Investor appetite was strong for a lot of the high yield bonds that were priced in the market in the week ended March 13. Higher-rated issuers were able to get better deals than the price talk, but some issuers could find takers only at the tight end of the price talk.
The European Central Bank’s (or ECB’s) bond-buying program began on March 9. Under the program, central banks across Europe will purchase European assets worth 60 billion euros every month in an attempt to spur the region’s economy. Due to these purchases, investors flocked to US Treasuries in search of higher yields, driving yields down and benefitting investors in ETFs like the iShares Barclays 20+ Year Treasury Bond Fund (TLT).
Meanwhile, a strong US dollar negatively affected high yield bonds. A decline in retail sales in February was read positively by equities (SPY)(DIA), as they hoped that the Federal Reserve would remain patient in terms of its monetary policy. This report also helped the fixed income markets.
Deal highlights of the week
Valeant Pharmaceuticals (VRX) manufacturers pharmaceuticals, over-the-counter medicine, and medical devices. The company issued $10.1 billion in B1/B rated senior notes in the euro and the US dollar. The dollar issuance amounted to $8.5 billion and was in three tranches:
- $2 billion in 5.375% senior notes due on March 15, 2020: these notes were issued at 100.00 at a yield-to-worst of 5.375%.
- $3.25 billion in 5.875% senior notes due on May 15, 2023: these notes were issued at 100.00 at a yield-to-worst of 5.875%.
- $3.25 billion in 6.125% senior notes due on April 15, 2025: these notes were issued at 100.00 at a yield-to-worst of 6.125%.
The company will use the proceeds of this sale to back its $14.5 billion acquisition of Salix Pharmaceuticals (SLXP).
Issuances by United Rentals and Crestwood Midstream Partners
Equipment rental company United Rentals (URI) issued bonds worth $1.8 billion in two tranches:
- $1 billion in 4.625% senior secured notes, rated Ba1/BB+, due on July 15, 2023: these notes were issued at 100.00 at a yield-to-worst of 4.625%.
- $800 million in 5.500% senior notes, rated B1/BB-, due on July 15, 2025: these notes were issued at 100.00 at a yield-to-worst of 5.500%.
United Rentals plans to use the proceeds of these sales to refinance its older debt.
Crestwood Midstream Partners (CMLP) owns and operates midstream energy assets. It issued senior notes rated B1/BB worth $700 million. The notes were issued at 100.00 with a coupon of 6.250% and they will mature on April 1, 2023. Crestwood Midstream Partners intends to use the proceeds of this sale to refinance its older debt.