The High Yield Market Has Officially Topped, With Bondholders Eager To Cash Out Existing Equityholders In The Crappiest Of Names
If the recent $750 million Clear Channel deal was not indication enough that the high yield market is now back to 2007 market top levels, the sudden resurgence of dividend recap deals should be a sufficient and necessary condition that company boards are now willing to throw any debt leverage caution to the wind and extract as much proceeds as possible during the current HY offering megaspree before the window closes with a bang. And with investors no longer even demanding any negative covenants, the rush to relever and cash out existing equity-holders will definitely end in tears. Of course, the Fed is there to backstop each and every balance sheet. If Goldman is too big to fail, bond investors will claims, so is 10x leveraged port-a-potty maker UnitedSiteServices (or so PE sponsor DLJ Merchant Banking would hope). And if there is one entity that is ecstatic with the current HY mania (in addition, of course, to equity sponsors who a year ago were staring bankruptcy in the face and are now extracting hundreds of millions on the back of gullible and potentially semi-retarded "long-onlies"), it is Wall Street banks, which have perfected the art of finding retarded idiot investors (in exchange for a meager 3% fee) who are happy to ignore the whited-out "Use Of Proceeds - dividend payment to existing equity" and throw their LPs' money down said port-a-potty.
Some of the deals that have caught our eye recently, which absent the Fed keeping rates at 0 for as long as Goldman Sachs says so, would never in a million years have happened, are the following:
- Booz Allen Hamilton $350 million dividend recap launched on December 1. Use of proceeds: $550 million dividend recap to sponsor Carlyle and seller note reduction by $100 million (yes, the math does not work out, which is why Booz Allen will use $300 million of existing cash). Net result: pro forma total leverage of 5.0x, but at least Carlyle will be happy. The new bondholders? Well, we will follow up on them in one year. Underwriter: Credit Suisse
- Green Tree Credit Solutions $380 million dividend recap loan launched December 1. Use of proceeds: $150 million to troubled auto-focused PE firm Centerbridge which burned so much cash in the recent round of auto bankruptcies it is a miracle the firm is still around. The firm is a, wait for it, mortgage loan processor... that's right. the semi-retarded monkeys did not even read the company description. We wish the dividend recap deal "investors" all the best as they add to the 20% actual unemployment rate real soon. Sole underwriter: Deutsche Bank, which yesterday was furiously trying to get more people involved by lowering the OID to 96 from 97, and the spread to L+575 from L+500.
- Goodman Global $320 million dividend recap bond launched December 8. Use of proceeds: $115 million to PE firm Hellman & Friedman. Notes are expected to price December 11, with Barclays and JPM looking and finding eager semi-retarded monkeys-cum-investors.
- Quintiles Transnational $525 million dividend recap senior notes sold December 7. The chimps involved in the deal actually increased the original amount that they will never recover from $400 million by $125 million. Use of proceeds: $275 million to sponsors Bain Capital and TPG Group. Morgan Stanley and Citi are joint bookrunners.
- Taco Bell franchiser K-Mac $110 million dividend recap loan done December 2. Use of proceeds: $59 million to Olympus Partners. K-Mac is a big
Taco Bell franchisee, operating 130 of the brand's restaurants, and
pulling in roughly $250 million in annual revenue. The chimps like. Underwriters: Bank of America and Wells Fargo.
All of these deals follow in the footsteps of the Transdigm deal that set off the dividend recap races way back in October.
The last time we had a comparable surge in dividend recaps was around the later summer of 2007, about the same time that the S&P was seeing its all time ever highs. Here is to no deja vu's all over again, although we seriously doubt it.