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HSBC hires Morrish and Heath for loans trading team

Grieg Morrish and Mark Heath have left BNP Paribas and Commerzbank, respectively to join HSBC’s loan trading team. Both will be joining late summer.

Morrish, who will be a crossover loans trader at HSBC, joins from BNP Paribas’s secondary loans trading team. Morrish left his post at Invesco in 2011 to move to BNP Paribas. Heath was previously a senior loan trader at Commerzbank, and will be joining HSBC as a par loan trader. – Nina Flitman

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Altice buys 70% of Suddenlink; new debt financing to be raised

Altice has announced that it will acquire 70% of Suddenlink from BC Partners, CPP Investment Board and Suddenlink management, with BC Partners and CPP Investment Board retaining a 30% stake. The purchase values Suddenlink at an enterprise value of $9.1 billion and 7.6x synergy-adjusted EBITDA. J.P. Morgan, PJT Partners and BNP Paribas acted as financial advisors to Altice.

The transaction is to be financed with $6.7 billion of new and existing debt at Suddenlink, a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.2 billion of cash from Altice. Market sources suggest that given the size of the debt raise, loan and bond issuance on both sides of the Atlantic is a distinct possibility.

The transaction is expected to close in the fourth quarter of 2015 once applicable regulatory approvals have been obtained.

Altice S.A. (holdco) bonds are underperforming on the news while Altice International bonds are largely stable. The 7.25% and 6.25% euro-denominated notes due 2022 and 2025 are both down a point, at 104.25 and 99.75, respectively, while the 7.7% dollar-denominated notes due 2022 are indicated down 75 bps, at 102.25.

This will be Altice’s third jumbo takeover in just over a year. Earlier this year it completed a roughly €6 billion cross-border loan-and-bond financing backing the purchase of the Portuguese assets of Portugal Telecom from Oi for a €7.4 billion enterprise value.

In April last year Numericable and Altice completed a $16.67 billion, seven-tranche, euro and U.S. dollar offering that shattered records to become the largest bond deal on record, along with $5.2 billion in Numericable loans. The offerings were part of a multi-pronged M&A-related recapitalization under which Numericable purchased telecom firm SFR from Vivendi.

Suddenlink is the 7th largest U.S. cable operator with 1.5 million residential and 90,000 business customers, primarily focused in Texas, West Virginia, Louisiana, Arkansas and Arizona. In 2014, Suddenlink generated revenue of $2.3 billion and EBITDA of more than $900 million. – Luke Millar

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Burger King reigns in HY bonds during busiest week in 6 months

Sixteen issuers waded into the high-yield bond market this week, for the busiest period by number of deals in six months. The largest deal was restaurant chain Burger King/Tim Hortons, which issued $1.25 billion of bonds to refinance other debt.

It was the busiest week since Nov. 17, 2014 by number of deals, though not the highest by volume. Volume for the week is expected at $8.915 billion, short of last week’s $9.475 billion.

US high yield bond volume May 2015

Besides Burger King/Tim Hortons, the largest deals of the week were electricity generator PPL Energy Supply, insurer CNO Financial Group, Black and Decker toolmaker Spectrum Brands, car loan provider Ally Financial, and Energizer Holdings. Most of them were for debt repayment.

Energizer was an exception. The company, which trades on the New York Stock Exchange under the ticker symbol ENR, sold $600 million of 10-year notes to fund a spinoff of its Household Products business, as announced in April 2014. The company manages business in two units: personal care, which includes shaving and infant care, and household products, which includes batteries and flashlights.

The new bonds this week are brought by Energizer SpinCo (New Energizer), the recently formed holding company for the Household Products business of Energizer Holdings, with proceeds being used by Energizer Holdings (ParentCo) to fund the tax-free spin-off of the business. As part of the deal, ParentCo will be renamed Edgewell Personal Care Company, and New Energizer will be renamed Energizer Holdings, Inc., according to filings.

By rating, the junk bonds issued this week were concentrated as single- and double-B rated issues. However, insurance broker NFP Corp. and HRG Group, the holding company previously known as Harbinger Group, priced lower-rated triple-C offerings. Notably, Spectrum Brands, the Wisconsin-based company whose products range from Rayovac batteries to Cutter-branded mosquito repellent, received an investment by HRG Group this week with proceeds from its $300 million, two-part offering.

Interestingly, issuers continue to have success placing longer-dated 10-year offerings, despite ongoing volatility in Treasury and equity markets, and growing investor caution toward longer-dated bonds.

The surge in high-yield issuance comes alongside a rush by higher-rated counterparts to sell bonds before underlying interest rates rise more. In the high-grade market, companies have been rushing to issue bonds as Treasury yields march higher. The yield on the 10-year Treasury is 2.14% today, after touching 2.35% on May 12, versus 1.90% on April 15.

This week, 10-year bonds were sold by CNO Financial Group, PPL Energy Supply, Spectrum Brands, Energizer Holdings, andFelcor Lodging, which is a publicly traded REIT whose properties include the Knickerbocker Hotel in New York.

Last week, 10-year bonds were sold by drug clinical trial provider Quintiles Transnational, aircraft component supplierTransDigm, and oil-and-gas producers Range Resources and SM Energy. The bookrunners on Quintiles marketed the 10-year tranche in terms of spread, not yield, investor sources say.

Demand was strong for the marquee high-yield bond offering this week, Burger King’s issue of secured notes due 2022. J.P. Morgan led the deal. Talk emerged in the 4.75% area, slightly inside of 4.75-5% whispers, and sources relay that the order book reached north of $4 billion. Proceeds, along with cash on hand, will be used to repay roughly $1.5 billion of bank debt. The bonds priced at par to yield 4.625%.

The issuer of the debt, Restaurant Brands International, trades on the New York Stock Exchange under the ticker QSR with an approximate market capitalization of $19.5 billion.

Restaurant Brands was created in December 2014 through the merger of Burger King Worldwide and Canadian coffee and breakfast chain Tim Hortons, with over 19,000 restaurants in 100 countries and U.S. territories. Warren Buffet’s Berkshire Hathaway acquired $3 billion of preferred shares in the transaction.

Burger King is no stranger to the junk bond market. In September 2014, Burger King issued $2.25 billion offering of second-lien secured notes yielding 6% to fund the acquisition of Tim Hortons.

The new Burger King bonds stayed in demand as they began trading in the secondary market. They were quoted steady today, at 100/100.5. Buying interest also remained for other new issues.

Ally Financial, whose ratings are both junk and low-tier investment grade, were also bid higher. The 3.6% notes due 2018 that were sold at 99.44, to yield 3.8%, gained from those levels to a 100 mid-point, sources said. Ally 4.625% notes due 2022 were sold at 98.39, to yield 4.9%, and traded as high as par earlier today, trade data showed. – Joy Ferguson/Matt Fuller

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JC Penney bonds gain on earnings, loan investors eye call protection

Bonds backing J.C. Penney advanced this morning, just as credit protection cheapened, after the retailer reported better-than-expected quarterly results. Shares dropped, however, with JCP trading on the NYSE roughly 7% lower, at $8.07 per.

The 8.125% notes due 2019 advanced two points, to 101/101.5, while the 5.65% notes due 2020 ticked up half of a point, to 87/88, according to sources. Long-tenor 7.4% bonds due 2027 changed hands in blocks at 83.5, which is up roughly two points from recent prints, trade data show.

Over in the CDS marketplace, five-year protection on the credit tightened roughly 19% this morning, to 4.8/5.7 points upfront, according to Markit. That’s approximately $125,000 cheaper upfront, with a mid-point $520,000 initial payment, in addition to the $500,000 annual expense, to protect $10 million in J.C. Penney bonds.

The company reported net sales of $2.86 billion during its fiscal first quarter ended May 2, up from $2.8 billion in the year-ago fiscal first quarter, according to a corporate filing. Results were in line with the S&P Capital IQ consensus estimate for sales; however, the adjusted EBITDA result of $82 million in the quarter was well ahead of the consensus estimate of $29 million.

Looking ahead, the company tightened its 2015 full-year guidance for a sales increase by 4-5%, from 3-5% previously, and put forth an estimate for $600 million in EBITDA, versus none prior, filings show.

Over in the loan market, J.C. Penney’s covenant-lite term loan due 2018 (L+500, 1% LIBOR floor) was little changed on the news, quoted at 99.875/100.25, according to sources. On yesterday’s conference call, CFO Edward Record noted that the 101 hard call protection rolls off the loan this month.

“It’s something we continue to look at,” Record said, according to a transcript of the call provided by S&P Capital IQ. “We know it is probably over-collateralized, and there may be some opportunity there. We also know that it doesn’t come due to 2018, so we don’t have a gun to our head to have to do anything any time soon. We’ll continue to monitor rates and see if there’s any opportunity to do something there.”

The loan, originally $2.25 billion, was placed in May 2013; it originally included 102, 101 call premiums. Goldman Sachs is administrative agent.

The Plano, Texas-based company is rated CCC+/Caa2, with positive and stable outlooks, respectively. – Matt Fuller/Kerry Kantin

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

 

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Burger King/Tim Hortons selling $1.25B in bonds

Burger King/Tim Hortons stepped in the market today with an anticipated $1.25 billion offering of first-lien senior secured notes via a bookrunner group led by J.P. Morgan, according to sources.

Proceeds from the bond issue, along with cash on hand, will be used to repay roughly $1.5 billion of existing term loan B borrowings.

The original $6.75 billion term loan B was syndicated in September via J.P. Morgan, Wells Fargo, and Bank of America Merrill Lynch, along with a $2.25 billion offering of second-lien notes, proceeds of which backed the fast-food chain’s acquisition of Tim Hortons. Those 6% notes due 2022 closed yesterday at 102.5 to yield 5.35%, and last week were a point higher at 103.5 to yield 5.1%, trade data show.

Burger King and Tim Hortons brand names are owned by Restaurant Brands International, which trades on the New York Stock Exchange under the ticker QSR with an approximate market capitalization of $19.35 billion. – Joy Ferguson/Kerry Kantin

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High grade bond volume exceeds $50B this week, for third time ever

After one of the biggest two-session outbursts of supply on record Tuesday and Wednesday, seven more issuers piled into the primary market on Thursday, including deals for Boston Scientific ($1.85 billion), Anglo American Capital ($1.5 billion), Chevron Phillips Chemical ($1.4 billion), EnLink Midstream Partners ($900 million), Bank of America ($600 million of “green” bonds), Puget Energy($400 million), and Weingarten Realty Investors ($250 million).

This week’s torrent of bond offerings backing aggressive corporate fiscal policies resulted in a rare weekly issuance total north of $50 billion, against the backdrop of rapidly increasing absolute costs, LCD data show. Indeed, that $50-billion threshold has only been crossed twice before, including when $60 billion was printed over the week ended Sept. 13, 2013 – largely on the strength of a record-smashing, $49 billion deal for Verizon Communications – and $51.7 billion was placed over the first week of March this year.

This week’s volume also pushed the 2015 issuance total to roughly $463 billion, or 23% ahead of the 2014 pace, and 26% ahead of the total over the same period in 2013.

(Note: LCD totals exclude sovereign, quasi-sovereign, supranational, preferred and hybrid-structure, and remarked deals.)

Corporate treasurers are clearly indicating a sense of urgency to lock in funds, as underlying rates spiral higher, including through shocking bouts of intraday volatility, as was displayed in trades in the 10-year U.S. Treasury benchmark on Thursday morning.

Apple’s $8 billion deal this week perhaps most dramatically underscored the shift higher in absolute costs for borrowers this year. Coupons were printed on May 6 at 2% for five-year notes at T+45, 3.2% for 10-year notes at T+100, and 4.375% for 30-year bonds at T+140, or 45-92.5 bps more than since it placed, in early February this year, 1.55% five-year notes at T+42, 2.5% 10-year notes at T+85, and 3.45% 30-year bonds at T+125, as part of a $6.5 billion offering.

Pitching long-dated debt exposure to investors has been complicated after the average yield across the long-dated industrial component of the Barclays U.S. high-grade index climbed to a 12-month high of 4.76% as of Wednesday, reflecting a move up of half a percentage point in less than three weeks. The category posted a sharp total-turn loss of 3% for the month-to-date through Wednesday, and 5% over the previous three months.

But curve-spanning deals continue to mount, as borrowers scramble to lock in funds for M&A and direct shareholder returns. Including today’s deals for Boston Scientific and EnLink Midstream Partners, M&A-driven deals accounted for nearly $32 billion of issuance volume, or 57% of this week’s issuance total through Thursday.

Meantime, Apple this week placed another blockbuster debt backing its recent material increase in buybacks and dividends – following big deals last week for Oracle and Amgen for the same purposes – while Chevron Phillips Chemical and Puget Energy locked in funds in part for special distributions. – John Atkins

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Investors eye BDC portfolios for signs of more pain from energy sector

On the eve of first-quarter earnings, BDC investors are anxious to see whether the energy sector will inflict more pain on loan portfolios.

An analysis of the portfolios of 45 BDCs tracked by LCD shows that 31 energy-related companies with outstanding debt were in distressed territory at the end of 2014, in this case valued at 80 or less, which is a widely used definition of distressed debt. Of these, the average weighted fair value at year-end was 64 cents on the dollar.

Prior to last year’s oil price declines, there were just 10 energy-related companies with debt in distressed territory, at a weighted average of 38.5, an analysis by LCD of public filings of the BDCs showed.

First-quarter results for BDCs began to trickle in last week, and many more are expected this week. While oil prices have yet to recover fully, prices are off lows, and the outlook is relatively stable for the short term.

“While the energy exposure is still a concern, we are not expecting an influx of energy non-accruals in the quarter,” KBW analyst Troy Ward said in an April 27 research note. But if oil remains depressed, KBW expects to see an increase in loans booked as non-accrual in the second half of 2015.

Of all the distressed debt within BDC portfolios, energy accounts for about a quarter of the total. Distressed energy debt totaled $500 million of principal within BDC portfolios tracked by LCD, counted across various tranches of debt, at the end of the fourth quarter. That’s 23% of $2.2 billion by principal amount in total distressed assets.

Similarly, energy is the most concentrated sector of distressed assets across other measures of distress in the credit markets.

For example, the Oil & Gas sector accounted for 37.2% of the loans in the distressed ratio of the S&P/LSTA Loan Index. The distressed ratio tracks the percent of performing Index loans trading at a yield of L+1,000 or higher. Oil & Gas-related loans account for 4.7% of the overall Index.

Of all loans in the Index, Oil & Gas-related loans account for 4.7% as of April. Despite two defaults that totaled $1.7 billion –Walter Energy and Sabine Oil & Gas’ second-lien loan – the lagging default rate of the S&P/LSTA Loan Index by principal amount dropped to 1.26% in April, a one-year low, from 3.79% in March.

In another measure of distress in credit markets, S&P Capital IQ’s Distressed Debt Monitor, the ratio of U.S. distressed debt was steady, at 11.5% in April. Again, distressed credits are defined here as speculative-grade issues with option-adjusted composite spreads in excess of 1,000 bps over Treasuries.

The Oil & Gas sector had the highest proportion of debt trading at distressed levels, at 38%, and the highest share of distressed issues by count, at 72, and one of the largest by distressed amount, at 29.9%, as of April 15, according to Distressed Debt Monitor, which is published by S&P Capital IQ.

In a sign of stabilization in the sector, the Oil & Gas sector experienced the largest decline in the proportion of distressed issues, falling 3.9% in April, month over month, the Distressed Debt Monitor showed.

Within the BDC portfolios, energy debt accounts for 5.8% of all debt investments, or $60.7 billion (in outstanding principal).

“It’s not that things have dramatically improved, but the volatility has subsided for now. It’s reasonable to think that they are at a floor level now,” said Merrill Ross, an equity analyst at Wunderlich Securities.

Energy sector allocations vary between BDCs. Some have no exposure to the sector. At year end, CM Finance, PennantPark, Gladstone, Main Street, Apollo Investment, Blackrock Capital, TPG Specialty, and White Horse Finance had 10% or more exposure in oil-related energy, including equity investments, according to KBW research. The weighted-average fair value for energy debt across these eight lenders ranges between 86.5 and 97.9.

BDC Energy 4Q story May 2015

Fair values vary across portfolios and can be difficult to assess among small private companies. Sometimes differences across the same investment can be attributed to different cost-basis levels for each provider. The timing of changes in fair value also can vary.

Below are some examples of distressed Oil & Gas holdings as of Dec. 31, 2014.The implied bids are based on fair value to cost:

The 7.5% second-lien debt due Nov. 1, 2018 for Bennu Oil & Gas is marked at 83% of cost at Sierra Income Fund, whereas CM Finance and PennantPark mark it at 76 and 75, respectively.

The 8.75% senior secured loan due April 15, 2020 for exploration-and-production company Caelus Energy is marked at 93 at CM Finance, and 91 by WhiteHorse Finance.

The 12% mezzanine financing due Nov. 15, 2019 for New Gulf Resources was marked at 56 by Blackrock Capital Investment at the end of 2014, while PennantPark Investment marks the debt at 52. However, Blackrock Capital on April 30 reported first-quarter earnings, showing the 12% mezzanine loan now marked at 67.

A $7.5 million, 9.5% subordinated loan due 2020 to Comstock Resources was marked at $5.1 million at year-end by FS Investment, or 70 to cost. Comstock Resources, based in Frisco, Texas, is an oil-and-gas exploration-and-production company that trades on NYSE under the ticker symbol CRK.

Other distressed debt holdings in energy within BDC portfolios are of larger companies whose financial woes are well publicized.

Apollo Investment Corp. holds Venoco 8.875% notes due 2019 and had them marked at 55 as of Dec. 31, 2014. In early April, Standard & Poor’s cut the notes to D, from CCC+, and the corporate rating was lowered to SD, after the company announced the results of a below-par debt swap.

On April 22, Standard & Poor’s raised Venoco’s corporate rating to CCC+, and the senior unsecured notes were raised to CCC-, after the release of 2014 earnings and taking into account the significant loss of principal on the unsecured notes after the exchange.

In another closely tracked credit, some distressed energy sector debt in BDC portfolios is that of Sabine Oil & Gas, which defaulted on debt last month after skipping a $15 million interest payment on its second-lien term loan. Corporate Capital Trust holds 8.75% Sabine debt due 2018 and marked it at 78 in its 2014 fourth-quarter portfolio.

FS Investment (FSIC) showed a $6.3 million holding in SandRidge Energy subordinated debt due 2020, marked at 81. SandRidge Energy unsecured notes are trading in the high 60s, according to sources and trade data.

One distressed energy credit, Halcón Resources, will better weather the slump in oil prices due to the sale of $700 million of 8.625% second-lien notes due 2020 on April 21. The exploration-and-production company operating in North Dakota and eastern Texas intends to use proceeds to repay revolver debt and to fund general corporate purposes.

Main Street Capital has a holding of existing Halcón Resources bonds, the 9.75% unsecured debt due 2020, marked at 82, and HMS Income fund debt has a holding of the same debt marked at 87 (When marked to principal amount, the debt is marked at 75 at both BDCs.). – Kelly Thompson/Abby Latour

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

Follow Kelly Thompson on @MMKTDoyenne.

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Leveraged loan break prices hit 10-month high as market technicals favor issuer

leveraged loan break price

Amid a turbo-charged technical environment, the average break price for new issue institutional leveraged loans climbed to a 10-month high of 100.20% of par in April, from 99.99 in March. – Steve Miller

This analysis is part of a longer LCD News story, available here, that also details

  • Secondary market prices
  • Flexes, up vs down
  • Leveraged loan yields
  • Repricing volume
  • Leveraged loans outstanding
  • Visible repayments
  • Loan forward calendar

 

Follow Steve on Twitter for leveraged loan news and insights.