A high-yield issuer last week switched one of the tranches of its new issue from a fixed- to a floating-rate coupon. Boise Cascade, a paper and building materials company, changed the senior notes of its $300 million new issue to floating in a move that is indicative of strong investor demand for floating-rate paper and the company’s desire for pre-payability, said a banker familiar with the deal.
“The floaters are immediately pre-payable to the issuer and they’re planning timber sales of $1.5 billion in the next year and want the flexibility to help their leverage story,” he explained. While there is more investor demand for fixed-rate coupons, hedge funds are providing significant demand for floaters, he added. J.P. Morgan is leading the sale, which was due to be priced as BW went to press.
One traditional high-yield investor said the switch to floating-rate notes may have prevented him buying the seniors, though he was still looking at the subordinated notes.
Overall, floaters have become more popular in high-yield this year, according to Marty Fridson, ceo of FridsonVision. Expectations for higher rates are, of course, playing a role, but “perhaps the bigger factor is the increased role of hedge funds in the market,” he said.
