Why is the high yield bond market obsessed with refinancing?



Issuers are back with refinancing deals

Despite the higher Treasury yield, 12 issuers came to market with an average ticket size of approximately $430 million—mostly to refinance existing debt. This average ticket size was slightly lower than the previous week’s ticket size of approximately $575 million for the same number of deals. The deals were BB- rated, except Fresenius Medical Care (FMS) and Stena AB, which were BB+ rated. All the deals last week were tight within price talk, meaning investors pushed back little against the deals offered.

HY issuance by Purpose_ Feb 14, 2014

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Last week remained very slow from an M&A (mergers and acquisitions) activity perspective. Of the total deals, only the Chuck E. Cheese deal was in the leverage buyout space, while Hunt Companies raised $525 million for an acquisition. The eight-year (non-call three) Chuck E. Cheese deal initially came to market to raise $305 million. However, this deal settled at $255 million, as some investors had concerns over the covenant clauses.

There are mixed feelings about the high yield bond market. Issuers still look active. However, for high yield bond investors, the increase in long-term Treasury yields may remain a concern in relation to the improved market conditions.

Pipeline ahead indicates higher M&A

The forward-looking calendar remains optimistic on the M&A front. Of the 13 high yield bond (JNK) deals announced for next week, only two deals were in the refinancing space, while the remaining 11 deals were for M&A and LBOs (leveraged buyouts). The biggest deal to watch will be for Crown Castle International (CCI), an infrastructure service provider for broadcasting and mobile telephony, which plans to raise about $3.4 billion.

Deals in the leveraged loan space showed a busy market. However, the dollar value of the issuance dropped. Read on to the next part of this series to learn how the leveraged loan market performed relative to high yield bonds.


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