Upsized Halcon, Lennar drive-by deals price, move up; existing Halcon paper off on new deal

By Paul A. Harris and Paul Deckelman

New York, April 21 – Halcon Resources Corp. was the dominant name in Junkbondland on Tuesday in both the primary and the secondary realms.

The Houston-based oil and natural gas exploration and production company priced a quick-to-market, upsized $700 million five-year secured bond deal.

Traders said the new bonds firmed smartly when they were freed for secondary dealings.

The same could not be said for the company’s existing unsecured bonds, which fell badly in heavy trading at the prospect of being shoved further down the capital structure by the new bonds.

The primary market also saw an upsized $500 million 10-year issue from homebuilder Lennar Corp.

Those notes firmed in active aftermarket dealings.

Apart from Halcon and Lennar, the primary saw a pair of dollar-denominated deals hitting the road: $400 million of eight-year notes from health-care name 21st Century Oncology, Inc. and a $3.5 billion, three-part offering from German auto-parts manufacturer ZF Friedrichshafen AG, which priced a two-tranche, €2.25 billion offering on Monday.

Monday’s 10-year note deal from apparel manufacturer Levi Strauss & Co. was heard to have moved higher Tuesday in busy trading.

Statistical indicators of junk market performance were higher for a second straight session on Tuesday; they had moved up on Monday after having turned mixed last Thursday and lower across the board on Friday.

Halcon upsized, inside of talk

Two drive-by issuers completed single-tranche deals to raise an overall total of $1.2 billion on Tuesday in the dollar-denominated primary market.

Executions were robust, to say the least.

Both deals were substantially upsized.

Both initially traded higher in the secondary market.

One came at the tight end of price talk, while the other, in addition to substantially upsizing, came inside of talk.

Halcon Resources priced an upsized $700 million issue of five-year senior secured second-lien notes (B3/CCC) at par to yield 8 5/8%.

The debt refinancing and general corporate purposes deal was upsized from $650 million after having been upsized earlier from the originally announced size of $500 million.

The yield printed 12.5 basis points beneath the tight end of the 8¾% to 9% yield talk.

J.P. Morgan, Barclays, Wells Fargo, Credit Suisse, BMO, BofA Merrill Lynch, Jefferies, SunTrust, ING, BNP, RBC, Capital One South Coast, Natixis and Comerica were the bookrunners.

Halcon trades sharply higher

In addition to pricing the twice-upsized deal inside of price talk, the new Halcon Resources 8 5/8% notes due 2020 were seen as high as 102¼ bid, 103¼ offered in the secondary market, a trader said.

However news of the second-lien deal sent Halcon's unsecured paper plummeting in early Tuesday trading, the source added, specifying that Halcon's senior notes fell by four points in early trading but climbed back to end the day just a point lower than the open.

A recent spate of secured deals from the energy sector, which has been mauled by the phenomenal crash in crude oil prices, sparked notable drops in the unsecured notes of some of those companies, the trader remarked.

In the wake of Comstock Resources pricing a $700 million issue of senior secured first-lien notes due 2020 (Ba3/B+) in early March, that company's unsecured notes fell from the 60s, which is where they were trading prior to the secured deal, down to the mid-50s, then the low-50s, eventually all the way into the mid-30s, the trader said, spotting Comstock's unsecured notes trading in a context of 48 bid, 49 offered on Tuesday.

Likewise, the unsecured notes of Energy XXI Gulf Coast fell in the wake of the company's issuing $1.45 billion of 11% senior secured second-lien notes due 2020 (B2/B+), also in early March, the source said.

Lennar upsized and tight

Lennar priced an upsized $500 million issue of non-callable 10-year senior notes (Ba3/BB/BB+) at par to yield 4¾%.

The deal was upsized from $400 million.

The yield printed at the tight end of the 4¾% to 4 7/8% yield talk.

The deal, which was a high-yield trade that received a high-yield-style execution, nevertheless was priced on the investment-grade desk, reflecting that desk's experience with home builder names, according to an informed source.

The Lennar adeal received a good deal of attention from both high-yield and investment-grade accounts.

It was par 5/8 bid, 101 1/8 offered at the dealer, well after the Tuesday close.

The notes were par ½ bid, par ¾ offered in the Street, according to a trader.

Joint bookrunner Citigroup will bill and deliver. BofA Merrill Lynch, Deutsche Bank, JPMorgan, RBC, Mizuho and Wells Fargo were also joint bookrunners.

The Miami-based home builder plans to use the proceeds to redeem its 5.6% notes due 2015 and for general corporate purposes.

21st Century Oncology roadshow

21st Century Oncology was scheduled to kick off its $400 million offering of eight-year senior notes (Caa2) on Tuesday.

Unofficial guidance has the deal coming with a yield in the low 10% area, according to a trader.

The debt refinancing and general corporate purposes deal is scheduled to price on Friday.

Morgan Stanley, Deutsche Bank, KeyBanc and HSBC are the joint bookrunners.

Substantial active calendar

In the wake of Tuesday's action there is a substantial dollar-denominated active calendar of deals expected to clear by the end of the week.

No formal price talk had surfaced by Tuesday's close, but unofficial talk is out there, sources say.

In addition to 21st Century Oncology, Trinseo is in the market with a $750 million equivalent offering of seven-year senior notes (B3/B-) in dollar- and euro-denominated tranches.

The dollar-denominated notes have been discussed in the 7¼% area, according to a trader who added that the euro-denominated notes are expected to come 50 bps to 75 bps tighter than the dollar notes.

Optimas OE Solutions is in the market with a $225 million offering of senior secured notes due 2021 (B-). Unofficial talk has taken place in the 9% area.

Horizon Pharma has been roadshowing a $300 million offering of eight-year senior notes (B2/CCC+). Unofficial talk has been in the low 7s.

DJO Global Inc. is selling $1,045,000,000 of senior secured notes due June 15, 2021 (Caa1), which has unofficial talk in the mid 8s.

And Germany-based ZF Friedrichshafen is in the market with $3.5 billion of senior notes in tranches of five-year notes unofficially talked in the low-to-mid 4s, seven-year notes unofficially talked in the high 4s and 10-year notes unofficially talked in the low 5s, according to a market source.

Kloeckner prices tight

In the European new-issue market, German plastic packaging company Kloeckner Pentaplast priced a €300 million issue of five-year senior notes (expected ratings Caa1/CCC+) at par to yield 7 1/8%.

The yield printed at the tight end of yield talk in the 7¼% area.

Credit Suisse was the left lead for the debt refinancing deal. Barclays, Deutsche Bank and Jefferies were the joint bookrunners.

United Group taps 7 7/8% notes

United Group BV priced a €150 million add-on to its 7 7/8% senior secured notes due Nov. 15, 2020 (expected ratings B2/B) at 106.5 to yield 6.568%.

The reoffer price came at the rich end of the 106 to 106.5 price talk.

Credit Suisse was the global coordinator and lead left bookrunner. Banca IMI, BNP Paribas,Citigroup, ING and UniCredit were joint bookrunners.

Proceeds will be used to repay bank debt and provide financing for the acquisition of Slovenian mobile operator Tusmobile.

Cash flows flat and mixed

The cash flows of the dedicated high-yield funds were flat and mixed on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield exchange-traded funds saw $96 million of daily outflows on Monday, while actively managed funds saw $10 million of inflows.

Week-to-date aggregate flows are plus-$80 million, the source said.

ETFs were quiet on Tuesday, the source said, adding that actively managed funds were not all that active, either.

New Lennar notes busy

In the secondary arena, traders saw brisk activity in the new Lennar 4¾% notes due 2025.

One saw the bonds initially trading around 100½ bid, up from their par issue price.

A second pegged the bonds at 100 11/16 bid, on volume of more than $40 million, making it one of the day’s Most Active issues in Junkbondland.

At another desk, a trader saw two-sided markets around 100¾ bid, 101¼ offered.

Existing Halcon bonds slide

The trader meantime did not see any initial dealings in the new Halcon Resources 8 5/8% senior secured second-lien notes due 2020, although another market source said that those bonds had moved up when they first hit the aftermarket.

There was plenty of action in the company’s established bonds, its 9¾% notes due 2020 and 8 7/8% notes due 2021.

Both of those unsecured note issues slid badly in heavy trading, with a market source quoting the 2020 notes at 82¾ bid, calling them down 1 point.

He located the 2021 notes at 78½ bid, calling that down a deuce on the day.

“They were initially weaker on the news the company would be bringing a new secured deal that would be senior to those bonds in the capital structure – and then they got downgraded,” he said, with Moody’s Investors Service lowering its rating on the existing bonds to Caa3 from Caa2 previously. The ratings service also cut Halcon’s corporate family rating to Caa2 from Caa1.

“So it was sort of a double whammy.”

At another desk, the 8 7/8% notes were seen down 3½ points on the day at 78½ bid, with over $89 million having traded, tops among the purely junk credits.

He saw more than $58 million of the 9¾% notes traded, with the bonds down 1¾ points, to 82¾ bid.

Levi bonds move up

Elsewhere, a trader said the new Levi Strauss 5% notes due 2025 “were trading better on the day,” seeing those bonds going home around 101¼ bid, 101½ offered.

That was up from levels around 100½ bid late Monday.

A second trader said that the bonds were up by ½ point at 101½ bid on more than $47 million of turnover.

Levi, the iconic San Francisco-based blue jeans manufacturer, priced $500 million of those notes on Monday at par after the drive-by deal was upsized from $475 million.

The new bonds traded as high as a 100¾-to-101 bid context.

Proceeds were to be used, along with cash on hand and draws on the company’s amended revolving credit line, to fund a tender offer for its existing 7 5/8% notes due 2020.

Indicators extend gains

Statistical indicators of junk market performance were higher across the board on Tuesday, their second straight session on the upside; they rose Monday after having turned mixed on Thursday and lower across the board on Friday.

The KDP High Yield Daily index was up by 2 basis points on Tuesday to 71.85. It had been unchanged on Monday at 71.83, after having lost 4 bps on Friday, its first downturn after five straight gains.

Its yield fell by 2 bps on Tuesday after having edged upward by 1 bp for a second consecutive session Monday. Those two widenings had been the first after five straight sessions during which the index had narrowed and nine such tightenings in the previous 10 sessions.

The Markit Series 24 CDX North American High Yield index edged upward by 1/16 point on Tuesday, on top of Monday’s 3/16 point gain, ending at 107 7/16 bid, 100½ offered.

The Merrill Lynch U.S. High Yield Master II index rose by 0.059% on Tuesday, its second consecutive advance. On Monday, it had improved by 0.106%.

The latest upturn lifted its year-to-date return to 3.791%, up from Monday’s 3.735%.

It was a new peak level for the year so far, surpassing the old mark of 3.74%, which had been set last Thursday.

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