Berry, Fresenius drive by; Sprint, Frontier under pressure; oil names gain on crude oil rally

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Sept. 16 – Two drive-by deals cleared the dollar-denominated high-yield primary market on Wednesday, with issuers raising a combined $700 million of proceeds.

Berry Plastics Group Inc. priced a $400 million issue of seven-year notes at par to yield 6%, and Fresenius SE & Co KGaA priced a $300 million issue of 7.25-year bullet notes at par to yield 4½%.

The deals came at the tight end of talk and on top of talk, respectively.

In the secondary high-yield space, Sprint Corp. and Frontier Communications Corp. were the noms du jour, according to market sources.

One trader noted that “Sprint got downgraded [by Moody’s Investors Service], and that dragged down Frontier.”

Moody’s cut Sprint’s credit rating to B3 from B1 on Tuesday, citing “brutal competition” and a highly leveraged capital structure. Come Wednesday, the company’s debt was down “mostly 2 to 3 points,” a trader said, though in some cases, the losses were larger.

Frontier’s new issues also retreated a bit, as did the bonds of Dish Network Corp.

Dish’s debt, however, was not nearly as active as Sprint or Frontier.

Away from the telecoms, oil and gas names were mostly trending better as domestic crude oil prices popped over 5.5% on the day. The commodity’s price gain came on the heels of the latest report from the U.S. Energy Information Administration, which showed a larger-than-expected drawdown of stockpiles last week.

Berry prices tight

Berry Plastics Group brought $400 million of 6% seven-year second priority senior secured notes (B3/B) at par.

The yield printed at the tight end of yield talk in the 6 1/8% area.

Goldman Sachs & Co. was the left bookrunner. Credit Suisse Securities (USA) LLC, Barclays, BofA Merrill Lynch, Citigroup Global Markets Inc., Wells Fargo Securities LLC and Deutsche Bank Securities Inc. were the joint bookrunners.

Proceeds will be used to fund the acquisition of Avintiv and to repay certain existing debt of Avintiv and its subsidiaries, with any remaining proceeds to be used for general corporate purposes.

Financing for the acquisition also includes a $2.1 billion first-lien term loan. The loan was upsized from $1.9 billion, which resulted in a reduction in the notes to $400 million from $600 million.

Fresenius 7.25-year notes

Fresenius priced $300 million of 4½% 7.25-year senior bullet notes (expected ratings Ba1/BB+/BB+) at par.

The yield printed on top of yield talk.

Goldman Sachs was the left bookrunner for the debt refinancing. HSBC Bank, Citigroup and Mizuho Securities are the joint bookrunners.

Fresenius was on a non-deal roadshow in the United States on Monday and Tuesday.

Ellucian starts roadshow

Sophia LP, also known as Ellucian, began a roadshow on Wednesday in New York for a $590 million offering of eight-year senior notes (Caa2/CCC+).

The offer is set to price on Friday or Monday.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, J.P. Morgan Securities LLC, Barclays, BMO Capital Markets, Deutsche Bank and Jefferies LLC are the joint bookrunners.

Proceeds will be used to help fund the buyout of the Fairfax, Va.-based provider of higher education software and services by TPG Capital and Leonard Green Partners from Hellman & Friedman and JMI Equity and to repay debt.

Akelius, high grade style

In the European market, Stockholm-based Akelius Residential Property AB priced a €300 million issue of 3 3/8% five-year senior notes (BB+) at a 300 basis points spread to mid-swaps.

The spread came at the tight end of the mid-swaps plus 300 bps to 312.5 bps spread talk.

The notes, which were priced on the investment-grade desk, came at a reoffer price of 99.787 to yield 3.422%

Joint bookrunner Barclays will bill and deliver. Danske Bank as also a joint bookrunner.

Sprint under pressure

Although the high-yield index ended the Wednesday session up 1/8 to ¼ point, some conspicuous names came under considerable pressure, according to a trader in New York.

Sprint bonds reacted negatively to a credit downgrade from Moody’s on Wednesday. On a broader level, the weakness spilled over into other telecommunications names, including Frontier Communications and Dish Network.

“Sprint and Frontier were the bulk of the day’s volume,” one trader noted.

That trader saw Sprint’s 7 7/8% notes due 2023 dropping 6 points to 91 5/8. However, he noted that the issue was the biggest loser of the structure, as most of the other issues fell 2 to 3 points or less.

For example, the 7 5/8% notes due 2025 declined over a point to 89¾, while the 6% notes due 2022 dropped 2 points to 86.

At another desk, the 6% notes due 2016 were seen at par ½ bid, down 2½ points.

According to another trader, Sprint slid three points or so.

Moody's downgraded several ratings of Sprint, including the corporate family rating to B3 from B1, probability of default rating to B3-PD from B1-PD and senior unsecured rating to Caa1 from B2. The outlook remains negative.

Moody’s expects Sprint's cash consumption to remain high, liquidity to remain weak and leverage to increase.

The agency expressed concern that the company will struggle to keep up with its competition, especially with $12 billion of debt maturing over the next five years. Moody’s speculated that in order to manage its debt load, Sprint would need to find additional funding, likely from its majority shareholder, SoftBank Group Corp.

Trading in Sprint paper reflected the fact that a substantial number of funds operate under bylaws that prohibit them from owning triple C paper, the trader said.

Frontier sinks

Elsewhere in the telecom space, the recently buoyant notes issued last week by Frontier Communications sank below new issue price on Wednesday.

The Frontier Communications 11% notes due 2025 “really got hit” and were seen at 98¾ bid, 99½ offered at the Wednesday close, a trader said, noting that they had traded as high as 101½ bid, 102 offered earlier in the week. The notes came at par in a $3.6 billion tranche on Friday.

The Frontier 8 7/8% notes due 2020 and the 10½% notes due 2022 were also lower at 99½ bid, par offered on Wednesday.

Both priced at par the same day as the 11% notes due 2025 in a three-part transaction that totaled $6.6 billion.

Another trader said the $2 billion of 10½% notes were the most active of the three deals, coming in at “close to $100 million” in trades. He saw those bonds down 1¼ points at 99¾. The $3.6 billion of 11% notes finished down nearly a point at 99 3/8, and the $1 billion of 8 7/8% notes drifted down half a point to par ½.

Dish down too

Dish Network was another name down in sympathy, though a trader noted that there was “not nearly the follow-through” as that seen in Sprint and Frontier.

The trader pegged the 5 7/8% notes due 2024 at 88¾, off 1¾ points. The 5 7/8% notes due 2022 ended just a shade lower at 93 5/8.

Crude rally boosts sector

Oil and gas-linked bonds were mostly better on Wednesday as new data showed a larger-than-expected drawdown of U.S. crude inventories.

The data also resulted in big gains for crude prices, with domestic crude jumping 5.52% on the day.

A trader said California Resources Corp.’s bonds rebounded following a downgrade from Moody’s on Tuesday, as the 6% notes due 2024 ended at 68, which compared to levels around 65 previously.

The 5% notes due 2021 and 5% notes due 2020 both finished 1¼ points better, according to the first trader, at 68¾ and 70¼, respectively.

Even Energy XXI Ltd., which had gotten hit on Tuesday following the company’s latest reserve report, regained ground. A trader saw the 7½% notes due 2021 inching up to 19¼.

Chesapeake Energy Corp.’s 5¾% notes due 2023 were similarly up a touch, closing around 76.

A second market source, however, saw weakness in a couple of junkier names.

Linn Energy LLC, for instance, saw its 7¾% notes due 2021 slipping over a point to end at 30¾ bid. Consol Energy Inc. was another loser, with its 8% notes due 2023 falling a point to 79½ bid.

In its latest weekly report, the U.S. Energy Information Administration said crude inventories fell 2.1 million barrels last week, 1.9 million barrels of which were taken from the Cushing, Okla.-based delivery point. Investors had been pushing oil prices up all week ahead of that announcement, after Genscape forecast a 1.8 million-barrel draw from Cushing on Monday.

Analysts polled by Reuters had expected that inventories would gain 1.2 million barrels.

The EIA also said that gasoline and distillate stockpiles were up about 3 million barrels.

Market turns mixed

With the Federal Reserve slated to announce an interest rate increase – or not – on Thursday, the high-yield market traded in mixed fashion on Wednesday.

The KDP High Yield Daily index fell to 68.03 as yields widened to 6.32%, compared with Tuesday’s reading of 68.24 with a 6.25% yield.

However, a market source deemed the CDX North American Series 24 High Yield index better on the day, rising to 104.83 bid, 104.91 offered.

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