Market softer on post-holiday return; Greatbatch hits road; Dell busy on EMC financing news

By Paul Deckelman and Paul A. Harris

New York, Oct. 13 – The high-yield market reopened on Tuesday following the Columbus Day holiday break, and traders said that the tone was softer throughout.

Issues were generally seen off ¼ to ½ point on the session.

The primary market was quiet, with no new deals either priced or even announced.

The only bit of real news coming out of the new-deal arena involved medical devices company Greatbatch Ltd., with syndicate sources reporting that its planned $360 million bond offering would be marketed to potential investors via a roadshow that was scheduled to start on Wednesday.

It joins one other high-yield offering currently on the road, a £795 million two-part deal for Lowell Group, a British purchaser of consumer debt portfolios, whose proposed new issue is expected to come to market later this week.

In the secondary realm, the new eight-year notes from Scotts Miracle-Gro Co. were seen bucking the generally negative trend and hanging on to the solid aftermarket gains the lawn-care products maker’s deal notched after it priced a week ago, although Tuesday volumes were pretty low.

Computer maker Dell Inc.’s bonds were seen mixed in active trading as details emerged on how it will finance its $67 billion acquisition of sector peer EMC Corp.

Statistical measures of junk market performance were mixed for a second straight session on Tuesday; they had turned mixed on Friday after having been higher across the board on Wednesday and Thursday. Tuesday was the third mixed session in the last five and the fifth such session in the last seven trading days.

Greatbatch roadshow

No deals were priced during Tuesday's primary market session.

Greatbatch plans to start a roadshow on Wednesday for a $360 million offering of eight-year senior notes (Caa1/B-).

The deal is set to price early in the Oct. 19 week.

Credit Suisse Securities (USA) LLC and KeyBanc Capital Markets are the joint bookrunners.

The Frisco, Texas-based medical device company plans to use the proceeds to help fund the acquisition of Lake Region Medical.

The bond portion of the financing was decreased by $75 million, from $435 million, last week as the company shifted the proceeds to its concurrent term loan A.

The only other deal on the high-yield road is Lowell Group's £795 million two-part offering of notes.

The roadshow started on Monday.

The deal features £555 million of seven-year senior secured notes (B+) and £240 million of eight-year senior unsecured notes (B-).

Thus far no guidance or whispers have been heard, according to a sellside source who added that the deal has to get done and that Lowell will be a price-taker.

Price talk is expected on Thursday, and the bonds are likely to price before the end of the week.

Frontier, secondary soften

A trader said that “you had high-flyer names off,” for instance, the Frontier Communications Corp. 11% notes due 2025, “which were outperforming [other issues] last week.”

He saw those bonds slide to 100¼ bid on Tuesday after having gone home on Friday at 101½ bid.

“The beta names were underperforming today, when they were the outperformers last week.”

A second trader saw those bonds fall to 100 5/8 bid, on volume of over $19 million, putting the Stamford, Conn.-based wireline telecommunications and internet broadband provider’s paper high up near the top of the day’s Most Actives list.

At another desk, a trader pegged the 11s at 100¼ bid, 101 offered, calling them down 7/8 point, while the company’s 10½% notes due 2022 were also off by 7/8 point, at 100¾ bid, 101½ offered, and its 8 7/8% notes due 2020 eased by 1/8 point to 101½ bid, 102¼ offered.

Frontier had priced $1 billion of the five-year notes, $2 billion of the seven-year notes and $3.6 billion of the 10-year notes, all at par, in a regularly scheduled forward calendar offering back on Sept. 11 – one of the biggest junk bond deals of the year.

Scotts bonds holding on

A more recent new issue, last week’s $400 million offering of 6% notes due 2023 from Marysville, Ohio-based lawn-care products manufacturer Scotts Miracle-Gro, was doing better in the aftermarket.

A trader said that the new bonds “were hanging right in there” around the 102¾ bid level at which they had gone home on Friday.

A second trader even saw the bonds continuing to firm, pushing up by ¼ point on the day to 103 bid, though on only a handful of round-lot trades.

Scotts priced its quickly shopped deal at par on Wednesday after the offering was upsized from an originally announced $300 million.

Those notes came to market fairly late in the session on Wednesday but still saw more than $10 million of trading at that time, jumping to 102½ after having broken earlier in the afternoon at 101 bid.

The notes continued to firm on Thursday to highs around 102¾ bid, on volume of more than $48 million, making it one of that day’s most heavily traded credits.

They continued to stay at those lofty levels on Friday and again on Tuesday, though on greatly reduced volume.

Dell bonds diverge

Away from new or recently priced offerings, Dell’s bonds were busy, and its two most actively traded issues were seen sharply diverging as the Round Rock, Texas-based high-tech company disclosed its financing plans for its $67 billion acquisition of sector peer EMC, including up to $49.5 billion of committed debt financing from a lending syndicate that includes most of the heavyweight corporate lenders.

As part of that financing, Dell expects to redeem its outstanding 5 5/8% first-lien senior secured notes due 2020 – and those split-rated bonds (Ba1/BBB-/BBB-) understandably shot up on Tuesday, gaining 2 points on the day to end at 105 3/8 bid, on volume of over $51 million.

But a trader said that “other parts of their [capital] structure were off,” including the company’s purely junk rated (Ba3/BB+/BB+) 5.65% notes due 2018. More than $13 million of those bonds changed hands, ending at 103 bid, down ¼ point on the day.

Energy names off

In the energy patch, traders saw generally lower bond prices, in line with a fall in crude oil prices.

These included sector bellwether California Resources Corp., whose 6% notes due 2024 dropped by 1½ points, a trader said, ending at 68 bid, 69 offered.

More than $22 million of the Los Angeles-based oil and natural gas exploration and production company’s paper traded.

On the heels of an International Energy Agency report predicting that world demand for crude oil is likely to slow in 2016 in response to a more pessimistic outlook for the global economy, probably keeping the crude market oversupplied, November-delivery West Texas Intermediate crude lost 44 cents, or 0.9%, on the New York Mercantile Exchange on Tuesday, settling at $46.66.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a second straight session on Tuesday; they had turned mixed on Friday after having been higher across the board on Wednesday and Thursday. Tuesday was the third mixed session in the last five and the fifth such session in the last seven trading days.

The KDP High Yield Daily index edged up by 1 basis point on Tuesday to end at 67.30 – its sixth straight gain and seventh such rise in the last nine sessions.

The index was not published on Monday due to the Columbus Day holiday, which saw fixed-income markets in the United States closed. On Friday it had jumped by 32 bps.

But its yield – which normally moves inversely to the index, falling when the index rises and vice versa – switched gears and also rose on Tuesday, by 2 bps, closing at 6.58%. It was the first such widening after five straight sessions during which it had declined and six such sessions out of the previous eight, including Friday, when it came in by 7 bps.

The Markit Series 25 CDX North American High Yield index dropped by ½ point to 101 13/16 bid, 101 27/32 offered on Tuesday. It had eased by 1/16 point on Friday and then was seen unchanged on Monday, when the index was published despite the holiday market closure. Before Friday’s downturn, the index had risen in two straight sessions and in six sessions out of the previous seven.

The Merrill Lynch North American Master II High Yield index finally turned downward on Tuesday after six consecutive gains and in seven out of the previous nine sessions. It lost 0.178% after having risen by 0.552% on Friday and another 0.059% on Monday, when the index was published despite the holiday market closure.

Tuesday’s loss increased the index’s year-to-date deficit to 0.569% from 0.45% on Friday and 0.391% on Monday. The red ink is still considerably less than the 3.069% year-to-date loss seen the previous Friday, Oct. 2, which had been its biggest cumulative loss for the year so far and its lowest level since Oct. 5, 2011, when the index had shown a 3.834% year-to-date deficit.

© 2015 Prospect News.
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