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


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


City National Bank hires Chiavetta for capital finance team

City National Bank hired Cathy Chiavetta to source and underwrite asset-based loans.

She started this month and joined as a senior vice president, based in New York. She will report to Martin Chin, who is based in Los Angeles and manages the capital finance team.

Chiavetta is responsible for both large syndicated transactions and club deals.

Previously, Chiavetta was a managing director at Z Capital Partners, where she sourced distressed senior secured debt investments. She also held sales, capital markets, and underwriting roles at Banc of America Securities, CIT Group, and TD Securities. — Abby Latour

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


Citing Choppy Markets, Veritas Shelves Debt Financing Backing Carlyle LBO

Citing market conditions, Veritas today postponed both the loan and bond components of the cross-border debt financing packaging backing The Carlyle Group’s $8 billion acquisition of the business from Symantec, according to sources.

As reported, the institutional loan component of the transaction launched to market as a $2.45 billion U.S. dollar term loan and a €760 million euro tranche.

Bank of America Merrill Lynch, Morgan Stanley, UBS, Jefferies, Barclays, Citigroup, Credit Suisse, and Goldman Sachs are arrangers on the transaction, with BAML as left lead on the loans and Morgan Stanley as left lead on the bonds. Mizuho and SMBC also are underwriters on the transaction, which is expected to close by Jan. 1, 2016.

As reported, the arrangers last week offered investor-friendly changes to the seven-year loan, boosting guidance to L/E+500, with a 1% LIBOR/Euribor floor and a 95 OID, from initial talk of L/E+450–475, with a 1% LIBOR/Euribor floor and an offer price of 98–99.

Also, investors heard at the time that the U.S. dollar component of the transaction being sold to investors had been reduced to $1.5 billion, from $2.45 billion. Of that $950 million, $250 million was slated to be tacked on to the secured bond deal, originally outlined as $500 million, while the arrangers would have held the $700 million balance, sources said.

At the revised guidance, the term loan offered a yield to maturity of about 7.12%, versus 5.8–6.26%. Loan commitments were due on Friday. Nov. 13.

Some investors were said to have struggled with the transaction’s complex financials as the issuer is carved out of Symantec. Giving full credit for proposed adjustments, the transaction would leverage the issuer at roughly 4.5x through the secured debt and at about 6.5x on a total basis.

The issuer is rated B/B2, while the senior secured debt drew B+/B1 ratings, with a 2L recovery rating from S&P. Agencies assigned CCC+/Caa1 ratings to the unsecured debt, which drew a 6 recovery rating from S&P.

Symantec earlier this year announced it was exploring strategic alternatives for Veritas, a data-storage and recovery business it acquired in 2005. The equity investor group will also include GIC, Singapore’s sovereign wealth fund, and others, sources said.

Veritas provides next-generation information-management software and services, including multiple cloud deployments, managed services, and on-premise infrastructure, and has a top market share in the core backup and recovery markets. — Staff reports


Ares Corp. details 3Q15 portfolio stats, books $1.5B in new deals

Ares Corp. (NASDAQ: ARCC) booked $1.52 billion in new business during the third quarter, at an average interest rate of 7.8%, the lender detailed in its 10-Q filing yesterday alongside earnings. Exits totaled $1.34 billion, for net new investments of $183 million.

The 7.8% is 20 bps inside second-quarter investments, reflecting the better market conditions that borrowers enjoyed prior to the post-Labor Day correction. Spreads have since widened and should build up the average for fourth-quarter deals. In October, management said it funded $305 million in new investments for the fourth quarter at an average yield of 11.4%, while exiting $152 million at 8%.

First-lien commitments took a 75% share of third-quarter transactions, up from 37%, as ARCC shifted bookings away from the SSLP fund as that joint-venture with GE Capital winds down. Second-liens accounted for 21% of investments, down from 28% in the second quarter.

As of Oct. 29, the lender said it has $630 million in its backlog, which includes transactions that are approved, mandated or have a signed commitment that has been issued and that ARCC believes likely to close. There is an additional $425 million in the pipeline, which includes transactions that are in process, but have no formal mandate or signed commitment.

Portfolio stats
ARCC’s overall portfolio grew to $8.7 billion in assets, from $8.6 billion. The number of investments increased by nine, to 216. Average EBITDA per company is $58.8 million. As of June 30, 66% of the borrowers in ARCC’s portfolio generated less than $55 million of EBITDA.

Petroflow lifted ARCC’s loans on non-accrual status to 2.3% ($195 million) of the portfolio at cost, from 1.7%. Petroflow is one of three companies that ARCC considers true oil-and-gas-related investments, which account for roughly 3% of the portfolio. ARCC’s Petroflow investment is a first-lien position that was originated in July last year prior to the dramatic decline in oil prices. ARCC said it is working with the company and lender group to restructure Petroflow’s balance sheet. The principal investment totals $53.2 million. ARCC booked the 12% paper at a cost of $49.7 million, and the deal is now marked at a fair value of $37.9 million.

BDCs were not excluded from stock market volatility in the third quarter. ARCC’s stock slid to a 14% discount to NAV, from a 2% gap in the previous quarter. The stock closed the third quarter at $14.48, versus a book value of $16.79. The stock has since rebounded, to $15.49, to narrow the discount to 8%. By comparison, the BDC sector as a whole is trading at a roughly 15% discount. — Kelly Thompson


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.