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ZF Friedrichshafen: Highest Junk Bond Issuer in 2Q15

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Pricing trends

Junk bond issuance in 2Q15 began on a strong note in April when yields were favorable. However, it tapered off in June, which saw the lowest issuance volume in 2015 year-to-date. Yields rose that month, and issuers became wary of the path of monetary policy in the United States.

ETFs like the SPDR Barclays High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) invest in junk bonds.

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Deal highlight of the quarter

ZF Friedrichshafen, a German car parts maker, issued Ba2/BB rated dollar-denominated junk bonds worth $3.5 billion in April. The three-tranche issue consisted of the following:

  • $1.0 billion in 4.00% senior notes due April 29, 2020 – The notes were issued at 99.44% of the aggregate principal amount at a yield to worst of 4.125%.
  • $1.0 billion in 4.50% senior notes due April 29, 2022 – The notes were issued at 99.26% of the aggregate principal amount at a yield to worst of 4.625%.
  • $1.5 billion in 4.75% senior notes due April 29, 2025 – The notes were issued at 99.02% of the aggregate principal amount at a yield to worst of 4.875%.

ZF Friedrichshafen intended to use the proceeds from the sale to acquire US-based TRW Automotive Holdings (TRW).

Issuance by Fiat Chrysler Automobiles

Fiat Chrysler Automobiles (FCAU) is a designer, manufacturer, and seller of automobiles and components. In April, it issued B2/BB- rated junk bonds worth $3 billion in the following two tranches:

  • $1.5 billion in 4.500% senior notes due April 15, 2020 – The notes were issued at 100% at a yield to worst of 4.500%.
  • $1.5 billion in 5.250% senior notes due April 15, 2023 – The notes were issued at 100% at a yield to worst of 5.250%.

Fiat Chrysler Automobiles used the proceeds from the sale for general corporate purposes, which included refinancing debt of its unit FCA US.

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Issuance by Charter Communications

Charter Communications (CHTR) issued B1/BB- rated junk bonds worth a cumulative $2.7 billion in the following three tranches in April:

  • $1.15 billion in 5.125% senior notes due May 1, 2023 – The notes were issued at 100% of the aggregate principal amount at a yield to worst of 5.125%.
  • $750 million in 5.375% senior notes due May 1, 2025 – The notes were issued at 100% of the aggregate principal amount at a yield to worst of 5.375%.
  • $800 million in 5.875% senior notes due May 1, 2027 – The notes were issued at 100% of the aggregate principal amount at a yield to worst of 5.875%.

Charter used the proceeds from the sale to refinance older notes issued and for general corporate purposes.

Issuance by GM Financial

GM Financial is the financial services unit of automaker General Motors (GM). It issued Ba1/BBB- rated bonds worth $2.4 billion in the following three tranches in April:

  • $300 million in senior floating-rate notes with a coupon of LIBOR + 135 basis points
  • $850 million in 2.400% senior notes due April 10, 2018 – The notes were issued at 99.91% at a yield to worst of 2.430%.
  • $1.25 billion in 3.450% senior notes due April 10, 2022 – The notes were issued at 99.80% at a yield to worst of 3.482%.

GM Financial used the proceeds of the sales for general corporate purposes.

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