M&A borrowers set to test US high-yield markets

Fri Jun 21, 2013 2:54pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Rachelle Kakouris and Joy Ferguson

NEW YORK, June 21 (IFR) - Unrelenting volatility has kept junk-rated borrowers out of the funding markets in recent days. But with commitments for its M&A financing already in place, pharmaceutical giant Valeant has little option but to tackle a tumultuous market head on with a mega-sized deal.

In a sector that has seen just USD4.6bn of high-yield bonds sold over the past two weeks, Valeant Pharmaceuticals is attempting to sell USD3.225bn through a two-part offering. If placed next week, it will be the third largest high-yield bond issue this year.

"It's not a conducive time to issue," said Dan Heckman, a senior fixed income strategist for U.S. Bank Wealth Management, who expects a huge change in the environment for new deals.

"You are going to have to give up so much in premium," he said.

Until the market settles at its new clearing level, investors are demanding north of 75 basis point premium to buy in the new issue market.

"If you went out now, I think the average issuer would be forced to give a 100 basis point premium," said one leveraged finance banker. Three weeks ago, that level was closer to 25 basis points, the banker said.

M&A and LBO-related financings accounted for around 16% of high-yield issuance so far this year, according to Barclays, as companies refinancing at better levels dominated supply.

However, with opportunistic issuers now firmly on the sidelines, companies looking to borrow for event-driven deals are being forced to test even the most unfavorable markets.   Continued...