Chronically dismissed and beaten-down CBL & Associates Properties (NYSE:CBL) recently tapped the bond market (hat tip to Black Check Investing for raising it with me, I missed it!), raising $225 million by re-opening its 5.95% 2026 notes.
This may seem like a standard event, but in my opinion, it really isn't. See, a company that has been termed as dying can rarely raise money with as much ease as CBL. Admittedly, it was not cheap, but it is nine-year money at just north of six percent.
The REIT intends to use the net proceeds to reduce amounts outstanding under its revolving credit facilities and for general business purposes.
I have written about CBL and its debt (here, here, here and here) over the past few months (with the most recent being a review of the company's second-quarter earnings), so I won't rehash my thesis. I will instead get right to the point of this note, which is an update on the debt and the trading level of the debt. When a company is distressed (and CBL isn't, despite the popular narrative), debt rules the roost. Equity doesn't force a company into bankruptcy, debt does (the best example in the last few years would be DryShips Inc. (NASDAQ:DRYS) - you can stick it to equity again and again as long as you control or protect the debt). As a result, the debt will give you better color on the market's view of viability.
Ascribing to the belief that a picture is worth a thousand words, and further, believing you might not want to read a 10,000-word tome on CBL debt, I will present the majority of the information in graphical format.
CBL has three bonds outstanding:
- $450,000,000 of 5.25% due 12/01/2023 (issued 11/26/2013);
- $300,000,000 of 4.60% due 11/15/2024 (issued 10/08/2014); and
- $625,000,000 of 5.95% due 12/15/2026 (originally issued 12/13/2016).
First, a look at the price of the three outstanding bonds
As the chart above shows, the prices of the bonds have held in well and are off their lows for the last year. The lowest-priced issue is the 4.60%, which trades just over $95 - hardly distressed.
As the math works out, the yields on the three issues are well below their highs, with all three trading below six percent:
This is not to say that the yields reflect a pristine credit. The yields on the company's bonds are at Bloomberg/Barclays BB/B levels (4.79% and 5.14% for Ba3/B1, respectively. CBL is currently investment grade-rated by three agencies -Baa3/BBB-/BBB- (on watch negative at Moody's) and does not appear likely to be downgraded 3/4 notches anytime soon.
More important than yield or price is the spread to risk-free, as the spread is the risk premium demanded on the debt:
The spread on the '23s has been trending down but is still off the tights by approximately 30 basis points.
Likewise, the '24s are trading within 20 basis points of their tights:
The 5.95% of '26s also trades within 20 basis points of the tights.
Contrast the positive feedback in the reduction of the risk premium to the feedback from the share price:
For easier viewing, here's the two in the same chart:
The equity is saying pain, and only pain, but this isn't being confirmed with the debt.
The ability of CBL & Associates to raise additional debt with relative ease (yes, there was a concession to the existing issue) and to continue to trade within its recent range despite the equity beating indicates that creditors are not as worried about the fate of the company as owners.
Of course, the debt has protections not offered to the equity - namely, all unencumbered assets and claim on the estate before the owners see a dime. This will help hold bonds higher, but the CBL issues don't reflect that based on where they are trading.
The following are the covenants for the unsecured issues and their second-quarter compliance:
Note that the newer 2026 issue has a tighter secured debt covenant.
Trace recap here.
Special added bonus: preferred stock data!
The price history of the two outstanding issues is shown in the chart below:
And the resultant yields:
The spread between the Series D and Series E is shown in the following chart:
The CBL Series D trades wide to the Series E due to the higher dividend rate and, therefore, the higher probability of being redeemed first.
To put the CBL preferreds in context, the following table shows the company's preferreds versus peers:
One thing to consider is that if the company could raise debt at 6%, redeeming of the preferreds by CBL or the other REITs is not outside the realm of possibility.
Hope you enjoyed the added bonus.
Disclosure: I am/we are long CBL, WPG, SKT, PEI, BRX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.