High-yield debt (or HYG) (JNK) issues in the week ending September 19
AECOM Technology (ACM) is an engineering and construction company. It had the week’s largest issue. ACM plans to use the proceeds from the issue to repay existing debt. It also plans to use the proceeds to fund the cash component of its proposed $4 billion acquisition of URS Corp. ACM issued $1.6 billion worth of Ba3/BB-rated senior notes in two tranches:
- $800 million in eight-year senior notes at par at a coupon of 5.75%
- $800 million in ten-year senior notes at par at a coupon of 5.875%
ACM is part of the SPDR S&P MidCap 400 ETF (MDY).
The week’s other major deals included CBS Outdoors’ (or CBSO) senior notes—$450 million—and senior add-on notes—$150 million—offering. The debt was issued to partly fund its acquisition of certain outdoor businesses from Van Wagner Communications LLC. CBSO is a spinoff of CBS Broadcasting’s (CBS) outdoor advertising business.
Leveraged buyouts (or LBOs)
There were two LBO-related transactions in high-yield debt markets last week. Acosta Sales & Marketing issued $800 million in eight-year senior notes. The Caa1/CCC+ rated notes were issued at par to yield 7.75%. The funds would be used to partially finance the company’s LBO by private-equity player, The Carlyle Group (CG).
Acquisition-related funding will likely get a boost as the Fed comes closer to raising rates. We discussed this in an earlier series. You can read about it in the Market Realist series, “High-yield debt funds see record outflows and bonds rally.”
This trend may be relevant for smaller and lower-rated borrowers. They compete for funding in financial markets where liquidity is lower and borrowing costs are higher. High-yield debt yields increased on September 16. This was in anticipation of the Fed’s September Federal Open Market Committee (or FOMC) statement.
You’ll read more about yields and other secondary market trends in the next part of the series.