April High Yield Bonds In Review – Xtract Research
In a new special report Xtract Research highlights some things you may have missed in April’s high yield bonds.
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Highlights Of April's High Yield Bonds
Key points from the report include:
We saw at least seven deals in April where the issuer can lever up on a secured basis in excess of 10x EBITDA based on the ratio liens permissions and liens baskets: Mavis Tire, Allied Universal, BCPE, Wheel Pros, Hightower Holdings, Salt Holdings and Ahead DB Holdings.
Not only could secured debt be higher than we calculate, but it may be impossible to quantify at the time an investment decision is made. Yes, we know that covenants need to provide companies the flexibility to operate their businesses, but we have yet to hear why any company needs to have the capacity to incur this much secured debt.
Leverage No Worse Investment Permission: this provision is now showing up repeatedly in sponsor deals. When present, the issuer can make any investment so long as pro forma for the investment leverage ratio is no worse.
Several deals this past month permit a third or more of the company (based on total assets) to exit via an RP/investment.
We saw two first lien deals which contain a simple yet powerful loophole: the permitted lien for the lien securing “the notes” fails, as it should, to carve out any additional notes. As a result, the issuer can open up the indenture, and so long as it has an available debt exception, it can issue additional first lien notes without using a basket or testing a secured leverage ratio. Consequently, dilutive debt is not limited by the liens covenant but rather by the debt covenant.
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