Revamped Cooke Omega deal prices, Mattel ahead; new Iron Mountain, Whiting, Churchill deals trade actively

By Paul Deckelman and Paul A. Harris

New York, Dec. 13 – High-yield primary market issuance fell back on Wednesday, following Tuesday’s busy session, syndicate sources said, as one U.S. dollar-denominated and fully junk-rated deal was heard to have priced during the session – food products company Cooke Omega Investments Inc.’s $330 million offering of five-year secured notes, which got done after the issuer and underwriters did some tinkering on the transaction’s tenor and call-protection features.

That lone deal stood in contrast to the four credits totaling some $2.63 billion of proceeds that priced during Tuesday’s session.

With the pricing of Cooke Omega, the syndicate sources saw just one actively marketed offering left on the Junkbondland forward calendar – a $1 billion issue from toymaker Mattel Inc., a recent fallen angel credit. That megadeal is expected to price this week – and some in the market say it could bring down the curtain on this year’s robust new-issuance scene.

In the secondary market, traders saw heavy volume in Tuesday’s deal from records and documents storage company Iron Mountain Inc., and brisk turnover as well in two other Tuesday transactions, from oil and natural gas exploration and production operator Whiting Petroleum Corp. and racetrack and gaming company Churchill Downs Inc.

Apart from the newly priced issues, the traders saw electric vehicle manufacturer Tesla Inc.’s bonds firm, aided by the news of sizable initial sales of its newly developed all-electric semi-trailer trucks to soda and fast-foods giant PepsiCo and dominant U.S. brewer Anheuser-Busch.

On the downside, PetSmart Inc.’s paper continued its painful parade downward, suffering big losses in active trading for a third straight session.

Statistical market performance measures were mixed for a second consecutive session on Wednesday. They had turned mixed on Tuesday after having been higher across the board on Friday and then again on Monday.

Cooke Omega prices atop talk

News volume in the primary market declined precipitously on Wednesday, as the phenomenal late-2017 deal-crush has all but concluded, sources say.

Cooke Omega Investments Inc. priced the session's sole U.S. dollar-denominated offer, a $330 million issue of restructured 8½% five-year senior secured notes (B3/B+) at 97.058 to yield 9¼%.

The yield printed on top of yield talk, which also factored in a discount.

The maturity of the notes was decreased from eight years.

Call protection was decreased to 2.5 years from three years. There were also covenant changes.

BMO was the bookrunner for the acquisition financing.

The only U.S. dollar-denominated deal remaining on the active calendar is Mattel, Inc.'s $1 billion offering of eight-year senior notes (Ba2/BB-/BB).

The market awaits official talk, but early guidance has it shaping up with a 6¾% to 7% yield, and pricing at the end of the present week.

Mattel could be the last deal of 2017, a trader said on Wednesday morning, and added that market participants appear to be staging for vacation time encompassing all- or part of the Dec. 18 week.

However there is apt to be at least one more deal from the energy sector, according to a sellside source who added that it won't be big, and Wells Fargo is expected to be involved.

Tidewater upsized and tight

In the Canadian dollar-denominated market Tidewater Midstream and Infrastructure Ltd. priced an upsized C$125 million issue of unrated 6¾% five-year senior notes at 99.479 to yield 6 7/8%.

The issue size was increased from C$100 million.

The yield printed at the tight end of yield talk in the 7% area.

CIBC was the sole bookrunner.

The Calgary, Alta.-based energy midstream and infrastructure company plans to use the proceeds, including the additional proceeds resulting from the $25 million upsizing of the deal, to repay debt and for general corporate purposes.

Tuesday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield EFTs sustained $267 million of outflows on the day.

Actively managed high yield funds were generally flat, at negative-$50 million on Tuesday.

Iron Mountain trades actively

In the secondary realm, traders saw intense activity in the new Iron Mountain 5¼% notes due March 15, 2028.

“They were fairly active,” said a trader who quoted the Boston-based records and documents storage company’s new notes at 100¾ bid.

At another desk, a trader saw the paper in a 100¼-to-100¾ bid range, while a third market source pegged them at 100½ bid, calling that a dip of 3/8 point from Tuesday’s closing initial aftermarket levels.

The new deal topped the Most Actives list on Wednesday, with over $72 million seen having changed hands.

Iron Mountain had priced its quickly shopped $825 million offering at par on Tuesday, and it had gotten as good as a 100¾-to-100 7/8 bid context by the close that session.

A favorable outlook

Iron Mountain is using the proceeds from Tuesday’s deal, as well as its concurrent issuance of 14.5 million common shares, to fund the latest in a string of acquisitions – its purchase of Arizona-based colocation data center services provider IO Data Centers for $1.315 billion plus up to an additional $60 million based on future performance.

At the Gimme Credit independent research service, senior analyst Evan Mann reaffirmed his previously issued “outperform” rating on the company, saying in a research note Wednesday that his underlying view of the company’s status is positive.

He noted that helped by Iron Mountain’s roughly $2 billion 2016 acquisition of Recall Holdings, Ltd., “IRM's revenue coming from faster growing emerging markets and adjacent businesses is approaching 20% consistent with the company's goal of reaching a 25% revenue mix by 2020 through a combination of acquisitions and organic growth.”

Mann acknowledged that while the company expects its leverage to remain above its longer-term target primarily as a result of the Recall acquisition, this should trend downward over time due to the proceeds from required divestitures and other positive factors, with net lease adjusted leverage ultimately reaching the 5 times level by 2020 from 5.6 times currently.

Whiting, Churchill deals busy

Among the other deals which came to market on Tuesday, traders saw the new Whiting Petroleum Corp. 6 5/8% notes due Jan. 15, 2026 unchanged at 101½ bid, with one of the traders estimating that volume in the Denver-based energy company’s new deal on Wednesday was more than $38 million.

Whiting had priced $1 billion of those notes on Tuesday at par in a quick-to-market transaction that was upsized from an originally announced $750 million.

The new Whiting paper quickly pushed above the 101 bid mark when the bonds hit the aftermarket, with one trader seeing them get as good as around 102 bid, with over $100 million traded.

Whiting’s existing 5¾% notes due 2021 were meantime ending Wednesday at 102 bid, down ¼ point on the day, on turnover of more than $17 million, one of the traders indicated.

A trader said that the new Churchill Downs 4¾% notes due Jan. 15, 2028 “is struggling,” locating the notes going home at 99 7/8 bid.

A second market source saw the bonds ending at 99 7/8 bid, while a third had them in a 99½-to-par bid context, on volume of more than $25 million.

The Louisville, Ky.-based racetrack operator – the host for the world-famous annual Kentucky Derby horse race – priced its quickly shopped $500 million deal at par on Tuesday after upsizing it from an originally announced $300 million.

Tesla trades up

Away from the new deals, Tesla Inc.’s 5.3% notes due 2025 gained 5/8 point Wednesday to end at 95¾ bid, with over $20 million having traded.

Traders said the bonds drew strength from recent gains in the Palo Alto, Calif.-based electric vehicle manufacturer’s shares, which have been trending upward for most of this month.

Investors got some good news on Tuesday with the company’s announcement that PepsiCo – the second biggest U.S. soft-drink company and its biggest seller of snacks such as Fritos and Lay’s Potato Chips – had ordered 100 of its newly developed electric semi trucks, this on top of an order for 40 of the new vehicles by brewer Anheuser-Busch.

Both giant companies have domestic fleets of delivery trucks numbering in the thousands, with Tesla poised to reap further orders for its newest product if the initially ordered trucks work out well.

PetSmart pain continues

For a third straight session, PetSmart Inc.’s bonds remained the market’s favorite punching bag, “getting beat up again,” a trader said.

He saw the Phoenix-based pet food and pet supplies retailer’s unsecured 7 1/8% notes due 2023 hammered down to around 60 bid, a 5-point loss on the session.

Its 8 7/8% notes due 2025 ended “a little higher than that,” at 62½ bid, while its secured 5 7/8% notes due 2025 were down around 3 points on the day, at just under 76 bid.

Volume on each was topping the $40 million mark, another trader said.

The bonds had also gotten clobbered on Monday and again on Tuesday, losing multiple points each day in active dealings on a combination of investor worries about weak EBITDA numbers as well as fears that management might opt to sell its lucrative Chewy.com online pet supplies business to its private equity sponsors, thus removing the unit’s revenues and earnings from the overall company, which would still be stuck with the $2 billion of junk bonds it issued in May to fund that major acquisition.

Indicators stay mixed

Statistical market performance measures were mixed for a second consecutive session on Wednesday. They had turned mixed on Tuesday after having been higher across the board on Friday and then again on Monday.

The KDP High Yield Daily Index was unchanged on Wednesday at 71.91, after having risen by rose by 4 basis points on Tuesday, which matched Monday’s 4 bps gain. The index had also been unchanged on Friday and had lost 5 bps last Thursday.

Its yield meantime rose by 2 bps on Wednesday to 5.29%. It had come came in by 1 bp on Tuesday, after having been unchanged on Monday.

The Markit CDX Series 29 index gained nearly 3/32 point on Wednesday to finish at 108 1/16 bid, 1081/8 offered, after having eased by not quite 1/32 point on Tuesday – its first loss after three straight sessions on the upside. Those three gains had followed two straight losses before that.

But the Merrill Lynch North American High Yield Master II Index retreated by 0.031% on Wednesday after three consecutive gains before that, including Tuesday’s 0.081% rise.

Wednesday’s downturn cut the index’s year-to date return to 7.341% from Tuesday’s 7.375% finish. Its year-to-date return remains off from the 7.636% posted on Oct. 24 – the peak cumulative return for 2017 so far.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.