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With rate-hike chances slim, leveraged loan issuers turn to high yield bond market

Borrowers are issuing fixed-rate high-yield bonds to take out floating-rate leveraged loan debt at the fastest pace since the first quarter of 2017.

Through March 14, completed bond-for-loan takeout offerings in 2019 have totaled $11.9 billion, according to LCD. With the inclusion of ADT’s pending offering, expected to launch this month, this figure edges to $12.4 billion.

The renewed emphasis on the fixed-rate high-yield asset class, at the expense of floating-rate leveraged loans, is clear via retail investor activity. So far in 2019 U.S. high-yield funds have seen a net inflow of $8.2 billion, while U.S. loan funds have seen a net withdrawal of roughly the same amount, according to Lipper weekly reporters.

Notably, retail investors have pulled money from loan funds for the past 17 weeks, totaling nearly $22 billion.

Before the recent retail retreat from the U.S. leveraged loan market, interest rates had been rising, benefiting the floating rate asset class. Market observers do not expect another rate hike in 2019, according to CME group. — Jakema Lewis

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Private equity stalwart Lee, leveraged loan vet Gleysteen team for AGL, with eye on CLO mart

AGL Credit Management is a private credit firm specializing in bank loans that has been launched by Peter Gleysteen, who will serve as both the Chief Executive Officer and Chief Investment Officer, as well as Thomas H. Lee, who will be a non-executive chairman.

AGL also intends to build out a CLO franchise, joining other firms that recently established a platform, including Elliott Management; HalseyPoint Asset Management; and LibreMax, through its acquisition of Trimaran Advisors.

The Abu Dhabi Investment Authority (ADIA), the sovereign wealth fund managing around $800 billion, and an unnamed U.S. state pension fund have committed $650 million in equity for AGL Credit, in addition to the family office of Thomas H. Lee, who has also made an investment.

Gleysteen had previously founded CIFC Asset Management, the now $13 billion credit manager where he was CEO from 2005 to 2014.

Lee is a Chairman at Lee Equity Partners and was previously the Chairman and CEO of Thomas H. Lee Partners, which was established in 1974 and has since invested over $10 billion across 100 different transactions. – Andrew Park

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SS&C Technologies ups $750M high yield bond offering to $2B

SS&C Technologies has priced $2 billion of 8.5-year unsecured notes at the tight end of talk, sources said. The offering was upsized from $750 million, and marketed via joint bookrunners for the deal were Morgan Stanley, Credit Suisse, Citi, BAML, and Oppenheimer. Proceeds will be used to repay a portion of existing term loans under the company’s senior secured credit facilities. S&P Global Ratings views the transaction as leverage neutral. SS&C Technologies (Nasdaq: SSNC) provides software products and software-enabled services to financial services providers. Terms:

Issuer SS&C Technologies
Ratings B+/B2
Amount $2 billion
Issue Senior (144A/Reg S for life)
Coupon 5.5%
Price 100
Yield 5.5%
Spread T+291
Maturity Sept. 30, 2027
Call non-call three (first call @ par +75% coupon)
Trade March 14, 2019
Settle March 28, 2019 (T+10)
Joint bookrunners MS/CS/C/BAML/Oppenheimer
Talk 5.5-5.75%
Notes Upsized frpm $750 million; up-to-40% equity claw @ 105.5 until March 30, 2022; make-whole @ T+50; change of control put @ 101

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US Leveraged Loan Funds See $606M Withdrawal as Outflow Streak Hits 17 Weeks

Retail investors withdrew $606 million from U.S. loan funds during the week ended March 13, the seventeenth straight outflow for a total of $21.8 billion over that span, according to Lipper.

The withdrawal is the largest in four weeks, halting a short trend of dwindling outflows, including a small $33 million retreat two weeks ago.

Mutual funds were the main culprit this week, with a $503 million net outflow, while loan ETFs saw a $103 million withdrawal. The change due to market conditions during the week was a negative $125 million. The four-week average is now a $410 million outflow.

Year to date, including the week ended Jan. 2, retail investors have withdrawn a net $8.3 billion from U.S. loan funds (that’s nearly the opposite number for U.S. high-yield funds, which so far in 2019 have booked a net inflow of $8.2 billion, by the way).

Assets at the loan funds now total $86 billion, of which $10 billion come via ETFs, according to Lipper.

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Frontier Communications talks pricing on $1.65B secured high yield offering

Frontier Communications (Nasdaq: FTR) has set talk for a $1.65 billion offering of eight-year (non-call three) first-lien secured notes in the 8% area, sources said. Books for the deal were set to close today.

Bookrunners for the deal are J.P. Morgan, Citi, Credit Suisse, Goldman Sachs, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Deutsche Bank, and Mizuho. Initial price thoughts circulated at 8–8.25%, sources noted. These new notes will serve as the issuer’s inaugural first-lien, fixed-rate print.

Proceeds are earmarked to repay $1.4 billion and $239 million outstanding A term loan facilities due in 2021. Additionally, the borrower also intends to extend the maturity of at least $835 million of its $850 million revolving credit facility by two years, from 2022 to 2024.

Analysts at research firm CreditSights on March 12 noted that while the refinancing will “materially improve Frontier’s runway through 2021,” the company’s interest expense could increase by $30–40 million per year pro forma for this refinancing, and the issuer’s 7.125% senior notes due 2019, which CreditSights expects will be repaid using a mix of revolver borrowings and cash on hand.

Ratings have been assigned as B/B2, with a 1 recovery rating from S&P Global Ratings. Analysts at S&P Global Ratings view the transaction as leverage-neutral, but maintain a negative outlook at the borrower on expectations it “will be unable to address its longer-dated unsecured debt maturities when they come due absent favorable business, economic, and financial conditions because of its lack of secured debt capacity, low free operating cash flow, and elevated leverage,” a March 12 report noted. Moody’s has a stable outlook for the company.

Frontier Communications is a Norwalk, Conn.–based provider of communications services, offering data, video, and voice packages for residential and business customers. As of Dec. 31, 2018, total debt at the company was $17.2 billion, according to S&P Global Market Intelligence. — Jakema Lewis/Nina Flitman

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US high yield funds see $1.9B withdrawal, snapping inflow streak

Retail investors pulled $1.9 billion from U.S. high-yield funds in the week ended March 6, putting an abrupt end to five weeks of inflows totaling $5.6 billion, according to Lipper.

With the recent activity, the four-week average dips to a $49 million outflow, from a $1.4 billion inflow last week.

ETFs took the bigger hit, with a $1.3 billion outflow, according to Lipper weekly reporters. High yield mutual funds saw $582 million of withdrawals. The change due to market conditions was positive $224 million during the week.

Since the first full week of January, net inflows to U.S. high yield funds total $7.8 billion. Assets at the funds stand at $199 billion, $43 billion of which come via ETFs. — Staff reports
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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.