This week, we introduce a new contributor to our AMN Guest Commentary series. M. Daniel Smith is the founder and president of Capstone Financial Group, a specialized investment banking firm that offers middle market companies advice on recapitalizations, acquisitions, divestitures, restructurings and other corporate finance activities. Capstone has concentrated on transactions in the automotive aftermarket industry since 1989. It has worked with more than 100 aftermarket companies and has been involved in several of the industry’s more prolific mergers, acquisitions, refinancings and turnarounds. In today’s Guest Commentary, Smith writes about "high-yield" finance and the aftermarket. (To learn more about Smith and Capstone, check out his bio at the end of this article.)
Several automotive aftermarket companies and the private equity firms that own them are eyeing the junk bond market, also known as the high-yield market, for financing to be used for a myriad of purposes. Several of these private equity firms are looking to refinance their institutional senior debt and more expensive short-term obligations, while others seek to use junk bonds for acquisitions. Many also are contemplating their use for dividend recapitalizations, which liquidize the holdings of these firms. Whatever the use, most firms are attempting to aggregate $50 million in EBITDA from acquired companies in order to tap the high-yield market. Once tapped, the acquisitions continue.
With the lowest interest rates since the 1950s, companies worldwide have been anxious to issue new high-yield debt, with these new bond issues setting a record in 2012. In May 2013, the average yield on these bonds fell below 5 percent for the first time in history, prompting significant interest from corporate acquirers and private equity firms.
High-yield issues dropped in June of this year after the Federal Reserve’s comments regarding a possible reduction in its easy money policies, which could lead to its purchasing fewer bonds and the resultant higher interest rates. These issues rose again in July, but August results proved lackluster. Published reports now show 446 high-yield offerings this year, totaling $216 billion versus $209 billion at this time last year.
So far, rates have not risen as high as could be expected with the Fed’s announcement. The latest average senior unsecured bond yield on a rolling 30-day average dropped to 6.95 percent vs. 7.011 percent in August, according to S&P Capital IQ/LCD. Though these rates signal a percentage rise of about 40 percent above the 5 percent yields in May of this year, this rise is still only 2 percentage points, leaving yields dramatically lower than the 23 percent yields of 2009. All in all, “high-yield” is still not that high.
About Capstone
Capstone Financial Group is an investment banking firm which assists owners of middle market companies with their financial needs, including mergers and acquisitions, recapitalizations, private placements, divestitures, and other financial advisory services. Capstone is backed by a highly experienced and knowledgeable team of financial professionals with firsthand knowledge of starting, operating, growing, and selling middle market companies. Visit us online at www.capfg.com.
To provide securities-related services, the president of Capstone Financial Group is an investment banking agent licensed with Burch & Company, Inc., a registered broker-dealer unaffiliated with Capstone and member FINRA/SiPC. To provide securities-related services, the president of Capstone Financial Group is an investment banking agent licensed with Burch & Company, Inc., a registered broker-dealer unaffiliated with Capstone and member FINRA/SiPC.
