Category Archives: Trading

content
at 2:25pm

JC Penney leveraged loan rises to bracket 102 on entering trading mart

The $2.25 billion covenant-lite term loan for J.C. Penney advanced to bracket 102 after breaking for this afternoon at 100.75/101.25, versus issuance at 99.5, according to sources. The five-year loan is priced at L+500, with a 1% LIBOR floor, and carries 102, 101 call premiums.

At 99.5, the loan yields 6.26% to maturity. The yield narrows to 5.89% at the midpoint of the opening market.

Prior to allocating the deal, Goldman Sachs, Barclays, J.P. Morgan, Bank of America Merrill Lynch, and UBS firmed the spread on the loan at L+500, the tight end of a revised L+500-525 range.

Goldman Sachs, Barclays, J.P. Morgan, Bank of America Merrill Lynch, and UBS arranged the transaction. The deal is secured by real estate and other company assets.

Corporate ratings are CCC+/Caa1. The term loan is rated B-/B2, with a 2 recovery rating from S&P.

As reported, the arrangers yesterday upsized the loan by $500 million while cutting pricing from earlier guidance of L+575, with a 1% LIBOR floor and a 99 offer price, sources said.

Proceeds are available for working capital and general corporate purposes, which could include to “acquire or satisfy and discharge” the company’s outstanding 7.125% notes due 2023, according to the company.

On April, 15, J.C. Penney announced that it drew down $850 million from a $1.85 billion asset-based revolver due 2016 to fund working-capital requirements and capital expenditures, including the replenishment of inventory levels. The revolver was arranged by J.P. Morgan, Bank of America Merrill Lynch, Barclays, and Wells Fargo. Pricing on the revolver is tied to a ratings-based grid ranging from L+150-300, with a commitment fee ranging from 25-50 bps. Based on J.C. Penney’s CCC+/Caa1 ratings, all-in pricing appears to open at L+350. – Kerry Kantin/Chris Donnelly

 

content
at 8:30am

Chart: Trading yields on leveraged loans, high yield bonds continue slide

secondary yields

There’s been much news of late as to how yields on new-issue leveraged loans and high yield bonds are at or near record lows (more on that here for loans and here for bonds), but the secondary trading market for each asset class is no picnic for investors, either.

Secondary yields in the leveraged finance markets have been sliding steadily for the better part of two years amid massive inflows of institutional investor cash. Indeed, loan mutual funds and ETFs recently saw their 48th straight week of investor cash inflows, totaling $27.2 billion. U.S.  High yield bonds and ETFs have seen net inflows of $2.1 billion so far in 2013.

content
at 9:03am

Leveraged loan prices in European trading market hit post-2007 high

The average bid of LCD’s European loan flow-name composite gained 14 bps during the week ended May 2, to 100.58% of par (based on Markit pricing). The increase brings the average up to a fresh peak since the beginning of July 2007, improving on the high tracked last week. Since bottoming out at 60.23 at the end of 2008, the average has now recovered to pre-crisis levels, having added more than 40 points over the last 52 months. The current bid is now 324 bps higher than the final reading of 2012.

LCD’s broad secondary composite, which reflects a wider universe of deals, rose by 22 bps during the week ended May 2, to 85.16. As a result, the average bid is now 106 bps above 2012’s closing level.


Advancers lead decliners
Advancers led decliners on a month-on-month basis for the period ended May 2, with seven facilities advancing by an average of 78 bps, and one declining by 74 bps.

Over a one-week period, nine facilities advanced by an average of 15 bps, no facilities declined, and one was unchanged.

content
at 11:47am

Leveraged loan bids rise in trading mart amid investor cash inflow

leveraged loan bids - historical

The steady stream of institutional investor cash flowing into the U.S. leveraged loan market over the past few quarters has led to increasingly lofty prices in the secondary.

The average loan bid, per the S&P/LSTA Index, climbed to a healthy five-eighths of a point in March, to 98.17 at quarter-end. That’s the highest it’s been in almost six years (since before the Lehman bankruptcy).

As for that investor cash: The CLO market has taken off in the past six months, with quarterly volume approaching levels seen pre-Lehman. This activity helped visible cash inflows into the loan market reach a hefty $41 billion during the first quarter ($26 billion in CLOs and $15 billion of retail cash).

content
at 9:36am

Hostess term loan backing Apollo buyout gains on entry into trading mart

hostess logoAccounts yesterday received allocations of the $500 million covenant-lite term loan for Hostess Brands, which has advanced to a 100.5 bid after breaking for trading at 100/100.5, from issuance at 99, sources said. The seven-year loan is priced at L+550, with a 1.25% LIBOR floor. The loan is non-callable in the first two years, followed by 102, 101 call premiums in years three and four, respectively.

At 99, the loan yields about 7.12% to maturity. The yield tightens to 6.88% at the midpoint of the opening market.

Hostess, which is in the process of liquidating its assets and brands, is selling its snack-cakes business to Apollo Global Management and Metropoulos & Co. Apollo and Metropoulos’ $410 million bid for the unit was the stalking-horse bid, though according to a notice filed yesterday by Hostess with the bankruptcy court in White Plains, N.Y., the Apollo and Metropoulos bid was the “only qualified bid that was received by the debtors,” and that as a result, no auction would be held.

Prior to allocating the deal, Credit Suisse and UBS this morning added a ticking fee to the deal. It is set at zero basis points for the first 30 days, but would step up half of the drawn spread, or 275 bps, thereafter. A hearing to approve the sale is scheduled for March 19, and sources note the ticking fee was added to the deal in the instance there is an appeals process.

As reported, the arrangers last week cut pricing on the term loan, which was originally talked at L+600-625, with a 1.25% LIBOR floor and a 98.5 offer price. In addition, the loan was upsized by $50 million. The incremental debt is earmarked for general corporate purposes, which sources note could include a potential higher bid for Hostess Snacks, a reduction to the equity contribution, or a potential bid for snack-food business Drake’s.

The financing also includes a $60 million asset-based revolver. – Kerry Kantin/Chris Donnelly

 

content
at 5:03pm

Leveraged loan prices grind higher, reach 6.5-week high

The secondary loan market continued to inch higher over the past two trading sessions, pushing the average bid of LCD’s flow-name composite up 10 bps, to 99.80% of par, from 99.70 on March 5.

Advancers outnumbered decliners nine to one, with bids for five loans unchanged from the prior reading. TheDel Monte Foods term loan due 2018 (L+300, 1% LIBOR floor) was the sole decliner, easing a mere eighth of a point, to 100.5/101, after Moody’s downgraded the issuer’s corporate family rating by one notch yesterday, to B2.

With today’s increase, the average flow-name bid reaches its highest level since Jan. 29, when it stood at 99.98. The spread to maturity implied by the average bid stands at a nearly 10-month low of L+433. (The STM is lower than it was earlier this year even when the bid price was higher because there have been changes to the composite due to repricing and refinancing activity.)

All told, the average flow-name bid is up 21 bps on the week. Though small relative to the gains in equities and high-yield – as of early afternoon, the Dow was up roughly 1.88% from last Thursday’s close, while the average bid of LCD’s flow-name bonds was up 40 bps on the week, at 105.45 – it is a large movement relative to recent weeks. Indeed, the average bid was rangebound in February, holding in a nine-basis-point band of 99.55-99.64.

Though not as lopsided as in the beginning of the year, technicals are still running strong. The CLO market continues to churn out new deals – four deals totaling nearly $2.3 billion priced over the past week – while bank loan mutual funds are poised to post a 28th consecutive week of inflows, with EPFR reporting about $576 million of net inflows for the four days ended March 5. Even with the additions of mega deals for Heinzand Dell, the amount of supply is not keeping pace with demand.

With the average flow name bid climbing 10 bps, the average spread to maturity eased two basis points, to L+433.

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

  • 100.86/L+368 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.
  • 98.21/L+506 for the six loans rated B or lower by one of the agencies; STM in this category is L+514.

Loans vs. bonds 
The average bid of LCD’s flow-name high-yield bonds climbed 19 bps, to 105.45% of par, yielding 6.53%, from 105.26 on Tuesday. The gap between the bond spread and discounted loan spread to maturity stands at 103 bps.

To-date numbers

  • March: The average flow-name loan bid is up 21 bps from the final February reading of 99.59.
  • Year to date: The average flow-name loan bid has gained 97 bps from the final 2012 reading of 98.83.

Loan data

  • Bids higher: The average bid of the 15 flow names rose 10 bps, to 99.80.
  • Bid/ask spread expands: The average bid/ask spread widened three basis points, to 40 bps.
  • Spreads dip: The average spread to maturity – based on axe levels and stated amortization schedules – contracted two basis points, to L+433.
content
at 11:00am

Corporate debt: Philip Morris shops benchmark bond sale as maturities loom

Facing an imminent debt maturity, Philip Morris International is in the market with a public benchmark offering of two-year, floating-rate notes, along with 10- and 30-year fixed-rate tranches, sources said. Active bookrunners for the issue, which has an expected A2/A profile, are Goldman Sachs, HSBC, and Societe Generale, along with passive bookrunners Barclays and Citi.

Proceeds will be used to meet working-capital requirements, to repurchase common stock, to refinance debt, or for general corporate purposes, filings show.

The company has $500 million of its 3.25% notes coming due on March 13, followed by $2 billion of 4.875% notes due May 16.

In June 2012, the company announced an $18 billion share-repurchase program, and as of Dec. 31, Philip Morris had bought back $2.9 billion of common stock under that authorization. The company had a share-buyback target of $6 billion for 2012, which included purchases under both the June authorization as well as the previous $12 billion share-buyback program.

Philip Morris was last in the bond market in August, when it placed a $2.25 billion, three-part offering split evenly across 1.125% notes due 2017 at T+60, or 1.348%, 2.5% notes due 2022 at T+90, or 2.629%, and 3.875% notes due 2042 at T+120, or 4.014%. Of note, the 2017 issue traded yesterday at 1.2% and at a G-spread of 54 bps, and the 2022 notes traded this morning at 2.58% and at a G-spread of 80 bps. The 2042 issue traded yesterday at 4.15% and at a G-spread of 98 bps, according to MarketAxess.

Earlier this month, the company obtained a $2 billion, one-year senior unsecured revolver for general corporate purposes.

New York-based Philip Morris manufactures and sells cigarettes and other tobacco products internationally.

“Our view of PMI’s ‘modest’ financial risk profile incorporates the highly cash-generative nature of the business. We anticipate that share buyback activity will absorb the vast majority of discretionary cash flows over the medium term,” Standard & Poor’s said in a ratings rationale published in November. The agency maintains a stable outlook on its rating. “Ratings upside is currently constrained by PMI’s commitment to the return of cash to shareholders on an ongoing basis,” S&P added at the time. – Gayatri Iyer

content
at 2:45pm

Liquidity: Leveraged loan fund assets hit record in January

Just how hot has the leveraged finance market been?

In January, assets under management of loan mutual funds grew 6.2%, to a record $96.5 billion, from $90.9 billion at year-end, according to EPFR, Lipper, and Yahoo! Finance. That’s the biggest monthly increase since February 2011, when fund AUM jumped 12.2%.

This seemingly bottomless market liquidity, of course, has taken its toll on investors. Indeed, yields on leveraged loans are at their lowest level since the financial market meltdown of 2008-09.

 

This chart is part of an LCD News analysis available to subscribers. Other charts in that analysis:

  • Monthly inflows/outflows for mutual funds
  • Market-value returns of the S&P/LSTA Loan 100 index
  • Number of managers and funds
  • Weekly loan mutual fund flows
  • Averaged bid of the Leveraged Loan 100 Index


– Steve Miller

content
at 12:08pm

February Analysis – US Leveraged Loan Market

The loan market caught fire in January, with inflows far exceeding supply. Early February has seen a slight cooling, in response to rising new issue activity.

Propelled by positive sentiment and muscular demand, the average price of the S&P/LSTA climbed to a post-credit crunch high of loan prices reached a post-credit crunch high of 97.7 percent of par. As a result, the Index gained 1.1%, its best performance since September.

 

Demand hit on all cylinders in January. CLO issuance reached a fresh five-and-a-half year high of $9 billion. Retail inflows, meanwhile, totaled $2.9 billion according to EPFR, the most since May 2011. Finally, managers say they continued to see a steady stream of allocations from pension funds and other institutional investors.

 

With the scale heavily weighted to demand, it was not for nothing that new-issue clearing yields fell significantly in January, reaching new credit-crunch lows. Roughly speaking, BB loans were printing in a 3% context and single B’s in a 4-5% range.

 

Issuers also took advantage of their technical advantage to structure 55% of new loans as covenant-lite. That pushed the percent of Index loans with only incurrence test to a record 30%.

 

Another consequence of hot market conditions was a surge in repricing activity, which reached a post 2007 high of $41 billion in January, with another $30 billion announced during the first 10 days of February.

.

 

Switching gears, the loan market default rate inched up to 1.4% in January from 1.3% at yearend, though remains well inside the historical average of 3.3%. Managers expect the rate to reach 2% or so by December according to LCD latest buy-side poll from mid-December.

 

In early February, the market remained issuer friendly, but some of the froth was gone. The reason was largely the formal announcement of Dell’s LBO, which, if completed, would including a $5.5 billion institutional loan tranche, the largest such execution since 2007. That deal helped push the all-important forward calendar of M&A-related loan financing near the recent high of $22 billion.
The outlook for inflows, meanwhile, is mixed. While retail and institutional investors continue to put money to work in the space in early February, CLO issuance was slowing as narrower loan spreads nicked equity arbitrage. Managers generally expect a decent amount to close in February but without a significant increase in new-issue supply volume could downshift considerably by March.
Finally, participants generally expect benign conditions to prevail in the months ahead, though all the obvious macro concerns persist.

A video of this presentation is available at:  http://youtu.be/X8xlpGmZp_k

Slideshare download is available at:  http://www.slideshare.net/lcdcomps/february-2013-us-leveraged-loan-market-analysis

– Steve Miller