High Yield Bonds


Intel and searchable data on high-yield bonds for investors, lawyers and other restructuring professionals to incorporate into their daily workflows and research. Our coverage breaks down the high yield market through analysis and reporting on high-yield bonds, high-yield debt, high-yield trading, bond investing and more.

Americas Podcast: Johnson & Johnson “Texas Two Step” and Yak Access Creditors Organize
Mon Sep 20, 2021 7:37 pm Distressed Debt  High Yield Bonds  Leveraged Finance

Featuring a discussion on Johnson & Johnson’s response to a group of talc plaintiffs’ motion for an injunction from a New Jersey state court preventing the company from pursuing a “Texas two-step” chapter 11 strategy to shed its talc liabilities, as well as the company Yak Access, whose creditors have began to organize, and Cornerstone Chemical, our Americas Core Credit podcast dives deep into the most prominent distressed debt, performing credit and high-yield news from the week. 

On Johnson & Johnson, the plaintiffs alleged that a Texas divisional merger that allocates all the companies talc liabilities to a spinoff without sufficient assets to meet those liabilities would be avoidable as a fraudulent transfer and therefore should be enjoined before it occurs. Johnson & Johnson argued that if this were true, the plaintiffs would have a sufficient remedy of law, an action to avoid the merger should the defendants ever actually transfer assets citing Judge Lori Silverstein’s August 26 decision denying Imerys talcs request for a similar injunction in its chapter 11 cases. 

Discussing Yak Access, an ad hoc group of first lien lenders organized with Akin Gump amid rising concerns about the company’s liquidity and business outlook after a disappointing second quarter according to sources. The company’s second lien lenders also reportedly organized with Ropes and Gray. Members of the ad hoc first lien lender group includes Seabam, KKR and Soundpoint.

Listen to the full episode below to hear our detailed discussion on Johnson & Johnson, Yak Access, Cornerstone Chemical and more.  

 

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High Yield Bond Data on European Private and Public Credits
Wed Sep 15, 2021 8:12 pm High Yield Bonds

The importance of high yield bond data for financial advisors in Europe spans both the private and public sectors. High yield bond spreads can be used to assess the market as well as evaluate the general state of the economy, but investing in high yield bonds comes with a variety of risks. These risks include default risk, interest rate risk, economic risk, liquidity risk and more, which is why it is extremely important to conduct extensive research and data analysis before investing in these bonds. Aggredium by Reorg provides fundamental data through a searchable database featuring high-speed scraping and updating tools for gathering and publishing changes to leveraged loan and high yield bond data. 

Our KPI, segmental, debt structure and analytics allow leveraged finance and high yield professionals to stay current on situations and uncover otherwise hard to find data from 500+ European private high-yield issuers. Increase you and your team’s efficiency with our easy to use, direct high yield bond data feeds via Rest and Excel APIs to integrate with other databases plus, the Aggredium calendar allows subscribers to view upcoming financial events including earnings calls, payments calls, and other investor calls by working day. Get up to speed quickly on situations with updated financials within one hour after an issuer reports and within 24 hours after a deal launches, plus over 20,000 searchable documents. Click the buttons below to learn more about Aggredium or Request a Trial to experience the power of our platform for yourself. 

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Americas Core Credit Podcast: Purdue Chapter 11; Fraudulent Transfer Claims and Third-Party Claims
Mon Sep 13, 2021 4:04 pm Bankruptcy Filings  Distressed Debt  High Yield Bonds

Each episode of Reorg’s weekly podcast series features a look back at highlights and top stories from the week in review and a preview of what’s to come in the week ahead, followed by a deep dive on issues and companies in the distressed and high-yield space. For this week’s deep dive, Reorg’s Karen Leung and David Zubkis discuss the $4.6 billion settlement with the Sackler family in the Purdue chapter 11 cases and explore the releases of fraudulent transfer claims and third-party claims against the Sacklers.

Purdue has been taking up a lot of headlines and with the opioid crisis coming to a head with a variety of litigation cases accelerating due to the pandemic, our Americas Core Credit analysts dive deep into the chapter 11. The plan is both innovative and controversial, and the Purdue chapter 11 was the first major bankruptcy driven by the opioid crisis. Thousands of related lawsuits have been tied to the company’s role in developing, making, marketing and branding oxycontin, the narcotic painkiller. What you can see in the plan is the parties in the case using the tools in the chapter 11 toolbox to address not bonds and loans, but trillions of dollars in claims related to a mass social crisis. Listen to the full episode below.

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China Huarong in Talks with Potential Strategic Investors
Thu Sep 2, 2021 4:01 pm Financial Restructuring  High Yield Bonds

Management of China Huarong Asset Management, said on an earnings call Aug. 30, that Huarong is also in talks with other potential strategic investors, including Chinese and foreign firms, who had shown interests in investing in the company and joining CITIC, China Insurance Investment, China Life, Cinda, Sino-Ocean as its strategic investors. Of the dozens of earnings calls our Asia Core Credit team has covered this season, the Huarong call was noteworthy due to the topical nature of the controversial credit. Click through to read the full story.

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Virgin Active Restructuring; Three Inter-Conditional Part 26A Plans
Wed Sep 1, 2021 2:00 pm Financial Restructuring  High Yield Bonds

Hogan Lovells reflects on the impact of the landmark decision in respect of the Virgin Active restructuring in three inter-conditional Part 26A plans on 21 May 2021.


The Virgin Active restructuring plans represented the first fully contested cross class cram down for the new Part 26A process, since its introduction almost exactly one year ago. The plans saw five out of seven creditor classes in each of the plans subject to cram-down, delivering a comprehensive restructuring of its real estate liabilities as part of a plan that saw material new money injected by sponsors, and Lenders extending. DeepOcean and Smile Telecoms are the only other restructuring plans to successfully utilise the cram-down mechanism, both concerned structural debt and were not contested at sanction.

The seven creditor classes for each of the plan companies included: (i) the senior secured lenders; (ii) the UK landlords, categorised in classes A to E (based on traditional CVA structure); and (iii) a class of other general unsecured property creditors. As well as the changes to the senior facilities, the restructuring plans involve waivers and deferrals of rent arrears, reductions in rents and compromises of the claims of general property creditors. At the plan meetings, the secured lenders and the class A landlord creditors approved the plans but the other classes of landlord creditors (B through E) and the general property creditors dissented. The plan companies requested the Court to cram down the dissenting classes to sanction the restructuring plans.

An ad hoc group of four landlords opposed the restructuring plans at both the convening and sanction hearings. Arguments were numerous, including assertions that the “no worse off” test had not been satisfied in the absence of market testing and/or appropriate valuation, and/or that the Court should not use its discretion to sanction the plans because the treatment of the landlords under the plans was not just and equitable particularly by reference to the adequacy of timely sharing of information and efforts at pursuing an alternative. These arguments ultimately failed on the facts of this case.

The judgement of Snowden J on the Virgin Active restructuring plans has now become the leading authority on cram downs. It has provided welcome guidance on how the Court will assess the relevant alternative for the “no worse off” test. In particular, it clarified that there is no absolute obligation for the relevant alternative to be underpinned by a market testing process but that the merits and feasibility of market testing must be assessed on a case by case basis. Guidance is also given as to valuation, and it seems creditors will need to adduce their own independent valuation evidence to successfully challenge the company (even if this has to be produced based on less than optimal information and timeframes). Snowden J’s judgement also sets out the factors the Court will consider when exercising its discretion to sanction plans where creditor classes have dissented. The judgement was robust in emphasising that it is for the “in the money” creditors to determine how to divide up any value or potential future benefits following the restructuring (i.e. the restructuring surplus), and little if any weight is likely to be placed on votes of ‘out of the money’ dissenting creditor classes. This point might compare with the recent decisions on the New Look and Regis CVAs which flagged that the level of compromise suffered by a group of creditors under a CVA who are carrying a vote to impair dissenting creditors will be scrutinised closely by the Court and a lack of sufficient for compromise could amount to an unfair prejudice issue). Lastly, whilst there was complaint that the timetable may have been deliberately engineered or aggressive to jam an impairment on dissenting creditors, it was ultimately not substantiated on the facts. Virgin Active had actively engaged with landlords throughout the COVID pandemic, and moved quickly to re-model its business plans and re-engage again following the Kent variant and “lockdown three” which dominated its business in Q1 2021.

This may pave the way for more aggressive treatment of out of the money creditors by plan companies going forwards. However, it is a case decided very much on its facts and investors should be wary of extrapolating too much from this successful case and backing plans unlikely to succeed. Considerations are materially different where compromised creditors might be in the money, there are other preferable and deliverable alternatives available, and/or timetables could have afforded market testing or lengthier window or opportunity for valuation. We have just seen the Court refuse to sanction the Hurricane Energy restructuring plan because the judge was not convinced that the company’s relevant alternative of a controlled wind down was the most likely outcome if the plan was not sanctioned. Zacaroli J in that case was of the view that there was a realistic prospect of finding a solution to the shortfall to the bondholders. Whilst Hurricane was also decided on its facts, it shows the Court is looking closely at the company’s choice of relevant alternative, particularly where the company’s liquidity runway gives time for options to be explored. Well advised debtors and investors will be wary of plans launched from a more engineered platform, with delays in creditor engagement or pursuit of alternatives in the hope of achieving more aggressive compromise.

Hogan Lovells (Tom Astle and James Maltby) acted for the senior secured lenders in relation to the Virgin Active restructuring scheme. The firm also advised the senior lenders in relation to the Smile Telecom restructuring plan, the successful challenge to the Regis CVA, and challengers in relation to the NCP restructuring plan.


Guest post written by Lucy Xu, Senior Associate at Hogan Lovells International LLP.

To learn more about the Virgin Active restructuring plan as well as news, commentary and analysis on issues affecting the high-yield, stressed and distressed markets in EMEA visit our EMEA Core Credit product page.

              

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Middle Market Distressed Debt; Americas & EMEA

Providing subscribers with intelligence, analysis and news on middle market distressed debt and high-yield situations, our EMEA and Americas reporters and analysts work tirelessly to stay up to speed on situations involving up to €250 million or $500 million in funded debt. Our workflow tools enable financial and legal professionals to perform in-depth searches on companies of interest, dockets, new filings and proprietary Reorg content. In addition, insightful coverage from our uniquely structured team combines reporting with legal and financial analysis offering a holistic perspective on the information you need to stay competitive in the middle market distressed debt and high-yield space.

Our Americas Middle Market and EMEA Middle Market product offerings include a range of content and capabilities for investment managers, law firms, investment banks, professional services and corporations interested in middle market distressed debt and high-yield situations to use for their critical workflows. Stay current on breaking news and developing situations through full-text email alerts and push notifications, customize your flow of information by company, sector, case and more, and increase you and your team’s efficiency with our extensive databases and powerful search engine. Additionally, with a subscription to our Americas and EMEA Middle Market products you are able to connect with our team of legal and financial, middle market distressed debt and high-yield experts whenever questions arise requiring additional information or clarification about specific credits, companies or situations. 

Below are a few examples of the types of middle market distressed debt and high-yield intelligence you would receive access to as a Reorg subscriber:

Americas Middle Market

EMEA Middle Market

If you are interested in learning more about our middle market distressed debt and high-yield intelligence, analysis and news, feel free to request a trial here: 

 

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CCRC, Hospitals, Transportation and More – Americas Municipals

In terms of new coverage, our Americas Municipals coverage team initiated on a number of names, including three CCRC-related situations as well as a pair of related assisted living facilities, a Staten Island-based hospital, a Maryland transportation situation, a Kansas convention center and a Maryland-based student housing project. 

Lifespace Communities (Edgemere) (CCRC): Dallas-based continuing care retirement facility Edgemere is in default on its $107 million-plus bond debt and is in the process of negotiating a forbearance agreement with its bondholders, after retaining FTI Consulting and Sidley Austin as advisors. We’ve previously reported on Edgemere’s parent company, Lifespace Communities, which owns and operates 14 communities in seven states and is in the process of issuing Series 2021 bonds, which are expected to close on or about Aug. 25. Edgemere is separately financed, however, and is not a part of the obligated group on that new issuance or on Lifespace’s other issuances.

Asbury (CCRC): The owner of two CCRCs in Tennessee – Asbury Place Maryville and Asbury Place Kingsport – is operating well below its required debt service coverage ratio, and if it does not raise the ratio by Dec. 31, it will be in default on its $41 million of bond debt. Although Asbury managed to meet its debt service ratio covenant last year after operating below required levels for the first, second and third quarters of the year, it remains to be seen whether the two CCRCs will be able to recover from the fallout of the Covid-19 pandemic, which continues to “affect occupancy” resulting in a census for both facilities that is “lower than anticipated,” according to Asbury’s quarterly financials.

Santa Fe (CCRC): Two out of three continuing care retirement communities owned by Florida-based SantaFe Senior Living Inc. – The Terraces at Bonita Springs and East Ridge at Cutler Bay – continue to miss bond covenants and are in active negotiations with bondholders. Bonita Springs is operating under a forbearance agreement with its bondholders that expires in October and has continued to miss its bond covenants. East Ridge has no such forbearance agreement in place and is also missing its bond covenants, but management says it will begin negotiations on an agreement with its bondholders.

Wingate Healthcare (Assisted Living):  Wingate Residences at Melbourne in Pittsfield, Mass., a 125-bed assisted living facility with 32 memory care units, and Wingate Residences at Blackstone in Providence, R.I., a 96-bed assisted living facility with 23 memory care units, recently disclosed that they are not in compliance with their bond certificates for the fiscal year ended June 30. The two facilities are related through common ownership and are members of the obligated group on $42.5 million of senior housing revenue bonds.

Richmond University Medical Center (Hospital): The Staten Island-based healthcare facility and teaching institution disclosed this month that it is in jeopardy of missing its required debt service coverage ratio. The hospital currently reports a negative 9.8x DSCR for the quarter ended June 30, while the bond indenture for its $111 million outstanding Series 2018 revenue bonds requires a DSCR of at least 1.15x as of the end of the calendar year. The Medical Center did not generate sufficient income to meet the minimum debt service coverage ratio requirement in 2020 and was granted a waiver by the bond trustee, according to Richmond’s 2020 annual financials. 

Purple Line (Transportation): We also initiated coverage on Maryland’s troubled Purple Line light rail project, a 16.2-mile, 21-station, east-west, light rail transitway with a western terminus in Bethesda and an eastern terminus in New Carrollton, with $313 million in green bonds outstanding. We reported that the Maryland Department of Transportation and the Maryland Transit Administration have agreed with Purple Line Transit Partners LLC to further extend the due date for negotiating a replacement design-build contractor agreement by one month. The borrower is currently under forbearance with its bond trustee while a new contractor is chosen to replace Purple Line Transit Constructors LLC, the current contractor, which notified the MDOT and MTA that it was terminating its contract after alleging that they caused various construction delays.

Sheraton Overland (Convention Center): On March 1, the bond trustee for $90 million of revenue bond debt tied to the Sheraton Overland Park Convention Center Hotel made a $2.2 million unscheduled draw on the debt service reserve and it is unclear whether hotel revenue and transient guest tax revenue from the city of Overland Park, Kan., will be sufficient to avoid another unscheduled draw when next interest payment is due Sept. 1. The bonds are special limited obligations secured by the revenue of the 412-room full-service hotel adjacent to Overland Park’s convention center and a portion of the city’s transient guest tax revenue.

Towson University (Student Housing): The Maryland Economic Development Corp., or MEDCO – the issuer on $42 million of outstanding bonds tied to the Millennium Hall student housing facility at Towson University – does not expect to be in compliance with its revenue covenant at the end of its June 30 fiscal year. 

Existing Coverage

We have written several stories on Provident Oklahoma’s Cross Village Student Housing Project at the University of Oklahoma and the litigation over the project, which was ultimately settled. As part of the settlement, the University of Oklahoma agreed to purchase the student housing project for $180 million. This week, Seth wrote a piece talking about a related new general revenue bond deal, which would finally close the book on the $253 million debacle. Although ratings agencies have given favorable ratings to the university’s general revenue bonds, former investors of the Cross Village Student Housing Project are skeptical of the university’s willingness to back student housing projects given that it chose to renew only a portion of the project’s lease in July 2019, triggering its restructuring.  

CalPlant, our favorite manufacturer of MDF from post-harvest rice straw experienced another setback this week, as CalPlant does not expect to achieve “plant acceptance” with German machinery company Siempelkamp until the end of September, a month later than last reported.

In terms of other existing coverage, Midtown Campus Properties (comments made during a recent hearing revealed that the student housing project still needed $1.4M for completion) Canterbury-on-the-Lake (continues to miss several covenants), Illinois/Exelon (the push by Illinois to advance legislation providing $700M in subsidies related to two Exelon nuclear power plants), Vista Grande Villa (ongoing failure to meet certain minimum covenant requirements), Estates at Crystal Bay Apartments (a proceeding in connection with the borrower’s efforts to pay off the bonds in full) and Nevada State College (disclosures focus on expense reduction efforts and the bondholder group’s retention of Arent Fox).

Primary Coverage

On the primary side, we published on pricing in connection with the $303 million of Series 2021 bonds being issued by the California Statewide Communities Development Authority on behalf of Front Porch Communities and Services. The financing will consolidate the operations of Front Porch and Covia Communities, which provide senior housing and life plan communities, primarily in California. 

The team also covered the pricing of $61.5 million of tax-exempt bonds being issued by Baytown Municipal Development District to finance the Baytown Convention Center Hotel Project, a 208-room hotel and convention center in Baytown, Texas. 

We also previewed the upcoming pricing for $130 million in tax-exempt sales tax revenue bonds that the state of Illinois is issuing as part one of two offerings that will total approximately $500 million of Build Illinois bonds.

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Industry continues to grapple with chip shortages

Written by Noor Sehur, Analyst Team Lead || With a quiet primary market amid the earning season, we shifted our focus to secondary situations in Europe, some of which are auto-parts suppliers Adler Pelzer and Standard Profil, German real-estate company Adler Group and Indian-based entertainment company Eros STX.


Yields of B- rated senior secured notes of Adler Pelzer and Standard Profil rose to 5.2% and 7.3%, respectively, as the industry continues to grapple with chip shortages and margin pressure from rising raw material costs. (more…)

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Municipal Bonds Debt Analysis – August 2021
Thu Aug 19, 2021 7:50 pm Distressed Debt  High Yield Bonds  Leveraged Finance

Below is a recap of our municipal bonds debt analysis from the week ending Aug. 13, 2021. Primary market opportunities exclusive to Reorg’s municipal offering took the top spots this week while core, distressed coverage continued to expand the overall universe.

KIPP NYC Public Charter Schools tapped the bond market for $243m in funding to construct two new charter schools in the Bronx and purchase a third. Aggressive demand drove spreads tighter than price talk and the deal priced a week early.

Sanctuary LTC LLC waded into the primary market for a new $554m revenue bond that it tried to issue last year, but pulled because of market volatility. It’s back again with a new underwriter, replacing Truist with Hilltop Securities as lead left. Despite the frothy market, Reorg pointed out that the buyside might snub the deal again because of high leverage and weak occupancy.

Woodloch Towers is a good example for why the buyside is weary of senior care. Bondholders led by Preston Hollow won a $52.6 million judgment against obligor Senior Care Living VI LLC and its guarantor, Mark Bouldin, in a state court action. It’s a positive outcome for bondholders, but another anecdote depicting an increasingly ugly sector. 

Speaking of ugly, Chicago released an updated budget in which it reported a slightly smaller deficit of 17% of revenue, instead of 28%. That this qualifies as good news for the Windy City during a time of unprecedented federal support shows how long it will take for Chicago to get its finances in order. Reminder: Chicago, the third largest city in the US, is still junk-rated.

Rounding out the top five municipal bonds debt analysis for the week ending Aug. 13 was Moody’s downgrade of Rhode Island Convention Center Authority, or RICCA, to A1 from Aa3. This is a great example of how municipal high yield is different from corporate high yield: for Muniland, it’s all about the sector. 

Moody’s reason for the downgrade was succinct: a convention center is a single purpose, non-essential facility. The revenue stream backing over $200M in debt are lease payments from the state. If the state ever decides to end payments for non-essential services, RICCA would be at the top of the list. This is where a municipal credit analyst has to assess “willingness” versus “ability” to pay debt service.

             

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Tahoe Group Bond Default: Bondholders Should Look Beyond Traditional Restructuring

On July 8, after seeking three extensions, Tahoe Group published its response to an inquiry issued by the Shenzhen Stock Exchange in relation to the group’s 2020 annual report. The response provides some answers to the Tahoe Group liquidity and debt situation, but it is unknown whether the public’s concern over the unanswered progress of the group’s prospective restructuring can be relieved.

Tahoe Group, a Fujian-based PRC property developer, is deeply mired in financial crisis contributed by the PRC policy change. The group’s plan to introduce China Vanke as a white knight has not yet materialized as a result of a delay in the group’s debt restructuring process.

In the meantime, enforcement proceedings against the group have ramped up. Creditors have frozen equities controlled by Tahoe Group and its controller, and the group and its chairman Wang Qishan are also both listed on the List of Dishonest Persons Subject to Enforcement in the PRC. As the guarantor of its subsidiary Tahoe Group Global Co., Ltd, the group is facing a large-scale bond redemption and cross default at a size of over US $800 million for its dollar-denominated bonds alone.

As a standard clause in many US dollar-denominated indentures, individual bondholders are bound by a “no-action” clause prohibiting them from initiating proceedings against the issuers to enforce the note. Its purpose is to guard against superfluous suits taken without the bond trustee’s blessing. The indenture of the Tahoe Group’s bonds provides an exception, however, which lifts the no-action clause when the bond reached maturity. Individual bondholders are therefore entitled to commence enforcement actions after the maturity dates, allowing greater room for activist investors’ strategies.

In order for activist investors to maximize their return on investment, an opportunistic activist approach using offensive investigative tools may help uncover assets owned or controlled by the group and its decision makers. The starting point is to look at the corporate structure of Tahoe Group outside of the PRC. While the group has only a few offshore subsidiaries, including its main Hong Kong subsidiary Thaihot Group (Hong Kong) Co., Ltd and two subsidiaries in the BVI (including the issuer of the distressed bonds), aggrieved offshore bondholders often see themselves in a disadvantaged position as compared with onshore creditors. Indeed, the absence of leverage is often the cause of the loss of momentum in traditional restructuring, which results in a prolonged recovery.

Focusing on decision makers’ business and personal relationships may also provide value to investors, which is often overlooked. For example, looking at the recent activity of the group, attempts were made to create liquidity although its intention to acquire Tahoe Life Insurance, the insurance business in Hong Kong and Macau operated by its majority shareholder Tahoe Investment Group Co., Ltd, which is controlled by the group’s Chairman Wang was aborted. Tahoe Investment is also rumored to be looking to sell its healthcare service in the United States. 

If strategies are devised to block a prospective sale, or even to unwind a completed sale, the distressed company may face unresolvable liquidity issues and its decision maker may also feel enormous pressure to negotiate with better terms. There may also be opportunities for investors to seize assets “in transit”, if a transaction was not properly conducted, hence allowing investors to obtain a quasi-security over the distressed company.

Devising a strategy with information on these relationship and personal ties could provide a new perspective for activist investors in two meaningful ways: First, it facilitates negotiation for a more favorable restructuring plan, which may in turn help bring capital injections from white knights and other potential co-investors; second, it builds on foundational enforcement procedures, which encourages favorable settlement or even provides security to unsecured creditors.

It is therefore vital for investors to keep a lookout for creative strategies in situations where traditional restructuring has proven to be ineffective. 


Guest post written by John Han and Henry Cheung at Kobre & Kim

              

 

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