CREDIT MARKETS UPDATE AS OF DECEMBER 31, 2015

Transcription

1 CREDIT MARKETS UPDATE AS OF DECEMBER 31, 2015 Swiss entity. All rights reserved. 1

2 Credit Markets Update As of December 31, 2015 We are pleased provide this summary update of the U.S credit markets through the fourth calendar quarter ending December 31, 2015 to our clients and friends: Overall, some of the air came out the bubble in the credit markets last quarter with decreases in LBOs, leveraged loans, junk bonds, second lien debt and LBO leverage; increases in the price of risk; and elevated levels of distress Newly issued leveraged loan volume decreased sequentially to $73 billion in the fourth quarter from $113 billion in the third quarter but was relatively flat with the $67 billion issued in the fourth quarter of 2014; for all of 2015, leveraged loan volume fell to $421 billion, down 25.4% from 2014, and the lowest total since 2011 LBO transaction pricing cooled somewhat last quarter, decreasing to 10.8x LTM EBITDA from 12.1x in the prior quarter for middle market companies having EBITDA under $50 million, still at an unprecedented level LBO loan volume declined in the fourth quarter both sequentially and year over year LBO debt multiples for middle market transactions reverted last quarter to 5.1x, a level consistent with the average degree of leverage throughout 2014 and 2015 Equity contributions to LBOs increased to 42.4%, the highest percentage since 2010 First lien leveraged loan pricing for non-investment grade credits ticked up a bit in the fourth quarter to about L+350 for pro-rata club loans and L+450 for institutional syndicated loans on single B rated credits Second lien loan volume largely evaporated in the fourth quarter, falling to about $1 billion, down from $4 billion in the previous quarter and in the year ago quarter, and the lowest level since the fourth quarter of 2011 Second lien loan pricing increased to almost L+1000, the highest level since 2012 High yield bond volume declined precipitously in the fourth quarter and for the full year, making the issuance total in 2015 the lowest since 2011 High yield bond pricing remained steady on a yield to maturity basis at approximately 6.4% Funds flows from high yield funds were negative (outflow) for the last three quarters in a row Funds flows to leveraged loan funds remained positive albeit at a subdued level relative to recent quarters CLO activity was down 21.1% in 2015 from 2014 CLO spreads increased to about L+190, a level somewhat higher than experienced since 2011 Distress indicators up substantially in the fourth quarter with roughly 13% by number and volume of all outstanding first lien loans trading in the secondary market priced at L+1000 or greater Leveraged loans in default or in bankruptcy is at the highest level measured by par amount outstanding since 2009 and by percent of loans outstanding since 2010 Swiss entity. All rights reserved. 2

3 Leveraged Loans New Issue Leveraged Loan Volume - Annual $700B $560B $420B $480 $535 $377 $466 $607 $528 $421 $280B $140B $295 $157 $77 $236 Institutional Pro Rata $200B $160B $120B $80B $40B New Issue Leveraged Loan Volume - Quarterly ($Billions) Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q' Institutional Pro Rata Swiss entity. All rights reserved. 3

4 LBO Summary Average Purchase Price Multiple - All LBOs 12.0x 9.6x 8.4x 8.4x 9.7x 9.1x 7.7x 8.5x 8.8x 8.7x 8.8x 9.7x 10.3x 9.9x 10.3x 11.2x 10.1x 7.2x 4.8x 2.4x 0.0x 1Q'15 2Q'15 3Q'15 4Q'15 Purchase Price Fees/Expenses Average Purchase Price Multiple [EBITDA<$50M] 13.0x 10.4x 7.8x 8.5x 8.1x 9.3x 8.3x 6.6x 8.4x 8.2x 7.9x 8.8x 9.6x 10.7x 10.0x 9.7x 12.1x 10.8x 5.2x 2.6x 0.0x 1Q'15 2Q'15 3Q'15 4Q'15 Senior Debt/EBITDA Sub Debt/EBITDA Equity/EBITDA Others Average Debt Multiples of Middle-Market LBO Loans 7.0x 5.6x 4.2x 4.7x 4.7x 5.6x 4.5x 3.3x 4.2x 4.3x 4.5x 4.8x 5.3x 5.3x 4.9x 5.2x 6.1x 5.1x 2.8x 1.4x 0.0x 1Q'15 2Q'15 3Q'15 4Q'15 FLD/EBITDA SLD/EBITDA Other Sr Debt/EBITDA Sub Debt/EBITDA Swiss entity. All rights reserved. 4

5 LBO Summary (continued) LBO Loan Volume - Quarterly $180B $144B $108B $72B $36B 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 $ Volume Number of Deals Average Equity Contribution to LBO 60% 51% 48% 36% 32% 33% 33% 43% 44% 42% 39% 37% 38% 42% 24% 12% 0% Rollover Equity Contributed Equity Average Purchase Price Multiple - LBO 18.0x 14.4x 10.8x 7.2x 10.7x 10.1x 3.6x 0.0x Large Corp. Middle Market Swiss entity. All rights reserved. 5

6 Leveraged Loan Pricing Average New Issue Spreads BB/BB - Quarterly L+500 L+420 L L+260 L L+100 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 Pro Rata Institutional Average New Issue Spreads B+/B - Quarterly L+550 L+470 L+390 L L+230 L+150 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 Pro Rata Institutional Average Spread Per Turn of Leverage (SPU) on LBO s* L+200 L+160 L+120 L+80 L L+0 Large Corp. Middle Market *Calculated as average pricing (spread) divided by average leverage on LBO s Swiss entity. All rights reserved. 6

7 Second-Lien Loans Second-Lien Loan Volume - Annual $40B $37 $32B $28 $30 $29 $24B $16B $8B $18 $16 $11 $7 $5 $3 $2 Second Lien Loan Volume - Quarterly $16B $13B $10B $6B $3B $14 $10 $11 $12 $13 $11 $8 $7 $6 $6 $7 $6 $6 $5 $4 $4 $4 $4 $3 $4 $4 $3 $4 $2 $2 $2 $3 $2 $1 $1 $1 1 $0 $0 $1 $0 $0 $1 $1 $1 $1 $0 $0 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 1Q'10 2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q' New-Issue Volume of Second-Lien Loans Number of Deals L+2000 Average New Issue Second-Lien Spreads L L L L L+0 LIBOR Floor Upfront Fee Spread Swiss entity. All rights reserved. 7

8 High Yield Bonds High Yield Bond Issuance Annual $400B $320B $240B $160B $80B $94 $144 $144 $68 $164 $287 $218 $345 $322 $310 $262 Secured Unsecured Subordinated High Yield Bond Issuance Quarterly New issue High Yield Bond Yield to Maturity $120B 14% $96B 11% $72B 8% $48B $36.3 6% 6.4% $24B 3% 2Q'05 4Q'05 2Q'06 4Q'06 2Q'07 4Q'07 2Q'08 4Q'08 2Q'09 4Q'09 2Q'10 4Q'10 2Q'11 4Q'11 2Q'12 4Q'12 2Q'13 4Q'13 2Q'14 4Q'14 2Q'15 4Q'15 0% 2Q'05 4Q'05 2Q'06 4Q'06 2Q'07 4Q'07 2Q'08 4Q'08 2Q'09 4Q'09 2Q'10 4Q'10 2Q'11 4Q'11 2Q'12 4Q'12 2Q'13 4Q'13 2Q'14 4Q'14 2Q'15 4Q'15 Secured Unsecured Subordinated High Yield Bond Issuance by Purpose 100% 80% 60% 14.2% 12.5% 13.2% 8.3% 5.2% 9.8% 16.5% 34.0% 29.2% 42.0% 45.3% 75.5% 62.8% 54.4% 10.5% 14.7% 15.5% 58.1% 50.3% 48.5% 10.6% 46.3% 40% 20% 0% 23.9% 35.4% 3.3% 22.6% 5.2% 3.8% 42.9% 4.8% 7.1% 5.5% 19.9% 15.7% 29.8% 16.2% 5.9% 12.5% 15.6% 22.3% 15.3% 14.7% 3.3% 9.7% 2.4% 13.4% 6.1% 4.4% 10.2% 6.8% 10.3% 14.1% 9.9% 9.9% Corp Purpose M&A/Acquisition M&A/LBO Refinancing Others Swiss entity. All rights reserved. 8

9 Funds Flows Flows into High Yield Bond Funds - Quarterly $30B $18B $6B ($6B) ($18B) ($30B) 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 Flows into Leveraged Loan Funds - Quarterly $50B $36B $22B $8B $13 $26 $13 $18 $16 $16 $7 $7 $25 $23 $38 $32 $31 $31 $29 $18 $19 ($6B) ($6) ($7) ($11) ($4) ($5) ($8) ($20B) 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 CLO issuance Prime fund flows $125B Annual CLO Volume $ $100B $82.6 $ $75B $50B $25B $12.3 $54.3 $30.8 $28.6 $18.9 $ Count Q'15 2Q'15 3Q'15 4Q'15 0 Volume ($B) Count Swiss entity. All rights reserved. 9

10 Funds Flows (continued) US CLO Spreads Libor x 1.1x Public BDCs - Price to Book Value Multiple - Quarterly 1.19x 1.16x 1.15x 1.12x 1.12x 1.1x 1.07x 1.07x 1.0x 1.01x 1.03x 1.03x 1.0x 0.9x 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 Swiss entity. All rights reserved. 10

11 Distress and Defaults Percent of First-Lien Loans with Secondary Spreads of L+1000 or Higher By Amount Outstanding 90.0% 72.0% 54.0% 36.0% 18.0% 12.5% 0.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec % Percent of First-Lien Loans with Secondary Spreads of L+1000 or Higher By Number of Facilities 72.0% 54.0% 36.0% 18.0% 13.2% 0.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Swiss entity. All rights reserved. 11

12 Distress and Defaults (continued) Par Amount of Leveraged Loans in Payment Default or Bankruptcy $60B $57 $48B $36B $24B $22 $25 $24 $31 $12B $9 $8 $3 $12 $12 $8 Percent of Outstanding Leveraged Loans in Default or Bankruptcy 12.0% 10.7% 9.6% 7.2% 4.8% 2.4% 3.6% 1.9% 0.6% 3.7% 5.0% 2.3% 2.2% 1.2% 2.9% 3.5% 0.0% Number of Issuers in Payment Default or Bankruptcy Swiss entity. All rights reserved. 12

13 Capital Markets UPDATE Credit Default Swaps CDS North America High Yield Index /15/2016, Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Bid Price Constituents Latest Additions to the CDS HY Index Company Current Bid Company California Resources Corporation 4,978 Whiting Petroleum Corp. 878 Dynegy Inc. 811 MarkWest Energy Partners, L.P. 380 Communications Sales & Leasing, Inc. 583 HD Supply, Inc. 265 Sabine Pass Liquefaction, LLC 580 T-Mobile US, Inc. 266 Valeant Pharmaceuticals International, Inc. 602 DaVita HealthCare Partners Inc. 256 Current Bid Largest Increases in CDS Pricing Largest Decreases in CDS Pricing Company Current Bid 1-Week Change Whiting Petroleum Corp % Tesoro Corporation % American Axle & Manufacturing % Deluxe Corp % The Hertz Corporation % Company Current Bid 1-Week Change Peabody Energy Corporation 6,858 (19%) J. C. Penney Company, Inc. 904 (3%) iheartcommunications, Inc. 4,208 (3%) T-Mobile US, Inc. 266 (3%) MBIA Insurance Corporation 3,731 (1%) Source: S&P Capital IQ, Markit website; *As of January 15, Swiss entity. All rights reserved. 13

14 KPMG Investment Banking Capital Advisory CapitalAdvisory Practice We are a leading global financial advisor with real time knowledge of the capital markets. We advise on a wide range of transactions involving both debt and equity, including raising financing for acquisitions, buyouts, dividend recapitalizations, growth capital, special situations, and DIP and exit financing in bankruptcies. We maintain close relationships with hundreds of debt, mezzanine and equity capital providers, including banks, BDCs, specialty finance companies, insurance companies, family offices, and a vast array of credit and equity funds and other private investors. Our team has decades of capital markets experience and has raised over $15 billion of debt and equity financing across numerous industries. Value added advisor Unbiased and objective advice Local market insight with strong relationships across all tranches of capital Experienced deal team Flexible andinnovative approach Fullyintegratedservice offering KPMG globaladvisory network Select Credentials Capital Advisory Debt and Equity Capital Raises Primary Service Offerings Independent capital structure review for boards of directors Assess funding options for specific capital initiatives Assess and assist in developing optimal capital structure and capital management plan Independent review of cost of capital Debt capacity review Senior debt financing, refinancing or amendments Acquisition and growth capital Leveraged ESOP financing Dividend recapitalizations and minority buyouts Mezzanine/junior subordinated financing Structured and minority equity Project financing Capital for special situations, including bankruptcies KS Bold Corporate Finance Corporate Finance Corporate Finance Corporate Finance Corporate Finance Corporate Finance Financial Advisor Financial Advisor Financial Advisor Financial Advisor Financial Advisor Financial Advisor Debt Advisory Capital Structure Advisory Debt Advisory Capital Structure Advisory Debt Advisory Capital Structure Advisory Formore information, contact: Philip Isom Managing Director Global Head of M&A pisom@kpmg.com Joe Nuzzolo Managing Director Capital Advisory jnuzzolo@kpmg.com Bill Welnhofer Managing Director Capital Advisory wwelnhofer@kpmg.com Pablo Escobar Director Capital Advisory pescobar@kpmg.com Michael Rudolph Director Capital Advisory msrudolph@kpmg.com Doug Christensen Vice President Capital Advisory djchristensen@kpmg.com John Orr Associate Capital Advisory johnorr@kpmg.com Corporatefinanceservices, includingfinancing, DebtAdvisory, andvaluationservices, arenot performedbyallkpmgmemberfirmsand arenotoffered by memberfirms in certain jurisdictions due to legal or regulatory constraints KPMGCorporateFinanceLLC, a Delawarelimitedliabilitycompany.MemberFINRA and SIPC. KPMGCorporateFinanceLLC isasubsidiary of KPMG LLP, a Delaware limitedliability partnership and the U.S. memberfirmof the KPMG network of independent memberfirms affiliated with KPMG International Cooperative( KPMG International ), a Swiss entity. All rights reserved. NDPPS Swiss entity. All rights reserved. 14

15 Important Notice The information contained in this newsletter is of a general nature and is not intended to address the circumstances of any particular individual or entity including their investment objectives or financial needs. In preparing this newsletter, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act or rely on the information in this newsletter without appropriate professional advice after a thorough examination of the particular situation. The information contained in this newsletter does not constitute a recommendation, offer, or solicitation to buy, sell or hold any security of any issuer. Past performance does not guarantee future results. Swiss entity. All rights reserved. 15