Category: Insight

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.2 billion and year to date flows stand at $49.0 billion.  New issuance for the week was $7.7 billion and year to date issuance is at $376.7 billion. 

(Bloomberg)  High Yield Market Highlights

• Tervita Corp., a Canadian waste management company focused on oilfield services, may price a junk bond Friday after it hiked pricing discussions. The riskiest debt in the CCC tier, meanwhile, is outperforming with gains of 1.44% this week.
• Tervita is offering a five-year bond at a yield of 11% area with an OID of two points, and lengthened the call period to three years from two. Early pricing discussions were for a coupon of 10% plus a two point discount
• CreditSights analysts said Tenneco’s new $500m 8NC3 issue that’s due to price today demands a premium given uncertainty around the credit with respect to asset sales
• Borrowers are hitting the market to take advantage of fund inflows, and a rally in the risky debt that looks set to extend with credit risk falling, and stock futures rising
• Junk-bond investors poured over $3 billion into retail funds during the week.
• Sizzling Platter LLC, which owns and operates franchise restaurants such as Little Caesars, revived a junk-bond sale after shelving borrowing plans last month
• It raised $350m from a five-year note offering, higher than the $325m it was looking to sell before. Borrowing costs of 8.5% were also more than it initially sought first time around
• Orders reached about $550m by mid-afternoon, according to people familiar with the matter
• Barclays Plc strategists led by Brad Rogoff expect high-yield supply to exceed $300b in 2021. Though a normalization from this year’s pace, “it is above all years from 2014-2019,” Rogoff wrote in note
• Junk-bond yields have retreated from an all-time low of 4.56% reached earlier this week amid hopes of a coronavirus vaccine that fueled a rally already underway on a Joe Biden election victory
• Yields rose to 4.99% on Thursday, up 26bps, the biggest jump in five months
• Spreads closed at 435bps more than Treasuries, up 23bps, and the most widening in seven weeks
• CCC yields also jumped the most in five months to close at 8.33%, up 40bps. Spreads closed at +764bps, widening 18bps
• CCCs are slated to gain at least 1.44%, outperfoming BBs and Bs

(Bloomberg)  Stockpiling Cash Ahead of a Covid Winter 

• One after another, some of the most embattled names in corporate Americaare racing to raise easy money while they can.
• In the junk bond market, corporations are hurrying to lock in today’s ultra-low interest rates.
• The rush underscores the angst gripping many companies even as global investors drive financial markets to giddy heights. With reduced odds for a large stimulus package, companies looking for money to tide them through the crisis are riding an election rally and progress toward a vaccine that could end the pandemic. But it could be a short reprieve, with President-elect Joe Biden warning a “dark winter” lies ahead as the virus roars back, signaling some hard months before a vaccine is available.
• “Companies are currently focused on strengthening their balance sheets and boosting cash liquidity,” said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors. “The window is open, so take advantage of it — before a Covid Winter.”
• There will likely be more companies tapping credit markets amid record low borrowing costs, to either shore up cash, or to curb the cost of their existing loans or bonds with new and cheaper debt.
• And at these rates, other companies will follow suit, either opportunistically or to help weather the impact of Covid-19, according to Jerry Cudzil, head of U.S. credit trading at TCW Group.
• “All-in yields are almost too enticing for companies to ignore,” he said. “Given the recent rally, many companies can access the capital markets at levels not seen since pre-Covid.”

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.3 billion and year to date flows stand at $45.8 billion.  New issuance for the week was $3.6 billion and year to date issuance is at $368.9 billion. 

(Bloomberg)  High Yield Market Highlights 

• A rally in U.S. junk bonds pushed yields near a record low as investors sought riskier assets on bets the Federal Reserve will continue to support the economy with low rates as the prospect of a divided U.S. government looms.
• Yields on the debt were just 10bps off a record low of 4.83% set in June 2014, and closed at about a 6-year low on Thursday
• The index is heading for its biggest weekly gains in five months, with spreads closing at an eight-month low of +436bps
• The rally was across ratings: single B yields were just 14bps off a six- year low of 4.99% and closed at an eight-month low of 5.13%. Spreads closed at +453bps, also an eight-month low
• The CCC index is set to outperform BBs and single Bs this week, with expected gains of 2.23%. Yields are at a new two-year low of 8.95% and spreads are at an eight-month low of +831bps
• Returns across ratings are poised to be the biggest since June
• The broader junk bond index posted gains of 0.6% on Thursday after gaining for four straight sessions. It is set to report returns of 2.13% for the week, the biggest since June 5
• Single B returns were 0.6% on Thursday and are poised for gains of 1.93% for the week. BB returns for the week could be 2.21%
• The junk bond rally may take a pause as stock futures stalled on Friday, unwinding some of the week’s surge as the election count continued 

(Bloomberg)  Junk Bonds Outperform Stocks in Busiest October Since 2012 

• Junk-rated issuers sold more than $34 billion of bonds last month, making it the busiest October since 2012 despite market turmoil from falling stocks and oil.
• While market volatility did pressure junk bonds and resulted in more than $4 billion of outflows in the last two weeks of October, new issues largely drew orders multiple times the deal size and most priced at the tight end of talk
• Outflows from retail funds coupled with tumbling stocks amid fears that the renewed spread of the virus could derail fragile economic growth, forced five borrowers to withdraw their debt offerings.
• The broader junk bond index posted a modest gain of 0.5% in October. CCCs, the riskiest of junk bonds, also reported a small gain of 0.22%
• Equities posted a loss of 2.66%, while the price of WTI crude dropped 11% in the month
• Junk bonds shrugged off equity volatility with yields little changed closing October at 5.78% vs 5.77% in September
• CCC yields actually dropped 5bps to close the month at 10.05% and have been falling for seven consecutive months, the longest declining streak since October 2009
  

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.0 billion and year to date flows stand at $45.4 billion.  New issuance for the week was $7.9 billion and year to date issuance is at $365.3 billion. 

(Bloomberg)  High Yield Market Highlights 

• PetSmart Inc. and Aston Martin are due to wrap up junk-bond sales Friday in what may be another volatile session amid rising coronavirus cases and fresh concerns about the outlook for technology giants.
• BC Partners sweetened terms on its PetSmart Inc. debt sale to split the company from Chewy Inc. by increasing the size of the bond portion, shifting funding from a concurrent loan offering, and raising pricing
• Books on the bond are due to close at 10:30 a.m. in New York. Commitments on the loan were extended to the same time
• Smyrna Ready Mix scrapped plans for a $315m loan sale and upsized its high-yield bond offering by the same amount to $830m
• The 8NC3 notes are expected to price in the range of 5.75%-6% after talk was widened from early discussions of 5%
• It’s the second loan to be pulled from syndication in lieu of bonds this week following MultiPlan on Oct. 27
• Aston Martin may also sell bonds, rated in the CCC tier, in euros and dollars
• Retail investors are fleeing the asset class, pulling $3 billion from high-yield during the week, the first cash exit since September
• HYG, one of the largest exchange-traded funds in the sector, posted outflows in the latest session, the fourth straight day of withdrawals
• Junk bonds have come under pressure with yields jumping 44bps week-to-date to 5.77%, the highest since Sept. 30. Credit risk is higher Friday, while stock futures are lower
• The broader index posted losses of 0.039% on Thursday, the fourth straight day of negative returns, putting the market on track for the biggest weekly loss since September
• While some borrowers have had to sweeten deals to attract buyers, new issues have seen robust demand in several cases

(Bloomberg)  JPMorgan Sees Junk-Bond, Leveraged Loan Issuance Falling in 2021

• High-yield bond gross issuance will total $375b next year, down 15% from the record of ~$425b expected in 2020, according to a report from analysts at JPMorgan.
• If that prediction holds, it would put 2021 among the biggest years for gross volume since 2012-2014, which averaged $374b
• Outlook assumes another year of “heavy refinancing activity,” JPMorgan analysts led by Peter Acciavatti said in the report
• Forecast sees issuance at $125b net of refinancing, a decline of 10%-15% from the ~$150b for this year
• Sees 30% fall in gross loan net volume to $275b from ~$400b this year, “amid little-to-no repricing activity”
• Sees net volume down 10% to $150b from ~$165b
• Historically low interest rates coupled with a baseline forecast for a continued recovery in the U.S. economy should lead to “somewhat more of the same” for capital markets in 2021, the analysts said
• Spread of the virus and release of a vaccine will continue to be elements of uncertainty as the unpredictability surrounding the election will lift
• “These conditions should produce only a modest increase in the M&A pipeline, whereas 2Q’s surge of general corporate purpose deals will not repeat itself,” according to the report
• Due to the “low state of yields” record refinancing wave will continue
• “That said January and February’s wave of loan re-pricings will also not repeat itself with an average dollar price $3 below where it stood in February,” the analysts said

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.1 billion and year to date flows stand at $48.4 billion.  New issuance for the week was $8.7 billion and year to date issuance is at $357.4 billion. 

(Bloomberg)  High Yield Market Highlights 

• Apollo Global Management Inc. and Platinum Equity may sell risky PIK toggle notes Friday to fund dividends to the private equity firms. Fund inflows may have tapered off, but U.S. junk bonds are set to post gains for the fourth straight week, led by the riskiest CCC tier.
• Investors are said to be pushing for changes on a $500m junk bond sale for Platinum Equity’sMulti-Color Corp.
• Lenders are resisting the deal’s call structure, which currently allows the label-maker to buy back the five-year bonds just one year after being sold
• Early pricing discussions for the five-year offering are 12% if interest is paid in cash, and an additional 0.75 percentage point if paid with more debt
• Apollo’s Aspen Insurance Holdings Ltd. is selling $500m of PIK toggle notes. Early pricing discussions for the five-year issue are in the high-7% range
• U.S. corporate high-yield funds saw incoming cash of about $100 million for the week
• Yields rose 3bps to 5.34%, and may retreat again with credit risk falling and equity futures rising this morning
• The index posted a modest loss of 0.005% on Thursday
• CCCs bucked the trend, posting gains of 0.02%, and are on track to be best performing asset class for the week with 0.15% returns
• Three years after saddling PetSmart Inc. with debt to acquire online rival Chewy Inc., a group led by private equity firm BC Partners is splitting them in two
• The group plans to recapitalize PetSmart with $1.3b of equity and $4.65b of debt raised from institutional money managers
• Business development companies are tweaking their credit agreements to allow their borrowers to defer interest payments
• Known as turning the loans into PIK obligations, the change can help borrowers conserve cash in the near term, but boost their debt loads in the process

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.8 billion and year to date flows stand at $48.2 billion.  New issuance for the week was $8.0 billion and year to date issuance is at $348.7 billion. 

(Bloomberg)  High Yield Market Highlights 

• Ligado Networks is slated to price its $3.85b junk bond sale today, dangling a record 17.5% coupon to lure investors as its seeks to refinance debt and avoid bankruptcy.
• The hiked interest rate is the biggest offered on a high-yield deal since at least 2002, according to data compiled by Bloomberg, and comes amid other sweetened terms
• U.S. junk bonds showed resilience amid falling equities Thursday
• Apollo Global Management Inc.’s Jim Zelter says there will be a new spike in defaults next year as some companies struggle to service the extra debt they took on during the pandemic
• Investor confidence in junk bonds was evident via the cash allocation to the asset class. High-yield retail funds reported an inflow of almost $2 billion for the week
• Risk assets have remained buoyant despite a lack of progress on stimulus and disappointing macro data, Barclays strategist Brad Rogoff wrote on Friday
• The junk bond index came under slight pressure, posting a loss of 0.26% and is headed for a modest weekly loss of 0.06%
• Yields jumped 13bps to close at 5.37%, the biggest increase in three weeks
• Spreads widened 10bps to close at +475bps, also the most widening in three weeks