uploads///US High Yield Bond Market Issuance

Refinancing surges as high yield debt picks up


Mar. 11 2015, Updated 4:06 p.m. ET

Deals and flows analysis in high yield bond markets

The month of February saw high yield, or junk bond, activity pick up. Monetary accommodation by central banks was the primary reason for this increase in activity. This was because an expansionary monetary policy drove sovereign bond yields down. This led to investors turning to high yield debt and associated ETFs to get higher yields.

This trend has now spilled over to March. High yield debt is tracked by the SPDR Barclays Capital High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG).

Issuers found market conditions ripe for raising debt. According to data from S&P Capital IQ’s Leveraged Commentary and Data (or LCD), they issued $9.1 billion in new debt across 13 transactions in the week ended March 6. The issuance volume rose by 12.5% from the week ended February 27.

Last week brought the total US dollar issuance of high yield bonds to $62.9 billion in 2015 year-to-date. This is up 21% from the corresponding period of 2014. The number of transactions rose from ten to 13 week-over-week.

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Refinancing deals surge

The purpose behind most deals last week was to refinance older debt. Refinancing-related issues accounted for a whopping ten out of 13 transactions in the week. The number of refinancing deals was the second highest in 2015 so far.

Two of the three largest deals in the week were for refinancing. These included Energy XXI Gulf Coast, Inc.’s $1.45 billion senior secured lien notes sale, the largest deal of the week. The company is a subsidiary of Energy XXI Ltd. (EXXI), an upstream oil and gas company.

Peabody Energy Corporation (BTU) issued senior secured lien notes worth $1.0 billion. Sirius XM Radio, operated by Sirius XM Holdings Inc. (SIRI), issued senior notes worth $1.0 billion.

The U.S. Federal Reserve may possibly move toward a rate hike in light of strong labor market data for February. This is pushing companies to issue debt now before an increasing interest rate environment makes raising loans costlier. So issuers are trying to pay off older debt by issuing lower-cost financing.

Other deals

Besides the refinancing-related deals, there were two deals for general corporate purposes and one for dividend and recapitalization.

Energy XXI Gulf Coast, Inc.’s $1.45 billion senior secured lien notes sale was the largest refinancing deal, but Sirius XM Radio’s $1.0 billion senior notes sale was the largest deal for corporate purposes.

We’ll analyze these deals and pricing trends in detail in the next section.


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