Leveraged 04.27.11 BRIEF Finance Wednesday
Ford May Return to Investment Grade by Riskiest Junk Rebounds With Biggest April Gains By Sapna Maheshwari Yearend: JPMorgan The riskiest junk bonds are again producing the biggest gains in speculative-grade debt as demand meets a shrinking pool of distressed securities and rising optimism ByLisa Abramowicz the Federal Reserve won’t tighten credit this year. Ford Motor Co.’s debt may be boosted Energy Future Holdings Corp. and Global Crossing Ltd. are leading gains of 1.7 to investment grade this year after the percent this month for debt rated CCC and lower, while higher-ranked BB tier debt company posted its biggest first-quarter is up 1.2 percent, Bank of America Merrill Lynch index data show. Last month, the profit since 1998, according to JPMorgan riskiest debt returned 0.34 percent, trailing a 0.62 percent gain for BB bonds. Chase & Co. “It’s just a continuation of people moving down the food chain in terms of their “We believe an upgrade is highly likely,” search for yield,” said Lon Erickson, a money manager at Thornburg Investment wrote analysts led by Eric Selle in New Management Inc. in Santa Fe, New Mexico, who oversees $9 billion. “Folks being York in a report today. “We are confident in able to refinance themselves gives investors confidence that these companies will Ford’s ability to reduce debt and achieve Continued on next page its stated goal of investment grade status by year-end 2011,” the analysts wrote. For Ford to shed its speculative-grade The Dearborn, Michigan-based car from companies in the auto industry. rating, it needs to repay a $4.1 billion term manufacturer’s 7.45 percent notes due Ford has reduced debt by $17 billion loan and avoid a strike by the United Auto July 2031 could return 11.5 percent over since the beginning of 2010, said Ford’s Worker union, the report said. the next 12 months, the report said. That Chief Executive Officer Alan Mulally in a JPMorgan recommends investors buy compares with projected total returns of television interview on “Bloomberg Sur- Ford bonds “as we believe the high-grade 6.9 percent for the JPMorgan High Yield veillance’’ with Tom Keene. The company compression trade remains intact.’’ Index and 5.9 percent gains among debt now has total automotive debt of $16.6 Continued on next page
Deals MA
Ford May Return to Investment Grade by Yearend: JPMorgan Continued from page 1 billion. Returning to an investment-grade ments by May 3 on $800 million of loans Market Quote rating would lower Ford’s borrowing costs to refinance debt, according to a person and improve earnings. with knowledge of the matter. “One of the major concerns with lower- Moody’s Investors Service changed its The maker of testing gear for the aero- rated credits you always have is, ‘Will outlook on Ford to positive from stable on space and defense industries will pay they have access to the market?”’ said Jan. 28. Moody’s said in a statement that 3.25 percentage points to 3.5 percentage Marc Gross, a money manager in New Ford’s progress in improving its balance points more than Libor on a $725 million York at RS Investments, which oversees sheet “could support a rating upgrade credit facility, said the person. The bench- $3 billion in fixed-income funds. “Now during the next 12 to 18 months.’’ Moody’s mark rate will have a 1.25 percent floor. they do have access to the market, so rates Ford Ba2, the second level below in- Plainview, New York-based Aeroflex may that makes them look more attractive.” vestment grade. Standard & Poor’s rates sell the seven-year debt at 99.5 cents on Ford BB-, three steps below investment the dollar. grade. Ford lost its investment-grade rat- The JPMorgan Chase & Co.-led financ- ings in 2005. ing includes a $75 million revolving line of credit that comes due 2016. Aeroflex Seeks Commitments By Moody’s Investors Service assigned B1 May 3 on $800 Million of Loans ratings to the debt yesterday. Aeroflex Inc. is seeking lender commit- —Krista Giovacco
Bloomberg Brief Leveraged Finance Bloomberg LP Riskiest Junk Rebounds With Biggest April Gains 731 Lexington Avenue, New York, NY 10022 212-318-2000 Continued from page 1 Newsletter Ted Merz be able to pay them back and meet their the highest proportion since making up Executive Editor [email protected] obligations.” 15.9 percent of sales in 2008, according 212-617-2309 Dallas-based Energy Future, formerly to JPMorgan. Bloomberg News Robert Burgess known as TXU Corp., led the rally in debt At the same time, the distress ratio of Managing Editor [email protected] 212-617-2945 rated CCC and lower, with its 5.55 percent businesses with debt trading at 10 per- Leveraged Finance Deirdre Fretz notes due November 2014 climbing 16 centage points or more above similar- Editor [email protected] cents in April to 82 cents on the dollar, ac- maturity Treasuries is falling. It dropped to 212-617-5166 cording to Trace, the bond price reporting 3.56 percent this month from 5.24 percent Reporter Lisa Abramowicz [email protected] system of the Financial Industry Regula- in March, according to S&P. That’s the 212-318-2000 tory Authority. The company, which under- lowest since the ratio touched 2.3 percent Contributing Mike Amato, went the largest leveraged buyout in his- in October 2007. Analysts Paul Bandong , tory in 2007, extended due dates on $17.8 Companies have taken advantage of in- Daniel Covello, Spencer Cutter, billion of loans this month and sold bonds vestor appetite for speculative-grade debt Michael Kovacs, as it grappled with natural gas prices that to “fix” capital structures, said Margie Pa- Jill Lewandosky, have fallen by half since the takeover. tel, a senior bond-fund manager at Wells Michael Luongo, Debt from Global Crossing and Level Fargo & Co. in Boston who oversees $1.5 Erich Marriott, recorded the Stephen Ring, 3 Communications Inc. billion of assets. John Veidis, second- and third-best performance this “The whole high-yield universe has not Lee Zeltser, month, according to a Bank of America been a very risky place certainly for the Afrim Zeka Merrill Lynch index for bonds rated CCC last year,” Patel said. “To get twice as much To subscribe via the Bloomberg professional and lower. The unprofitable broadband in CCCs when defaults are a touch under 3 terminal type BRIEF
Price Talk BloomberG news
points over Libor on a $283.4 mil- borrowings. There is a change of LOANS lion six-year term loan it’s seek- control investor put at 101. ing to refinance debt, based on a —Allan Lopez ■■SPRINGS INDUSTRIES, the ratings grid. A price of 99.75 cents manufacturer and distributor of on the dollar is expected. Out-of- ■■BUILDING MATERIALS has custom window coverings, is seek- the-box pricing on the facility for priced $1.01 billion in 10-year notes ing $475 million in loans to fund a the aerospace engineering and in- at 99.106 with a 6.750 percent dividend and refinance debt. JPMor- formation technology firm is based coupon to yield 6.875 percent, or gan is leading the financing, which on corporate credit ratings of B/ 358 basis points over Treasuries. will include a $300 million first-lien B2 or better. At below the B level, Proceeds will repay a term loan. six-year term loan, a $125 million the company may pay 4.5 percent- The offer, which is non-callable for second-lien term piece due in seven age points over Libor, which will five years, is rated Ba3 by Moody’s years, and a $50 million revolving have a 1.5 percent floor. Lenders and B+ by S&P. The bookrun- line of credit due in five years. The will get 101 soft-call protection for ners are Bank of America Merrill borrower will meet with lenders at 10 one year. Commitments are due Lynch, Citi and Deutsche Bank. a.m. April 29 in New York. by May 6 and Barclays Capital is —Krista Giovacco arranging the debt. —Tracey White —Krista Giovacco ■■DELPHI AUTOMOTIVE is offering ■■FELCOR LODGING has priced 3.00-3.25 percentage points more ■■U.S. FOODSERVICE has set an $525 million in eight-year senior than Libor on a $1.15 billion six-year initial rate of 3.75-4.00 percentage notes at par to yield 6.75 percent, term loan B, part of a $2.4 billion points more than Libor, with a 1.25 in line with 6.75 percent area talk. loan package to buy back an equity percent floor, on a $425 million The spread on the B2/B- rated deal stake from former parent General six-year term loan it’s seeking to is 377 basis points and the amount Motors. Delphi may sell the debt at refinance debt. Rosemont, Illinois- raised was a slight increase on the 99.5 cents on the dollar and there is based U.S. Foodservice may sell $500 million expected. Proceeds a 1.25 percent floor on the lending the debt at 99.5 cents on the dollar. are to fund the acquisition of hotels benchmark. The JPMorgan-led fi- JPMorgan is leading the financing in Manhattan. The deal is non-call- nancing includes a $250 million term and met lenders this morning in able for four years. Bookrunners loan A and a $1 billion revolving line New York. Lenders will get one year were Bank of America Merrill of credit both due in five years. The of 101 soft-call protection. Lynch, Credit Suisse, Goldman company will also sell $1.1 billion of Sachs and JPMorgan. —Krista Giovacco unsecured notes. —James Crombie —Krista Giovacco BONDS ■■SANMINA-SCI has priced wide ■■SELECT MEDICAL HOLD- to guidance a $500 million issue of INGS is proposing to pay 3.75 ■■SHEA HOMES plans to sell $750 eight-year senior notes. The deal percentage points more than million in eight-year senior secured came at par to yield 7 percent, or Libor on a $1.2 billion term loan notes to refinance debt and for 403 basis points over Treasuries, to refinance debt. The seven-year general corporate purposes. The versus 6.875% area talk. Proceeds debt is expected to price at 99 deal is non-callable for four years from the B1/B rated deal will fund cents on the dollar and the lending and there is an investor put at 101. a tender for any and all of its 6.75 benchmark will have a 1.5 percent Credit Suisse is the bookrunner. percent senior notes due 2013 as floor. Lenders will get 101 soft-call —James Holloway well as up to $200 million of its protection for one year. JPMorgan, 8.125 percent senior notes due which is leading the refinancing, ■■MILAGRO OIL & GAS is expect- 2016. The deal is non-callable for held a meeting at 2 p.m. today with ed to price next week $250 million three years and there is a change lenders. The deal includes a $300 in five-year notes via bookrunners of control put at 101 percent plus million revolving line of credit. Credit Suisse and Wells Fargo. accrued interest. Bookrunners are —Krista Giovacco The deal is non-callable for three Bank of America Merrill Lynch, years and proceeds to be used Deutsche Bank, Goldman Sachs ■■WYLE HOLDINGS has set to repay outstanding second lien and Morgan Stanley. an initial rate of 3.75 percentage term, PIK debt and part of revolver —Michael Luongo 04.27.11 Bloomberg Brief | leveraged finance 4
News Of Note BloomberG news
The objecting investors have been argument made in the hearing by people questioning whether New Stream’s Carmen Lonstein, a Baker & McK- plan was accepted before the March enzie lawyer, who argued the modi- Jefferies Adds to Leveraged 13 Chapter 11 filing by three affected fied plan Point Blank filed earlier Finance classes. On that issue, New Stream this month was in reality an entirely will turn over unredacted ballots. In new plan. Amin Arjomand and Nathaniel addition, the agreement covers how — Bill Rochelle Morse have joined the leveraged fi- McKinsey’s claim will be treated. nance sales and trading division at “McKinsey has agreed to less fa- Jefferies, which says it is expanding vorable treatment than other U.S. `Related To’ Venue Transfer the group. Arjomand joins as a man- and Cayman investors in the event Governed by Section 1404 aging director in distressed sales McKinsey is the successful bidder A lawsuit against a corporate of- from UBS, where he was a man- and an alternative plan is confirmed,” ficer on a guarantee of company aging director in leveraged finance said Nicholas Kajon, a lawyer with debt should be conducted in the sales. Morse, who will be a senior Stevens & Lee PC. Kajon represents bankruptcy court where the compa- vice president in distressed trading, investors in U.S. and Cayman Island ny’s reorganization is pending, U.S. was previously a distressed credit funds that have been opposing New District Judge Tucker L. Melancon trader at Citadel Securities. Jeffer- Stream’s initiatives in Chapter 11. in Lafayette, Louisiana, ruled on ies says it has almost 100 people in To confirm the plan without solicit- April 25. its global leveraged finance sales ing votes again, New Stream must The case involved a company that and trading business. convince the bankruptcy judge in borrowed $5.2 million from a bank —James Crombie Delaware that the disclosure state- and later filed under Chapter 11 in ment explaining the plan to creditors Mississippi. After bankruptcy, the Bankruptcies contained adequate information. bank sued the company’s manager — Bill Rochelle in Louisiana state court, relying on a so-called forum selection clause. The New Stream, Objecting manager had guaranteed the debt. Investors Agree on Sale Point Blank Seeks Approval The individual had the case trans- New Stream Capital LLC agreed of Disclosure Statement ferred to the federal district court in with its creditors’ committee and a Point Blank Solutions Inc. want- Louisiana and then sought to have group of investors on procedures ed a bankruptcy judge to approve the case moved to the Mississippi leading up to an auction of the life the disclosure statement explaining bankruptcy court. insurance portfolio on May 16. its reorganization plan at an April Melancon concluded the federal The groups also agreed on financ- 21 hearing. district court had so-called “related ing to pay premiums on the policies Instead, U.S. Bankruptcy Judge to” jurisdiction because the outcome through completion of the sale. Bids Peter J. Walsh said he wouldn’t of the suit would affect the claim are due by May 13 and the hearing even consider approving the state- against the bankrupt company. for approval is set for May 16. The ment without major changes. Walsh The next issue dealt with whether initial $127.5 million bid will be made ended the hearing by telling Point transfer of venue should be gov- by an affiliate of McKinsey & Co. Blank that if it didn’t resolve disputes erned by Section 1412 of the feder- If a competing bid wins the auc- with the reconstituted shareholders’ al Judiciary Code which deals with tion, the sale must be completed by committee, he would “encourage transferring venue in bankruptcy June 2, when financing will expire. somebody to file a motion for the ap- cases, or by Section 1404, the gen- McKinsey will earn a $3.83 million pointment of a Chapter 11 trustee.” eral section on transfer of venue. breakup fee if outbid, along with an “If it’s filed, I’d be inclined to grant Melancon concluded that Section expense reimbursement of up to it,” Walsh said. At the start of the 1404 should provide the standard $1.5 million. hearing, Walsh said he wouldn’t when the case is in federal court As part of the sale arrangement, approve “or even consider” the dis- under “related to” bankruptcy juris- the bankruptcy court this week gave closure statement because of rule diction. The courts are divided on final financing approval, including violations by Point Blank. the issue and there has been no another $15 million to cover pre- Walsh approved the contested re- ruling from the U.S. Court of Ap- mium payments into June. If McKin- tention of Baker & McKenzie LLP, peals in New Orleans, he said. sey wins the auction and the sale is one of the law firms representing Various tests on venue transfer completed as part of a Chapter 11 the reformulated equity committee. were roughly in balance except one, plan, the final financing approval is He overruled Point Blank’s request “the interests of justice,” Melancon $56.8 million. that a cap be placed on Baker & said. He sent the case to the Missis- The committee is allowed to solicit McKenzie’s fees. sippi judge because there would be rival offers. The first competing bid A cap wasn’t appropriate because more “judicial economy” if the entire must be about $20.3 million more “this case is starting all over,” Walsh controversy were in “one forum. than McKinsey’s existing contract. said. Walsh was picking up on an — Bill Rochelle 04.27.11 Bloomberg Brief | leveraged finance 5
New Issuance NIM
Cost of CredIT — Bond MArket The tables below shows a sampling of benchmark high-yield bonds, grouped by industry, with average yields. TECHNOLOGY HEALTHCARE ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* ADVANCED MICRO DEVICES Ba3|B+ 7.75 8/1/2020 103.75 7.0766625 TENET HEALTHCARE CORP B1|BB- 8.875 7/1/2019 113 5.6283967 FIRST DATA CORPORATION Caa2|CCC+ 11.25 3/31/2016 100.25 11.11825 VANGUARD HLT HDG LLC/INC B3|B- 8 2/1/2018 104.75 6.8080535 FREESCALE SEMICONDUCTOR B1|B- 9.25 4/15/2018 109.554 6.9361437 MYLAN INC Ba3|BB 7.875 7/15/2020 110.1875 5.9354677 NXP BV/NXP FUNDING LLC B3|B- 9.75 8/1/2018 115.9 5.6992343 Ba3 /*-|BB- VALEANT PHARMACEUTICALS 6.875 12/1/2018 99.625 6.9379359 SEAGATE HDD CAYMAN Ba1|BB+ 7.75 12/15/2018 105.3125 6.6006246 /*- SUNGARD DATA SYSTEMS INC Caa1|B 7.375 11/15/2018 102.084 6.9146141 BIOMET INC Caa1|B- 11.625 10/15/2017 113.5 5.700225 AVERAGE 8.85 6 YEARS 106.14 7.39 CHS/COMMUNITY HEALTH SYS B3 /*-|B 8.875 7/15/2015 101.625 8.0446485 HCA INC B2|BB- 9.25 11/15/2016 107.55 3.5261159 POWER/UTILITIES AVERAGE 8.76 7 YEARS 107.17 6.08 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* AES CORPORATION B1|BB 8 6/1/2020 109.25 6.6266953 FINANCIAL CALPINE CORP B1|B+ 7.5 2/15/2021 105.583 6.54488726 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* ENERGY FUTURE/EFIH FINAN Caa3|B- 10 12/1/2020 106.25 8.8481766 ALLY FINANCIAL INC B1|B 8 3/15/2020 111.6 6.273072 GENON ENERGY INC B3|B 9.875 10/15/2020 106.5625 8.6599995 SPRINGLEAF FINANCE CORP B3|B 5.75 9/15/2016 92.542 7.458705 NRG ENERGY INC B1|BB- 8.25 9/1/2020 105.1875 7.3200468 AMSOUTH BANK NA Ba3|BB+ 5.2 4/1/2015 100.3 5.1131217 TEXAS COMPETITIVE/TCEH Caa3|D 10.25 11/1/2015 64 23.68675708 CIT GROUP INC B3|B+ 7 5/1/2016 101.5 4.69442962 AVERAGE 8.97 8 YEARS 99.47 10.28 MBIA GLOBAL FUNDING LLC WR|B 4.65 7/1/2018 112.66 2.6943943 MBIA INC Ba3|B- 6.4 8/15/2022 81.5 9.0306355 ENERGY REGIONS FINANCIAL CORP B1|BB 7.75 9/15/2024 101 7.6277063 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* AVERAGE 6.39 8 YEARS 100.15 6.12 BASIC ENERGY SERVICES B3|B- 7.75 2/15/2019 104.5 6.7931199 CHESAPEAKE ENERGY CORP Ba3|BB+ 6.125 2/15/2021 103.375 5.6693536 BASIC MATERIALS KINDER MORGAN FIN CO LLC Ba1|BB 6 1/15/2018 103.559 5.3584536 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* LINN ENERGY LLC/FIN CORP B2|B 7.75 2/1/2021 107.0625 6.5254906 AK STEEL CORP Ba3|BB 7.625 5/15/2020 106.65 6.4342512 PLAINS EXPLORATION & PRO B1|BB- 7.625 4/1/2020 107 6.3565349 BRASKEM FINANCE LTD Baa3|BBB- 7 5/7/2020 108.774 5.7394189 TARGA RESOURCES PARTNERS B1|B+ 6.875 2/1/2021 99.5 6.9444043 GEORGIA-PACIFIC LLC Ba2|BBB 5.4 11/1/2020 100.295 5.3599322 AVERAGE 7.02 9 YEARS 104.16 6.27 LYONDELL CHEMICAL COMPAN B2|BB- 11 5/1/2018 113 4.1496643 NALCO CO Ba2|BB- 6.625 1/15/2019 103.25 5.9412318 COMMUNICATIONS NOVELIS INC B2|B 8.75 12/15/2020 109.05 7.1815132 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* AVERAGE 7.73 9 YEARS 106.83 5.80 CLEAR CHANNEL COMMUNICAT Caa1|CCC+ 9 3/1/2021 101.4375 8.737834 CLEAR CHANNEL WORLDWIDE B2|B 9.25 12/15/2017 111.5 5.8430289 CONSUMER, CYCLICAL INTELSAT JACKSON HLDG B3|B 7.25 10/15/2020 100.85 7.100214 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* INTELSAT LUXEMBOURG SA Caa3|CCC+ 11.25 2/4/2017 101.625 10.7049617 CONTINENTAL AIRLINES INC Ba2|BB- 6.75 9/15/2015 100.625 6.5368259 LEVEL 3 FINANCING INC Caa1|CCC 9.25 11/1/2014 104 5.63048473 GOODYEAR TIRE & RUBBER B1|B+ 8.25 8/15/2020 110 6.3932518 SIRIUS XM RADIO INC B3|BB- 8.75 4/1/2015 112.393 5.206809 JC PENNEY CORP INC Ba1|BB+ 7.625 3/1/2097 90.71 8.4050172 SPRINT CAPITAL CORP B1|BB- 6.9 5/1/2019 102.7 6.4623034 K HOVNANIAN ENTERPRISES B1|CCC+ 10.625 10/15/2016 106.5625 8.8088034 UNIVISION COMMUNICATIONS Caa2|CCC+ 8.5 5/15/2021 103.9 7.8048263 LIMITED BRANDS INC Ba2|BB+ 6.9 7/15/2017 107.5 5.4563139 VIRGIN MEDIA FINANCE PLC Ba2|BB- 9.5 8/15/2016 114.875 4.5629379 MACYS RETAIL HLDGS INC Ba1|BB+ 8.375 7/15/2015 117 3.943387461 WINDSTREAM CORP Ba3|B+ 8.625 8/1/2016 106.125 1.19621375 MICHAELS STORES INC Caa1|CCC 7.75 11/1/2018 103.263 7.0241521 AVERAGE 8.8275 7 YEARS 105.94 6.32 NAVISTAR INTL CORP B1|BB- 8.25 11/1/2021 111.75 5.5888209 RITE AID CORP Caa3|CCC 9.5 6/15/2017 91 11.5881528 INDUSTRIAL WYNDHAM WORLDWIDE Ba1|BBB- 6 12/1/2016 106.5 4.6627253 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* AVERAGE 8.00 4 YEARS** 104.49 6.84 BOMBARDIER INC Ba2|BB+ 7.75 3/15/2020 110.769 6.154622 CASE NEW HOLLAND INC Ba3|BB+ 7.875 12/1/2017 111.834 5.6923174 CONSUMER, NON-CYCLICAL CEMEX FINANCE LLC B 9.5 12/14/2016 106.88 7.6969137 ISSUER RATINGS COUPON MATURITY PRICE YIELD TO WORST* FORD MOTOR CREDIT CO LLC Ba2|BB- 8.125 1/15/2020 118.5 5.4276937 CONSTELLATION BRANDS INC Ba3|BB 7.25 5/15/2017 109.125 5.4547723 GRAPHIC PACKAGING INTL B3|B 9.5 6/15/2017 110.5 6.2569792 DEAN FOODS CO B2|B- 7 6/1/2016 96 7.9705778 PLY GEM INDUSTRIES Caa1|B- 8.25 2/15/2018 103.125 7.5685763 SMITHFIELD FOODS INC Ba3|BB 10 7/15/2014 118.5 3.8060301 RAILAMERICA INC B1|BB 9.25 7/1/2017 111 5.79742 SPECTRUM BRANDS HLDGS B2|B 9.5 6/15/2018 111.656 6.6877129 AVERAGE 8.60 7 YEARS 110.37 6.37 SUPERVALU INC B2|B 8 5/1/2016 102 7.5124797 TYSON FOODS INC Ba1|BBB- 10.5 3/1/2014 121 2.7363699 AVERAGE 8.70 5 YEARS 109.71 5.69 * Yield to worst possible outcome/redemption date. ** Excluding JC Penny Corp’s bond due in 2097.