NEW YORK, Feb 5 (IFR) - Leveraged finance bankers are chipping away at an up-to-US$30bn pipeline of high-yield bond sales at the fastest pace so far this year, but lower-rated credits remain a tough sell.
Helped by a dearth of new issues in January, well-known issuers such as Charter Communications and Acadia Healthcare had no trouble raising funds in the junk bond market this week to help finance their pending acquisitions.
The cable provider took many by surprise on Thursday as it emerged with an opportunistic deal - a US$1.7bn eight-year non-call three issue that was priced nearly flat to its curve and was upsized by US$200m.
Following a sluggish start to the year, Charter’s trade helped the US high-yield market to log its busiest day in two months in terms of total issuance volume and number of deals, according to IFR data.
Much of the activity in the primary market this year has been driven by acquisition and spin-off related financings that banks agreed to underwrite at the end of last year.
“Banks are trying to clear out their backlog and see where it would clear the market,” said Thomas O’Reilly, head of non-investment grade fixed income at asset manager Neuberger Berman.
Issuers have often been willing to compensate investors with generous yields in order to get their deals over the line in spite of heightened volatility across risk assets, helping their deals trade up by several points in the secondary market.
“Issuers need to be willing to leave a bit of extra meat on the bone,” said one leveraged finance banker. “I think the market is more willing to look at a (new) deal because primary has rewarded investors recently.”
Yet as the average yield on US corporate bonds rated Triple C or below blew out to a 6.5-year high of over 20% this week, investors were still very cautious on highly leveraged credits at the bottom end of the rating spectrum.
New deals for Endurance and Manitowoc, for example, appeared to be struggling to gain much traction, while SolarWinds bypassed the public bond market altogether and opted to sell a US$460m eight-year floating-rate note issue to Goldman Sachs’s own mezzanine fund.
“Triple C bonds have been out of favour for quite some time,” said Pepper Whitbeck, head of US high-yield at AXA Investment Managers. “It has been very difficult for these names to come to market.”
“Anything that makes you look different or more difficult to analyse is going to make you easier to pass on.”
Healthcare company Vizient - the first name with two Triple C ratings to emerge in the US high-yield bond market in over two months - managed to get its new eight-year non-call three done but had to offer a yield of 10.375% and strengthen covenants.
Endurance, which provides cloud-based internet services for small business, was seen as one of the most challenging names currently in the market.
Investors said a highly competitive sector and concerns about a subpoena the company received from the Securities and Exchange Commission in December were among the factors weighing against the credit.
Bowing to shareholder activism, Manitowoc is eyeing a two-part bond sale as part of a plan to spin off its food service unit from its more cyclical crane unit.
Several investors said they were considering participating in the food service tranche, for which the company has released price talk of 9.50%-9.75%, inside whispers of 10% area.
However, talk was yet to emerge on a second bond offering to be issued by the company’s crane unit, after the deal was whispered earlier in the week in the “low double digits.”
“I am not expecting to see a deluge of Triple C any time soon even if these deals get done,” said a second leveraged finance banker.
Bankers, however, are due to unleash more deals from the backlog in coming days.
One of them is a US$4bn-equivalent bond and loan package backing the US$6.5bn buyout of software maker Solera Holdings by Vista Equity Partners that has been anticipated for some time.
A bank meeting will take place in New York on February 9 for the US$1.9bn-equivalent Term Loan B component of the deal, which is expected to include a 500m tranche, a source close to the deal told IFR on Friday.
A roadshow for a US$2.1bn-equivalent bond offering, which is expected to include a 500m-550m portion, is also scheduled to run from February 10 to February 12, the source said. (Reporting by Davide Scigliuzzo; Editing by Matthew Davies)