Toys R Us (NYSE:TOY)
Historical Stock Chart
5 Years : From Apr 2012 to Apr 2017
A clutch of speculative-grade debt deals intended to raise more than $4 billion were put on hold and junk bonds fell in secondary trading Tuesday as investors pushed back on pricing due to concerns about Japan's nuclear crisis.
Among the issues delayed were leveraged-loan refinancings by Toys "R" Us Inc. (TOY) and Swift Transportation Corp. (SWFT). In such deals, corporate borrowers were looking to reprice existing loans at what, until this week, had been historically low rates.
Borrowers have started having second thoughts as Japan's earthquake, tsunami and nuclear-plant problems--as well as political tumult in the Middle East--have unsettled markets. Between Feb. 21 and March 14, the average premium on junk bonds in the Merrill Lynch High Yield Master II Index rose 0.14 percentage point to sit at 4.93 percentage points over comparable government debt.
That is the biggest three-week change since November following the Irish debt crisis, said Martin Fridson, global credit strategist at BNP Paribas Investment Partners. From Nov. 9 to Nov. 30, the average premium on junk bonds in the Merrill index rose 0.58 percentage point, but since then spreads had improved.
The extra yield, known as the risk premium or spread, is the added income investors demand to own corporate bonds rather than safer Treasurys.
"The market is looking to regain its footing before diving into the new-issue calendar," said William Hughes, head of the leveraged-finance syndicate at Citigroup. "Investors seem content at the moment to sit on the sidelines to see where things shake out."
Investors were already growing increasingly uncomfortable with terms on non-investment-grade debt, since borrower opportunism was leading to deals with little protection for lenders. Push came to shove Tuesday as whipsawing stocks and commodities gave investors pause.
Toys "R" Us shelved a $1.1 billion loan deal in which the nominal interest rate, or coupon, was expected to reprice around 300 to 325 basis points over the London interbank offered rate, or Libor, a benchmark at which banks lend to one another. The minimum rate would have been around 4.25% to 4.75%. Currently, Libor is around 0.3%.
A representative for Toys "R" Us wasn't available for comment.
Swift Transportation pulled a planned $1.07 billion refinancing that the trucking company expected to reprice at 350 basis points over Libor, with a minimum rate of 4.75%, according to a person familiar with the deal. The company didn't return a request for comment.
Health-care technology and services provider MedAssets Inc. (MDAS) pulled a $635 million refinancing of a loan it used to fund its acquisition of Broadlane Group last year, said a person familiar with the deal. The borrower was hoping to reprice the loan at 300 to 325 basis points over Libor, with a minimum rate of 4% to 4.25%. The company had been paying 375 basis points over Libor, with a minimum rate of 5.25%. A spokeswoman had no immediate comment.
Outside of the loan market, CDW Escrow Corp., a subsidiary of CDW Corp., pulled a $1.065 billion sale of notes due 2019 in the private-placement market, according to people familiar with that deal. Price guidance on the bond was 8.5%, they added. A company spokesman declined to comment.
Technology and manufacturing company Park-Ohio Industries Inc., a unit of Park-Ohio Holdings Corp. (PKOH), intended to sell $250 million of 10-year senior subordinated debt Tuesday to take out existing bonds due 2014. But the company decided to re-evaluate its options, and hasn't yet decided whether it wants to pull the deal completely, a person familiar with the deal said. Officials at Park-Ohio didn't immediately return calls seeking comment.
Separately, one deal was reduced in size Tuesday. MetroPCS Wireless Inc. (PCS) pared back a new $1.5 billion loan to raise just $500 million, a person familiar with it said. It had intended to refinance $500 million of debt maturing in 2013 and raise an additional $1 billion, but it was unclear how the ultimate proceeds would be used, the person said.
Pricing on the deal was pushed up from 350 basis points over Libor, with no Libor floor, to 375 basis points over Libor--and marketed at a discounted price of 99.5 cents on the dollar.
-By Katy Burne, Dow Jones Newswires; 212-416-3084; firstname.lastname@example.org