TerraForm, Post, Endeavor price megadeals; new Post paper active, along with Starwood; market mostly softer

By Paul Deckelman and Paul A. Harris

New York, Nov. 28 – The high-yield primary market moved into high gear on Tuesday, pricing some $3.7 billion of new U.S. dollar-denominated and fully junk-rated issues from domestic or industrialized-country borrowers in six tranches, syndicate sources said.

That was well up from the $550 million that had gotten done in two tranches on Monday.

The day’s activity was characterized by a trio of billion-dollar-area deals, including renewable power generating company TerraForm Power Operating, LLC’s upsized $1.2 billion two-part transaction, consisting of five- and 10-year paper.

There were also megadeals from breakfast cereal and consumer foods manufacturer Post Holdings, Inc., which did a tranche of 10.25-year notes, and from oil and natural gas exploration and production company Endeavor Energy Resources, LP with an upsized two-part issue of eight- and 10-year debt.

The new Post bonds were among the day’s busiest issues, moving up modestly, while both halves of the Terra Form deal also finished higher.

Monday’s issue of 7.25-year notes from REIT Starwood Property Trust, Inc. topped the day’s Most Actives list, with the issue slightly above its discounted pricing level.

Away from the new deals, traders saw many names easier on the day, including bellwether energy credit California Resources Corp. and the various issues from European telecom operator Altice.

But drug store operator Rite Aid Corp. – which announced the successful completion of its transfer of the first batch of stores that it is selling to larger sector peer Walgreens Boots Alliance Inc. in a multi-billion-dollar deal – was solidly firmer.

Statistical market performance measures were mixed for a second consecutive session on Tuesday. Those market gauges had turned mixed on Monday after four consecutive sessions before that in which they had been higher across the board.

TerraForm upsizes and tight

Primary market news volume remained heavy on Tuesday.

In the dollar-denominated market TerraForm Power Operating, LLC priced an upsized $1.2 billion two-part offering of senior bullet notes (B2/BB-/BB).

The deal included $500 million of five-year notes that priced at par to yield 4¼%. The yield printed at the tight end of the 4¼% to 4 3/8% yield talk.

The long tranche featured $700 million of 10-year notes that priced at par to yield 5%. The yield printed at the tight end of the 5% to 5 1/8% yield talk.

The issue size was increased from $1 billion.

The deal played to $4.5 billion of orders skewed to the 10-year tranche, a trader said.

Joint bookrunner RBC will bill and deliver. BMO, HSBC, Natixis, Scotia and SMBC Nikko were also joint bookrunners.

The Bethesda, Md.-based owner and operator of a renewable power portfolio of solar and wind assets plans to use the proceeds to redeem its notes due in 2023. The additional proceeds resulting from the $200 million upsize of the deal will be used to pay down the company's revolving credit facility.

Big book for upsized Endeavor

Endeavor Energy Resources, LP and EER Finance, Inc. priced an upsized $1 billion amount of senior notes (B3/BB-) in two tranches.

The deal included $500 million of eight-year notes which priced at par to yield 5½%. The yield printed at the tight end of yield talk in the 5 5/8% area.

In addition the company priced an upsized $500 million amount of 10-year notes at par to yield 5¾%. The tranche size increased from $300 million. The yield printed at the tight end of the 5¾% to 5 7/8% yield talk.

The overall amount of issuance was increased from $800 million.

Orders came to $5.5 billion across both tranches, a trader said.

Goldman Sachs was the left bookrunner. Credit Suisse was a physical bookrunner. BMO, Citigroup, BofA Merrill Lynch, MUFG, PNC and Wells Fargo were joint bookrunners.

Post prices tight

Post Holdings, Inc. priced a $1 billion issue of 10.25-year senior notes (S&P: B) at par to yield 5 5/8% on Tuesday, in a quick-to-market trade.

The yield printed at the tight end of yield talk in the 5¾% area.

The deal was three-times oversubscribed, a market source said.

BofA Merrill Lynch was the left bookrunner. Barclays, Credit Suisse, Goldman Sachs, Morgan Stanley and UBS were the joint bookrunners.

The St. Louis-based consumer packaged goods holding company plans to use the proceeds to redeem its 6% senior notes due 2022 and to help finance the pending acquisition of Bob Evans Farms, Inc., with any remaining proceeds slated for general corporate purposes.

Markit upsized and tight

IHS Markit Ltd. priced an upsized $500 million issue of senior bullet notes due March 1, 2026 (Ba1/BB+/BBB) at par to yield 4%.

The issue size increased from $400 million.

The yield printed at the tight end of yield talk in the 4 1/8% area.

Joint bookrunner RBC will bill and deliver. HSBC, BofA Merrill Lynch, JP Morgan and Wells Fargo were also joint bookrunners.

The London-based financial information services company plans to use the proceeds to repay revolver borrowings.

Rexnord starts Wednesday

Among Tuesday's deal announcements, Rexnord Corp. plans to start a roadshow on Wednesday for a $500 million offering of eight-year senior notes.

The deal is set to price later in the Nov. 27 week.

Credit Suisse is the left bookrunner. BMO, Citigroup, Deutsche Bank, Barclays, Goldman Sachs and Mizuho are the joint bookrunners.

Proceeds, along with approximately $300 million of cash on the balance sheet, will be used to pay down the company's term loan B.

James Hardie $700 million two-part

James Hardie Industries plc plans to price $700 million of senior notes (S&P: BB) in two tranches on Thursday.

The deal includes seven-year notes, which are being guided in the low 5% area, and 10-year notes, which are being guided to yield 25 basis points behind the seven-year notes.

BofA Merrill Lynch is leading.

ArcelorMittal 0.95% notes

In the European market ArcelorMittal priced €500 million of 0.95% five-year notes (Ba1/BB+) at an 85 basis points spread to mid-swaps on Tuesday.

The notes came at a reoffer price of 99.38, and yield 1.075%.

Barclays, Credit Agricole CIB, ING and SG CIB managed the sale.

Telenet in dollars and euros

Telenet Group plans to price $750 million and €500 million of 10.25-year senior secured notes on Wednesday.

Deutsche Bank is the lead.

Early guidance has the dollar-denominated tranche at 5¼% to 5½% and the euro-denominated tranche in the 3 3/8% area, a trader said.

Monday inflows

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

High-yield ETFs saw $182 million of inflows on the day.

Actively managed high-yield funds saw $20 million of inflows on Monday.

Post paper higher

In the secondary realm, traders saw the new Post Holdings 5 5/8% notes due 2028 among the day’s busiest issues, with one market source estimating volume at over $32 million.

One trader saw the bonds in a 100 3/8-to-100½ bid range, while another saw them trading between 100¼ and 100½ after the quick-to-market issue had priced at par.

Yet a third remarked that it “was not like they ran up out of the gate.”

TerraForm seen firmer

Several of the market sources also saw a little upside in the new notes from TerraForm Power Operating, although volume was considerably less than the Post Holdings issue.

One trader saw both halves of that regularly scheduled forward calendar offering – the 4¼% notes due 2023 and the 5% notes due 2028 – going home at 100½ bid, up from their par issue price.

Another trader saw the five-year issue in a 100¼-to-100¾ bid context, while the 10-years were between 100½ and 101 bid.

Starwood tops actives list

Monday’s new deal from Starwood Property Trust, Inc. was seen by traders to have topped the day’s junk market Most Actives list, with over $49 million changing hands.

They quoted the Greenwich, Conn.-based commercial mortgage real estate investment trust company’s deal in a 99½-to-par bid range.

The company had priced a quickly shopped $500 million of 4¾% notes due 2025 at 99.249 to yield 4 7/8%.

The new bonds had firmed to around the 99½ bid level in initial aftermarket dealings.

A trader – noting the small gains seen in the Starwood issue, as well as in Tuesday’s offerings from Post and TerraForm – observed that “nothing was trading up to 102 or wherever, citing the limited market enthusiasm for paper in the 4% to lower 5% coupon range.

“You don’t see them run much anyway.”

Cal Res seen easier

Away from the new or recently priced issues, trader saw many names softer on Tuesday.

For instance, one said that California Resources’ 8% notes due 2022 – considered an energy sector bellwether credit – “had a good run recently, but with oil off, gave some of that back today.”

He saw the Los Angeles-based oil and natural gas exploration and production company’s issue down 1½ points, around 72 or 73 bid, on volume of more than $40 million.

A second market source had the bonds at 72 3/16 bid, calling that down more than 1½ points.

But a third saw the bonds bounce off their lows and end closer to the 73 bid level, calling it a 5/8 point loss on the day.

Crude prices were meantime lower on the day for a second straight day after three consecutive sessions before that on the upside.

West Texas Intermediate crude for January delivery lost 12 cents per barrel in New York Mercantile Exchange trading, settling at $57.99, following Monday’s 84-cent drop and Friday’s 93-cent gain.

January-contract North Sea Brent crude was off by 23 cents per barrel in London futures trading, to $63.61, having eased by 2 cents on Monday, in contrast to Friday’s 31-cent rise.

Altice bonds off

Netherlands-based cable and telecommunications company Altice’s various bonds were seen generally lower on the day, with the parent company’s 6 5/8% notes due 2023 down by around 5/8 point on the session at just under 103 bid, while its 7½% notes due 2026 lost ½ point to close at 105½ bid, both with around $9 million traded.

Its financing subsidiary’s bonds were busier, with the 7 5/8% notes due 2025 seen down 1½ points to close at 94 3/8 bid, while its 7¾% notes due 2022 were down a deuce on the day at 98½ bid, both with over $23 million having changed hands.

And its SFR Group subsidiary’s 7 3/8% notes due 2026 were down by nearly ½ point at just over 102 bid, on $24 million of turnover.

Rite Aid rallies

On the upside, a trader said that Rite Aid Corp.’s stock “rallied a good bit,” in line with a generally stronger pharmacy sector, including gains by larger sector peers CVS and Walgreens, “and the stock gave the bonds a boost.”

He saw Camp Hill, Pa.-based drugstore chain operator Rite Aid’s 6 1/8% notes due 2023 up by nearly 1 point on the day, closing at 93½ bid, with over $18 million traded.

Rite Aid announced Tuesday that it had completed the handover of 97 of its stores to Walgreens – the first patch of what eventually be 1,932 stores, three distribution centers and related inventory that it is selling to its larger industry peer for an all-cash purchase price of $4.375 billion.

The asset sale is expected to be fully completed in the spring of 2018.

Indicators stay mixed

Statistical market performance measures were mixed for a second consecutive session on Tuesday. Those market gauges had turned mixed on Monday after four consecutive sessions before that in which they had been higher across the board.

The KDP High Yield Daily Index was unchanged at 71.82 after having risen over the previous seven straight sessions, including Monday, when it was up by 6 basis points.

Its yield meantime was also unchanged on the day Tuesday at 5.32%, after four successive trading days in which it had come in, including Monday’s 2 bps narrowing.

The Markit CDX Series 29 index gained nearly ¼ point on Tuesday to end at 107 31/32 bid, 108 offered. That gain essentially offset Monday’s ¼ point loss, which had been its first loss after four straight gains, which followed two other losses.

But the Merrill Lynch North American High Yield Master II Index suffered its first loss after eight gains in a row, which in turn had followed 10 consecutive losses before that.

It pulled back by 0.063%, in contrast to Monday’s 0.093% advance.

The latest setback cut the index’s year-to-date return to 7.072% from Monday’s 7.139% close. The year-to-date return also still remains down from the 7.636% posted on Oct. 24 – the peak cumulative return for 2017 so far.

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