Weekly performance review: High yield bonds and leveraged loans

Part 4
Weekly performance review: High yield bonds and leveraged loans (Part 4 of 7)

Single B rated bond deals: Hercules Offshore versus Post Holdings

Food & Beverage versus Oil & Gas

Post Holdings, Inc. (POST), a nutritional food and beverage company in the U.S., was the only company, which drew the maximum investor’s attention in the high yield bond market (HYG) last week.

The company placed $250 million in senior notes, which later upsized to $350 million to meet its general corporate needs. The deal at 6.75% coupon rate due 2021 (seven-year term period) is priced at a $105.75 premium and is expected to yield 5.81%. Throughout the process of raising funds, POST’s deal remained at the tight end of the talk, meaning the investors were willing to invest money in the food giant even at speculative credit rating of B/B1.The bond issued will add to the company’s current debt profile of $1.4 billion. The company has also posted its first quarter earnings for 2014 that resulted in a 25.4% growth with consolidated net sales hitting $297 million.

POSTEnlarge Graph

Hercules Offshore, Inc. (HERO), is a leading offshore contract drilling company with high number of jackup rigs and liftboats fleet. The company tapped the high yield bond market (JNK) to raise a $300 million debt at par to yield 6.75%.

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Proceeds will be used to refinance the 7.125% senior notes due for 2017. The deal will add to the company’s current debt profile of $1.2 billion.

Hercules Offshore, Inc. (HERO) posted its full year 2013 results, which reported a loss from continuing operations of $26.8 million, or $0.17 per diluted share, on revenue of $858.3 million, compared to a loss from continuing operations of $121.0 million, or $0.79 per diluted share, on revenue of $618.2 million for the 12-month period ended December 31, 2012.

The company has recently acquired a long-term contract in the Gulf of Mexico at relatively high day rates, which is expected to bring incremental revenues for the company.

Pipeline ahead indicates higher M&A

The forward looking calendar seems strong from M&A perspective. Of the 21 high yield bond (JNK) deals announced for next week, only two deals were in the refinancing space, while the remaining 19 deals were for M&A and LBOs (leveraged buyouts). The biggest deal to watch will be AerCap Holdings N.V. (AER) and Crown Castle International (CCI), which are expected to transact $2.7 billion and $3.4 billion M&A deals.

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