Almost Daily Grant's

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Tuesday, September 11, 2018

Fine print foibles

The books are open. Soon-to-be renamed Refinitiv U.S. Holdings, Inc. (formerly Thomson Reuters’ Financial and Risk U.S. Holdings, Inc., which publishes financial data through its Eikon terminal) has commenced a $13.5 billion offering of term loans and high yield debt which will help finance the company’s $17 billion acquisition by a Blackstone Group L.P.-led consortium at the end of January.  The deal, which values the F&R unit at 12 times EBITDA and is expected to price next week, is the largest leveraged buyout since the financial crisis.  
Shortly after the deal was announced, the Feb. 9  edition of Grant’s summarized the daunting task facing Financial and Risk’s new ownership group, and, by extension, the company’s creditors:
The deal is a giant, leveraged bet that the passive investing trend will not, in fact, crush the active managers who pay to use Eikon; that F&R can take market share from the Bloomberg terminal; that interest rates won’t spike when Blackstone comes to refinance the $14 billion of borrowings; and that the world of finance five years from now will look very much like the financial world of today. 
The business risks do look to be at least somewhat reflected in the prospective compensation on offer.  Max Bower and Natalie Harrison of Reuters report yesterday that price talk for the high yield senior secured and senior unsecured tranches resides in the “low 7% area and low 9% area, respectively.” Those yields would tower over the 5.11% currently on offer from the iShares iBoxx High Yield Corporate Bond ETF.  
Then again, Reuters notes that while the deal is being marketed at a leverage ratio of 5.25 times adjusted EBITDA for the unsecured tranche, that already-doctored EBITDA figure has an asterisk. Anticipated but as of yet-unrealized cost savings will purportedly push Refinitiv’s adjusted EBITDA to $2.5 billion from the actual $1.9 billion annual run rate. John McClain, portfolio manager at Diamond Hill Capital Management, put it this way to Reuters:
It’s very late cycle. I don’t really like it when you see a deal with this order of magnitude of projected cost savings as you don’t really know if and when it will be realized.  It will be a bit of a test for the market given the size of the deal. But Blackstone and its partners have a good reputation and deep pockets.
Covenant Review, a credit research firm, pulled no punches after taking a look at the fine print. Speaking of the high yield segment of the offering, analysts Sabrina Fox and Scott Josefsberg write:
The Notes are being marketed with extremely defective sponsor-style covenants riddled with flaws and loopholes that reflect the worst excesses of covenant erosion over the last two years. 
The pair go on to cite specifics:
A wildly off-market new sponsor mutation seeks to eliminate a fundamental protection against distributions of assets to sponsors and other sponsor shenanigans at a time that the Company has become distressed.
The definition of ‘EBITDA’ would allow for ridiculous pro forma adjustments, allowing management to artificially inflate capacity throughout the covenant package.
Might this transaction stand as something of an avatar for these ebullient post-Lehman credit cycle? In 2008, private equity firms Bain Capital, LLC and Thomas H. Lee Partners conducted a $24 billion leveraged buyout of terrestrial radio station operator iHeartMedia, Inc., paying 10.8 times trailing EBITDA. Having subsequently defaulted on its debt and entered bankruptcy earlier this year, iHeartMedia is now mired in contentious negotiations with its bondholders.  S&P Global Market Intelligence’s LCD Unit reported last week:
The unsecured creditors committee in the Chapter 11 proceedings of iHeartMedia asked the bankruptcy court overseeing the case to deny approval for the company’s proposed disclosure statement, calling it a “175-page document premised on indecipherable defined terms and convoluted gifting mechanics [meaning the manner in which the assets are distributed] that renders an informed judgement next to impossible.”
LCD reports that holders of iHeartMedia’s unsecured 2021 notes would see recoveries ranging between 0 and 14.45% according to the company’s plan. 

Recap Sept. 11

Stocks ticked moderately higher amid renewed leadership from tech, as the NYSE FANG+ Index snapped out of its recent doldrums with a 1% advance.  Treasury yields likewise moved higher, with the 10-year yield settling at 2.98%, a five-week high.  
The dollar finished flat, while the iShares MSCI Emerging Markets ETF managed to reverse steep opening losses to likewise finish unchanged and the Turkish lira approached its best level against the greenback in two weeks. An encouraging showing for EM bulls today. 
- Philip Grant

Friday, May 22, 2020

Angel eyes
Misery loves company.

Recap May 22

Thursday, May 21, 2020

Yellow ledbetter

Wishing well
These coins must have fallen through the couch cracks.

QE progress report

Recap May 20

Wednesday, May 20, 2020

Risk management 2.0

Paper pushers

Northern exposure
Now they tell us.

Recap May 20

Tuesday, May 19, 2020

Pounded dough
The mouse is out of the house.

57 days later
The undead are dancing.

Recap May 19

Monday, May 18, 2020

Noises off

Depreciation day
Grading on a curve, writ-large.


Recap May 18

Friday, May 15, 2020

Shelf life
Today, biotech company Sorrento Therapeutics, Inc.

King me
Debt monetization is here.

Recap May 15

Thursday, May 14, 2020

She said it

Rock center
It's good to be king.

QE progress report

Recap May 14

Tuesday, May 12, 2020

Some type of synergy

Liquid courage
A brave new world.

Recap May 12

Monday, May 11, 2020

Bed check

A ripple in the desert
This morning, the Kingdom of Saudi Arabia announced

Recap May 11

Friday, May 8, 2020

He said it

Break on through
A step closer to the other side.

Recap May 8

Thursday, May 7, 2020

Mr. Market's Wild Ride

QE progress report

Recap May 7

Wednesday, May 6, 2020

Learning by doing

Solar city
From the counter-cyclical chronicles:

Pressed juice
What's old is new again.

Recap May 6

Tuesday, May 5, 2020

Green thumb
A closer look at "whatever it takes."

Just add water
The Mortgage Bankers Association

Recap May 5

Monday, May 4, 2020

Model X
Call it Uber diets.

Recap May 4

Friday, May 1, 2020

Thanks for nothin'

Codependency credit
Torrents of red ink down Mexico way.

Recap May 1

Thursday, April 30, 2020

Credit check

Security master
This morning, the Federal Reserve announced it will expand the scope

QE progress report

Recap April 30

Tuesday, April 28, 2020

State of nature
Yesterday, New York governor Andrew Cuomo

Recap April 30

Monday, April 27, 2020

Liquidity check

Something shiny

Smoke 'em if ya got 'em
On April 17, Howard Willard, CEO of tobacco giant Altria Group

Recap April 27

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