NEW YORK, Oct 18 (IFR) - Beware, the bulls are back in junk
bonds with a big thirst for yield now that Treasuries have
rallied, with issuers gearing up to make the most of it by
selling a litany of high-risk structures and opportunistic
trades in coming weeks.
This week saw US$4.2 billion priced via six issuers,
bringing the monthly total to US$12.5 billion - a solid amount,
but not enough to soak up huge demand for high-yield.
The issuers that did brave the market, despite the
government shutdown, had a good result. US power company
Calpine's upsized US$750 million senior secured offering
priced more tightly than some bankers had expected, and all
deals have performed well in the secondary market.
Lipper, meanwhile, reported a sixth consecutive week of
investor inflows, with US$625.6 million added to high-yield
mutual and exchange traded funds for the week ending October 16.
Perfect conditions, bankers say, for riskier structures.
"There are big inflows, Treasuries are rallying and there is
no supply out there. Investors are sitting there thinking: what
are we going to buy?" said one head of high yield capital
Since mostly every refinancing that needed to get done is
already out of the way, deals with more leverage or more
aggressive use of proceeds, such as dividend recapitalizations
and PIK toggles, could now become more prevalent.
A PIK toggle for luxury retailer Neiman Marcus - the first
to be included in a leveraged buyout since the crisis - was well
oversubscribed this week, and with little else to buy, and all
that cash to spend, the balance of power seems to be firmly in
the hands of the borrower.
PENN SET TO BE A BLOWOUT
One more deal - for Dole Foods - was announced on Friday by
left lead Deutsche Bank, and others in the market for Penn
National Gaming (PNG) and REIT spin-off, Gaming and
Leisure Properties (GLP), are heard to be going well.
The former has already attracted demand of around US$1.2
billion for its US$300 million bond deal, according to one
source. Price talk on the eight-year non-call three senior note
has been set at 6.25% area, with pricing earmarked for Monday
via JP Morgan, RBS and Credit Agricole.
Talk on GLP's split-rated US$2.05 billion three-tranche
REIT, meanwhile, rated Ba1/BBB-, has been set at 4.75% area on
the five-year, 5.25% area on the seven-year and 5.75% area on
Those levels indicate that GLP is on track to smash its
all-in borrowing cost target of around 5.4%.
BAML is lead left on the five- and 10-year, along with joint
bookrunners JP Morgan and RBS. BAML is also leading the
seven-year tranche, with joint bookrunners RBS and Goldman
Sachs. Books are due to close on Monday.
The roadshow for Dole Food Company Inc.'s US$275 million
5.5-year non-call two junior senior secured note will begin on
Tuesday. The bond, initially expected to be a $325 million
senior unsecured note, along with an upsized US$725 million
loan, will finance the management buyout of the company by
President and CEO David Murdock.
Bank of America Merrill Lynch and Scotia are also joint
bookrunners on the deal, rated Caa1 by Moody's.
There is also a mixed bag of up to six M&A related deals
that bankers are vying to underwrite, including both corporate
and leveraged buyouts. Of those though, only a couple are likely
to come to the bond market by the end of the year, and both are
less than a billion dollars in size, said the banker.
A rally in Treasuries and surge high in secondary prices
will likely spur issuers to move sooner rather than later.
US 10-Year Treasury yields fell below 2.6% on Friday from
around 2.72% at the start of the week, a great sign for issuers
who thought they were facing the imminent prospect of a rate
hike just a couple of weeks ago.
"The debt ceiling really seems to have been a non-event.
There's a clear return to risk assets with a realization that
tapering is now going to be delayed," said another high-yield
"Investors had been hoping that the market would sell-off,
and that they would buy on the dip, but that never really
The market rallied hard across the board on Friday, with
some recently priced deals up as much as six points.
The Neiman Marcus two-part US$1.56 billion buyout deal that
priced on Wednesday was up two to three points. US wireless
giant Sprint's US$6.5 billion two-part deal that priced in
September - and the biggest high yield deal of the year - has
soared three to four points with the 2021s and 2023s bid at
105.75 and 106.75 respectively from around 102.5 last week.
T-Mobile's US$5.6 billion five-tranche deal - the
second biggest of the year which printed last week - was trading
four to five points above reoffer.