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Loan funds net fifth consecutive outflow, but with small ETF inflow

U.S. leveraged loan funds saw a net outflow for a fifth consecutive week, with the redemption of $75 million in the week ended April 27, boosting the outflow to $692 million over the five-week span, according to Lipper. But with moderating redemption, the trailing-four-week observation contracts a bit, to negative $126 million this past week, from negative $154 million last week.

Loan fund flows April 27 2016

Today’s negative reading shows mutual fund outflows of $98 million filled in by ETF inflows of $23 million. There hasn’t been a misaligned reading like this since seven weeks ago, when mutual fund outflows of $432 million were dented by ETF inflows of $75 million.

Year-to-date outflows from leveraged loan funds are essentially steady at $5.4 billion, with just 4% ETF-related. A year ago at this juncture, it was also mostly all mutual fund outflows, at $3.5 billion, but versus a small inflow of $144 million to ETFs, for a net negative reading of $3.4 billion.

The change due to market conditions this past week was barely positive, at 0.4%, with a gain of $240 million against total assets, which were $60.5 billion at the end of the observation period. ETFs represented about 9% of the total, at $5.5 billion. —Matt Fuller

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CORE Entertainment files Ch. 11 as American Idol popularity wanes

CORE Entertainment, the owner and producer of American Idol, has filed for bankruptcy as the once-popular television show concluded its final season.

The company’s debt included a $200 million 9% senior secured first-lien term loan due 2017 dating from 2011, and a $160 million 13.5% second-lien term loan due 2018. U.S. Bank replaced Goldman Sachs as agent on both loans, which stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012.

Principal and interest under the first-lien credit agreement has grown to $209 million, and on the second-lien loan to $189 million, court documents showed.

A group of first-lien lenders consisting of Tennenbaum Capital Partners, Bayside Capital, and Hudson Bay Capital Management have hired Klee, Tuchin, Bogdanoff & Stern and Houlihan Lokey Capital as advisors. Together with Credit Suisse Asset Management and CIT Bank, these lenders hold 64% of the company’s first-lien debt.

Crestview Media Investors, which holds 34.8% of first-lien debt and 79.2% under the second-lien loan, hired Quinn Emanuel Urquhart & Sullivan and Millstein & Co. as advisors.

The debtor also owes $17 million in principal and interest under an 8% senior unsecured promissory note.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The company’s business model relied upon continued popularity of American Idol and So You Think You Can Dance. In late 2013, the company sold ownership of most of rights to the name and image of boxer Muhammed Ali, and of trademarks to the name and image of Elvis Presley and the operation of Graceland, and failed to acquire assets to offset the loss of that revenue.

The bankruptcy filing was blamed on the cancellation of American Idol by FOX for the 2017 season. Following a decline in ratings, FOX said that the 2016 season would be the show’s final one.

The filing was today in the U.S. Bankruptcy Court for the Southern District of New York. — Abby Latour

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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

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Cannery Casino loans edge closer to par as Boyd to buy Vegas assets

Loans backing Cannery Casino edged closer to par on news that Boyd Gaming agreed to purchase the company’s Las Vegas assets for $230 million. The sale represents the remainder of the company’s assets—recall late last year Cannery entered into a revised deal to sell The Meadows Racetrack and Casino to Gaming & Leisure Properties—and with both asset sales, the company’s first- and second-lien loans are expected to be fully repaid, according to sources.

In turn, the first-lien term loan due 2018 (L+475, 1.25% LIBOR floor) is marked a half-point higher following the news, at 99.5/100, according to sources. The second-lien term loan due 2019 (L+1,075, 1.25% floor) moved up to a 99.5 bid, from 98.75 yesterday morning, according to sources.

The Las Vegas transaction, which was announced late yesterday, is expected to close in the third quarter. NYSE-listed Boyd said it expects to fund the transaction with cash on hand. Accounting for expected synergies and operating refinements, Boyd said it expects the Cannery assets to generate $32 million in EBITDA during its first year of ownership, which implies a purchase price multiple of about 7.2x.

As reported, privately held Cannery and GLPI in December entered into an amended agreement in which GLPI will acquire the Meadows property for $440 million. At the time, the companies said closing was expected in the second half of 2016, with an outside closing date of November 2016. Cannery Co-CEO William Paulos said all net proceeds would be used to reduce debt. (For additional details, see “Cannery Casino TLs quoted higher on news of amended asset-sale deal,” LCD News, Dec. 16, 2015.)

Cannery Casino is rated B–/Caa1. The issuer’s existing loans, an originally $385 million first-lien term loan and a $165 million second-lien term loan, date back to 2012, proceeds of which were used to refinance debt. Deutsche Bank is administrative agent. — Kerry Kantin

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Par for the Course? Leveraged Loan Bids Rise as Market Tone Brightens

loans bid par or higher

The share of U.S. leveraged loans bid in the secondary market at par or higher – that’s 100 cents on the dollar – reached 20% this week, according to S&P Global Market Intelligence LCD.

While that’s well inside the 64% figure from a year ago, it’s a huge improvement from a mere 1.3% in January, demonstrating how much market tone has brightened of late (a factor here: actual cash inflows into the asset class during March, after a crippling string of withdrawals).

This analysis uses bids on loans contained in the S&P/LSTA Loan Index. – Staff reports

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This story is from a longer piece of analysis by LCD’s Kerry Kantin, originally published on www.lcdcomps.comLCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets.

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More CLOs may be called as loan prices rally, cash to equity drops

The recent rally in loan prices has prompted equity investors to start exercising calls on CLOs, with potentially more on the way if the current upswing continues.

So far, two CLO 2.0s have been called this year, both in April. This follows 13 2.0 optional redemptions in 2015 and six in 2014 In total, 10 CLOs have been called this year, following 89 in 2015, 85 in 2014, and 75 in 2013, according to J.P. Morgan.

This year’s called 2.0 transactions are the Mill Creek CLO from 40/86 Advisors and Babson 2011-I, both of which were originally issued in 2011.

When looking at the factors that increase the likelihood of a call, analysts at Nomura determined that higher equity net asset values (NAVs), higher costs of funding, and lower cash flows to the equity increase the likelihood that a CLO gets called. Analysts at J.P. Morgan also cited the equity purchase price, loan sourcing conditions, and the type of investor holding the equity are additional factors.

The Mill Creek CLO, which is 15 months past its reinvestment period, saw average quarterly payments to its equity over the past few years of under 3%, well below the average CLO 2.0. Its most recent equity NAV was about 48% though, which is in the 82nd percentile across all 2.0s, according to data from Nomura analysts.

The Babson 2011-I, which is 19 months past its reinvestment period, similarly saw its average quarterly distributions to the equity fall to 2.9%, from 5%, while its NAV was around 44%, which is within the top quarter of CLO 2.0s.

Looking ahead, Nomura analysts see another nine CLO 2.0s past their reinvestment periods that are candidates for an optional call since their quarterly equity distributions have fallen by 1.2% or more and their equity NAVs are above 36%.

Analysts at J.P. Morgan believe that a sustained rally in loan prices could lead to more CLO 2.0s getting called since the call also provides an exit for some of the equity that has exchanged hands over the past few months.

The entire CLO 1.0 universe is otherwise past its non-call and reinvestment periods at this point. The 2006 vintages were over half of the total CLO 1.0s called last year followed by the 2007 vintage. Over the next few years, J.P. Morgan analysts anticipate that the 2007 vintage will take over as the most actively called. Typically CLO 1.0s that were called in 2015 had 32% of the original transaction size outstanding and were about three years past the end of their reinvestment periods.

The same goes for Europe
In Europe too, some expect improved secondary loan market prices to trigger more CLO redemptions. In its April 8 European Asset-Backed Barometer, Deutsche Bank Markets Research suggested several other deals issued in late 2005/2006 that may become economical to call, including Wood Street II (Alcentra), Green Park 2006-1 (Blackstone), Boyne Valley CLO (via AIB Capital Markets), and Theseus 2006-1 (Invesco).

There has been a marked increase in loan BWIC activity in both the U.S. and European secondary loan markets in recent weeks, some of which may related to CLO redemptions, sources said. Through April 8, 14 European BWICs totaling €744 million have been put up for sale, versus €1.2 billion from nine BWICs in the same period last year, according to LCD data. That’s a 56% increase in deal count over last year, although the volume figure trails by 40%. Meanwhile, in the U.S., there has been a flurry of BWIC and OWIC activity as well, with the amount of loans put up for sale via BWICs through April 8 standing at $5.5 billion, up from $1.6 billion in the year-ago period. CLO 1.0 redemptions have driven these portfolio sales.

Three European CLOs have been called so far in 2016, including BNPP IP’s Leveraged Finance Europe Capital IV, Versailles CLO M.E.I, and Dalradian European CLO IV. In 2015, LCD tracked 28 call notices, with 26 issued by CLO 1.0 transactions and two by CLO 2.0s. The most recent European CLO BWIC was for a pending CLO redemption from a large, established manager. — Andrew Park/Sarah Husband

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Loan bids grind higher, log fourth-consecutive increase

Reflective of the continued strong tone in the secondary loan market over the past couple of trading sessions, the average bid of LCD’s flow-name loan composite edged up 10 bps in today’s reading, to 98.83% of par, from the previous reading of 98.73 on April 12.

The composite was biased towards the upside, with nine loans advancing, three declining, and three unchanged from the previous reading. The Neiman Marcus covenant-lite term loan due 2020 (L+325, 1% LIBOR floor) was the biggest gainer, with a half-point increase. No other loan moved more than a quarter-point in either direction.

All told, the average bid is up 43 bps from March’s final reading of 98.40 and 328 bps from the year-to-date low of 95.55 on Feb. 23.

Over in the new-issue market, the strength is on display, with arrangers flexing down 13 deals over the past two weeks, while flexing higher only three. The market hasn’t seen this many deals flex lower since the beginning of August. In addition to the lower pricing, other issuer-friendly terms are getting through the market. A case in point is Samsonite, whose heavily oversubscribed M&A loan includes a 12-month MFN sunset provision.

Technicals have shifted in favor of issuers, as this week’s secondary—and primary—market activity demonstrates. There are a few drivers behind this trend. For one, supply is weak. At $38.2 billion, LCD’s forward calendar is at its lowest level since the end of August, and subtracting the $33.7 billion of pending visible future repayments, the amount of net supply dwindles to a mere $4.7 billion.

As for the demand side of the ledger, CLO issuance remains stuck in low gear—thus far in April, the only pricing is the $424 million deal from BlueMountain Capital Management—and mutual fund flows continue to essentially break even (LCD data project a net inflow of $82 million for the week ended April 13). Still, there’s cash coming into the market away from these two traditional sources of inflows. As noted last week, repayments remain robust, courtesy of quarter-end amortization and excess-cash-flow payments, as well as a series of investment-grade takeovers closing in recent days, such as Sage Products, Swett & Crawford, TransFirst, and Truven Health Analytics.

Away from visible sources of inflows, players say there is cash coming in from cross-over accounts—high-yield, too, is suffering from a weak forward pipeline—while accounts are also deploying cash they kept on the sidelines earlier in the year. Also, there continues to be chatter that interest in the asset class from pension funds and other institutional accounts has picked up in recent weeks, though this too is difficult to quantify.

With the average loan bid gaining 10 bps, the average spread to maturity declined three basis points, to L+386.

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

  • 99.49/L+374 to a four-year call for the 10 flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+370.
  • 97.03/L+445 for the five loans rated B or lower by one of the agencies; STM in this category is L+431.

Loans vs. bonds
The average bid of LCD’s flow-name high-yield bond composite jumped 119 bps, to 96.57% of par, yielding 7.54%, from 95.38 on April 12. The gap between the bond yield and discounted loan yield to maturity stands at 328 bps. — Staff reports

To-date numbers

  • April: The average flow-name loan is up 43 bps from final March reading of 98.40.
  • Year to date: The average flow-name loan is up 166 bps from the first 2016 reading of 97.17.

Loan data

  • Bids up: The average bid of the 15 flow names rose 10 bps, to 98.83% of par.
  • Bid/ask spreads widened: The average bid/ask spread increased three basis points, to 38 bps.
  • Spreads lower: The average spread to maturity—based on axe levels and stated amortization schedules—fell three basis points, to L+386.
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Loan bids ease slightly amid slight change to sample

The average bid of LCD’s flow-name composite eased five basis points in today’s reading, to 98.43% of par, from the prior reading of 98.48 on March 24.

Note that with today’s reading, there is a slight change to the sample. First Data’s term loan due March 2021 (L+400) replaces the issuer’s term loan due March 2018 (L+350), as the latter is being taken out via an extension and a partial paydown from a recent high-yield issue. The change has virtually no impact on the average bid price—the 2021 paper is bid at 99.75, versus 99.875 on the 2018 loan in Thursday’s reading—though the higher coupon helped push up the spread to maturity implied by the average bid to L+396, from L+392 on Thursday.

Among the other 14 names in the sample, one loan advanced, six loans declined, and seven loans were unchanged from the prior reading. Note, however, that no loan moved more than a quarter-point in either direction.

As this suggests, prices have leveled off in recent days, though activity has been muted given the long holiday weekend. While many names have limited, if any, upside potential left—11 of the 15 names are bid at 99 or higher following the market’s fantastic run-up that has pushed the average flow-name bid up 288 bps from its year-to-date low of 95.55—many market participants have shifted their gaze from the picked-over secondary to the new-issue market, which has livened up with the significant improvement in the secondary.

With the average loan bid slipping five basis points, the average spread to maturity edged up five basis points, to L+396.

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

99.35/L+378 to a four-year call for the ten flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+373.
95.88/L+481 for the five loans rated B or lower by one of the agencies; STM in this category is L+460.

Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds decreased 75 bps, to 93.07% of par, yielding 8.41%, from 93.82 on March 24. The gap between the bond yield and discounted loan yield to maturity stands at 412 bps. — Staff reports

To-date numbers

March: The average flow-name loan jumped 276 bps from the final February reading of 95.67.
Year to date: The average flow-name loan gained 126 bps from the first 2016 reading of 97.17.

Loan data

Bids lower: The average bid of the 15 flow names dropped five basis points, to 98.43% of par.
Bid/ask spreads fall: The average bid/ask spread tightened two basis points, to 42 bps.
Spreads increase: The average spread to maturity—based on axe levels and stated amortization schedules—rose five basis points, to L+396.

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Amid Inflows, ECB Stimulus, European Leveraged Loan Bids – And Market Hopes – Rise

european bids bid v ask

European leveraged loan market sentiment has taken a decided turn for the better.

The ECB announcement earlier in the month, combined with inflows into European and U.S. high-yield funds, as well as actual inflows into U.S. loan funds, have brightened the mood. And the arrival of new issuance in loan and bond markets has helped to lift investors’ spirits, landing Europe back in price-discovery mode.

The secondary market is recovering after a brief but steep dive in early February, during which the bid-offer spread of the flow names widened to 100 bps – a level not seen since January 2013.

“The market turned very negative very quickly, and now it has bounced back very quickly,” says a fund manager.

Indeed, one fund manager says that a danger now is a sudden burst of exuberance and a blind haste to book primary assets that leads straight back down the road to overly-aggressive debt structuring and insufficient flex language. “We learn, and we forget,” an arranger says. – Ruth McGavin

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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US Leveraged Loan Bids See Biggest Gain of 2016 as Market Tone Brightens

Reflecting both the firm tone of late as well as a five-point pop in Scientific Games, the average bid of LCD’s flow-name loan composite surged 82 bps over the past few trading sessions, to 96.49% of par, from 95.67 on Feb. 25.

Among the 15 names in the sample, 13 loans advanced, none declined, and two loans were unchanged from the previous reading. The biggest mover by far was the Scientific Games B-2 term loan due 2021 (L+500, 1% LIBOR floor), which was bid five points higher, at 91.5, helped by better-than-expected fourth-quarter results.

Today’s 82 bps gain is the largest advance thus far in 2016. – Staff reports

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