Oooh, Baby, Baby ... Push Back Good

As few as six weeks ago, investors were lamenting the speed at which deals were hitting the high yield bond market—with banks announcing at 8 a.m. and closing at 4 p.m. the same day.

Oh, but how quickly the beat changes at the high yield dance. The pipeline has slowed like a Celine Dion cover of, well, anything good really, as investors, er… become number one in the hot party show and … push to get paid.

So what exactly is the difference these six weeks have made? Quality, baby.  

“When the new issues market initially opens, you’re going to have names the high yield market is already familiar with coming from the stellar underwriters, and those are just quick drive-bys; it’s just a function of pricing it properly,” one investor said. “Now, after that first wave has been completed, you’re starting to see dicier deals coming to market.

“You just need a couple of these deals to either get pulled or restructured dramatically,” he added, “just to let people know, “Hey, you can’t just bring any crummy deal here, with no covenants and no security. We’re not back to that yet.” 

Looks like that may already be happening. Case in point: Prospect Medical, which Wednesday issued $160 million in 12.72% senior secured notes due 2014, after nearly two weeks in the market with lead underwriter RBS. The notes priced with an OID of 92.34, bringing the total yield to 15%. Quite a bit steeper than RBS had hoped, according to talk, which was an OID of 96.

A day earlier, CapitalSource issued $300 million in 12.75% senior secured notes due 2014. Those bonds, brought by Credit Suisse, priced with an OID of 93.97 for a total yield of 14.5%, a full point above price talk.

Then you have a deal like SBA Communications Corp., whose subsidiary SBA Telecommunications quickly priced an upsized offering of $750 million (up from the $500 million initially planned) in two tranches with 8.0% and 8.5% coupons. Barclays led the deal, which was announced Monday and completed by midday Tuesday.

But an SBA has become more of the exception than the rule. Of the 15 companies that completed offerings between July 1 and the end of the day today, only five priced deals with coupons below 10%. And several deals still sit, wallflowers at the dance—Duane ReadePeninsula Gaming and MTR Gaming Group, all announced on July 15, Reliance Intermediate Holdings, announced July 10, and One Communications, announced June 26 and possibly tabled, at least for now, according to one investor, who added, “Get up on this.”

Just kidding about that last part.

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