Infor megadeal prices; Rite Aid, Huntsman slate; still-accommodative Fed helps market firm

By Paul A. Harris and Paul Deckelman

New York, March 18 – The high-yield primary saw its first billion-dollar-plus deal of the week on Wednesday, as enterprise software provider Infor (US) Inc. came to market with a $1.03 billion issue of seven-year notes, which priced off the forward calendar as a regularly scheduled $1.4 billion equivalent two-part offering that also included a seven-year euro-denominated tranche.

Those new dollar bonds were seen solidly firmer when they hit the aftermarket.

Infor was the only new issue heard to have priced during the session.

A Federal Reserve statement widely interpreted as being relatively “dovish” – meaning that the central bank will still not be in a hurry to raise interest rates, even though it dropped its explicit earlier reference to being “patient” about taking such a step – spurred an afternoon upturn in junk, along with equities.

That helped to push up some recently priced deals such as Masco Corp.’s split-rated 10-year issue that had priced on Tuesday and Valeant Pharmaceuticals International Inc.’s giant-sized multi-tranche offering that had gotten done on Friday.

And, along with an upturn in world crude oil prices, that also helped energy issues that have been under pressure lately, including the recently priced Energy XXI Gulf Coast, Inc. and Peabody Energy Corp. as well as more established credits like California Resources Corp.

Away from issues that have already priced, junk bond syndicate sources heard of several new deals coming to market, including drugstore chain operator Rite Aid Corp.’s $1.8 billion of eight-year notes and chemical manufacturer Huntsman Corp.’s euro-denominated 10-year notes, both of which are expected to price on Thursday.

Statistical indicators of junk market performance turned mixed on Wednesday after having been lower on Tuesday. It was the second mixed session over the last three days and the third mixed session out of the last six.

Sole new issue comes from Infor

The Wednesday primary market was quiet heading into the morning meeting of the Federal Reserve Bank's Federal Open Market Committee.

Only one dollar-denominated tranche of junk priced.

Infor (US) launched and priced $1.4 billion equivalent of seven-year senior notes (B3/B-) in a two-part dual-currency debt refinancing transaction on Wednesday, according to a syndicate source.

A $1.03 billion tranche priced at par to yield 6½%, at the wide end of the 6¼% to 6½% yield talk.

A €350 million tranche priced at par to yield 5¾%, at the wide end of the 5½% to 5¾% yield talk.

BofA Merrill Lynch was the left bookrunner. Angel Island, Credit Suisse, Morgan Stanley, Barclays, RBC, Deutsche Bank, Goldman Sachs and KKR were the joint bookrunners.

Rite Aid bringing $1.8 billion

Following the Fed meeting – which signaled a tighter-but-far-from-aggressive monetary policy, with a slight rate increase now expected in June, sources say – the primary market news flow picked up.

Rite Aid scheduled an investor conference call for 10:30 a.m. ET on Thursday to roll out its $1.8 billion offering of eight-year senior notes (B3/CCC+/B+).

The acquisition financing deal is set to price later on Thursday.

Citigroup, BofA Merrill Lynch, Wells Fargo, Credit Suisse and Goldman Sachs are the joint bookrunners.

Huntsman to bring €300 million

Huntsman plans to participate in an investor conference call scheduled for 7:30 a.m. ET Thursday to discuss a €300 million offering of non-callable 10-year senior notes (expected ratings B1/B+), also expected to price later in the day on Thursday.

Goldman Sachs, Barclays, BofA Merrill Lynch, Citigroup, HSBC, JPMorgan, PNC and RBC are the joint bookrunners for the debt refinancing deal.

OHL hikes talk

Spanish construction and concessions group Obrascon Huarte Lain SA (OHL) hiked the yield talk for its €425 million offering of eight-year senior notes (B1//BB-) to 6% from earlier talk of 5½% to 5¾%.

The deal – which is understood to have been steered toward a retail investor base, in spite of its size, sources say – had initially been expected to price on Tuesday, but remained in the market overnight into Wednesday.

And still no terms were available at Wednesday's close, according to a market source.

Joint global coordinator and joint physical bookrunner Credit Suisse will bill and deliver. Royal Bank of Scotland and UBS are also joint global coordinators and joint physical bookrunners.

Deal pipelines

Issuance activity in both the U.S. and European markets is expected to pick up during the run-up to Good Friday, on April 3, sources say.

With what was perceived to be a supportive Fed statement on Wednesday, the week ahead in the dollar-denominated market is likely to pick up, a sellsider said.

People will have their eyes on cash flows of the dedicated high-yield funds, the source added.

The most recent daily flows were mixed.

On Tuesday, the most recent session for which data was available at press time, high-yield exchange-traded funds saw $187 million of inflows, while actively managed funds saw $35 million of outflows.

A sizable European pipeline is also shaping up for the week ahead, according to a London-based sellside source who added that the following week – the pre-Easter week – is expected to see an exodus of market participants heading out for holidays.

This sellsider professed visibility on five deals for a total of about €3.5 billion.

Like the U.S. high yield, the European junk market was volatile ahead of the Wednesday Fed meeting, the sellsider said.

The iTraxx European Crossover index was trading at 260 basis points bid, three bps wider on the day and 10 wider on the week.

In addition to apprehensions about a possibly aggressive Fed statement, which did not materialize, a heavy supply has taken some of the technical strength out of the European market, the source said.

Also, the volatility in oil prices has been unsupportive, the sellsider said.

“People don't feel the guns to their heads to put money to work right now,” the source added.

New Infor notes trade firmly

In the secondary arena, traders saw the new Infor (US) dollar bonds having moved up when they hit the aftermarket.

A trader pegged those 6½% notes due 2022 in a 100½-to-101 bid context, up from their par issue price, but added that he “didn’t see a lot of action” in the new credit.

A second trader located the Alpharetta, Ga.-based enterprise software and services provider’s deal in a more narrow 100 5/8-to-100 7/8 range, although at yet another desk, the bonds were seen having gotten as good as 101 1/8 bid on volume of more than $39 million, putting them high up on the day’s Most Actives list.

Masco moves up

Tuesday’s new deal from Masco was seen having done better in fairly active trading, with one trader seeing those 4.45% notes due 2025 around the 101 bid level. That was up ¼ point from where they had finished on Tuesday, after the Taylor, Mich.-based maker of cabinets, plumbing fixtures and other products for home construction or remodeling had priced its quickly shopped $500 million split-rated issue (Ba3/BBB-/BB+) at par.

A second trader saw the new bonds up 1/8 point on the day, in a 100¾-to-101¼ bid context.

And a third saw them up ¼ point at 101 1/8 bid, with more than $22 million having changed hands.

Senior analyst Vicki Bryan of the Gimme Credit independent investment advisory service likes the new deal, saying the company “is in its best shape in years” and rating its debt as an “outperform.”

In a Wednesday research note, Bryan said that “we expect the proceeds will fund the [repayment of its] more expensive $500 million issue of 4.8% notes maturing in June, with additional debt reduction likely later in the year funded with ample free cash.”

She also noted that “Masco also remains on track to spin off its lower margin Installation & Services business by mid-year, further bolstering profitability.”

Virgin bonds steady

The traders meantime did not see much movement in Tuesday’s other deal – the $500 million of 5¼% senior secured notes that Virgin Media brought to market at par.

One saw the bonds unchanged, quoting them at par bid, 100¼ offered.

A second saw a fair amount of trading activity in the credit – more than $17 million – but said they were only up about 1/16 point on the day, at just over 100½.

But another also saw them at that 100½ level and called them up ½ point.

The Hook, England-based cable, fixed and wireless phone and internet broadband service provider priced those bonds as part of a two-part, regularly scheduled forward calendar deal via its Virgin Media Secured Finance plc subsidiary that also included £525 million of 4 7/8% senior secured notes due 2027, which priced at par after the issue was downsized from £550 million originally.

Fed has an impact

One of the traders noted that “stuff kind of rallied this afternoon after the Fed came out,” with the central bank signaling that while it still anticipates starting to raise interest rates later this year – it removed its earlier reference to being “patient” about embarking upon such a course – those higher rates are not likely to kick in before the fall, with most observers now saying September or October, rather than June, which had been expected previously.

And the Fed also indicated that when the higher rates do come, the increase will be smaller than previously expected; its dot plot chart, which contains individual Fed official forecasts, showed a trajectory of lower rates through 2017.

The Fed’s mid-range expectation of a year-end interest rate of 0.60% is slightly less than half of the 1.215% it was looking at earlier.

That touched off a strong rally in stocks and a plunge in Treasury yields.

Back in Junkbondland, “things were definitely bid for,” the trader said.

For instance, “the same big-volume names, like the Valeants, keep trading pretty well.”

The Laval, Quebec-based drug manufacturer’s big new deal that came to market this past Friday was seen better across the board.

A trader saw its 6 1/8% notes due 2025 up 7/8 point on the day, in a 102 3/8-to-102 7/8 bid context, while a second said the bonds gained 11/16 point to end at 102¾ bid on volume of over $55 million – the “biggest volume” of any Trace bond other than long-dated hybrid issues from high-grade rated banks like Citigroup and Bank of America.

Valeant’s 5 7/8% notes due 2023 were seen up 3/8 point, trading between 101 1/8 and 1015/8, with over $50 million of the notes having changed hands, while its 5 3/8% notes due 2020 went home quoted at 100 3/8 bid, a 3/8 point gain on the session, on turnover of more than $39 million. A second trader, though, called the bonds unchanged on the day at 100 1/8 bid, 100 3/8 offered.

Valeant priced $2 billion of the five-year notes and $3.25 billion each of the eight- and 10-year notes at par on Friday, along with €1.5 billion of 4½% notes due 2023, also at par, as it enlarged its regularly scheduled forward-calendar offering to $10 billion equivalent from an originally announced $9.6 billion equivalent. It also did a two-part $4.15 billion secured bank loan deal, all to finance its pending acquisition of Salix Pharmaceuticals Ltd. The junk bond deal was the biggest so far this year and second-biggest junk offering ever.

New Vulcan notes lag

One recently priced issue that failed to show the same upside on Wednesday as the other new deals was Vulcan Materials Co.’s 4½% notes due 2025.

A market source quoted them down ½ point on Wednesday, at 100½ bid, on relatively modest volume of just $6 million, down from $24 million on Monday and $23 million on Tuesday, when the notes had moved up to 101 bid.

Vulcan, a Birmingham, Ala.-based supplier of ready-mix concrete, asphalt mix and construction aggregates such as gravel, sand and crushed stone priced $400 million of the notes at par on Monday as a quick-to-market transaction.

Energy names up

The good news from the Fed – combined with the first higher move in oil prices seen in a couple of days – helped give a bid to recently beleaguered energy sector credits.

The April contract for the benchmark U.S. crude grade, West Texas Intermediate, was up by $1.65, or 3.8%, on the New York Mercantile Exchange, ending at $45.11 per barrel, while the main European grade, Brent crude, gained $3.14, or 5.87%, to close at $56.65 per barrel.

A trader noted that Los Angeles-based oil and natural gas exploration and production company California Resources’ 6% notes due 2024 up around 1 point.

A second trader called the bonds ¾-point gainers, seeing them finish at 85½ bid on volume of more than $42 million.

Houston-based E&P operator Energy XXI’s recently priced 11% senior secured second-lien notes due 2020 jumped by almost 2½ points on Wednesday to close at 94 11/16 bid on more than $19 million of volume. The company priced $1.45 billion of those bonds on March 5 at 96.313 to yield 12%, after the regularly scheduled deal was upsized from $1.25 billion.

St. Louis-based coal-mining concern Peabody Energy’s 10% senior secured second-lien notes due 2022 were 1 point better at 94¼ bid, with over $12 million traded. It had priced $1 billion of the notes at 97.566 to yield 10½%, also in a regularly scheduled offering on March 5.

Pacific Rubiales notes busy

Also in the energy sphere, there was some busy trading on Wednesday in notes from Pacific Rubiales Energy Corp., which reported fourth-quarter and 2014 full-year results Wednesday.

Its 5 1/8% notes due 2023 were trading at 55¾ bid on volume of over $16 million, while its 5 5/8% notes due 2025 were at 50 bid, with around $15 million trading.

The Toronto-based company, which mines for oil and natural gas in Colombia, announced during its conference call that it had gotten its lenders on its $1 billion revolving credit facility to agree to relaxed maximum leverage levels on its debt, and had then drawn down the full amount of the facility and used a big chunk of it to pay off all of its term loan debt scheduled to mature this year and next, pushing out its maturities. It will hang on to the rest of the cash, planning to use that and other monies totaling $836 million, to pay down the revolver debt when management feels the time is right. (See related story elsewhere in this issue.)

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Wednesday after having been lower on Tuesday. It was the second mixed session over the last three days and the third mixed session out of the last six.

The KDP High Yield Daily index rose by 9 basis points on Wednesday to 70.94, after having slid by 17 bps on Tuesday. Its gain on Wednesday was the first after three consecutive losses.

Its yield, however, rose by 1 bp to 5.42%, even though the yield typically declines on a rising index reading. Wednesday’s higher yield was its fourth widening in a row and its 11th in the last 13 sessions.

The Markit Series 23 CDX North American High Yield index firmed by 5/8 point on Wednesday to close at 107 7/8 bid, 107 15/16 offered, after having been unchanged on Tuesday. It was the second gain in the past three sessions; the index had been up by 3/32 point on Monday.

However, the Merrill Lynch U.S. High Yield Master II index failed to follow along with the generally stronger trend seen in the other indexes. It suffered its fourth straight loss on Wednesday, dropping by 0.016%, on top of Tuesday’s dip of 0.224%. The index has now lost ground in seven sessions out of the last nine and in nine sessions out of the last 12.

Wednesday’s retreat lowered its year-to-date return to 1.684% from Tuesday’s 1.7%. It also remained down from its peak 2015 level of 3.125%, set on March 2.

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