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High yield bonds garner strong appetite in week of February 27

High yield bond issuance rises as leveraged loan issuance slows (Part 3 of 6)

(Continued from Part 2)

Pricing trends

Almost all the high yield bonds that were priced in the market in the week ending February 27 found strong investor appetite. Pricing was competitive for B-rated and even C-rated borrowers, with almost all deals finding takers either in line with, or even at better rates than, the price talk. This benefited higher-rated issuers, who were able to issue debt at lower rates, reducing their finance costs.

Activity in the junk bond market fell in December 2014 and the first half of January 2015 as yields spiked in response to the high crude oil prices (USO) (OIH). However, it picked up pace as 2015 progressed, especially after the European Central Bank announced a stimulus package for the Eurozone and drove government bond yields down.

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

Deal highlights of the week

Bombardier manufactures and sells transportation equipment, including planes and trains, across the world. It issued $2.25 billion in B1/B+ rated senior notes in two tranches, consisting of:

  • $750 million in 5.500% senior notes due on September 15, 2018. The notes were issued at 100.00 at a yield to worst of 5.500%.

  • $1.5 billion in 7.500% senior notes due on March 15, 2025. The notes were issued at 100.00 at a yield to worst of 7.500%.

The lead book runner for the issue was J.P. Morgan (JPM). Bombardier will use the proceeds of the sale to shore up its balance sheet.

Sabine Pass Liquefaction and Cemex Finance are other major issuers

Natural gas liquefaction company Sabine Pass Liquefaction is a subsidiary of Cheniere Energy Partners (CQP). It issued $2.0 billion in 10-year senior secured notes. The notes, rated Ba3/BB+, had a coupon of 5.625% and will mature on March 1, 2025. It was issued at 100.00 at a yield-to-worst of 5.625%. Sabine Pass Liquefaction will use the proceeds of the sale to pay capital costs for construction of the first four liquefaction trains in Cameron Parish, Louisiana.

Cemex Finance is a subsidiary of Cemex (CX) that produces and sells cement, ready-mix concrete, and other construction materials. It issued senior secured notes both in the dollar and the euro. The dollar-denominated secured notes were worth $750 million and were rated B+. The notes were issued at 99.98 with a coupon of 6.125% and will mature on May 5, 2025. Cemex Finance intends to use the proceeds of the sale to refinance older debt.

Continue to Part 4

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