March 1, 2012 / 3:36 PM / 6 years ago

February HY volume hits record

March 1 (IFR) - The high-yield market experienced the busiest February on record with US$44.1bn in global volume priced. Attractive rates and a cash-flush investor base brough in opportunistic.

The activity easily surpasses the previous February record of US$24.7bn set last year.

The level of issuance also made February the third busiest month ever, falling just short of March 2011’s total of US$46.7bn and the all-time record of US$51.9bn set in May 2011. Year-to-date volume now stands at US$68.4bn, inching ahead of the US$64.2bn priced for the same period a year ago.

With massive inflows of US$11.78bn year to date as retail investors seek higher returns in the current low interest rate environment, fund managers have plenty of cash to put to work -- and issuers are finding a welcome home.

“Falling yields and declining market volatility have brought a flood of new high yield bond issuance to market this year.The issuance rush completes a virtuous circle where improved liquidity and rising bond prices enhance the longer-term outlook for high yield debt,” said Ben Garber, analyst at Moody’s Investor Service. “However, such felicitous conditions can be undone by negative shocks.”

But while high-yield issuance in 2011 fell to US$83bn in the second half from US$246bn in the first half on debt ceiling and eurozone concerns, the high-yield market in 2012 is showing signs of greater resiliency, Garber pointed out.

“Though higher oil prices menace the medium-term outlook, the US market’s sangfroid in the face of the tortured Greek debt negotiations provides evidence that high yield corporate debt has gained resiliency,” said Garber.

Spreads continue to compress in the current environment. The option adjusted spread on the Barclays US high-yield index dropped to 577bp at the end of February, more than 100bp from where it started of the year.

LBO names from the last cycle’s peak are taking advantage of the favorable conditions as they address their heavy debtloads.

Clear Channel hit the market this Wednesday with US$2.2bn in an upsized senior subordinated offering through Goldman Sachs, Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, Wells Fargo and RBS joint book. At a purchase price of US$17.9bn, Clear Channel was among the largest leveraged buyouts structured at the peak of the last credit cycle.

The issue priced late Wednesday at 7.625% at par, the midpoint of talk, and rose a point in the immediate aftermarket. “Clear Channel’s private equity group is pretty shrewd,” said one high-yield investor. “Whenever there is a hard rally going on, they come into the market to see what portion of the capital structure they can refinance.”

Clear Channel is owned by Bain Capital and TH Lee.

Energy Future Holding, which still to this day is the largest LBO in history, also tapped recent investor appetite. The energy company, which was bought in a US$45bn acquisition by Kohlberg Kravis Roberts and TPG in 2007, jumped into the market twice in February for a total of US$1.15bn to repay intercompany notes to its subsidiary Texas Competitive Electric Holdings.

The senior secured second lien notes came with very low Caa3/CC ratings but investors were drawn to the issue due to the strong collateral value through Oncor, the company’s regulated, and very stable, utility company.

Privately owned specialty retailer Claire’s Stores also took to the high-yield market twice in February, issuing a total of US$500m to repay its credit facility. The original B3/B rated US$400m seven-year non-call three senior secured first lien notes priced on February 13 at 9% at par, with a US$100m add-on priced Monday at 101.50 to yield 8.671%.

Claire‘s, which was purchased by Apollo Management in 2007 for US$3.1bn, took advantage of a similar open window last February when it sold US$450m in high-yield bonds to repay bank debt. That Caa3/CCC rated second lien offering priced at par to yield 8.875%.

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