RSP Permian, Virgin Media, CBRE Group price deals in $1.3 billion session; Samson slides

By Paul Deckelman and Paul A. Harris

New York, Sept. 23 – The high-yield primary sphere marked the first day of fall on Tuesday with a fall in overall activity versus the previous session, syndicate sources said.

Some $1.33 billion of new U.S. dollar-denominated and fully junk-rated paper came to market, down from Monday’s $2.58 billion in five tranches, although much of the latter figure was attributable to just one transaction – General Motors Financial Co. Inc.’s $2 billion two-part drive-by offering.

On Tuesday, in contrast, the activity was somewhat more evenly spread around.

There were two deals coming out of the energy sector – exploration and production operator RSP Permian, Inc., which did an upsized $500 million of eight-year notes, and the session’s smallest deal, oilfield services company IronGate Energy Services, LLC’s $30 million addition to its existing 2018 notes.

Away from the energy names, U.K. phone and internet service provider Virgin Media priced a quick-to-market $500 million of 10-year notes as part of a larger two-part dollar- and sterling-denominated deal. And real estate services firm CBRE Group, Inc. brought $300 million of quickly-shopped 10.5-year notes to market.

Traders saw some aftermarket dealings in the new RSP Permian and Virgin Media notes.

Monday’s huge GM Financial deal also was freed for secondary dealings and began trading around.

Other recent deals seeing active aftermarket activity included the credits from GameStop Corp., iHeartCommunications, Inc. and – going back a little further – California Resources Corp. Most everything was easier, in line with a generally heavier market, but the latter name was particularly hard-hit.

Away from the new issues, traders saw an overall negative tone in the market. And private energy exploration operator Samson Investment Co.’s bonds fell multiple points on very heavy trading

Statistical indicators of junk market performance were lower across the board for a second straight session on Tuesday, after having been higher for three straight sessions before that.

RSP Permian upsized and tight

In the primary, Tuesday’s executions were notably tight despite rocky market conditions. Two tranches came at the tight end of talk, one priced on top of talk and one saw its terms emerge at the wide end. One tranche was upsized.

Three of the day’s four tranches – two of the three deals – came as drive-bys.

RSP Permian priced an upsized $500 million issue of eight-year senior notes (B3/B-) at par to yield 6 5/8%.

The deal was increased from $450 million.

The yield printed at the tight end of yield talk that had been set in the 6¾% area.

Joint bookrunner Barclays will bill and deliver. RBC, J.P. Morgan and UBS were also joint bookrunners.

The Dallas-based oil and gas exploration and production company plans to use the proceeds to repay revolver debt and for general corporate purposes.

Virgin Media’s two currencies

In drive-by action, Virgin Media priced £605 million equivalent of 10-year senior notes (expected ratings B2/B) in a two-part dual-currency deal.

A $500 million tranche priced at par to yield 6%, at the tight end of yield talk in the 6 1/8% area.

A £300 million tranche priced at par to yield 6 3/8%, at the tight end of yield talk in the 6½% area.

BofA Merrill Lynch was the left global coordinator. Goldman Sachs International was the joint global coordinator.

Nomura, Credit Agricole CIB, UBS and HSBC were bookrunners.

Proceeds will be used to redeem the company's 8 3/8% senior notes due 2019 and its 8 7/8% senior notes due 2019, and also for general corporate purposes.

CBRE at the wide end

CBRE Group priced a $300 million issue of non-callable 10.5-year senior notes (Ba1/BB) at par to yield 5¼% in a quick-to-market transaction.

The yield printed at the wide end of the 5% to 5¼% yield talk.

J.P. Morgan, Credit Suisse, BofA Merrill Lynch, HSBC, Wells Fargo, Scotia and Barclays were the joint bookrunners for the debt refinancing deal.

IronGate taps 11% notes

IronGate Energy Services priced a $30 million add-on to its non-rated 11% senior secured notes due July 1, 2018 at 99.50 to yield 11.154%.

The reoffer price came on top of price talk.

Jefferies LLC was the placement agent for the quick-to-market deal.

The acquisition financing deal is in the market as a Regulation D private placement. The notes are to be automatically exchanged into Rule 144A and Regulation S notes upon closing.

Burger King talk is 5¾% to 6%

Amid all the rest of Tuesday’s new issue activity, the deal generating the most chatter was Burger King/Tim Hortons’ $2.25 billion offering of 7.5-year second lien senior secured notes (Caa1/B-/).

The merger-financing deal was talked to yield 5¾% to 6% Tuesday morning.

Official talk came 25 basis points behind earlier guidance of 5½% to 5¾%, according to market sources.

“Burger King is doing okay at the bumped up spread but it doesn’t seem to be a barn burner,” said a portfolio manager during a mid-morning conversation following the release of official talk.

Meanwhile there was buzz in the market that the buyside was pounding the table for more yield on Burger King.

However for every such assertion there seemed to be a counter-assertion holding that the deal will get done within official talk.

That’s the way a trader saw it shortly after Tuesday’s close.

Books close at noon ET Wednesday, and the deal is expected to price late Wednesday or early Thursday. However the trader who spoke late Tuesday looks for the deal to price Wednesday afternoon.

Burger King is bucking some headwinds, sources concede.

Moves made public on Thursday by the United States Treasury Department aimed at cracking down on so-called “corporate inversions” that previously appeared to offer tax reductions caused Burger King’s stock to trade 2.67% lower during the session and can’t have helped the junk bond deal, a trader said.

Also people are being extremely careful with the retail and restaurant sectors right now, the trader added.

In addition, high-yield bond prices have declined over the past two sessions, providing a less-than-optimal backdrop for the big deal.

“We’re seeing some overhang here,” a portfolio manager said.

“Right now everybody is looking for Burger King to clear and settle.”

Talking the deals

In addition to releasing Burger King’s price talk, dealers began setting the table for an active finish to the final full week of September.

Fly Leasing Ltd. set talk on Tuesday for its $400 million two-part offering of senior notes (B2/BB).

A $300 million tranche of new notes due 2021, callable after three years at par plus 75% of the coupon, is talked to yield in the 6 3/8% area.

A $100 million add-on to its 6¾% senior notes due Dec. 15, 2020 is talked at 104.75 to 105. The 6¾% notes become callable on Dec. 15, 2016 at 105.063. The original $300 million issue priced at par on Dec. 6, 2013.

Books close 10 a.m. ET Wednesday and the public deal is set to price shortly thereafter.

Jefferies is the left bookrunner. Citigroup, Deutsche Bank and RBC are the joint bookrunners.

Tembec Industries Inc. talked its $375 million offering of senior secured notes due December 2019 (B3/B-) to yield 8½% to 8¾%.

A special call provision that would have allowed the issuer to redeem 10% of the notes annually at 103 during the non-call period was withdrawn.

Books closed on Tuesday and the deal is set to price Wednesday.

Deutsche Bank is the left bookrunner. RBC is the joint bookrunner.

Also in the market is General Cable Corp. with a $250 million offering of five-year senior notes (B3/B+) expected to price late in the present week.

Although talk has yet to surface the deal is being discussed in a 5¾% to 6% yield context, a trader said.

And there is a dollar-denominated tranche in the Abengoa SA €500 million equivalent offering of non-callable five-year notes (expected ratings B2/B/B+).

The dollar-denominated tranche is shaping up in a high-5% yield context, a trader said on Tuesday.

The deal, which is coming in dollar- and euro-denominated tranches, represents the inaugural offering of “green” high-yield bonds from a European issuer. The notes will be offered to eligible traditional high-yield investors as well as dedicated socially responsible investments buyers who have a specific mandate or portfolio for buying green bonds, the release stated.

DPL starts roadshow

There was one new addition to the forward calendar on Tuesday.

DPL Inc. began a roadshow for a $200 million offering of non-callable five-year senior notes (expected ratings Ba3/BB) which are anticipated to price later this week.

BofA Merrill Lynch and Morgan Stanley are the joint bookrunners.

Proceeds, along with cash on hand and/or the proceeds of other debt, will be used to finance a tender offer for up to $280 million of the company’s 6½% senior notes due 2016 and for general corporate purposes.

Virgin Media, RSP Permian gain

In the secondary market, a trader saw “a decent amount of trading right out of the gate” in the new Virgin Media 6% notes due 2024, quoting those bonds at bid levels of 100¼ to 100½.

He meantime pegged the RSP Permian 6 5/8% notes due 2022 at 100½ to 101, but said he “did not see much” in the way of trading in the latter issue.

A second trader also saw the RSP Permian paper in a 100½ to 101 context and said Virgin Media had traded into a 100¼ bid.

Yet another trader saw New York-based Virgin, a provider of broadband, television and mobile and landline phone service in the United Kingdom, at par bid, 100¼ offered.

Traders saw no immediate aftermarket dealings in the new bonds from Los Angeles-based commercial real estate services company CBRE Group or Houston-based oilfield services provider IronGate Energy Services.

New GM Financial trades

A trader quoted both halves of General Motors Financial Co.’s $2 billion offering as trading between par and 100½ when they were freed for secondary dealings on Tuesday.

The Fort Worth, Texas-based automotive finance division of General Motors Co. had priced $750 million of 3 1/8% notes due 2017 and $1.25 billion of 4 3/8% notes due 2021 at par late Monday in a quick-to-market offering that got done too late for any kind of secondary dealings at that time.

Another trader, at a medium-sized financial firm, dismissed the big new deal, saying “if it traded, it traded. We weren’t even paying any attention to it.”

He said “it’s not a segment of the market that we’re even going to focus on. The true flow names, trading $25 or $50 million and up – in that business, we’re not going to compete with big banks.”

He added that “sometimes, they wash bonds just to do the trade,” which he opined was “a stupid way to do business.”

Another trader said of Monday’s other, smaller deals that he had not seen them, and “I don’t know if they just got tucked away.”

However, at another desk, a market source said there had been fairly brisk trading in both the new Geo Group and iHeartCommunications bonds. He had seen over $23 million of iHeart’s 9% notes due 2022 trading around 101¼ bid, up ¼ point on the day. San Antonio, Texas-based broadcaster and outdoor advertising company iHeart – formerly and more familiarly known as Clear Channel Communications, Inc. – had priced its quick-to-market $250 million add-on to the existing notes it had sold back on Sept. 5 under its old name. The add-on priced at 101 to yield 8.778% and had traded around that level in initial aftermarket action on Monday.

As for Geo Group, a Boca Raton, Fla.-based real estate investment trust, the market source said that its new $250 million of 5 7/8% notes due 2024 were trading at 100¼ bid, unchanged, with over $10 million having changed hands. The quickly shopped offering had priced at par on Monday, and then had moved a little above that issue price in initial aftermarket dealings.

Active GameStop is easier

Friday’s new issue of 5½% notes due 2019 from GameStop were at or near the top of the Junkbondland Most Actives list for a second consecutive session on Tuesday – but as had been the case on Monday, they continued to come off their earlier highs, a trader said.

He saw the notes down by around ¾ to 7/8 point for a second consecutive session, ending at par bid – the same level at which the Grapevine, Texas-based electronic game retailer had priced its $350 million offering on Friday, after upsizing it from an originally announced $250 million.

Those bonds had initially risen as high as a 101½ bid context, but had eased to around 100¾ on Monday, when over $30 million had traded, and then came in again on Tuesday to par on volume of more than $41 million.

California Resources retreats

Another actively traded name seen having surrendered some of the impressive initial gains it had notched was California Resources Corp., the Los Angeles-based independent oil and natural gas exploration and production company that had brought a $5 billion three-part bond deal to market on Sept. 11.

A trader said Tuesday that “Cal Res had been trading well, but they pulled back,” amid an overall easier market.

For instance, he saw the company’s 6% notes due 2024 “wrapped around” 103¾ bid, after having been in a 105 to 105¾ context on Friday, “so they’ve pulled back a little bit.

“The other two [tranches] followed suit, trading down 1 point or so.”

A second trader agreed, locating the 6% notes at 103½ bid, 104 offered on Tuesday, calling that down 1½ points on the day.

The company had priced $2.25 billion of the bonds at par, and they had initially jumped to around the 103½ bid area when they were freed to trade the following session, and continued to firm until they were above the 105 bid mark, before starting to pull back.

He said that the issuer’s 5½% notes due 2021 also lost 1½ points on the session to end at 102 3/8 bid, 102 7/8 offered. California Resources had priced $1.75 billion of those bonds at par and they too had speared above the 103 mark when they were freed to trade and had risen as high as a 104¼ context in subsequent sessions.

And he saw California Resources’ 5% notes due 2020 at 101¾ bid, 102¼ offered on Tuesday, down 1 1/8 point.

Some $1 billion of those 5.5-year notes had come to market as part of the three-part megadeal, pricing at par. They had moved above 102 initially and eventually above the 103 mark.

Waiting for Burger King

Also on the new-deal front, one of the secondary market traders said people were trying to figure out what would happen with the giant-sized Burger King deal that is expected to price some time during Wednesday’s session.

“I don’t know what’s going on with Burger King,” he declared.

He said that the price talk on the Miami-based fast-food giant’s prospective offering “seems like it’s out of context.”

He noted that some people in the market were saying that there’s good international interest in the deal, and the fact that savvy investment guru Warren Buffett’s Berkshire Hathaway is involved in financing the estimated $12 billion Tim Hortons transaction to the tune of $3 billion in preferred builds confidence.

But that having been said, he warned that “on the metrics, and on the ratings, it would seem like this is being mispriced by 50 to 100 bps, or at least 50 bps. It just seems like 5¾% to 6% is the wrong context, especially in this market.”

Samson on the slide

Away from the new-deal realm, traders noted that Samson Investment Co.’s 9¾% notes due 2020 were being pounded lower in heavy trading – even though there was no fresh negative news seen out about the Tulsa, Okla.-based privately-held energy exploration and production company.

A market source saw the bonds down as much as 4½ points on the day at 92 bid; another noted that after having traded much of the day at that lower level, late trading lifted the notes off that low to end at 93¼ bid – but he still called that down 3¼ points on the day, with well over $34 million of the notes having moved.

Indicators stay weaker

Overall, a trader said, “the secondary market has been kind of an afterthought [versus the new deals], and the market felt kind of heavy – and it continues to feel heavy.”

As if to prove that point, the statistical indicators of junk market performance were lower across the board for a second straight session on Tuesday; they had turned downward on Monday after having been higher all around for three consecutive sessions before that.

The KDP High Yield Daily Index plunged by 18 basis points to finish at 72.77, its second successive setback after three straight days of gains before that. On Monday, it had eased by 3 bps.

Its yield rose by 6 bps, to 5.43%, after having come in for four straight sessions before that – even on Monday, when it declined by 2 bps as its overall index reading declined; this was atypical behavior, since the yield and the index reading normally move inversely to one another, with a falling index usually producing a rising yield.

The Markit CDX Series 22 index lost 7/16 on Tuesday to end at 106 17/32 bid, 106 9/16 offered. On Monday, it had retreated by 13/32 point, its first loss after four successive gains before that.

The widely followed Merrill Lynch High Yield Master II Index moved down by 0.255% on Tuesday, on top of Monday’s 0.067% weakening, which had followed three upside sessions in a row.

Tuesday’s decline left its year-to-date return at 4.562%, down from Monday’s 4.829%, and down as well from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was closed for all intents and purposes due to the Labor Day holiday break.

Several other index components meanwhile hit new record levels for the year so far. The yield to worst rose to 6.026% while the spread to worst widened to 450 bps over comparable Treasuries, both new highs for the year. The previous highest yield for the year had been 5.936% and the widest spread 444 bps, both notched on Aug. 1.

The index’s average price fell to 102.7879, a new low for the year. The previous low point had been 102.8664, last Tuesday.

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