with Randy Masel, Managing Director (January 28, 2015)
The Wall Street Journal published an article today (January 28, 2015) warning that “U.S. junk-bond investors are showing more caution”. As proof, the paper highlighted that a deal for Presidio Inc., which is being LBO’d by Apollo, was pulled. What the Journal failed to mention was the same day the Presidio deal was pulled, junk-rated Heinz issued $2 billion of a ten year new issue that priced at a rather slim 4.875%. At the same time, the U.S. high yield market is girding for $4.2 billion in new issuance from Altice. Rumors are that the new order book is oversubscribed by more than four times.
It is not terribly surprising that the Presidio deal struggled. Leverage was high, the company was not well understood, and Apollo has a mixed reputation with high yield investors. The success of the Heinz deal at the same time indicates the high yield market is increasingly discerning, which in my view is not a bad thing. In the same article, the Journal also mentioned that retail investors have been pulling money out of high yield ETFs and mutual funds. This is true, but it seems to me that the skittishness of retail investors has been heightened by misleading media reports such as the one mentioned, creating a negative feedback loop in which perception becomes reality.
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