the offer and subject to certain approvals, the combined company will be named Diebold Nixdorf, with common shares publicly listed on the New York Stock Exchange and the Frankfurt Stock Exchange. The combined company will have registered offices in North Canton, Ohio, and will be operated from headquarters in North Canton and Paderborn, Germany. — Richard Kellerhals


Franklin Square BDC investor group buys JW Aluminum majority stake

A group of investors, including Franklin Square BDCs, led a buyout and recapitalization of JW Aluminum Company.

The BDCs are managed by Franklin Square Capital Partners and sub-advised by an affiliate of Blackstone’s GSO Capital Partners.

Wellspring Capital Management acquired JW Aluminum in a buyout in 2006. UBS led a $175 million L+625 second-lien term loan to finance the transaction.

The 2006 purchase was a reconnection for Wellspring and JWA. Wellspring purchased JWA in November 2003 for $125 million, and then extracted a dividend in 2004. A year later, Wellspring sold the business for $350 million to Superior Plus, a U.S. subsidiary of Canada’s Superior Plus Income Fund based in Calgary.

JW Aluminum, based in Mt. Holly, S.C., manufactures specialty flat-rolled aluminum products used in the heating and cooling industry, in flexible packaging, and in aerospace applications and building and construction. JWA operates plants in Mt. Holly, S.C; St. Louis, Mo.; Russellville, Ark.; and Williamsport, Pa. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more



Higher yields keep middle market borrowers at bay

Amid a barrage of large institutional deals in market, some smaller loan transactions have had difficulty gaining traction. Others that were originally intended for a broader audience have been clubbed up. Wider spreads and the prospect of various other concessions have kept less time-sensitive middle market
business on the sidelines. — Jon Hemingway


Middle Market yields Nov 19 2015

Middle market loan vol Nov 19 2015


Activision Blizzard seeks $2.3B TLA for King Digital buy

Activision Blizzard is seeking a $2.3 billion senior secured A term loan in connection with its $5.9 billion purchase of King Digital Entertainment.

Moody’s this morning assigned a Baa2 rating to the TLA. S&P Ratings Services earlier this month assigned a BBB issue-level rating and a 1 recovery rating to the proposed term loan.

As reported, Activision Blizzard obtained loan commitments from Bank of America Merrill Lynch and Goldman Sachs earlier this month. The original commitment, though, was outlined as a B-2 tranche maturing in 7.5 years, with pricing at L+300, with a 0.75% LIBOR floor and six months of 101 soft call protection.

Activision Blizzard then approached existing lenders for an amendment to seek the A term loan. As of Sept. 30, there was $1.9 billion outstanding under the company’s existing B term loan due Oct. 2020 (L+250, 0.75% LIBOR floor).

Under the terms of the acquisition, Activision Blizzard is paying $18 a share and plans to fund the deal with $3.6 billion of offshore cash on hand. The purchase price implies a multiple of 6.4x King’s estimated 2015 adjusted EBITDA.

Activision Blizzard generated trailing 12-month non-GAAP revenue of $4.7 billion, with King at $2.1 billion. Trailing 12-month adjusted EBITDA was $1.6 billion for Activision Blizzard and $900 million for King. — Richard Kellerhals/Chris Donnelly


Avago sets lender meeting to launch $7.5B leveraged loan backing Broadcom buy

Avago Technologies’ $7.5 billion term loan B will launch on Tuesday Nov. 3 at 1 p.m. EST via an arranger group led by Bank of America Merrill Lynch, sources said.

Proceeds of the seven-year covenant-lite term loan will be used to partially finance the cash portion of Avago’s acquisition of Broadcom, refinance existing debt, and pay fees and expenses. The arranger group includes BAML, Credit Suisse, Deutsche Bank, Barclays, Citi, Wells Fargo, BMO, Nomura and Bank of Tokyo-Mitsubishi UFJ.

The issuer previously wrapped the pro rata portion of its loan deal as the a Credit-Suisse-led arranger group syndicated a $4.25 billion term loan A. Pricing on the five-year TLA remains at L+150–200, tied to a ratings-based grid.

Avago Technologies in May disclosed that it planned to finance its $37 billion purchase of Broadcom with new term loans, and will also refinance $6.5 billion of existing debt facilities. Avago’s roughly $4.6 billion B term loan due 2021 (L+300, 0.75% LIBOR floor) was issued at 99.5 in April 2014 to support its $6.6 billion acquisition of LSI Corp.

The transaction is expected to leverage Avago at roughly 2.7x. Net of $1.3 billion of cash on hand, adjusted leverage would fall to 2.5x.

Enterprise value of the combined company would be roughly $77 billion. The combined company will have annual revenue of approximately $15 billion. — Staff reports


Ares Management, Kayne Anderson drop merger plan

Ares Management and Kayne Anderson Capital Advisors have scrapped their plan to merge, according to a statement released today. The firms note that the decision was mutual, and Ares reiterated its conviction in energy sector opportunities with an investment commitment in Kayne.

“While we continue to strongly believe in Kayne and the long-term energy investment opportunity, it became clear this was not the right time to bring together our cultures and business models into a merged public company,” Ares Chairman and CEO Tony Ressler said in the statement.

Ares and certain principals will invest $150 million in Kayne for energy investments, including private equity, private energy income, and energy infrastructure marketable securities funds managed by Kayne. The two firms may also team up on other opportunities, such as jointly managing separately managed accounts and other products, management said.

Recall that under the proposed transaction that was unveiled in July, alternative asset manager Ares would have acquired the energy specialist for total consideration of $2.55 billion. Combined the firms would have $113 billion of assets under management as of March 31. That’s across five groups: tradable credit, direct lending, energy, private equity, and real estate. — Jon Hemingway


ICG adds to middle market loan investment team with Rabel hire

Intermediate Capital Group (ICG) has hired Jeffrey Rabel to originate, process, and monitor middle market debt deals.

He joined as managing director, and started in September. He will be based in New York.

Rabel had been part of the financial sponsors group at Barclays in New York since 2006 in a similar role. There, he was responsible for origination across industries for a wide range of sponsors. He also worked at Credit Suisse, where he was part of the bank’s Global Industrial Group.

The hire is the latest as ICG builds out its syndicated loan business.

In August, ICG announced the hiring of Adam Goodman to its U.S. private debt investment team as a managing director. Goodman joined from MetLife, where he was head of mezzanine investments and a portfolio manager responsible for direct private debt, mezzanine, and credit fund investments.

Salvatore Gentile is head of ICG’s U.S. operations.

ICG’s U.S. investment team also includes Brian Spenner and Seth Katzenstein, who both joined the firm in 2013. Spenner worked mainly in origination and execution of private debt transactions in various roles at Blackstone, SAC Capital, BancAmerica Securities, and Nomura Securities. Katzenstein is portfolio manager for syndicated loan products, and joined from Black Diamond Capital Management.

Gentile and Spenner were founding members of Blackstone’s Corporate Debt Group. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.


LFM Capital expands team with business development hire

Middle market private equity firm LFM Capital hired Jessica Ginsberg to manage business development and origination of buyout deals.

She joined as vice president, and started in September. She will be based in Nashville.

Ginsberg “will be responsible for managing LFM’s business development and origination activities, including overseeing the firm’s direct sourcing platform and outreach to transaction intermediaries,” the firm said in a statement.

Previously, Ginsberg worked at Bank of America Merrill Lynch in Nashville. Her role there was portfolio manager officer for the bank’s middle market industrials group.

She also worked at Essex Investment Management, Pamlico Capital (formerly Wachovia Capital Partners), and Willis Stein & Partners.

LFM Capital, based in Nashville, Tenn., invests in private companies generating revenue of $10–100 million and EBITDA of $3–10 million in manufacturing and industrial services. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.