IFR Magazine – June 08, 2019

SENTIMENT SHIFT OPENS DOORS FOR
US JUNK ISSUERS

A sudden shift in sentiment swung open the
doors of the primary market for US junk
bond deals last week, when seven issuers
RAISEDûAûCOMBINEDûTOTALûOFû53BN
7ITHûTHEûMARKETûBETTINGûTHATûTHEû&EDERALû
Reserve will do what is necessary to battle
any downturn in economic growth from
trade wars, the stage was set nicely for
capital-raising.
“This has been a great opportunity to
RElNANCEûDEBTûGIVENûWHEREû4REASURIESûRATESû
are,” said Stephen Repoff, senior credit
ANALYSTûATû'7+û)NVESTMENTû-ANAGEMENT
“There are so many bonds approaching
their call price. It seems like a good time to
take advantage of those technicals.”
Issuers tapping the market last week ran
the credit gamut from distressed retailer
NEIMAN MARCUSû#A###
ûTOû!LASKANû
COMMUNICATIONSûlRMûGCIû" ûTOûDEBUTûISSUERû
GRUBHUB "A"" 
Serial issuers such as INTELSATû#AA
### ûSIRIUS XM RADIO "A"" ûANDûL BRANDS
"A"" ûTHEûOWNERûOFû6ICTORIASû3ECRETûANDû
"ATHûû"ODYû7ORKS ûALSOûEMERGEDûFROMûTHEû
pipeline last week.
The high-yield market remains in a
relatively sweet spot despite recent
volatility, said fund managers.
$EFAULTSûREMAINûLOW ûCOMPANYû
fundamentals are largely solid and much of
the high-yield universe is not directly
exposed to the trade risks that have rattled
the market.
h4HEREûAREûPOCKETSûWHEREûPROBLEMSû
exist), but it pretty well comes down to
whether you think there will be a recession
anytime soon, and we don’t,” said a high-
yield investor.
Against that backdrop, new issues were
expected to catch a decent enough bid
following a rally in high-yield on Tuesday
that saw average spreads tighten 17bp,
ACCORDINGûTOû)#%û"!-,ûDATA

h4HEûSTRONGûREBOUNDûHASûDRIVENûINmOWSû

BACKûINTOû%4&SûANDûWEûAREûOPENINGûUPûWITHûAû

continued bid for risk, giving issuers

comfort to price new deals,” a trader said.

L BRANDS GIVES PAUSE

-OSTûDEALSûSAWûDECENTûENOUGHûPRICEû

progression and demand, with the

exception of L Brands, whose US$500m 7.5%



YEARûNON

CALLûlVEûPRICEDûATûûINûLINEû

with price talk.

Secular trends in the retail sector and

questionable demand for Victoria’s Secret

products gave some investors pause about

the L Brands issue, though some still liked

the name.

h7EûAREûFAVOURABLEûTOû"ATHûANDû"ODYû

7ORKSûWHICHûISûDOINGûVERYûWELLvûSAIDûTHEû

INVESTORûh4HEûPURCHASEûOFûITSûPRODUCTS    û

needs to be smelled and touched, so it is

NICELYûINSULATEDûFROMû!MAZONv

That the company also used the issue to

pay down debt sat well with investors, not to

mention its moderate leverage and decent

FREEûCASHmOWS

L Brands faces about US$2bn in debt

coming due before April 22, but the

COMPANYûSHOULDûUSEûFREEûCASHmOWûTOûCUTû

debt and bring down leverage, which stood

ATûûTIMESûINû&EBRUARYûACCORDINGûTOû

-OODYS

Even so, others preferred to give the

10NC5 a miss, given the precarious nature

of the sector.

EUROPE/MIDDLE EAST/

AFRICA

BILFINGER PAYS UP FOR REVIVED REFI

BILFINGERûMANAGEDûTOûPRICEûAûRElNANCINGûONû

second attempt last week, but had to pay up

75bp on last year’s original try.

4HEû'ERMANûINDUSTRIALûSERVICESû

COMPANYSûõMûlVE

YEARûDEALûPRICEDûATû

ûYIELDûATûû/)$ûWITHûAûû

COUPONûCOMPAREDûTOûûATûPAR   ûlNALû

terms at which the deal was pulled in early

October.

0RICINGûCAMEûATûTHEûTIGHTûENDûOFûûAREAû

GUIDANCEûFROMûûAREAû)04Sû"OOKSûWEREû

over €600m at the tight end of guidance.

The deal was expected to come to market

this week but was accelerated to last

Thursday.

It was the second time that the company

has tried to sell the bond after last year’s

trade failed when the company could not hit

its price target, a source with knowledge of

the matter said at the time.

7HILEû"ILlNGERûPAIDûUPûTOûGETûITûDONEûTHISû

TIMEûTHEûBONDSûMADEûBIGûGAINSûONû&RIDAYû

trading up as high as 102.6, according to

-ARKET!XESSûDATA

The company also had to stick to the

DOWNSIZEDûAMOUNTûOFûTHEûDEALûITûPULLEDû4HEû

original October trade had started

marketing at €300m.

“I’m surprised that they’re trying again to

issue debt when they were refused with

better market conditions,” said an investor

passing on the name.

But this was not an opportunistic deal, as

"ILlNGERûNEEDEDûFUNDSûTOûRElNANCEûITSû

õMûBONDûMATURINGûINû$ECEMBERûONûTOPû

of proceeds received recently from vendor

loans. The company also issued a

3CHULDSCHEINûINû-ARCH

"ILlNGERSûATTEMPTûLASTû/CTOBERûHADûCOMEû

during a volatile week that saw deals pulled

across European bond markets.

But the iBoxx euro liquid high-yield index

ISûNOWûWIDERûTHANûITûWASûONû/CTOBERûûWHENû

"ILlNGERûPULLEDû)TûYIELDEDûûLASTû-ONDAYû

WHENû"ILlNGERûSTARTEDûMARKETINGûVERSUSû

ûBACKûTHEN

Analysts at CreditSights noted that the

DEALûISûINCREASINGû"ILlNGERSûCOSTûOFûDEBTû

SIGNIlCANTLYûCOMPAREDûTOûTHEûû

COUPONûONûTHEû$ECEMBERûNOTES

Although operational performance has

IMPROVEDûSINCEû"ILlNGERSûLASTûISSUANCEû

attempt, the higher cost of debt comes at a

time when its metrics remain challenged.

Adjusted Ebita is up to €65m in 2018,

COMPAREDûTOûõMûFORûTHEûPREVIOUSûYEARû&IRSTû

QUARTERûADJUSTEDû%BITAûISûNEGATIVEûõMû

compared to negative €6m for the same

period in 2018.

&REEûCASHmOWûGENERATIONûIMPROVEDûTOû

NEGATIVEûõMûINûûCOMPAREDûTOûNEGATIVEû

€181m in 2017.

Deutsche Bank, Commerzbank and HSBC ran

the deal this time around, with

#OMMERZBANKûREPLACINGû".0û0ARIBAS.

The company has been repositioning

itself as an industrial services provider in

recent years after selling its construction

businesses to move away from price wars in

the building sector, but grappled with

prolonged negative earnings and low

PROlTABILITYûFOLLOWINGûTHEûSLUMPûINûTHEû

price of oil.

CABOT CREDIT MANAGEMENT

REFINANCES

CABOT CREDIT MANAGEMENT priced its

RElNANCINGûTRADEûWITHûANûUPSIZEûLASTûWEEKû

but paid up as risks remain in the debt

collection sector.

4HEûõMû.#ûSENIORûSECUREDûmOATERû

INCREASEDûINûSIZEûFROMûTHEûORIGINALûõMû

marketed, priced at 637.5bp over Euribor.

0RICINGûTHROUGHûMorgan Stanley SOLEû

active), Credit Suisse, HSBC and DNB Markets,

came inside 650bp–675bp over Euribor talk.

0ROCEEDSûRElNANCEû#ABOTSûõMû

.OVEMBERûûmOATER

ALL ASIAN HIGH-YIELD ISSUERS
1/1/2019 TO DATE

Managing No of Total Share
bank or group issues US$(m) (%)
1 Credit Suisse 32 3,721.28 9.0
2 Haitong Securities  49 2,695.40 6.5
3 UBS 32 2,404.38 5.8
4 Citic 31 2,393.55 5.8
5 Deutsche Bank 36 2,191.64 5.3
6 HSBC 32 2,033.30 4.9
7 JP Morgan 14 1,726.69 4.2
8 Morgan Stanley 22 1,608.82 3.9
9 Goldman Sachs 13 1,602.71 3.9
10 Guotai Junan Securities 44 1,577.09 3.8
Total 106 41,525.77
Excluding equity-related debt.
Source: Refinitiv SDC code: B06d