Debt-Burdened Alarm Firm Tests Credit Market With 10% Junk Yield

(Bloomberg) -- For an indication of how sanguine some people are on the current credit cycle, look no further than Brinks Home Security. 

The heavily indebted alarm company, which is operated by Monitronics International Inc. and exited bankruptcy only a couple of years ago, is looking to sell $1.1 billion of junk-rated bonds to repay existing debt. 

If successful, the deal will allow Brinks to push out debt maturities as far out as 2028, increase liquidity and loosen some restrictive covenants that were put in place at the time of its exit from Chapter 11. 

That flexibility, however, is expected to come at a yield of 10%, significantly more than the company pays on its current loans. It’s also far higher than yields offered on other recent deals from American Tire Distributors Inc. and Frontier Communications Holdings LLC that have refinanced debt after emerging from bankruptcy.

S&P Global Ratings expects Brinks’ leverage, a key measure of debt to earnings, to increase to nine times following the refinancing, before moderating to six times next year. Brinks is marketing the junk bond with net leverage of 4.2 times, according to people with knowledge of the matter, who asked not to be identified because the transaction is private.

A representative for JPMorgan Chase & Co., which is managing the bond offering, declined to comment. A representative for Monitronics didn’t immediately respond to requests for comment. 

Providing heavily levered companies with some extra time to try new strategies to grow out of their capital structures is a classic playbook when credit is easily available. Some firms that borrowed heavily in the wake of the pandemic are also pushing out maturities in the hope that a rebound in business will make their debt more manageable in the future.

Read more: Carnival Delays Pandemic Debt Reckoning by Refinancing Bonds

Yet even with an extended runway, risks on the horizon abound for Brinks, which has struggled to fend off competitors and invest in technology as new entrants upended the home security industry.

“Brinks Home continues to execute on its strategic plan to manage costs and improve economics of its subscriber base,” S&P analysts wrote this week. “However, in our view there remains some uncertainty on the path to consistent free cash flow generation.”

Monitronics is slated to price the bonds on Wednesday.

U.S.

CastleLake Aviation Finance’s $420 million bond sale is the only deal expected to price in the U.S. high-yield market Friday. No investment-grade companies came forward after issuance reached $27.6 billion for the week, beating the highest estimates of $20 billion.

• Kirkland & Ellis and Moelis & Co. are working on contingency plans with offshore holders of China Evergrande Group’s bonds who fear the struggling company may sell assets that they’re counting on to back up their claims if the business collapses
• Japan’s largest telecom company Nippon Telegraph & Telephone Corp. is planning what could be one of the world’s biggest green corporate bond sales ever
• T. Rowe Price Group Inc. finds the most value in the safest part of Latin American corporate high-yield debt and recommends caution given risks in the region, including upcoming elections, pension withdrawals and the impact of slowing growth in China

Europe

Issuance slowed on Friday, with only two offerings in the market. Weekly volume reached 30.88 billion euros, according to Bloomberg data.

• Adler Group SA’s bonds due in 2029 rose by as much as 9% on Friday after the firm’s largest shareholder secured the option to sell half its stake, boosting confidence in the property company after a short attack this week
• Elsewhere, the head of distressed debt at Boussard & Gavaudan, David Levenson says more distressed debt is coming because many companies are over leveraged
• In the CLO space, U.S.-based CIFC Asset Management priced its delayed new issue

Asia

New dollar bond sales in Asia excluding Japan plunged and yield premiums climbed as investor worries about contagion from China Evergrande Group’s debt crisis intensified.

• Primary deals slid to $770m this week from $1.7b in the previous week, according to Bloomberg-compiled data; there were only two borrowers including the South Korean government raising money from the debt market
• In China, a selloff in dollar junk bonds has accelerated to its fastest pace in 18 months; yields have climbed 229 basis points in the past four days to 16.9%, according to a Bloomberg index
• Yield premiums on the Asia’s high-grade bonds were 4 basis points higher this week, heading for a fourth straight week of widening, a Bloomberg index shows

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