High-yield investors are finding it easier to push for better terms on lower-rated deals thanks to the flood of higher quality acquisition-related financing that has put them in a better position to pick and choose, say bankers.
“We’ve seen pricing widen out a bit on the smaller LBOs,” said John Ong, global head of high-yield capital markets at BNP Paribas in New York. “There’s so much supply that the added demand [for financing] and leverage is putting upward pressure on pricing.”
Recently, companies such as Indalex Aluminum and Exopack Holdings raised funds at the same time NRG Energy dumped $3.6 billion in bonds onto the high-yield market. Investors consumed the NRG offering quickly and without a fuss (see related story, page 8). But Indalex made off with a 11 1/2% coupon priced at 98.73 on $270 million worth of paper, while Exopack settled for an 11 1/4% handle on $220 million in bonds. Both are single B-rated companies.
“Exopack was mispriced,” said a high-yield portfolio manager at the asset management arm of a bulge bracket firm who participated in the offering. “I do think it’s a decent company,” he added. Executives at both companies didn’t return calls by press time.
Other issuers have faced similar pricing pressures. Last week, Canadian Satellite sold 12 3/4% bonds, while Linens n Things brought a LIBOR plus 562.5 floater (see related story above). Both transactions were structured by Bear Stearns. And Wachovia helped bring an offering from RathGibson earlier this month that carried an 11 1/4% coupon on $200 million in bonds.