PDI Friday Letter: Happy New Year!

Welcome back, and happy New Year from the team here at Private Debt Investor.

We thought we’d pull together some of the key stories in the debt markets over the Christmas period in case you missed them. We’ll be returning to normal service with our weekly Friday editorial comment next week.

But before you delve into our round-up, please take a moment to vote in our inaugural annual awards. We’ve had a tremendous response so far, and many categories are too close to call – your vote could make all the difference. To vote, please click HERE.

Europe

Listed private equity group Candover Investments managed to refinance debt issued back in 2007 just before Christmas. The firm repaid notes issued through a US private placement back in 2007 using cash and proceeds from a new issue, compromising $84 million of notes with a 7.04 percent coupon mautirng in December 2015. “This refinancing gives us increased flexibility and stability, extends our repayment obligation by up to 15 months, and provides a more flexible repayment mechanism without penalties if realisations happen faster than we currently anticipate,” said Malcolm Fallen, the firm’s chief executive.

A group of 18 Cambridge university colleges also hit the private placement trail, raising £150 million through a bond issue arranged privately with a small group of investors. Law firm Mills and Reeve advised on the deal, which featured three bonds with an average coupon of 4.42 percent and average maturity of 33 years. Proceeds will be used to finance on-going building programmes at the university.

BlackRock is understood to have begun fundraising for a $500 million credit-focused hedge fund, the BlackRock Credit Alpha Fund, which reports indicate could grow to $3 billion.

Spanish gaming group Codere has sought protection this week from creditors as it bids to avoid insolvency proceedings. The business had €1.27 billion of outstanding debt as of the end of September last year, according to filings, and has in recent months made late payments on bond coupons. It warned on Thursday that it might be unable to repay a €127 million loan on Monday. GSO Capital Partners and hedge fund Canyon Capital are understood to have bought up the company’s debt over the course of last year. Both have extended additional credit lines to tide the company over and help it meet bond repayments, Reuters reported. A debt-for-equity swap is mooted.

At a macroeconomic level, Goldman Sachs research published in late December showed the European Central Bank had limited success tempering rate divergence across the Eurozone, with companies in the region’s weakest economies facing much higher borrowing costs than those in the likes of Germany. Divergence reached a peak in May last year, the report found.

North America

Apollo Global Management has reportedly requested permission from its LPs to increase its latest mega-fund, which as well as buyouts will also be used for distressed investments, to $17.5 billion. Apollo had been targeting $15 billion for the fund. LPs include The Oregon Investment Council, The Teachers’ Retirement System of Illinois, The Los Angeles City Employees’ Retirement System and the Pennsylvania Public School Employees’ Retirement System, among others, according to PDI’s data and analytics division.

In other fundraising news, American Securities has collected at least $778 million for its latest distressed fund, according to LBO Wire. American Securities has set a $1 billion hard-cap for Opportunities Fund III. The firm’s Opportunities strategy has historically pursued opportunities healthcare, business services, consumer services, defense services, power and energy, and transportation and industrial sectors.  

Aterian Investment Partners held a final close on its $256.8 million hard-cap after just 16 weeks on the market. The firm specialises in investing in turnarounds, distressed situations, restructurings, carve-outs, and other special situations in the mid-market. 

High yield bond issuance in the US came within $21 billion of hitting last year’s record total of $345 billion, according to S&P Capital IQ/LCD data. Investor demand for yield in a low interest rate environment helped spur demand, while many privately held companies sought to take advantage of low rates to gain access to liquidity.

Yields on junk bonds finished the year slightly above 7 percent, according to Forbes.

The Federal Reserve’s decision to start tapering its $85 billion in monthly asset purchases will likely have a negative effect on junk bond spreads. Indeed, spreads between high yield bonds and treasuries have already dipped below 400 basis points, Barron’s said.