Junk-bond investors, who had been financing the riskiest U.S. companies in a bid to boost returns, are asking for a time-out amid a deepening rout in commodities.
Energy-services providers Exterran Holdings Inc. and leather-chemicals company Stahl scrapped plans to raise debt after failing to gather enough investor support. Lenders are extracting concessions from hospital owner Prime Healthcare Services Inc. and Builders FirstSource Inc. as yields on speculative-grade debt climb to a seven-month high.
“The market is really differentiating between the winners and the losers,” said John McClain, a money manager at Diamond Hill Capital Management Inc., in Columbus, Ohio. “And the losers are being punished. The confluence of global events -- especially within the commodity space -- has weighed on the market.”
A plunge in commodities is pushing investors to the sidelines as they look to sell their most vulnerable holdings, while treading cautiously around new offerings. With oil prices slumping below $48, energy bonds have lost 5.3 percent this month, and debt linked to metals and mining companies have handed lenders declines of more than 8 percent.
Exterran said it was pulling a $400 million note sale that would have paid down debt as it spun off its energy-equipment services and fabrication division into a new business. The company, which would retain its natural-gas compression business, cited “adverse market conditions” as a reason behind the cancellation.
“We’re seeing extreme pockets of weakness in commodity companies broadly,” said Keith Bachman, who oversees $6 billion as head of U.S. high yield at Aberdeen Asset Management Inc. in Philadelphia. “There’s a lot of caution as it relates to any new financing in the energy space. It’s a very cautious market right now.”
Prime Healthcare is planning to drop the dividend payout portion of a $700 million bond offering as it struggles to win investors support for the rest of the deal that would go to refinance debt.
Leveraged loans, which are repaid before junk bonds, haven’t been immune to the turmoil. Prices of the debt have fallen to 94.5 cents on the dollar, the lowest since December, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index.
Stahl pulled a $600 million term loan, half of which was going toward a dividend to its shareholders, according to three people with knowledge of the matter.