Why refinancing deals crowded the high yield bond market (Part 5 of 6)
Nineteen issuers came to market with an average ticket size of $728 million. This compares to 20 deals that hit the leveraged loan market the previous week, with the average ticket size of $750 million. Despite investors’ concern on the aggressive deal pricing, the number of deals was oversubscribed in the refinancing space, indicating solid reception.
Among the deals of last week, IMG Worldwide drew oversubscription on the $1.9 billion first-lien term loan. The company also offered a second-lien paper worth $450 million, which remained quite hot in the market. Aricent Inc., a research and development engineering services and software company controlled by KKR & CO. L.P. (KKR), raised a $100 million PIK loan last week for refinancing. A PIK (payment in kind) loan doesn’t provide any interest payment until maturity. Essentially, the issuer accrues the interest on the loan during the period the loan is active and pays in cash, equity, or debt upon the maturity of the loan. Since PIK loans are highly risky debts with no collateral, these loans offers relatively high interest rates. Investors who can afford to take above-average risks, such as private equity investors and hedge funds, are most likely to invest in PIK securities.
Lee Enterprises (LEE), a publicly traded American media company, offered a higher yield (rate of return) on its refinancing deal last week. The company issued a two-part loan with a $240 million first-lien loan package and a $200 million fixed-rate second-lien term loan to repay its existing credit facilities in full. The $240 million four-year B term loan is expected at L+625 (625 basis points is the credit spread over the Treasury with the same maturity), with a 1.25% LIBOR floor. The new $200 million second-lien term loan due December 2022 carries a 12% cash pay coupon.
Leveraged loan forward calendar
The leveraged loan forward-rolling calendar (March 24 to March 28, 2014) looks strong from a refinancing perspective. Of the 24 leveraged loan (BKLN) deals announced for next week, 15 were in the refinancing space, while four were expected in the dividend recapitalization space. The remaining deals were split between M&A and others. Some of SEC-registered deals expected to access the loan market include Kindred Healthcare Incorporated (KND) and MoneyGram International Inc. (MGI), a provider of money-transfer and payment services. KND is expected to raise $1.0 billion for refinancing, while MGI is expected to tap a $150 million loan for share buybacks.
Browse this series on Market Realist:
- Part 1 - Why was high yield bond activity little changed last week?
- Part 2 - Refinancing deals continue to top the high yield bond scoreboard
- Part 3 - Why high yield fund flows stayed positive 6 weeks in a row
- Leveraged loan