5 Junkyard Borrowers

New issues in U.S. corporate bond markets topped $40 billion last week with $8.6 billion from 15 issuers in the high-yield or junk category. The five issues profiled below should add some color to the term "high-yield" these days.

Last week's biggest junk dealer was General Motors' (NYSE: GM  ) GM Financial subsidiary with $2.5 billion spread over three-, five-, and 10-year issues. The high yields on that paper were 2.75%, 3.25%, and 4.25%. The money is going to pay for and reimburse money used for the purchase of Ally Financial's international business.

Ball (NYSE: BLL  ) sealed the deal on $1 billion of 10.5-year paper with a coupon rate of 4%.  The money is being used to fund a tender offer for its 2016, 7.125% paper. The company is offering a premium plus a consent payment totaling $1,053.22 for every $1,000 face value. If all $375 million of the 2016 notes are tendered, Ball will pay about $395 million to retire the old debt. The deal adds $13.3 million per year to Ball's debt service, but leaves over $600 million "to repay borrowings under its revolving credit facilities, and for general corporate purposes."

Targa Resources Partners (NYSE: NGLS  ) piped in $625 million with 10.5-year, 4.25% notes.  The money will be used to pay down Targa's credit facility and "repaying other indebtedness, redeeming or repurchasing some of its outstanding notes, working capital and funding capital expenditures and acquisitions." The latest balance sheet shows only $8.2 million in short-term debt. A search at FINRA.org turned up several note issues for Targa's limited and general partner. The earliest maturity isn't until 2016, but all the notes are callable.

Brinker (NYSE: EAT  ) dished up $300 million of 10-year, 3.875% notes with a $250 million side order of five-year, 2.6% notes. The offering got a split rating, meaning it received both investment grade and junk ratings depending on the agency. Brinker is using the money to redeem notes due in 2014. There are $290 million of the 5.75%, 2014 notes outstanding. The company tacks $1.5 million per year to its debt service, but it has $260 million available for paying down its revolving credit or "general corporate purposes, including possible repurchases of common stock." If I were a Brinker shareholder, I'd rather see the balance sheet shored up to move squarely to investment-grade credit ratings before considering share repurchases.

Sonic Automotive (NYSE: SAH  ) rolled out $300 million of 10-year, 5% notes. The proceeds will redeem all $210 million of Sonic's 9% paper maturing in 2018. The 2018 notes traded at $111.40 after the press release; well above the $104.50 call price. The company will save about $4 million per year in debt service and should have some cash left over after redeeming the existing paper.

Investors bidding prices up and yields down are driving the "high" out of high-yield. That's great news for companies tapping the credit market -- provided they're smart with the money, but 5% and less on 10-year paper isn't much to cover inflation risk, market risk, and default risk on notes with less than stellar credit ratings.

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