High Yield Weekly 03/16/2018

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.2 billion and year to date flows stand at -$17.4 billion. New issuance for the week was $8.9 billion and year to date HY is at $49.2 billion, which is -25% over the same period last year.

(Bloomberg) High Yield Market Highlights

• Junk bonds showed some signs of exhaustion as yields rose for several consecutive sessions, with CCC yields rising to a 12-mo. high; as stocks tumbled and the VIX rose for three consecutive sessions. CCC yields have been rising steadily in 7 of last 10 sessions.
• Junk investors, though weary and wary, embraced CCC credits and made a beeline for them in the primary market, with two deals for ~$1b pricing
• NVA Holdings, CCC credit, got orders more than 3x the size of the offering and priced through talk, suggesting risk appetite was robust
• Guitar Center, CCC-rated and a distressed issuer, was welcomed by investors and priced at the middle of talk
• CCCs still beat BBs and single-Bs with positive YTD returns of about 0.8%, showing investor appetite for risk was still alive
• BBs continued to be the worst performer with negative YTD returns of about 1.3%
• Junk bond market was also stronger qualitatively, with issuers rated B3 and lower declining in numbers; Moody’s notes that issuers rated B3 and lower dropped to 13%, below the long-term average of 15% for the 6th straight month

(International Financing Review) Sprint launches near US$4bn spectrum bond

• Telecom carrier Sprint raised almost US$4bn from a financing backed by its spectrum, a deal some analysts say will further boost its liquidity and help better prepare for a potentially tough year ahead.
• The deal launched roughly in line with price talk
• “Spectrum is its most viable assets, and that’s why it is borrowing against it,” an investor said.
• The cost of financing for Sprint, rated junk itself, was also cheaper than available in the high-yield market. Sprint’s US$1.5bn junk bond sale last month – the company’s first in three years – came with yields of 7.625% for eight-year debt.
• “We are encouraged by Sprint’s efforts to diversify its financing sources and use its under-utilized spectrum to secure more attractive pricing,” CreditSights analysts said.
• They predict a bumpy year ahead for the company, earning that Sprint could burn through cash as it ramps up network capex and focuses on moving customers to leasing plans. That comes as the company faces some significant debt maturities.
• The analysts note the company has amended its outstanding spectrum-backed note indenture to allow for the issuance of spectrum-backed notes in excess of the US$7bn that will be reached after its latest ABS.
• “We would not be surprised to see the carrier explore new secured financing alternatives to bolster its cash position,” said CreditSights.

(Fierce Cable) Is SoftBank back on the Charter hunt? Reportedly buys 5% of cable operator’s stock

• Japan’s SoftBank has laid the groundwork for a $100 billion takeover of Charter Communications by its U.S. mobile operator Sprint Communications, the London Times reported over the weekend.
• The Times said that led by billionaire Masayoshi Son, SoftBank has quietly purchased 5% of Charter stock in recent weeks.
• Neither Charter nor Sprint has commented on this report.
• Last summer, Charter rebuffed a SoftBank merger offer of $540 a share at a time when the cable operator’s stock was trading in the low $400 range. Liberty Media kingpin John Malone, Charter’s biggest shareholder, was reported to be in favor of the deal. Also enthusiastic was the Newhouse family, who became influential Charter shareholders when the cable company bought Bright House Networks.
• Charter’s management team, led by Chairman and CEO Tom Rutledge, has been resistant of a takeover, while still keen on actualizing the value of fully digested integrations of 2016 acquisitions Bright House and Time Warner Cable.

(PR Newswire) Huntsman Acquires Demilec, a Leading North American Spray Polyurethane Foam Insulation Manufacturer

• Demilec has annual revenues of approximately $170 million and two manufacturing facilities located in Arlington, Texas and Boisbriand, Quebec where they produce a full suite of MDI based SPF formulations which they market directly to applicators as well as through distributors. Demilec specializes in both closed cell and open cell formulations, with a focus on products with renewable and recyclable content that are eco-friendly, bio-preferred and reduce energy consumption through highly efficient insulation properties.
• Under terms of the agreement, Huntsman will pay $350 million in an all-cash transaction, funded from available liquidity. Based upon full year 2018 EBITDA estimates, this represents a purchase price multiple of approximately 11.5x or 7.5x, pro forma for synergies. The transaction is expected to close by the end of second quarter 2018.
• Peter Huntsman, Chairman, President and CEO commented: “This bolt-on acquisition is a great fit to our core strategy to move downstream. The integration of Demilec into our Polyurethanes business offers significant synergies and delivers substantially higher and very stable margins by pulling through large amounts of upstream polymeric MDI into specialized spray foam systems. This integrated business will have greater than 25% EBITDA margins and double digit growth.”