Photographer: Nadine Hutton/Bloomberg

Juiciest Junk Bonds Going Extinct as Autumn Calls Approach

Updated on
  • Rally pushes companies to extricate from legacy debt
  • Altice can lighten its debt payments as it mulls acquisition

Investors are about to lose their grip on some of the market’s highest-yielding bonds as an enduring rally makes it more likely companies will opt to repay debt early.

About $345 billion of speculative-grade bonds can be called through year-end, according to a Bloomberg analysis of $1.7 trillion in junk debt. Many of the borrowers will try to shake off coupons double or more what they would pay issuing new debt. Among them is Altice NV, which also may be considering acquisition financing to expand in the U.S.

“Given where spreads have gotten to, even as rates remain low, the natural consequence is that companies have a stronger economic interest to refinance whatever legacy debt they can,” said Noel Hebert, an analyst at Bloomberg Intelligence.

The almost insatiable demand to earn yield levels of past years has emboldened investors to take on more risk, driving junk-bond prices to a three-year high, all made possible by central-bank asset purchases that keep real interest rates near zero across much of the developed world.

This year’s rally has pushed many of the callable bonds above the price at which companies are allowed to redeem them. That implies a capital loss for investors who buy them today hoping that the interest will offset that loss, or that the company won’t reel them in.

Almost $6 billion in Altice bonds are callable in one month and trading above the call price. The company’s Chief Executive Officer Dexter Goei last week denied speculation the cable giant is mulling a multibillion-dollar leveraged deal to finance a bid for Charter Communications Inc. of the U.S.

Issuer Name Amount Coupon Call Price Market Price Call Date 
Altice Luxembourg   $2.9 bln7.75% 105.81 106.25 10/18/17 
Altice Luxembourg   2.075 bln euros7.25% 105.44 106.23 10/18/17 
Altice Financing 300 mln euros6.5% 104.88 105.31 10/18/17 

Patrick Drahi’s telecommunications company Altice sold the notes in euros and dollars in 2014, to yield 603 basis points and 525 basis points more than government benchmarks, respectively. Today, similarly-rated peers in Bank of America Merrill Lynch’s 5-8 Year B US High Yield Index trade at a spread of about 366 basis points.

Of course, an approaching call date will knock the wind out of a high-flying bond. Ontex Group NV’s 250 million euros of callable notes have missed out on the rally, dropping to about 103 from 107 a year ago. The company can repurchase them at a price of 102.38 on Nov. 15, according to data compiled by Bloomberg.

— With assistance by James Crombie

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