Edcon’s bonds best performing in Europe as investors seek risk

Bonds of Edcon Holdings, South Africa’s largest clothing retailer, are the best performing junk debt sold in Europe this month as record low yields spur demand for the riskiest securities.

Edcon’s 13.375% notes, rated Caa2 or eight levels below investment grade by Moody’s Investors Service, rose 5.6 cents on the euro to 105.6 cents, according to data compiled by Bloomberg. That compares with an average increase of 0.5 cents for speculative-grade bonds priced in euros, the data show.

"The high coupon on this deal raised some eyebrows given the low interest-rate world that we operate in," said Stefan Isaacs, a fund manager at M&G Investments in London who manages the equivalent of about $5.3-billion and bought Edcon’s bonds. "For some, this deal was an example of the desire to own yield but we also saw merits in the business."

Investors are seeking out higher-yielding assets after the European Central Bank cut its benchmark rate to a record low and global default rates fell from a year earlier. That’s helped the lowest-rated bonds outperform higher-ranking debt in November, with notes rated CCC and lower returning an average 0.9 percent compared to 0.7 percent for single B rated securities and 0.2 percent for investment-grade bonds, according to Bank of America Merrill Lynch indexes.

The average yield on speculative-grade bonds fell 14 basis points this month to an all-time low of 4.97%, the data show. The cost of insuring high-yield corporate debt fell 20 basis points to a six-year low during the same period, with the Markit iTraxx Crossover index of credit-default swaps on 50 junk-rated companies at 322 basis points at 11:56 am on Wednesday in London.

New issues
Edcon, controlled by U.S. private-equity firm Bain Capital Partners, used the proceeds from its 425-million euro bond sale to repay notes maturing in 2015, the Johannesburg-based company said in a statement on November 6.

In the high-yield market on Wednesday, Italian engineering and construction company Astaldi SpA is selling 400-million euros of seven-year notes that will be priced to yield about 7.25%, according to a person familiar with the matter. The notes, which can be bought back by the Rome-based company after three years, will be used to repay debt, said the person, who asked not to be identified because they’re not authorised to speak about the sale.

Italian online gaming company Snai SpA is selling 160-million euros of senior subordinated notes and 320-million euros of senior secured bonds, another person familiar with the matter said. The Porcari-based company will use the proceeds to help refinance existing bank debt, the company said in a statement November 20.

Debt refinancing
Snai’s five-year subordinated bonds will be priced to yield 12% while the 4 1/2-year notes will yield 7.625%. Both securities can be redeemed by the company after two years. About 53% of high-yield issuance in Europe this year was for debt refinancing, Claudia Holm, director at S&P Capital IQ, wrote in a report published on Wednesday. Non-financial companies sold a record 67-billion euros of junk bonds in the region this year, up from 31-billion euros during the same period last year, according to data compiled by Bloomberg. – Bloomberg

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