High Yield Weekly 01/19/2018

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.2 billion and year to date flows stand at $1.0 billion. New issuance for the week was $6.9 billion and year to date HY is at $11 billion, which is up 32% over the same period last year.

(Bloomberg) High Yield Supply

• The primary market for dollar-denominated high yield bonds has been active so far in 2018 as credit spreads narrowed to the tightest level in a decade. Most deals continue to be refinancing-related with energy issuers particularly eager to take advantage of firmer oil prices.
• High yield dollar-debt issuers are actively tapping the primary markets at the start of the year, tallying total volume of $9.7 billion through Jan. 15 vs. a 10-year median of $8 billion over equivalent past periods. Demand appears strong, with many issues reportedly oversubscribed as secondary-market credit spreads reached a low of 318 bps on Jan. 9 — the tightest in a decade as gauged by the Bloomberg Barclays U.S. Corporate High Yield Bond Index option-adjusted spread to U.S. Treasuries.
• Issuers in the energy and materials sectors continue to lead offerings in 2018, with a 67% share of the year-to-date volume vs. the 24% share of total debt outstanding in the Bloomberg Barclays U.S. Corporate High Yield Bond Index for these sectors. Most were refinancing deals as issuers take advantage of firmer oil and metal prices to extend maturity profiles and shore up balance sheets after the 2015-16 commodities slump. Energy index spreads have narrowed to mid-2014 levels, currently at 347 bps.
• Companies Impacted: Sunoco LP has led issuance so far in 2018, with $2.2 billion in refinancing related 144A notes, while energy sector peer Ensco PLC sold $1 billion in global debt, also refi related. In the materials sector, Olin Corp sold $500 million senior debt, also a financing.

(Bloomberg) Teva to Become the Fourth-Largest Global High Yield Issuer

• Moody’s downgraded Teva’s unsecured bonds two notches to Ba2, two levels below investment grade. This will trigger the removal of $17 billion in debt outstanding from the Bloomberg Barclays U.S. Corporate Bond Index, a subcomponent of the U.S. Aggregate Index, in the Feb. 1 rebalancing.
• Moody’s downgrade of Teva’s debt means almost $25.6 billion face value in dollar and euro-denominated bonds will join the Bloomberg Barclays Global High Yield Corporate Bond index on Feb. 1. That’s about $23.5 billion market value at current prices, or about 1.2% index weight, which will make Teva the fourth-largest issuer in the index behind HCA, Sprint and Telecom Italia. Compared with the index, Teva’s bonds average higher ratings and lower yield, which should have a positive impact on index quality.

(Bloomberg) Frontier Asks Lenders for a Break as It Looks to Add More Debt

• The rural telecom service is asking lenders to cut it a break on some of the terms governing its $18 billion in bonds and loans so it can raise new funds, potentially setting the stage for refinancing parts of its crippling debt load.
• On a call with senior lenders and then in a regulatory filing Wednesday, Frontier executives proposed adding new debt at the junior level and enhancing protections for senior creditors. To that end, the company wants to eliminate a restriction on the amount of total debt it could incur as a percentage of earnings, according to the filing. Instead, the cap on that ratio would apply only to first-lien debt.
• The changes “will afford the company greater flexibility in executing on operational initiatives and in optimizing its access to the debt markets,” Frontier said in an emailed statement.
• Among other changes, the plan would set Frontier’s first-lien leverage ratio at 1.5 times Ebitda, dropping to 1.35 times in 2020, and limit additional first-lien debt to $800 million, according to the filing. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a key measure of company’s ability to service its debt.
• On the lender call, organized by JPMorgan Chase & Co., Frontier executives said they’d offer lenders a consent fee of 15 basis points in exchange for the amendments, according to participants.

(PR Newswire) Noble Corporation Announces Pricing And Upsizing Of Offering Of Senior Guaranteed Notes

• Noble Corporation announced today that its indirect, wholly-owned subsidiary, Noble Holding International Limited (“NHIL”), has priced an offering of $750,000,000 aggregate principal amount of 7.875% senior unsecured guaranteed notes due 2026 (the “Notes”). The offering was upsized from a previously announced amount of $500,000,000. NHIL intends to use the net proceeds of approximately $738,750,000, together with cash on hand, to pay the purchase price and accrued interest (together with fees and expenses) in the tender offers (the “Tender Offers”) to purchase for cash up to $750,000,000 aggregate purchase price, excluding accrued interest, of NHIL’s outstanding 4.00% Senior Notes due 2018, 4.90% Senior Notes due 2020, 4.625% Senior Notes due 2021, 3.95% Senior Notes due 2022 and 7.75% Senior Notes due 2024 and the outstanding 7.50% Senior Notes due 2019. If the Tender Offers are not consummated, or the aggregate purchase price of the notes tendered in the Tender Offers and accepted for payment is less than the net proceeds of the Notes offering, NHIL will use the remainder of those proceeds for general corporate purposes, which may include the further retirement of debt, including, but not limited to, the purchase of debt in open market or privately negotiated transactions. The Notes offering is expected to close on or about January 31, 2018, subject to customary closing conditions.