An extended period of volatility in the equity markets, plummeting oil prices, and ongoing trade war concerns created a dark cloud over the U.S. high-yield market in November, leading the month to conclude with just $5.1 billion in completed supply. This is the lowest monthly volume total since the $3.8 billion in December 2015.
Further, this is the lightest supply total for a November since the $500 million in 2008. By comparison, November 2017 featured $26.4 billion in volume.
Final terms were set for a mere 10 tranches in November, versus 19 during October, for a year-to-date volume total of $168.8 billion, down 35% from this time last year.
November also saw the 2018 tally for cancelled high-yield bond transactions increasing to 12, following Atlantica Yield withdrawing a proposed $300 million transaction “in response to broader market conditions.” Year-to-date, a total of $4.3 billion in proposed supply has been withdrawn from the market. Excluding deals that were later recast, the cancelled bond total is $3.7 billion.
The bearish tone was evident in the secondary market for new issues during the month. New issues declined 25 bps, on average, from original pricing levels after breaking syndicate in November. This is a reversal of course from October’s performance, which showed an average 51 bps gain for new bonds when freed to trade.
Also noted for November was a rise in the average yield at issue to 8.07%, from 7.29% in the previous month, driven by a sharp rise in lower-rated paper on offer. The overall share of CCC or lower rated paper issued during the month rose significantly to 27.8%, from 7.2% in October, while BB rated bonds accounted for 26.3% of the month’s volume, declining from 46.2%. The percentage of bonds garnering a B rating also slipped during the same timeframe to 20.2%, from 30.8%. Additionally, bonds printed under BB/B ratings had zero presence in the market, from nearly 16%, previously.
The final reading of LCD’s flow-name high-yield bond composite for November showed an average bid price of 95.62% of par, with an average yield to worst of 7.12%. While this result indicates a modest recovery from earlier assessments during November, when viewed from a month-to-month standpoint, the average bid price fell 82 bps. For reference, October concluded with an average bid price of 96.44%, with a 6.92% yield to worst.
As for those borrowers that were successful in completing new prints in November, the use of proceeds was split among refinancing needs and M&A funding.
LifePoint Health, with a $1.425 billion placement of 9.75% notes due 2026, inked the largest deal of the month, but not before trimming the transaction by $150 million, resulting in an upsize to the accompanying term loan financing. Proceeds were earmarked to support the acquisition of the company by Apollo Global Management–controlled RegionalCare Hospital Partners. M&A-driven issuance was also completed for Ardonagh, Gray Television, and Mercer International. During November, 53.8% of overall volume was completed for this purpose, up from 31.6% in October.
This leaves a 46.2% share for borrowers tapping the market to repay existing debt, a decline from the 63.2% noted one month prior. Among the refinancing exercises, DAE Funding completed a $1 billion, two-part offering while Mednax sold $500 million of notes to repay borrowings under a senior unsecured revolving credit facility.
LCD’s risk-gauging proxies both widened out during the month. The S&P U.S. High-Yield Corporate Bond Index distress ratio vaulted 155 bps higher, to 6.16% in November, from 4.61% in October, while the S&P LSTA Leveraged Loan Index distress ratio shows a 24 bps gain for the same comparison period, to 2.46%.
According to analysts at S&P Global Fixed Income Research (GFIR), the U.S. distress ratio climbed to 7.2% as of Nov. 15, from 5.6% as of Oct. 15, indicating the first major increase so far in 2018and a high for the year. This uptick was the result of distressed issues in the Oil & Gas sector ramping up to 24, from 17, amid volatility in crude oil prices. — Jakema Lewis

Source：LCD News