High-yield deals pulled, postponed as risk appetite wanes

Fri Nov 16, 2012 1:02pm EST

NEW YORK, Nov 16 (IFR) - Like a diner pushing back from the table after a Thanksgiving feast, high-yield investors are now pulling back from the high-yield primary market after feasting on a non-stop diet of new issues since September.

The appetite for risk has evaporated and with it the demand for new issues, said one syndicate official.

Meanwhile, with the presidential election over, attention has refocused on the fiscal cliff, weak economic data in the US, geo-political tensions in the Middle East, and the sovereign credit crisis and economic downturn in Europe, which is now officially in a recession.

That was a problem for the large amount of deals that were stacked up to price on Thursday and Friday, and the bad conditions led some of the more opportunistic issuers to pull out of the market or revise their deals.

There were no new issue announcements on Thursday, two deals were postponed, some were restructured, and some priced wide of price talk.

Canadian aerospace giant Bombardier postponed its US$1bn two-part offering, citing market conditions. Proceeds from the eight-year and 10-year bullet notes were to be used for general corporate purposes. Deutsche Bank, BofA Merrill, BNP Paribas, Citigroup, Credit Agricole, JP Morgan, NBF and RBC had been leading the deal.

Eagle Midco, holding company for Epicor Software, scrapped plans to price its US$340m five-year non-call one senior discount notes through BofA Merrill and RBC. The deal had been one of the more aggressive issues of the week, in terms of structure and use of proceeds, which were expected to fund a distribution to equity holders.

Other issuers had to revise their offerings to get them through. Bubble wrap-maker Sealed Air, for instance, cut its US$850m offering in half, dropping the 10-year tranche and going with a US$425m eight-year bullet issue that priced at 6.5% at par, outside and wide of its 6.25% price talk.

Elsewhere, Alliance Data Systems shortened the maturity of its bond from a six-year to a five-year, ambulatory surgery center operator AmSurg dropped its special call, and Thompson Creek Metals shortened the maturity of its bond from 5.25y to 5y and its non call period was lengthened to NC3 from NC2.25.

Some issuers were trying to get tougher transactions done. For instance, AK Steel and Arch Coal, both in difficult sectors, looked to bolster liquidity with new bond offerings while the markets remained open. But the borrowings resulted in increased leverage and some resulting negative ratings actions.

"These are tough deals," said one investor. "Issuers are printing big coupons to get these deals done to bolster liquidity. They are paying the price."

By Friday morning, 12 US dollar deals had priced for a total of US$4.45bn. There were still four issues in the market to price by the end of the day while more have been delayed or postponed.

Overnight Studio City widened price talk on its USD825m 8yNC3 senior note issue to 8.50% from 8.25% area and and priced its deal at 8.5% at par at midday.

But others have already changed timing. American Piping Products US$100m 5y senior secured notes, originally pricing late this week, has extended the roadshow into next week. And Eldorado Gold postponed a deal, while Legacy Reserves pushed one to next week.

The CDX HY19 moved lower most days this week, while the cash market was off a quarter to a half point most days. Matching that sentiment, Lipper reported an outflow of US$1.308bn from high-yield mutual funds and ETFs.

ETFs, which had been reported posting bid lists all week, made up slightly more than half the outflow at US$723.0m.

That said, the high-yield market held in better than equities, investors said, owing mostly to the ongoing demand for yield.

"In the old days, money would be flying out the door," said the investor of the current climate. "But now we've got an underlying tailwind for high-yield which is the reach for yield in a super low rate environment, and that's such a good tailwind to be in."

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Comments (1)
Paulson545 wrote:
T Boone Pickens must think what Arch Coal did was smart, he bought 275,700 shares recently.

Nov 16, 2012 1:20pm EST  --  Report as abuse
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