There's more evidence of a rebounding U.S. high yield bond market: PIK toggle deal volume has soared in July as issuers take advantage of an institutional investor market that once again has become accommodating in its search for yield.
PIK toggle deals - which give the issuer the option of repaying the debt "in kind" (as opposed to cash) - have totaled roughly $2.85 billion so far in July, making it the busiest month for these deals since October 2012, and the second-busiest since the pre-Lehman days of September 2008.
In fact, some of the July transactions have been the largest PIK toggle offerings since the leveraged finance boom of 2008, according to LCD's Jon Hemingway. Michaels Stores, for instance, last week priced an $800 million offering, part of which will fund a dividend to private equity sponsors Bain Capital and Blackstone Group. Investor demand for the deal was such that it was increased from $700 million. The issue was rated CCC+/Caa1.
Also last week, healthcare networks concern MultiPlan completed a $750 million PIK toggle deal, part of which backs a dividend to sponsors BC Partners and Silver Lake. The Multiplan issue also is rated CCC+/Caa1. And just today U.S. retailer Party City unveiled a $300 million PIK toggle offering backing a dividend to private equity sponsor Thomas H. Lee.
The appeal of these deals to investors is obvious. The Michaels deal priced with a coupon of 7.5% (cash) or 8.25% (PIK), while MultiPlan priced with a coupon of 8.375% (cash) or 9.125% (PIK). Those figures are in contrast to the 6.79% average yield of U.S. senior unsecured high yield deals, as of July 25, according to S&P Capital IQ/LCD (that average yield is calculated on a rolling 30-day basis). Again, it's worth noting that many of the PIK toggle deals being completed have relatively low ratings, which contributes to the relatively hefty yield.
|