Charter Communications sold a new junk bond on Thursday, a little more than a month after pulling a similar deal when it failed to agree on pricing with investors.
The second-largest US cable company raised US$1.5bn, or US$500m more than first announced in the morning, through the sale of a 10.5-year non-call five unsecured bond.
That is the same structure and size it tried to sell in late June. But Charter decided to pull that deal after investors refused to buy at a yield inside 5%, sources told IFR at the time.
After reports that Japan’s SoftBank may try to acquire the company and combine it with debt-laden wireless carrier Sprint, Charter failed to exact better terms this time around.
The new deal cleared at a yield of 5%, at the tight end of whispers of 5%-5.125% but still above the 4.75% target that Charter was heard to be aiming for last time.
“There is a bit of an overhang with SoftBank and what’s happening with that,” said one portfolio manager.
“If there is more debt coming, that could weigh on [Charter]. Suddenly these bonds are going to be wider.”
The new issue was seen offering a small concession over the company’s outstanding notes. Its 2027s were quoted at a yield of around 4.75% before the new deal was announced, the portfolio manager said.
Bank of America Merrill Lynch was lead-left on the new offering, which is rated B1/BB+/BB+. Credit Suisse led the June deal.
After pulling that trade, Charter tapped the investment-grade market to raise US$1.5bn through a two-part secured deal.
When Charter previously tried to sell its junk bond on June 21, average spreads on Double B rated bonds were 235bp over US Treasuries, according to Bank of America Merrill Lynch data.
They have since rallied to 219bp - just 3bp off a post-crisis low amid a dearth of supply that bankers say has created a very favorable environment for issuers.
“The markets are in good shape, and people are just taking advantage of the conditions,” one leveraged finance banker told IFR.
A flurry of bond sales from junk-rated companies over the past few days is expected to bring issuance in the US high-yield market to US$7.2bn this week, the highest weekly total since late June, according to IFR data.
That follows an anemic US$10.4bn of junk-rated issuance in all of July - the second-lowest total for that month since the financial crisis.
Nearly 64% of this year’s new issue activity is made up of refinancings - the highest proportion since 2010 - according to data from JP Morgan as of July 21.
That has left investors hungry for paper with little choice but to buy more in the secondary.
“Many of the deals we are doing have a refinancing component,” said another leveraged finance banker.
“I expect to continue to see spread compression as investors have high cash balances.”
