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Why did companies aggressively raise debt?

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Pricing trends

Most of the issues priced in the market in the week ending February 13 found strong investor appetite. Pricing was competitive for BB-rated borrowers, and most deals found takers either in line with or at the tight end of price talk. This benefited higher rated issuers who were able to issue debt at lower rates and thus reduce their finance costs, and companies began to aggressively raise debt.

Activity in the junk bond market had dried up as yields spiked in response to the high crude oil prices (USO) (OIH). But the pace picked back up in January 2015, especially after the European Central Bank announced a stimulus package for the Euro zone.

Lower market volatility tracked by the iPath S&P 500 VIX Short Term Futures ETN (VXX) coupled with a stock market (SPY) (DIA) that has touched record highs also improved conditions for high yield debt.

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Deal highlights of the week

GTECH S.p.A., the lottery and gaming company, issued $3.2 billion in a three-tranche Ba2/BB+ rated senior secured notes offering, which consisted of the following:

  • $600 million in 5.625% senior secured notes due February 15, 2020. The notes were issued at 100.00 at a yield to worst of 5.625%.
  • $1.5 billion in 6.250% senior secured notes due February 15, 2022. The notes were issued at 100.00 at a yield to worst of 6.250%.
  • $1.1 billion in 6.500% senior secured notes due February 15, 2025. The notes were issued at 100.00 at a yield to worst of 6.500%.

GTECH will use the proceeds to pay part of the cash component for the acquisition of International Game Technology (IGT) and acquisition-related costs.

Univision and Ally Financial: Other major issuers

Media company Univision Communications issued $1.25 billion in ten-year senior notes in two tranches. The company issued one tranche of the B2/B+ rated notes at par, at a coupon of 5.125%. The other was sold at a premium with a price of $103, with the same coupon. Univision plans to use the funds for refinancing old debt.

Ally Financial Inc. (ALLY) issued $1.2 billion in senior notes in two tranches. The B1/BB+ rated notes were issued at a discount, with the one maturing on February 13, 2018, carrying a coupon of 3.250%. The other, maturing on February 13, 2022, carried a coupon of 4.125%. Ally Financial also plans to use the funds to refinance old debt.

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