Paula Seligson and Gowri Gurumurthy
Mon, January 31, 2022
(Bloomberg) -- McAfee Corp. came forward with a $3.3 billion two-part bond deal on Monday to help finance its leveraged buyout by a group of private equity firms, according to people with knowledge of the matter.
The cybersecurity software maker is selling $1 billion of seven-year secured notes and $2.32 billion eight-year unsecured bonds, the people said, asking not to be identified discussing a private transaction.
An investor call will be held on Tuesday at 11 a.m. in New York, they added. The deal will market through Thursday with pricing expected thereafter, they said.
A group of private equity firms led by Advent International Corp. and Permira Advisers are buying McAfee in a deal valued at more than $14 billion, including debt. McAfee is also marketing a cross-border leveraged loan as part of the transaction, comprised of a $4.41 billion tranche and a $1.25 billion-equivalent euro portion. Commitments are due on Wednesday.
Early pricing discussions on the deal have increased amid market volatility. In early January, McAfee initially floated a yield of about 4.5% for the secured portion and 6.5% for the unsecured notes, though the levels were subject to change to account for weakness across credit, Bloomberg previously reported. They’ve since increased to the low-5% range for the secured notes and low-7% yield for the unsecured bonds, different people said.
Representatives for Permira, Credit Suisse Group AG, which is leading the secured notes, and Bank of America Corp., which is leading the unsecured bonds, declined to comment. Representatives for McAfee and Advent didn’t immediately respond to requests for comment.
McAfee’s financing package joins others funding leveraged buyouts in January as companies rush to lock in low borrowing costs before the Federal Reserve raises interest rates, though some are getting dinged by market volatility. The financing for Athenahealth Inc., a health information technology company, wrapped up last week, and the bonds immediately fell below par in secondary trading.
Read more: Wall Street Makes $18 Billion Bet on LBOs as Yields Climb
Covis Pharmaceuticals Inc. added a number of sweeteners to a $900 million junk-debt sale, the latest borrower to struggle to attract demand from investors. The company, owned by Apollo Global Management Inc., on Monday cut the size of one portion of the bond offering to $350 million euros equivalent from $375 million, and scrapped the dollar bonds in favor of an increased $550 million term loan.
Financial information services firm Ion Analytics shelved a junk-bond sale Friday amid a tougher backdrop for borrowers bracing for central bank rate hikes, after originally halving the size of the notes offering.
U.S. junk bonds are poised for their worst January on record with a month-to-date loss of 2.8%. Federal Reserve Chair Jerome Powell’s hawkish tone helped send yields jumping 109 basis points month-to-date to 5.3%, the highest in 15 months.
Wikipedia · Text under CC-BY-SA license
- See more on investopedia.comThis phenomenon isn’t hard to explain. As the economy weakens, opportunities for businesses to secure funding begin to become more and more scarce and the competition for those dwindling opportunities becomes more intense in response. The ability of companies who owe such debts to be able to make good on them b…
Global Junk-Bond Markets Wobble,
Spelling Risk for M&A Financing
Laura Benitez and Olivia Raimonde
Fri., January 28, 2022
(Bloomberg) -- The inevitability of central bank rate increases is roiling junk-bond markets across the globe, bringing higher costs for companies needing to refinance debt and bankers waiting to sell billions to fund major acquisition deals.
In the U.S., the Federal Reserve’s months-long signaling of coming rate increases already has reduced new sales of high-yield bonds by 45% from last year’s pace. European junk-debt offerings have decreased by more than 50% so far in 2022, the worst start to a year since 2019, according to data compiled by Bloomberg.
Fed Chair Jerome Powell on Wednesday provided even more clarity on the central bank’s plan to reduce liquidity and hike rates this year to combat inflation. While the investment-grade bond market is relatively stable, and Athenahealth Inc. sold high-yield debt this week without a hitch, signs are emerging that junk issuers face investors who demand greater reward for taking on more rate risk.
“We are now facing the reality of a much more hawkish Fed that will withdraw liquidity faster than expected,” said David Knutson, head of U.S. fixed income product management at Schroders Plc. “This has curtailed demand in the riskier parts of the market as they will be impacted first. The balance between borrowers and lenders is starting to turn in favor of lenders.”
Covis Pharmaceuticals Inc. is deciding whether to proceed with an $850 million cross-border bond sale that was slated to price Friday, financial information services firm ION Analytics also roughly halved the size of a cross-border junk-debt sale, while Italian football club FC Internazionale Milano SpA was forced to pay a considerably higher price than its existing interest rate to sell bonds earlier this week.
The market’s tone could prove a challenge for bankers planning to launch transactions driven by buyouts, such as the financing for cybersecurity software maker McAfee Corp. For buyout financing that banks have already funded with pre-arranged terms, the higher costs could potentially eat into their fees.
Some issuers, such as Fertitta Entertainment Inc., have recently shifted more borrowing into loans from bonds to finance buyouts. “Terms and pricing will become more favorable to investors to bring the market back into balance,” Knutson said.
The riskiest debt, such as unsecured bonds typically financed in the junk market, are being hit hard. Average yields on U.S. corporate bonds rated in the CCC tier have jumped by at least 50 basis points in the past week to 7.62% to reach levels last seen in early December, according to Bloomberg index data. Single B yields rose the most in six months to a 15-month high of 5.53%.
CCC bonds trading in the secondary market dropped 0.55% on Thursday, their biggest one-day loss in nine weeks.
U.S. high-yield funds reported an outflow of $2.8 billion for the week ended Jan. 26, the third straight week of outflows in excess of $2 billion, and the biggest since Nov. 24.
Skeptical Era
Debt traders are factoring in a faster pace of global policy tightening following the Fed’s meeting this week, seeing almost five Fed and Bank of England interest-rate increases and the first move from the European Central Bank this year.
“We’re entering into a more skeptical era now and fixed-rate investors are much more price sensitive and cautious, especially on the lower quality names,” said Ben Thompson, co-head for leveraged finance in Europe at JPMorgan Chase & Co. “The lesser known companies, or ones with history, will be a harder sell this year based on what we’ve seen so far.”
Risks Mount for Global Credit Markets After Fed’s Hawkish Stance
Elsewhere in credit markets:
Americas
The U.S. corporate bond market may come under pressure as the Fed starts to tighten the money supply in March, and that could come from an unlikely source: home loans.
Athenahealth’s newly minted junk bonds fell more than 1 cent on the dollar a day after pricing, in another sign of market volatility
In the investment-grade market, Procter & Gamble -- the only borrower to come to market after the Federal Reserve’s Wednesday announcement -- is seeing both tranches of its deal trading wider
Gustavo Petro, the front-runner to win Colombia’s presidential election in May, vows he’ll halt oil drilling the day he takes office. Bond investors are taking him seriously, with Ecopetrol SA’s notes posting some of the biggest losses among emerging-market oil companies since August
Production delays are straining mattress manufacturer Purple Innovation Inc.’s relationship with its wholesale partner, boosting a measure of its default probability in the next year to almost 39%
EMEA
Europe’s primary market slowed this week to about 24 billion euros of sales, below the expectations of 86% of respondents to a weekly Bloomberg News survey.
Offerings on Friday involved four deals to raise at least 1.6 billion euros equivalent, including from Atlas Copco Finance and Bpifrance
London airport Heathrow flagged to investors a risk to covenants in 2022 if cash flows from passengers are more than 15% below forecast
Move follows the Civil Aviation Authority’s annual decision on airport charges
Sustainable-linked issuance could take a greater share of Germany’s Schuldschein market as investors clamor for ethically-focused debt, according to Landesbank Hessen-Thueringen Girozentrale, one of the top arrangers
Deutsche Bank is targeting 15 billion to 20 billion euros of debt issuance this year, primarily in senior non-preferred notes
Asia
Primary issuance in the U.S. currency dropped to $4.1 billion this week from $5.5 billion last week, the lowest such weekly figure so far this year amid high volatility in financial markets as Federal Reserve set the stage for raising interest rates.
New dollar notes sold by Asian companies outside Japan decreased for a third straight week
China Cinda Asset Management Co. and Islamic Republic of Pakistan were the biggest borrowers in the market, each selling $1 billion of bonds
Laura Benitez and Olivia Raimonde
Fri., January 28, 2022
(Bloomberg) -- The inevitability of central bank rate increases is roiling junk-bond markets across the globe, bringing higher costs for companies needing to refinance debt and bankers waiting to sell billions to fund major acquisition deals.
In the U.S., the Federal Reserve’s months-long signaling of coming rate increases already has reduced new sales of high-yield bonds by 45% from last year’s pace. European junk-debt offerings have decreased by more than 50% so far in 2022, the worst start to a year since 2019, according to data compiled by Bloomberg.
Fed Chair Jerome Powell on Wednesday provided even more clarity on the central bank’s plan to reduce liquidity and hike rates this year to combat inflation. While the investment-grade bond market is relatively stable, and Athenahealth Inc. sold high-yield debt this week without a hitch, signs are emerging that junk issuers face investors who demand greater reward for taking on more rate risk.
“We are now facing the reality of a much more hawkish Fed that will withdraw liquidity faster than expected,” said David Knutson, head of U.S. fixed income product management at Schroders Plc. “This has curtailed demand in the riskier parts of the market as they will be impacted first. The balance between borrowers and lenders is starting to turn in favor of lenders.”
Covis Pharmaceuticals Inc. is deciding whether to proceed with an $850 million cross-border bond sale that was slated to price Friday, financial information services firm ION Analytics also roughly halved the size of a cross-border junk-debt sale, while Italian football club FC Internazionale Milano SpA was forced to pay a considerably higher price than its existing interest rate to sell bonds earlier this week.
The market’s tone could prove a challenge for bankers planning to launch transactions driven by buyouts, such as the financing for cybersecurity software maker McAfee Corp. For buyout financing that banks have already funded with pre-arranged terms, the higher costs could potentially eat into their fees.
Some issuers, such as Fertitta Entertainment Inc., have recently shifted more borrowing into loans from bonds to finance buyouts. “Terms and pricing will become more favorable to investors to bring the market back into balance,” Knutson said.
The riskiest debt, such as unsecured bonds typically financed in the junk market, are being hit hard. Average yields on U.S. corporate bonds rated in the CCC tier have jumped by at least 50 basis points in the past week to 7.62% to reach levels last seen in early December, according to Bloomberg index data. Single B yields rose the most in six months to a 15-month high of 5.53%.
CCC bonds trading in the secondary market dropped 0.55% on Thursday, their biggest one-day loss in nine weeks.
U.S. high-yield funds reported an outflow of $2.8 billion for the week ended Jan. 26, the third straight week of outflows in excess of $2 billion, and the biggest since Nov. 24.
Skeptical Era
Debt traders are factoring in a faster pace of global policy tightening following the Fed’s meeting this week, seeing almost five Fed and Bank of England interest-rate increases and the first move from the European Central Bank this year.
“We’re entering into a more skeptical era now and fixed-rate investors are much more price sensitive and cautious, especially on the lower quality names,” said Ben Thompson, co-head for leveraged finance in Europe at JPMorgan Chase & Co. “The lesser known companies, or ones with history, will be a harder sell this year based on what we’ve seen so far.”
Risks Mount for Global Credit Markets After Fed’s Hawkish Stance
Elsewhere in credit markets:
Americas
The U.S. corporate bond market may come under pressure as the Fed starts to tighten the money supply in March, and that could come from an unlikely source: home loans.
Athenahealth’s newly minted junk bonds fell more than 1 cent on the dollar a day after pricing, in another sign of market volatility
In the investment-grade market, Procter & Gamble -- the only borrower to come to market after the Federal Reserve’s Wednesday announcement -- is seeing both tranches of its deal trading wider
Gustavo Petro, the front-runner to win Colombia’s presidential election in May, vows he’ll halt oil drilling the day he takes office. Bond investors are taking him seriously, with Ecopetrol SA’s notes posting some of the biggest losses among emerging-market oil companies since August
Production delays are straining mattress manufacturer Purple Innovation Inc.’s relationship with its wholesale partner, boosting a measure of its default probability in the next year to almost 39%
EMEA
Europe’s primary market slowed this week to about 24 billion euros of sales, below the expectations of 86% of respondents to a weekly Bloomberg News survey.
Offerings on Friday involved four deals to raise at least 1.6 billion euros equivalent, including from Atlas Copco Finance and Bpifrance
London airport Heathrow flagged to investors a risk to covenants in 2022 if cash flows from passengers are more than 15% below forecast
Move follows the Civil Aviation Authority’s annual decision on airport charges
Sustainable-linked issuance could take a greater share of Germany’s Schuldschein market as investors clamor for ethically-focused debt, according to Landesbank Hessen-Thueringen Girozentrale, one of the top arrangers
Deutsche Bank is targeting 15 billion to 20 billion euros of debt issuance this year, primarily in senior non-preferred notes
Asia
Primary issuance in the U.S. currency dropped to $4.1 billion this week from $5.5 billion last week, the lowest such weekly figure so far this year amid high volatility in financial markets as Federal Reserve set the stage for raising interest rates.
New dollar notes sold by Asian companies outside Japan decreased for a third straight week
China Cinda Asset Management Co. and Islamic Republic of Pakistan were the biggest borrowers in the market, each selling $1 billion of bonds
