Leveraged Finance Annual Review / Outlook 2014
 

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Please find attached our annual review with our compliments. This is a sample of the high quality content our subscribers receive each week. Take your free trial at bloombergbriefs.com

Please find attached our annual review with our compliments. This is a sample of the high quality content our subscribers receive each week. Take your free trial at bloombergbriefs.com

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Leveraged Finance Annual Review / Outlook 2014 Document Transcript

  • 1. SPONSORED BY W VIE RE AL 014 NU Y 2 ANNUAR JA D E G A E R C E V N E A L N I F OK LO UT /O
  • 2. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance 2013 IN REVIEW MONTH JAN YEAR IN REVIEW BY JAMES CROMBIE EVENT Esther George, president of the Federal Reserve Bank of Kansas City, refers to the elevated price of high-yield and leveraged loans. Dell secures financing for its $24.4 billion buyout, the biggest LBO since the financial crisis. FEB Fed Governor Jeremy Stein warns that some credit markets, including corporate debt, show signs of potentially excessive risk-taking. MAR Apollo Global leads a rebound in Europe’s market for CLOs. APR Investors favor triple C rated bonds by the most in 17 months as confidence mounts that central banks will prop up debt markets through year-end. MAY 2 Private-equity firms raise loans to pay themselves dividends at a pace exceeding frothy pre-crisis levels. Barclays raises its junk-bond return forecast to 6-8 percent, citing year-to-date total returns of 5.3 percent. Investor appetite for high-yield credit started 2013 strongly and closed the year in good shape, casting off a mid-year wobble caused by fears about the impact of Fed tapering. Expectations of higher rates spurred record cash flows into loan funds, while new highs were set for both bond and loan issuance. Fears of a high-yield bubble were stoked by record low yields on junk bonds and significant increases in issuance of PIK notes. More covenant-light, second-lien, LBO and dividend fund raisings also raised alarm bells, not least from regulators. Whether issuance can be sustained at the same pace in 2014 depends on mergers, which bankers expect to be more active this year. CLO sales will be key for loans, though regulation may stifle this year’s revival. Fund flows will likely dictate whether the trend towards even greater concessions to borrowers continues. As long as investors are liquid and yield-hungry – and volatility remains low – junk-rated companies will take advantage of the debt issuance opportunity. Bloomberg Brief Leveraged Finance JUN Losses on junk-bond ETFs outpace the broader U.S. high-yield market by the most in three years, signaling a slump for debt that traded at record-highs less than a month before. Newsletter Ted Merz Executive Editor tmerz@bloomberg.net +1-212-617-2309 Junk bonds stage a comeback, with the biggest gain in 18 months. Bloomberg News Robert Burgess Managing Editor bburgess@bloomberg.net +1-212-617-2945 Investors pump money into junk bonds globally at the fastest pace ever. Leveraged Finance James Crombie Editor jcrombie8@bloomberg.net 212-617-3590 JUL The speculative-grade debt market hits $2 trillion, up from $243 billion in 1997. AUG The lowest volume for U.S. corporate-bond trading since 2008 underscore the potential for market disruptions. Private-equity firms obtain buyout loans at the fastest pace in six years. SEP Sprint raises $6.5 billion in the largest speculative-grade deal since 2008. OCT NOV DEC Fed and Office of the Comptroller of the Currency send letters to some of the biggest banks asking them to avoid originating loans that can be considered “criticized.” BlackRock CEO Laurence D. Fink says Fed policies contribute to “bubble-like markets,” pointing to corporate debt as an area of concern. The biggest year for CLOs since 2007 is propped up by deals managed by Blackstone and Carlyle. The number of U.S. companies with the lowest credit ratings jump to the highest in six months after junk borrowers obtain a record amount of bonds and loans. The market for junk loans increased to $683 billion, exceeding the 2008 peak of $596 billion. Reporter David Holley dholley8@bloomberg.net 212-617-1311 Contributing Daniel Covello Analysts Lara Deke Matthew Geudtner Srobana Ghosh Michael Luongo Luke Reeve Nikolas Trenchi Luminita Teodorescu Afrim Zeka Newsletter Nick Ferris Business Manager nferris2@bloomberg.net 212-617-6975 Advertising Jeff Maniatty jmaniatty@bloomberg.net +1-203-550-2446 Reprints & Lori Husted Permissions lori.husted@theygsgroup.com 717-505-9701 To subscribe via the Bloomberg Terminal type BRIEF <GO> or on the web at www.bloombergbriefs.com. To contact the editors: jrossa@bloomberg.net This newsletter and its contents may not be forwarded or redistributed without the prior consent of Bloomberg. Please contact our reprints and permissions group listed above for more information © 2014 Bloomberg LP All rights reserved. .
  • 3. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance WORK SMARTER. CHOOSE EVEREST Black Mountain offers best practice solutions to efficiently manage investments and trading with accurate, real-time data. Our solutions now include expanded compliance and new performance attribution capabilities with low-risk, rapid deployment and the configurability of custom-built software. Visit blackmountainsystems.com/demo to schedule a demo 3
  • 4. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance 4 LEVERAGED FINANCE 2013: BY THE NUMBERS $2 trillion: Total market for dollar-denominated junk rated debt. $1.3 trillion: Sales of junk bonds since the end of 2008. 24%: Junk issuance as a percentage of all U.S. corporate bond sales, up from 8% in 2008. $683 billion: The market for junk-rated loans, exceeding the 2008 peak of $596 billion. $1.6 trillion: Commercial and industrial loans outstanding, exceeding the prior high set October 2008. 42%: Loans considered “criticized,” or having a deficiency that may result in a loss, according to the Fed and the Office of the Comptroller of the Currency. 46%: Percentage of loans issued as covenant light. 767%: Increase in loan issuance for LBOs since 2009. 4836%: Increase in loan issuance for dividend payments since 2009. 2.2%: U.S. leveraged loan default rate in December, down from 3.1 percent a year earlier. 62: Moody’s-rated corporate debt issuers that defaulted, compared with 63 in 2012. $17 billion: Issuance of triple C rated bonds, up from $13 billion in 2012. $32 billion: Second-lien loan issuance, up from $18 billion in 2012. $22.5 billion: Issuance of PIK bonds globally, up from $12.9 billion in 2012. $6.9 billion: Amount of PIK issuance to fund dividend payments. $24.4 billion: The size of Dell’s LBO, the biggest since the financial crisis. $90 billion: Total U.S. LBO volume, up from $65 billion in 2012. 25%: U.S. leveraged loan market share held by JPMorgan and BAML combined, down from 42 percent in 2004. 1.3%: Average fee on a U.S. high-yield bond, down from 2.0% in 2009. 4.986%: Yield to worst on BAML high-yield index May 9, lowest on record, down from 22.653% in 2008. Source: Bloomberg LP, Morgan Stanley, Moody’s, Standard & Poor’s Capital IQ Leveraged Commentary and Data.
  • 5. 01.14.14 www.bloombergbriefs.com BIG PICTURE 5 Bloomberg Brief | Leveraged Finance JAMES CROMBIE U.S. Loan Issuance Sets Record Amid Jump in Cov-Light, LBOs, Dividends Total Loan Issuance ($bn) 600 500 50 Cov Lite Loan Volume (Left Axis) LBO+Div. Pay Volume (Left Axis) Other Institutional Loan Volume (Left Axis) Cov Lite as % of Total (Right Axis) Second Lien Volume ($bn, Rt Axis) 45 40 35 30 400 25 300 %/$bn 700 20 15 200 10 100 5 0 0 2010 Source: Bloomberg LP 2011 2012 2013 Issuers Sell Higher Percentage of Junk Bonds at Lower Yields in U.S. 400 30 Junk as % of All U.S. Corp. Sales (Right Axis) 25 Average Yield (Right Axis) 300 20 250 200 15 150 10 100 5 50 0 2003 2004 Source: Bloomberg LP 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 % U.S. Junk Bond Issuance ($bn) 350 Junk Bond Issuance Volume (Left Axis)
  • 6. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance OUTLOOK / 2013 RANKINGS 6 BLOOMBERG DATA 2014 Sell-Side Analyst Predictions BONDS JPMorgan BAML Citi Credit Suisse Deutsche Barclays MS UBS RBS 2013 Actual LOANS ISSUANCE ($BN) 300 220-240 325 260 270-295 334 325-335 348 380 RETURN (%) DEFAULT RATE (%) SPRD (BP) 5.00 Sub 2.0 425 4-5.00 2.2 350 2.50 2.0 400 5.00 2-3.0 529 3.90 1.5 360 3-4.00 2-2.5 350 2.80 1.9 427 2.10 3.4 425 6.33 2.8 400 7.40 2.2 400 ISSUANCE ($BN) CLOS ($BN) 400 60-70 450 65-75 375 360 60-70 340-360 75-85 419 65-75 575-600 660 82 RETURN (%) 4.5 4.0 3.0 5.0 4.3 3.5-4.5 4.0 6.5 4.9 DEFAULT (%) Sub 2 2 3 to 4 1.5 2-2.5 0.5 2.2 SPRD (BP) 410 420 450 448 425 435 NIM<GO> Source: Bloomberg LP JPMorgan Retained Lead Position in U.S. High-Yield Bond Underwriter Ranks; Deutsche Moved Up RANK RANK 1-YR EARLIER SHARE (%) JPMorgan 1 1 11.7 44.3 326 JPMorgan BAML 2 2 10.1 38.3 318 Goldman Sachs Citi 3 3 9.1 34.7 258 Deutsche Bank 4 5 7.9 30.1 239 Credit Suisse 5 4 7.9 30.1 218 BNP Paribas 6 6 7.4 28.0 211 Citi 7 9 7 26.4 181 Morgan Stanley 8 7 6.6 25.2 187 Barclays 9 8 6 22.8 204 HSBC 9 9 10 11 3.6 13.6 125 BAML 10 10 UNDERWRITER Deutsche Bank Credit Suisse ▲ ▼ Goldman Sachs Morgan Stanley Barclays Wells Fargo RBC ▲ ▼ ▼ ▲ PROCEEDS ISSUES ($BN) JPMorgan Beat Goldman to Lead Euromarket Corporate High-Yield Ranking Ex-Emerging Markets LEAG <GO> Source: Bloomberg LP BAML Bested JPMorgan in U.S. Leveraged Loan New Money League; RBC Rose Three Places ▲ ▼ ▼ ▲ ▲ ▼ ▼ ▼ SHARE (%) BAML 1 1 12.5 43.83 392 Deutsche Bank JPMorgan 2 2 12.2 42.92 351 BNP Paribas Wells Fargo 3 3 6.9 24.27 219 JPMorgan Credit Suisse 4 4 6.8 23.94 192 UniCredit Barclays 5 5 6.8 23.87 171 RBS Citi 6 6 5.1 18.04 133 HSBC 7 10 5 17.64 149 Goldman Sachs 8 9 4.8 16.92 174 BAML 9 7 4.7 16.40 159 Credit Agricole 10 11 4 14.05 191 ING Deutsche Bank Goldman Sachs GE Capital ▲ ▲ ▼ ▲ Source: Bloomberg LP LEAG <GO> SHARE (%) PROCEEDS ISSUES ($BN) 1 3 8.5 10.82 2 1 8.1 10.33 85 3 2 7.6 9.75 96 4 11 5.9 7.58 72 99 5 7 5.9 7.53 73 6 5 5.8 7.42 51 7 6 5.7 7.24 51 8 4 5.3 6.80 67 4.3 5.47 56 4.1 5.29 51 LEAG <GO> Deutsche Bank Retained Lead in EMEA High-Yield Loans Bookrunner Ranks; BNP Rose Two Places RANK 1-YR EARLIER RBC RANK 1-YR EARLIER Source: Bloomberg LP RANK UNDERWRITER PROCEEDS ISSUES ($BN) RANK UNDERWRITER RANK RANK 1-YR EARLIER SHARE (%) 1 1 9 15.2 58 ▲ ▼ ▼ 2 4 8.1 13.7 57 3 2 7.2 12.1 48 4 3 5.7 9.7 49 5 5 5.1 8.6 34 ▲ 6 8 4.8 8.2 48 7 7 4.4 7.4 38 ▲ ▲ ▲ 8 19 4.3 7.2 34 9 21 3.8 6.3 37 10 16 3.3 5.5 40 UNDERWRITER Source: Bloomberg LP PROCEEDS ISSUES ($BN) LEAG <GO>
  • 7. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance 7 2014 OUTLOOK Diversify, Be Nimble as Borrower-Friendly Terms Persist: Investors, Bankers Diversification, risk retention and a low default rate are among the top themes for 2014, say investors and bankers. M&A is expected to make a comeback, fuelling financing opportunity from LBOs. The trend toward increasingly borrower-friendly deal terms gives some investors cause for concern. While some market watchers welcome the prospect of an uncharacteristically boring year for high-yield bonds, others say that the speed and extent of Fed tapering is a macro wild card. They spoke to Bloomberg Brief’s David Holley in December. Comments have been edited and condensed. Dan Roberts Kevin Lockhart John Fraser Dan Roberts MacKay Shields Head of Global Fixed Income, CIO “2014 will need to be the year of diversification. Many strategies are too concentrated in duration risk and too constrained by benchmarks to adapt. On the margin we favor high-yield bonds over loans. We expect issuance in high yield to decline in 2014. Issuance in the loan market is likely to meet or even exceed 2013 levels given the high demand for floating rate investments.” Kevin Lockhart Jefferies Co-Head of Leveraged Finance “The issuers that won’t be able to get the covenant-light loans – the more difficult credits – will probably have to go to the bond market to get financing. Those are likely to be the 10, 11 percent deals. The loan market is going to continue to be strong, but it will not finance all companies. The demand for high yield will still be there for public companies and CFOs are saying, “Why would I not do high yield at record low interest rates?”” . John Fraser 3i Debt Management U.S. Managing Partner “The trend toward increasingly borrowerfriendly deal terms, both in terms of economics, credit agreement terms, and capital structures is one of the things I spend the most time worrying about. Beyond that, it’s a lack of visibility on new money, new issue deal flow. Right now it’s hard to tell what kind of volume we’ll see on the true new money side of the market place. Next to overall credit quality, that’s Beth MacLean Kevin Sherlock Ann Benjamin Beth MacLean Pimco Loan Portfolio Manager “Risk retention is going to be one of the biggest stories. As long as there is excess demand in the market, you’ll continue to see cov-lite, second-lien loans, six month call protection. We’ll continue to see second-lien issuance because there is demand and it won’t just be from the CLOs. When you’re in a low-default, strong credit fundamental environment, a lot of investors are willing to take more risk and move into that second-lien space.” Kevin Sherlock Deutsche Bank Head of U.S. loans and High-Yield Capital Markets “High-yield investors are a bit more tactical, more short duration than long duration and that’s why we’re also seeing a massive amount of inflows into the leveraged loan market as some protection against a rising rate environment. [This year] feels like it’s going to be a lot like [2013], which was pockets of instability as you go through macroeconomic numbers and what happens with the taper.” Ann Benjamin Neuberger Berman HIgh-Yield Bond, Leveraged Loan Lead Portfolio Manager “Defaults are going to stay low. If you look at what’s going to mature in 2014 and 2015: In 2014 it’s $37 billion. In 2015, it’s $66 billion. Keep in mind that the market is roughly $1.5 trillion. Where you would see the potential higher risk of higher default rates is in the smaller companies and middle market companies that are used to financing in the high-yield bond market.”
  • 8. 01.14.14 www.bloombergbriefs.com US LOANS 8 Bloomberg Brief | Leveraged Finance LARA DEKE AND NIKOLAS TRENCHI, BLOOMBERG DATA ANALYSTS Second-Lien Surge Contributes to Record Year for Leveraged Loans in 2013 U.S. leveraged loans hit a new high for issuance in 2013, fueled by an increase in covenant-light and second-lien volume. The average transaction size for first-lien deals jumped to $294 million from $206 million in 2012. Borrowers raised $79 billion to pay dividends. Leveraged Loan Volume Jumped 57 Percent $900 $800 Billions $700 $600 $35 3500 Unsecured (Left Axis) 1st Lien (Left Axis) 180 Volume (Left Axis) $30 3000 2nd Lien (Left Axis) 160 140 Deal Count (Right Axis) 2500 2000 Deal Count (Right Axis) $25 $20 100 $15 80 $500 1500 $400 $300 Billions $1000 Second-Lien Deal Count Surged 64 Percent 1000 $0 2009 Source: Bloomberg LP 2010 2011 2012 $5 0 $100 60 $10 500 $200 120 $0 2013 40 20 0 2009 Source: Bloomberg LP 2010 2011 2012 2013 Total loan issuance, including institutional and pro-rata, rose to $882 billion last year, up 57 percent year on year. Second lien jumped 73 percent. Second-lien issuance jumped to $31.9 billion in 164 deals, up from $18.5 billion and 101 deals in 2012. Volume was more than triple 2011 sales. Covenant Light Sales Ballooned, Mostly B/B+ More Proceeds Used for LBOs, Dividends B- B B+ BB- BB BB+ BBB- Issuance (Billions) Issuance (Billions) $200 BBB $150 $100 700 $12 600 $10 500 $8 400 Issuance (Left Axis) $6 300 Average Margin (Right Axis) 200 $2 $50 $4 100 $0 $0 2009 Source: Bloomberg LP 0 Qtr3 2010 2011 2012 2013 Institutional covenant-light loan volume was $300 billion, more than three times the $99 billion sold the year before, and 46 percent of the total. Average margin (bp) $14 $250 Qtr4 2011 Source: Bloomberg LP Qtr1 Qtr2 Qtr3 Qtr4 2012 Qtr1 Qtr2 Qtr3 Qtr4 2013 Loan volume for dividend payment and LBOs saw large year-on-year increases to a post-crisis high. continued on next page SUBScriBe tO BlOOMBerg BrieFS Market leading intelligence Bloomberg Briefs publishes 18 newsletters to help you stay ahead of the markets. Individual and group subscriptions available. Visit www.bloombergbriefs.com to subscribe or take a trial. Or call Annie Gustavson at +1-212-617-0544. BRIEF GET THE WORLD. BLOOMBERGBRIE
  • 9. 01.14.14 www.bloombergbriefs.com 9 Bloomberg Brief | Leveraged Finance U.S. LOANS… continued from previous page CLO Revival, Mutual Fund Inflows Propel Margins Lower, Prices Higher A jump in CLO issuance and unprecedented mutual fund inflows chasing floating-rate assets helped drive loan prices up in 2013. The main loan index rose close to pre-crisis highs, while price discrepancies appeared in the BB ratings band. CLO Issuance Reaching Pre-Crisis Levels Loan Funds Saw Big Inflows During July-August CLO Issuance ($bn) $12 $10 $8 $6 $4 $2 2011 Source: Bloomberg LP 2012 2013 Preliminary Pipeline CLO Issuance Average AAA CLO Spread Preliminary Pipeline Average AAA Spread Loan Mutual Funds 1,600 Loan ETFs 1,400 1,200 1,000 800 600 400 Jan Nov Jul Sep May Jan Mar Nov Jul Sep May Jan Mar Nov Jul Sep May $0 1,800 Flows ($m) 180 160 140 120 100 80 60 40 20 0 $14 Average AAA Spread (bps) $16 200 2014 0 (200) Jan Feb Mar Source: Lipper Apr May Jun Jul Aug Sep Oct Nov Dec After a long post-financial crisis hibernation, the CLO market is on track to match pre-crisis levels. Above-average inflows to loan mutual funds helped keep margins tight in 2013. Fund gains were concentrated in the third quarter. Index Recouped More Crisis-Related Losses BB Loans Offered More Spread Than BB Minus 105 95 90 Margin (bps) 85 80 75 70 65 60 Jan-06 Jan-07 Source: S&P/LSTA Average Margin at Close Max bps per turn S&P/LSTA Leveraged Loan Index 100 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 The benchmark S&P/LSTA loan index came close to its pre-crisis highs as loans returned 4.9 percent for 2013. 500 450 400 350 300 250 200 150 100 50 0 BBB- Source: Bloomberg LP BB+ BB Average bps per turn Min bps per turn BB- B+ B B- S&P Initial Tranche Rating BB rated loans paid 333 basis points at close on average, more than the 325 basis points paid by deals rated one notch lower, at BB minus. MONITOR LIQUIDITY FOR MULTIPLE BONDS FIW <GO> continued on next page
  • 10. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance 10 U.S. LOANS… continued from previous page Second Lien Leads Margin Decline, Price Rise as Libor Floors Diminish Second-lien issuers enjoyed lower margins and higher prices for new issue loans in 2013, while Libor floors dropped for all classes of leveraged loans. Compared to 2012, more first-lien deals included a Libor floor. Average New Issue Loan Price Rose Year-on-Year Second-Lien Margin Fell More Than First Lien 450 900 400 250 840 200 820 150 Basis Points Basis Points 2nd Lien Unsecured 99 860 300 50 1st Lien 880 350 100 99.5 800 1st Lien (Left Axis) Unsecured (Left Axis) 2nd Lien (Right Axis) 760 2012 98 780 0 2011 Source: Bloomberg LP 98.5 2013 97.5 2010 Source: Bloomberg LP 2011 2012 2013 Second-lien loans saw the biggest contraction in margin last year, at 801 basis points on average, down from 874 basis points the previous year. Issuers took less of a discount on their new issue loans at all levels. Unsecured deals priced at 99.3 on average, up from 98.1 in 2012. Libor Floors Dropped for All Loan Classes More First-Lien Deals Had Libor Floor 100% 300 1st Lien 2nd Lien Unsecured 80% 250 Libor Floor (bp) 90% 70% 60% 50% 200 40% 30% 150 20% 1st lien without floor 1st lien with floor 10% 100 2009 Source: Bloomberg LP 2010 2011 2012 2013 Investors accepted lower Libor floors. Second-lien tranches had a floor of 114 basis points on average, down from 295 basis points in 2012. 0% 2010 Source: Bloomberg LP 2011 2012 2013 A higher percentage of first-lien transactions included a Libor floor, at 76 percent, up from 63 percent in 2012. WANT TO DOWNLOAD HISTORICAL PRICING TO EXCEL? <HELP>
  • 11. 01.14.14 www.bloombergbriefs.com U.S. LOANS Bloomberg Brief | Leveraged Finance 11 CLICK ON TABS TO VIEW MATURITIES BY SECTOR continued on next page Loan Maturity Schedule Gets Busier in 2016, Focused on Consumer Non-Cylical Names All $12 $4 $3 $10 $2 $2 Loans Maturing (Billions) Loans Maturing (Billions) $9 $10 $8 $3 $7 $8 $2 $6 Basic Materials Communications Consumer, Cyclical $6 $2 $1 $5 $1 $4 $4 $1 $3 $1 $2 $2 $1 Consumer, Non-cyclical Financial Jan Mar Apr Mar Jun Jul Apr May Aug May Aug May Oct Jul Jul Oct Jun Nov Sep Sep Sep Dec Sep Jan Nov Nov Apr Dec Oct Feb Jan Jan Jun Feb Mar Nov Mar Mar Jul Apr May May Feb May Aug Jul Jul Jul Jul Sep Aug Sep Aug Sep Nov Oct Aug Oct Nov Nov Mar Dec Sep Dec Jan Jan Apr Feb Apr Dec Mar Mar May Apr Jun Jan May May Jun Aug Jun Apr Jul Jul Jul Oct Aug Jun Sep Nov Oct Nov Dec Dec Dec $0 $0 2014 2014 2014 2014 2014 2014 Source: Bloomberg LP Source: Bloomberg LP 2015 2015 2015 2015 2015 Industrial Technology 2016 2016 2016 20162016 2016 Utilities Biggest U.S. Institutional Leveraged Term Loan Tranches of 2013 ISSUER Hilton Worldwide HJ Heinz Clear Channel Dell International Asurion Sabine Pass Tribune Valeant Pharma Biomet Neiman Marcus HJ Heinz Chrysler Chrysler BMC Software Freescale Semiconductor Ineos Del Monte Nuveen Investments Nuveen Investments Neiman Marcus Source: Bloomberg LP S&P RATING Ba3 Ba2 Caa1 Ba2 Ba2 NA Ba3 Ba1 B1 B2 Ba2 Ba1 NA B1 B1 B1 B1 B2 B B SIGNING DATE 10/25/13 6/7/13 5/31/13 10/29/13 2/21/13 5/28/13 12/27/13 8/5/13 9/25/13 10/25/13 6/7/13 6/21/13 12/23/13 9/10/13 3/1/13 5/8/13 2/5/13 4/29/13 1/29/2013 2/8/2013 MATURITY 10/25/20 6/5/20 1/30/19 4/29/20 5/24/19 5/28/20 12/27/20 8/5/20 7/25/17 10/25/20 6/7/19 5/24/17 5/24/17 9/10/20 3/1/20 5/4/18 3/8/18 5/13/17 5/13/17 5/16/2018 ISSUE PRICE 99.50 99.75 99.00 99.50 99.75 98.50 99.75 99.50 99.50 99.00 99.00 - LIBOR FLOOR 100 100 100 125 100 75 100 100 100 75 100 125 100 100 100 SPREAD AT CLOSE 300 250 675 350 325 300 300 375 350 400 225 325 275 400 375 300 300 400 500 300 SECTOR Consumer, Cyclical Consumer, Non-cyclical Communications Consumer, Non-cyclical Financial Energy Communications Consumer, Non-cyclical Consumer, Non-cyclical Consumer, Cyclical Consumer, Non-cyclical Consumer, Cyclical Consumer, Cyclical Technology Technology Basic Materials Consumer, Non-cyclical Financial Financial Consumer, Cyclical USE OF PROCEEDS Refinance, GCP Acquisition, Refi, LBO Refi LBO Refi Develop/Construct, Refi Acquisition, Refi, GCP Acquisition, GCP Refi LBO LBO, Refi Refi Refi LBO Refi Refi Refi Refi Refi Refi LSRC <GO>
  • 12. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance 12 U.S. LOANS… continued from previous page Second-Lien: Biggest U.S. Institutional Leveraged Term Loan Tranches of 2013 ISSUER Fieldwood Energy Samson Investment EP Energy Performance Food Group Templar Energy Travelport Quicksilver Resources TWCC Holding BJ'S Wholesale Club Carestream Health Rite Aid Nuveen Investments TRANCHE SIZE ($M) 1725 1000 750 750 700 630 625 625 600 500 500 500 S&P RATING B2 B1 Ba3 B3 B3 Caa2 B2 B3 Caa2 Caa1 B3 Caa1 SIGNING DATE 9/30/13 12/18/13 5/2/13 5/14/13 11/25/13 3/11/13 6/21/13 6/26/13 11/18/13 6/7/13 6/21/13 4/29/13 MATURITY 9/30/20 9/25/18 5/24/18 11/14/19 11/25/20 1/31/16 6/21/19 6/26/20 3/31/20 12/7/19 6/21/21 2/28/19 ISSUE PRICE 97.0 99.5 98.0 99.0 97.0 99.0 99.5 98.0 - LIBOR FLOOR 125 100 75 100 100 150 125 100 100 100 100 125 SPREAD AT CLOSE 712.5 400.0 275.0 525.0 700.0 800.0 575.0 600.0 750.0 850.0 387.5 525.0 SECTOR USE OF PROCEEDS Energy Energy Energy Consumer, Cyclical Energy Consumer, Cyclical Energy Communications Consumer, Cyclical Consumer, Non-cyclical Consumer, Cyclical Financial Source: Bloomberg LP Acquisition Refinance Refinance Refinance, Div. Pay Acquisition Refinance, GCP Refinance, GCP Recap, Div. Pay, GCP Refinance, Div. Pay Refinance, Div. Pay Refinance Refinance LSRC <GO> Dividend Payment: Largest U.S. Institutional Leveraged Term Loan Tranches ISSUER Carestream Health BJ's Wholesale Aptalis Pharma Generac Power La Frontera MultiPlan Harbor Freight Tools Regal Cinemas Magic Newco TransDigm TRANCHE SIZE ($M) 1850 1500 1250 1200 1150 1030 1000 983 922 900 S&P RATING B+ BB+ BBBBB+ B+ BB B+ B SIGNING MATURITY DATE 6/7/2013 6/7/2019 11/18/2013 9/26/2019 10/4/2013 10/2/2020 5/31/2013 5/31/2020 5/10/2013 9/30/2020 2/15/2013 8/18/2017 7/26/2013 7/26/2019 4/19/2013 8/23/2017 8/16/2013 12/12/2018 7/1/2013 2/28/2020 ISSUE PRICE 98.5 99.5 99 99.75 99 NA 99.75 NA NA 98 LIBOR FLOOR 100 100 100 75 100 100 100 NA 100 75 SPREAD AT CLOSE 400 350 500 275 350 300 375 250 400 300 SECTOR Consumer, Non-Cyc Consumer, Cycl Consumer, Non-Cyc Industrial Utilities Consumer, Non-Cyc Industrial Consumer, Cycl Technology Industrial Source: Bloomberg LP USE OF PROCEEDS Refi, Div. Pay Refi, Div. Pay Refi, Div. Pay Refi, Div. Pay, Recap GCP, Div. Pay Refi, Div. Pay, Recap Refi, Div. Pay Working Cap, Refi, Div. Pay Refi, Div. Pay Refi, Recap, Div. Pay LSRC <GO> LBO Funding: Biggest U.S. Institutional Leveraged Term Loan Tranches ISSUER HJ Heinz Dell International HJ Heinz Neiman Marcus BMC Software Gardner Denver HUB International Dell International Brand Energy Albertsons Source: Bloomberg LP TRANCHE SIZE ($M) 6550 4660 2950 2950 2880 1900 1870 1500 1275 1150 S&P RATING BB BB+ BB B B+ B B BB+ B BB- SIGNING MATURITY DATE 6/7/2013 6/5/2020 10/29/2013 4/29/2020 6/7/2013 6/7/2019 10/25/2013 10/25/2020 9/10/2013 9/10/2020 7/30/2013 7/30/2020 10/2/2013 10/2/2020 10/29/2013 10/29/2018 11/26/2013 11/26/2020 3/21/2013 3/21/2016 ISSUE PRICE 99.75 99 99.5 99.5 99 99.5 99.5 99.5 99.5 99 LIBOR FLOOR 100 100 100 100 100 100 100 100 100 125 SPREAD AT CLOSE 250 350 225 400 400 325 375 275 375 450 SECTOR Consumer, Non-Cyc Consumer, Non-Cyc Consumer, Non-Cyc Consumer, Cycl Technology Industrial Financial Consumer, Non-Cyc Consumer, Non-Cyc Consumer, Non-Cyc USE OF PROCEEDS LBO, Refi LBO LBO, Refi LBO LBO LBO, Refi LBO, Refi LBO LBO, GCP LBO, Refi LSRC <GO>
  • 13. 01.14.14 www.bloombergbriefs.com EUROPE LOANS 13 Bloomberg Brief | Leveraged Finance LUKE REEVE, BLOOMBERG DATA ANALYST Bigger Volume at Lower Margin, Libor Floor; More Europeans Raised Dollars in U.S. Issuance of leveraged loans in Europe rose 39 percent in 2013, though it is still lagging behind the U.S. Refinancing activity dominated as borrowers took advantage of declining Libor margins. European borrowers increasingly accessed the U.S. market. 400 300 200 6 2010 2011 2012 100 0 2013 2011 Source: Bloomberg LP 2012 Nov Jul Sep May Jan Mar Nov Jul 0 Sep 0 2009 Source: Bloomberg LP 200 4 Jan 0 300 8 2 100 10 400 10 May 20 12 Jan 30 600 500 Mar 40 Average Margin at Close 14 Nov 50 New Money Margin (bps) Issuance in euros (Billions) 60 Refinanced 16 500 70 Issuance (Euro, billions) 18 Jul 80 600 Deal Count (Right Axis) Sep Issuance (Left Axis) May 90 Refinancing Volume Rose, Margin Fell in 2013 Mar European Loan Issuance Jumped 39 Percent 2013 Issuance of leveraged loans in Europe rose 39 percent last year to 82 million euros from 530 transactions. Refinancing was an increasing proportion of proceeds raised from leveraged loans. The average margin ended the year 23 basis points lower. Libor Floors Used in More Deals, Trend Lower More Europe-Based Issuers Tapped U.S. Market 600 $10 500 110 8% 100 6% 4% 0% 80 Qtr1 Source: Bloomberg LP Qtr2 Qtr3 2012 Qtr4 Qtr1 Qtr2 Qtr3 $6 300 Average Margin (Right Axis) $4 200 100 $0 Qtr4 0 Qtr3 2013 A higher volume of issuance incorporated a Libor floor. The average floor fell to 100 basis points, from 121 basis points in the second quarter. 400 Issuance (Left Axis) $2 90 2% $8 Average margin (bp) 10% $12 Issuance (Billions) 12% 700 130 14% $14 120 16% Include Libor Floor 140 Tranches with Libor Floor (Left Axis) Average Floor (Right Axis) 18% Basis points 20% Qtr4 2011 Source: Bloomberg LP Qtr1 Qtr2 Qtr3 2012 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 2013 European companies with U.S. subsidiaries raised $34 billion in the U.S. leveraged loan market, up from $13 billion in 2012. Make an IMpact wIth BlooMBerg BrIef content Bloomberg Briefs provide dedicated licenses to reuse our content to help your business. We offer a full suite of products and services ranging from hardcopy and electronic reprints to plaques, permissions/licensing and photocopies. to find the solution that is right for you, contact us today at: 800 290 5460 x 100, email: bloombergbriefreprints@theygsgroup.com
  • 14. 01.14.14 www.bloombergbriefs.com Bloomberg Brief | Leveraged Finance Bloomberg Brief: Leveraged Finance Take your no risk 30 day free trial today! Gain access to essential information and actionable ideas from the premier source of data and analytics in the financial world. Bloomberg BRIEF Leveraged Finance is a new, groundbreaking daily publication for the leveraged loan and junk bond market. In just a few months it has become essential reading for lenders, bond investors, LBO players and issuers. From "Price Talk" covering pending deals to a unique "Barometer" of benchmark and issuance data, commentary by leading industry insiders and in-depth analysis on market trends, high-yield and leveraged loan market participants rely on the newsletter to stay ahead of the market. We turn knowledge into insight – when you need it – with intelligence you can act on. Your time is valuable. Maximize it by switching to Bloomberg BRIEF Leveraged Finance today. Take your free 30 day trial at Bloombergbriefs.com Sign up for your free trial at Bloombergbriefs.com Bloomberg BRIEF is a new publishing division of Bloomberg L.P. focused on high quality, electronic newsletter products, providing unique data, commentary and analysis from the premier source of data and analytics in the financial world. With dedicated global teams of economists, proprietary Bloomberg data and senior editors dedicated to each title, our newsletters consistently publish superior commentary, news and analysis you simply will not find anywhere else. For a full list of our 17 titles please visit bloombergbriefs.com 14
  • 15. 01.14.14 www.bloombergbriefs.com U.S. BONDS 15 Bloomberg Brief | Leveraged Finance DANIEL COVELLO AND MICHAEL LUONGO, BLOOMBERG DATA ANALYSTS Record-Setting Year for Issuance, Low Yields; Junkiest Junk Does Best for Investors Junk-bond issuance hit an all-time low, while the yield on the benchmark BAML index scraped an historic low under 5 percent in May. The lowest-rated bonds returned most to investors, whose skittish views were highlighted by volatile fund flows data. High-Yield Bond Issuance Hit Record High Yield Fell to All-Time Low; Spread Least Since ‘07 400 2500 350 2012 2000 250 Basis Points Issuance ($bn) 2011 25 YTW (Right Axis) 200 150 100 20 1500 15 May: Junk YTW at Record Low Under 5% 1000 % 2013 300 Spread To Worst (Left Axis) 10 500 5 50 Prior spread low, Oct 2007 0 Jan Feb Mar Source: Bloomberg LP Apr May June Jul Aug Sept Oct Nov Dec 0 2004 2005 Source: BAML 0 2006 2007 2008 2009 2010 2011 2012 2013 Junk-bond issuance exceeded the 2012 total on a cumulative basis throughout the year. Speculative-grade sales beat 2011 by 54 percent. The spread closed 2013 at its lowest since Oct. 2007. The yield to worst ended at 5.7 percent, having dropped just below 5 percent in May. Lowest-Rated Returned Most, Distressed Second Bond Fund Inflows Peaked in July, September 2,500 U.S. CCC and Lower 1,500 U.S. Distressed Junk Bond Mutual Funds Junk ETFs Flows ($m) 500 U.S. Single B 2013 2012 BAML U.S. HY (500) (1,500) U.S. BB Credit (2,500) 0 5 10 15 20 25 Full Year Total Return (%) Source: BAML, S&P, LSTA Junk bonds rated CCC and lower returned 13 percent in 2013, down from 20.3 percent in 2012. The high-yield index returned 7.4 percent. (3,500) Jan Feb Mar Source: Lipper Apr May Jun Jul Aug Sep Oct Nov Dec Junk-bond mutual funds saw large outflows in June, followed by aboveaverage inflows in July and September. continued on next page ECFC <GO> TRACK ECONOMIC FORECASTS
  • 16. 01.14.14 www.bloombergbriefs.com 16 Bloomberg Brief | Leveraged Finance U.S.BONDS… continued from previous page Double B Ratings, Communications Sector Drive Issuance; Refinancing Most Common Use September was the biggest month for issuance in a year driven by an increase in BB sales. Communications was the most-active industry after jumbo issuance by Sprint and MetroPCS. Refinancing remained the dominant use of proceeds, despite a year-on-year fall. September Biggest Month; Tenor, Coupon Higher 60 Volume (Left Axis) Average Tenor (Right Axis) 50 Average Coupon (Right Axis) 9.0 80,000 7.0 10 6.5 0 6.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Issuance ($m) 20 % 7.5 2013 60,000 8.0 30 2012 70,000 8.5 40 $bn Double B Rated Saw Big Year-on-Year Increase 40,000 30,000 20,000 10,000 0 Dec Source: Bloomberg LP 50,000 B B- B+ BB BB- BB+ CCC CCC- CCC+ Source: Bloomberg LP September marked the biggest month for high-yield bond issuance, while both average coupon and tenor ended the year higher. Bonds rated double B saw the biggest year-on-year increases in issuance volume, driven by bond sales at the bottom of that rating group. Communications Most Active Sector for Issuance Refinancing Still Dominant, Lower Year on Year Communications Refinance Debt Energy Acquisition Cons., Non-Cycl Loan Payment Cons., Cyclical GCP Financial Tier-1 Capital Industrial 2013 2012 Share Buyback 2013 Basic Material Div. Pay to Shareholders 2012 Technology Capex Utilities Intercompany Loan 20,000 40,000 60,000 Issuance ($m) Communications was the biggest sector for issuance last year, accounting for 18 percent of the total, following an 18 percent rise in sales. 0 Source: Bloomberg LP 40,000 80,000 120,000 Issuance ($m) Refinancing was again the most common use of proceeds, with 43 percent of the total, despite a 4 percent decline from 2012. MONITOR COMMODITY PLAYS TO FIND OPPORTUNITY CPLY <GO> 0 Source: Bloomberg LP
  • 17. 01.14.14 www.bloombergbriefs.com GLOBAL PIK SURVEY 17 Bloomberg Brief | Leveraged Finance MATTHEW GEUDTNER, BLOOMBERG DATA ANALYST Pay-in-Kind Issuance at Highest Since 2007; Dividend Payment Volume Soared PIK bond issuance was an important theme for 2013. Volume was the highest globally since 2007. More PIK bonds were raised for dividend payment and companies in the consumer-cyclical sector were the dominant borrowers. PIKs Used More for Dividend Than Debt Payment PIK Bond Issuance at Highest Since Crisis 35 PIK Issuance (Left Axis) Proceeds for Div. Pay (Left Axis) % Proceeds for Div. Pay (Right Axis) 25 10 25 20 20 15 % 15 10 10 8 6 4 2 2007 Source: Bloomberg LP 2008 2009 2010 2011 2012 Debt Repay 2013 2012 2011 2010 2009 2008 2007 2006 2013 2012 2011 2010 2009 2008 2007 LBO Funding 2013 2006 0 2006 2008 5 0 2007 0 5 2006 $, Billions 12 30 Volume Issued ($bn) 30 Dividend Payment Source: Bloomberg LP PIK issuance, at $23 billion, was the highest since the $28 billion issued in 2007. A greater volume was used to pay dividends than in 2012. Some $6.1 billion in PIK bonds was raised last year to pay dividends, up from $3.7 billion in 2012 and more than the $4.8 billion for refinancing. Consumer Cyclical Issuers Dominated PIK Sales Average Tenor of New PIK Issuance Declined 14 Consumer, Cycl 4% 5% 36% 12 10 Financial Industrial 8% Technology Basic Materials 9% Energy Diversified 13% 15% Tenor in Years Communications Consumer, Non-Cyc 5% 5% 8 6 4 2 0 1987 Source: Bloomberg LP Consumer cyclical accounted for 36 percent of PIK bonds issued in 2013, more than twice the next most active sector, which was communications. 1992 1996 2000 2004 2008 2012 Source: Bloomberg LP The average tenor of PIK issuance was 5.6 years in 2013, down from 5.9 years in 2012. Tenor hit a seven-year peak of 8.7 years in 2007. LEARN HOW TO USE BLOOMBERG FUNCTIONS <HELP>
  • 18. 01.14.14 www.bloombergbriefs.com EUROPE BONDS 18 Bloomberg Brief | Leveraged Finance SROBANA GHOSH, BLOOMBERG DATA ANALYST European Junk Issuers Boost Sales at Higher Tenors, Lowest Average Coupon Since 2007 European junk bond issuance volume soared in 2013 as issuers took advantage of lower coupons and higher tenors. Deals rated BB+ accounted for the bulk of this, while single B and B minus rated borrowers saw the biggest year-on-year increase. Issuance Slowed in Q4; Tenor Trended Higher 14 12 8 10 80 7.5 40 20 0 2010 Source: Bloomberg LP 2011 2012 7 6 6.5 6 2 60 8 4 EUR Billions EUR Billions 100 8.5 Issuance (Left Axis) Av. Coupon (Right Axis) Av. Tenor (Right Axis) 120 5.5 0 2013 Years/% Euro High-Yield Issuance Increased 58% in 2013 5 Jan Feb Mar Source: Bloomberg LP Apr May Jun Jul Aug Sep Oct Nov Dec Total issuance of speculative-grade bonds in Europe jumped to 124 billion euros equivalent in 2013, almost double the 63 billion euros sold in 2012. European junk issuance slowed in the fourth quarter, while the average coupon and tenor both finished the year higher than in January. Average Coupon Falls to Lowest Since Crisis Single B Issuance Saw Big Year-on-Year Surge 9 BB+ B 7 BB 6 BB- 5 4 Average Tenor B+ Average Coupon BCCC+ 1 2011 BBB- 0 2006 2007 Source: Bloomberg LP 2012 CCC 2 2013 BBB 3 2009 2010 2011 2012 2013 The average coupon on European high-yield debt fell to 6.4 percent, down from 7.3 percent in 2012 and the lowest since 2007’s 5.4 percent. 0 5 Source: Bloomberg LP 10 Euros, billions 15 20 Single B rated issuance jumped to 17.4 billion euros in 2013 from 4.8 billion euros in 2012, while B minus sales leapt to 12 billion euros. LOOKUP YOUR FUND WITH ONE CLICK FL <GO> Years/% 8
  • 19. 01.14.14 www.bloombergbriefs.com 2013 JUNK BOND LEGAL ADVISER RANKINGS U.S. Issuer Advisers: Simpson Thacher Retained Lead for Issues, Skadden Moved Up Year on Year RANK 2012 SHARE (%) PROCEEDS ($BN) BLOOMBERG DATA U.S. Manager Advisers: Cahill Dominated, Davis Polk, Cravath Moved Up Ranking 1 1 65 7.5 25.8 Cahill Gordon 1 1 210 32.6 114.1 Latham & Watkins 2 2 45 5.3 18.3 Latham & Watkins 2 2 82 8.6 30.2 3 6 42 7.3 25.2 Davis Polk 3 5 63 9.2 32.1 4 3 35 5.3 18.2 Shearman Sterling 4 4 56 8.7 30.3 5 7 29 4.1 14.3 Cravath Swaine 5 6 41 5.2 18.3 6 4 29 3.6 12.3 Simpson Thacher 6 3 39 4 13.9 7 5 24 3.7 12.7 Skadden Arps 7 7 26 3.1 11.0 8 12 20 3.3 11.4 Cleary Gottlieb 8 9 23 2.9 10.2 9 10 18 4.4 15.3 Milbank 9 13 22 3.3 11.5 10 17 15 1.6 5.4 10 12 19 2 Sullivan Cromwell Vinson & Elkins Paul Weiss Davis Polk Gibson Dunn Ropes & Gray LALT <GO> Source: Bloomberg LP Euro Issuer Advisers (Ex-EM): Latham Jumped to Top of Ranking, Simpson Thacher Also Rose UNDERWRITER Latham & Watkins Simpson Thacher Linklaters Kirkland & Ellis Clifford Chance Allen & Overy Shearman Sterling White & Case Ropes & Gray Freshfields RANK ▲ ▲ ▲ ▲ ▼ ▼ ▲ ▲ ▼ ▼ Source: Bloomberg LP RANK 2012 ISSUES SHARE (%) White & Case ▲ ▲ ▼ ▲ ▲ ▲ ISSUES PROCEEDS ($BN) Simpson Thacher Kirkland & Ellis RANK SHARE (%) RANK ▲ ▼ ▲ ▼ ▼ ▲ ▲ ▲ UNDERWRITER RANK 2012 ADVISER Skadden Arps ISSUES 19 Bloomberg Brief | Leveraged Finance 7.1 LALT <GO> Source: Bloomberg LP Euro Manager Advisers (Ex-EM): Linklaters Gained, Allen & Overy Fell Last Year PROCEEDS ($BN) UNDERWRITER RANK RANK 2012 1 1 65 17.8 21.5 2 7 39 13.4 16.2 3 2 34 15.3 18.5 4 3 32 4.2 5.1 ISSUES SHARE (%) PROCEEDS ($BN) 1 8 34 6.3 7.3 Latham & Watkins 2 6 31 5.3 6.1 Linklaters 3 7 27 10.8 12.5 4 5 26 3.9 4.5 Cravath Swaine 5 4 24 7.2 8.3 Shearman Sterling 5 5 27 9.2 11.2 6 2 22 11.6 13.5 Clifford Chance 6 6 16 3.7 4.5 7 9 15 3 3.5 Cahill Gordon 7 4 15 3.7 4.5 8 17 14 2.9 3.3 White & Case 8 13 14 3.5 4.2 9 3 13 3.3 3.8 Davis Polk 9 14 9 2.9 3.5 10 1 12 3.2 3.8 Loyens & Loeff 10 39 8 1.1 1.3 LALT <GO> Allen & Overy ▲ ▼ ▼ ▼ ▲ ▲ ▲ Source: Bloomberg LP LALT <GO>
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