Credit Suisse revives Kraton polymers hung bond
A group of banks led by Credit Suisse revived a hung bond for Kraton Polymers on Wednesday, underscoring improving sentiment in a junk primary market that has been closed to many credits this year.
The US$440m April 2023 bond, which carries a coupon of 10.5pc, was formally issued by Kraton in January at a yield of 11.25pc but was entirely bought by its underwriters after they failed to find buyers in a deteriorating market.
This time around leads are expected to sell the deal at even juicier yields, as low commodity prices and high refinancing risks keep the chemical sector under pressure while investors have been demanding tougher covenants on high-yield paper.
While official price talk has yet to emerge, two portfolio managers following the trade told IFR that preliminary discussions revolved around a price range of 88-90, or 12.514pc on a yield basis.
Souring appetite for highyield credits since late 2015 had put banks who had committed financing for pending acquisitions between a rock and a hard place, forcing many to fund deals using their own balance sheets.
But since mid-February strong inflows into US highyield funds and demand for what some had thought was an oversold asset class fueled a mini rally in junk names.
The average spread on junk bonds tracked by Bank of America Merrill Lynch's US high-yield index, for example, compressed from a year-todate high of 2,066bp on February 11 to 1,775bp on Tuesday.
Kraton marks the first Triple C rated credit to dip its toes in the markets this month following a US$1.73bn bond sale from Solera in late February.
The deal is part of a bigger debt package that Kraton raised to finance its US$1.37bn acquisition of Arizona Chemical, which closed on January 6, and the redemption of its 6.75pc 2019s.
Underwriters were forced to fund a US$1.35bn term loan that was also part of the financing in January, though they managed to sell US$953m of that in midFebruary at a discount of 90 cents to the dollar.
Kraton paid down another US$75m of that loan through asset sales, while banks were able to sell the vast majority of the remainder on Monday at a price of slightly above 90 cents to the dollar, a source close to the deal told IFR on Wednesday.
The term loan was trading at a price of 91.0-91.5 in the secondary market on Wednesday, the source said. The bond, which is rated B3/CCC+, is expected to be sold to investors on Wednesday afternoon, according to a message sent to the market by lead manager Credit Suisse and seen by IFR.