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Junk Bond Issuance Rose as Equity Markets Rebounded

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Pricing trends

The moderate rebound in equity markets and positive earnings results has brought high-yield issuers back to the primary market. However, the deal flow was not robust, but higher than in the previous week, which was the lowest early February issuance since the credit crisis of 2009. The primary market saw three deals being priced last week, up from two deals in the previous week.

Mutual Funds such as the PIMCO High-Yield Fund Class A (PHDAX) and the Fidelity High Income Fund (SPHIX) invest in junk bonds. The holdings of PHDAX include Citigroup (C) and Lloyds Banking Group (LYG), while SPHIX holds junk bonds of Tenet Healthcare (THC) and Tronox Worldwide, a subsidiary of Tronox (TROX).

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Issuance by Standard Industries

Standard Industries (SIL.NS), parent company of GAF and formerly known as Building Materials Corporation of America, is a global diversified industrial holding company. It issued dollar-denominated junk bonds worth $1.0 billion on February 18, 2016. The Ba2 and BBB- rated two-tranche issue consisted of:

  • $500 million in 5.1% senior notes due in 2021. The notes were issued at 100% of the aggregate principal amount at a yield to worst of 4.8%.
  • $500 million in 5.5% senior notes due in 2023. The notes were issued at 100% of the aggregate principal amount at a yield to worst of 5.3%.

Standard Industries intends to use the proceeds of the loan for the acquisition of Icopal, a leading pan-European manufacturer of roofing and other waterproofing products, from Investcorp for approximately 1 billion euros. The acquisition is expected to close by the second quarter of 2016.

Issuance by Medical Property Trust

Medical Properties Trust (MPW) is a self-advised REIT formed to capitalize on the changing trends in healthcare delivery by acquiring and developing net-leased healthcare facilities. It issued dollar-denominated junk bonds worth $500 million on February 17, 2016. The senior notes were rated Ba1 and BBB- and carried a coupon of 6.4%. The bonds will mature on March 1, 2024.

The company intends to use the net proceeds from the offering of the notes to repay borrowings made under its revolving credit facility.

Issuance by Prestige Brands Holdings

Prestige Brands Holdings (PBH) markets, sells, and distributes over-the-counter healthcare and household cleaning products to retail outlets in the United States, Canada, and certain international markets. It issued dollar-denominated junk bonds worth $350 million on February 16. The senior notes were rated Caa1 and B and carried a coupon of 6.4%. The bonds will mature on March 1, 2024.

The company intends to use the net proceeds from the proposed offering for the following purposes:

  • To redeem all of its outstanding 8.1% senior notes due in 2020
  • To repay the bridge credit facility entered into on February 4, 2016, in connection with the company’s closing of the acquisition of DenTek Holdings
  • To pay related fees and expenses
  • For general corporate purposes

In the next article, we’ll look at high-yield bond fund flows and the yield movement of bond funds.

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