Valvoline’s Junk Bonds Leave Investors Clamoring for More

  • Investor orders were 12 times more than what Valvoline needed
  • Oil-change store operator locks in lowest coupon since June

For an indication of just how thirsty investors are for anything that offers yield, look no further than Valvoline Inc.’s bond sale this week.

Investors sent the iconic oil-change store operator orders worth $4.5 billion for a $375 million note offering backing its split from parent Ashland Inc., according to a person with knowledge of the offering. That allowed Valvoline to lock in a rate of 5.5 percent -- the lowest for a junk-rated borrower in more than a month, according to data compiled by Bloomberg.

"The race for yield is back -- central banks have given investors no alternatives," said Scott Carmack, chief executive of Portland, Oregon-based money manager Holbrook Holdings Inc.

With more than $12 trillion of debt trading with negative yields worldwide, investors are rushing into riskier assets around the world. The scorching demand is also sparking a revival of bond sales tied to online consumer loans, even as the world’s biggest investors -- Oaktree Capital Group LLC’s Howard Marks and BlackRock Inc.’s Laurence D. Fink -- warn of risks piling up across global markets.

Brexit

Valvoline benefited because there haven’t been too many new deals in the high-yield bond market since the U.K. vote to leave the European Union on June 23. That the company’s brand-name is well recognized also helped, according to Paul Sharkey, a managing director in Citigroup Inc.’s leveraged syndicate group, who helped market the deal.

The company has been around for nearly 150 years and its name has been associated with NASCAR and IndyCar drivers. And while it has been given a speculative grade by both Moody’s Investors Service and S&P Global Ratings, those rankings are in the upper rungs of junk.

Valvoline representative Ashley Fulmer didn’t immediately comment.

‘Go Nuts’

"For brand names like Valvoline in an industry that is likely to do well, people go nuts," Carmack said.

They did. Investors have little choice but to shrug off concerns about sluggish economic growth and the impact of Britain’s vote to leave the European Union and embrace corporate debt.

For investors, U.S. credit is a shield against the global collapse in interest rates, Bank of America analyst Yuriy Shchuchinov wrote in a July 13 note.

High-yield bond fund managers saw $4.35 billion of inflows for the week at Wednesday’s close -- the largest inflow since March, according to data provider Lipper. Issuance of high-yield bonds in the U.S., meanwhile, is down 31 percent this year. That’s amplified demand for high quality new issues, like Valvoline’s.

Valvoline has plans for an initial public offering later this year as parent Ashland sharpens its focus on specialty chemicals. The bonds were raised through a subsidiary of Ashland, which is planning to use the proceeds to repay some of its debt.

“There’s been a lack of new issue supply, investors have lots of cash and it’s a good quality name,” said Citigroup’s Sharkey. “Everybody wanted more.”

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