High Yield And High Hopes

I couldn’t believe my eyes when I looked at the forward high yield calendar earlier this week. HCA, which was on the calendar to price $500 million in high yield bonds, had upped its target to $1 billion. Later, I was amazed again when the company actually priced $1.5 billion, triple its original plan.

HCA was soon followed by Crown Castle, which intended to price $1.1 billion and instead issued $1.2 billion in senior secured notes. These were the first bond offerings on the primary market to break the $1 billion mark so far this year, a total of $2.7 billion in bonds issued in a single day. It looked like the high yield market was trying to party like it was 2006.

There has been a steady stream of bonds issued this week. Building material company Toll Brothers started the week with a $400 million drive-by. As of this writing, Seagate Technology is looking to issue $430 million in bonds, with price talk on the notes putting the total yield between 11.75% and 12%. Satellite operator DigitalGlobe also announced this week its intention to price $300 million in new notes. 

It is a sign, perhaps, that the primary market is starting to thaw. And it may help in giving hope for the prospects of an overall economic recovery. These new bond issues were matched by new IPOs in the stock market, which on April 15 was up almost 23% from a yearly low on March 9.

In fact, the latest conventional wisdom tells us that the U.S. will see its way out of the recession by the end of this year. Then again, it was once the going conventional wisdom that mortgage-backed securities were a sure-fire investment.

But like Odysseus avoiding whirlpools, sirens and the wrath of Poseidon, portfolio managers are wise to be apprehensive about jumping headlong into the primary market. Like The Odyssey’s sirens, a glimmer of good news could lure investors onto the rocky coast of a market still coping with recession. These will be difficult waters to navigate for the foreseeable future.

Three of the last five companies to price bonds in the high yield market were rated investment-grade by Standard & Poor’s and Fitch Ratings. And all priced with an OID—new bonds haven’t priced at par since last September. There is a wall of debt maturities headed our way, scheduled to smack the market in the face in 2011 if issuers can’t refinance a good bit of debt.

And there is still not an overwhelming amount of good news coming from the loan market, though things seem to be brightening there a bit as well (see story, page 1).

So enjoy these few hopeful signs, but please remain cautious.

 

Recent Posts

Investors Win Warner Chilcott Battle, But Expect a War

Investors this week pushed back on Warner Chilcott’s attempt to reduce pricing on its $1.95 billion term loan B, but most don’t believe the market’s repricing fight is over...

Bad Buyouts and What We Could Do about Them

Allied Stores. Burlington Industries. Charter Medical. E-H Holdings. Federated Department Stores… These companies are among the 13 that, between 1985 and 1989, issued a billion or more in junk bonds to help fund a buyout—then promptly went bankrupt...

A Repeat of 2009 Returns? Not. But No Disasters Either

As we here at Leveraged Finance News join you in saying goodbye to 2009 and looking ahead at the year to come, two little words spring to mind: do over? Maybe not all of it, but certainly returns...

Cha-Ching! High Yield Brings High Bonuses

While returns in the 40% to 50% range portend a 2009 Grinch-free holiday season for most leveraged loan and high yield bond professionals, those dedicated to selling and trading junk bonds are on track to receive the highest bonuses...

Index of Posts

4 Comments

The site content is OK, very good, very interesting. By the way electronic products class article? I would like to take a second look!Terminator Action Figures

Posted by: qing h | May 24, 2012 10:40 PM


Your nice article, thank you for sharing.At the same time, recommend to you xxx at newfreeshipping.com Moonse M713

Posted by: new f | March 27, 2012 9:36 PM


It is nice that you posted something like this EKEN A90 and I am quite lucky to read it. Thanks for posting this!

Posted by: guo h | March 25, 2012 9:27 PM


I have been watching Crown Castle. It looks like a promising way to go. I would need to do a conference call with my adviser before committing to this route. Do you guys offer any other recommendations regarding Crown Castle? I would be eager to hear more.

Posted by: evan j | January 4, 2012 10:02 AM