New-issue market cooks as Albertsons leads $3.5 billion day; funds plunge $2.4 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 4 – The high-yield primary sphere had its heaviest-volume session in nearly two months on Thursday as five issuers brought a total of $3.25 billion of new dollar-denominated and fully junk-rated paper to market in six tranches, syndicate sources said.

The big deal of the day was a quickly shopped and solidly upsized $1.25 billion of new 8.5-year notes from supermarket giant Albertsons Cos. LLC.

Also driving by was heavy equipment maker CNH Industrial NV, with $600 million of seven-year notes. Traders saw modest gains in that paper in sizable aftermarket dealings.

A trio of new deals priced off the forward calendar as regularly scheduled offerings.

Industrial components manufacturer SPX Flow Inc. priced $600 million of eight- and 10-year notes in equally sized $300 million tranches.

Beauty-products maker and marketer Avon Products, Inc. did an upsized $500 million of six-year secured notes. Traders quoted that new issue as having firmed smartly in the aftermarket.

And government contractor Engility Corp. actually downsized its offering of eight-year notes to $300 million.

The syndicate sources also said that automotive components maker Adient Global Holdings Ltd. is expected to price a $2 billion equivalent offering of 10-year dollar notes and eight-year euro-denominated paper on Friday.

Away from the new issues, oil and natural gas operators Chesapeake Energy Corp. and California Resources Corp. were both among the Most Active credits on the day following quarterly results, with each company touting its respective debt-cutting effort.

Statistical market performance measures were higher on Thursday after having been mixed for four consecutive sessions before that.

However, another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – saw its second consecutive weekly net outflow and its largest cash loss so far this year.

Some $2.464 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday – a considerably wider loss than the $175.43 million outflow reported last Thursday for the week ended July 27. It was, in fact, the biggest outflow seen so far this year, topping the net $2.107 billion that left the funds during the week ended Jan. 13, as well as the largest outflow the funds have experienced since the week ended Dec. 16, 2015, when a $3.811 billion outflow was recorded (see related story elsewhere in this issue).

Albertsons sees big upsize

The high-yield primary market saw five issuers bring a combined six tranches of dollar-denominated junk to raise an overall total of $3.25 billion on Thursday.

Two of the five issuers came with drive-bys.

Two of the tranches were upsized while one was downsized.

Executions tended to be tight, with four of the six tranches coming at the tight end of guidance and the remaining two pricing atop guidance.

In a drive-by, Albertsons priced an upsized $1.25 billion issue of senior notes due March 15, 2025 (B3/B+) at par to yield 5¾%.

The issue size was increased from $750 million.

The yield printed on top of yield talk.

Allocations were skinny, according to a portfolio manager.

BofA Merrill Lynch, Credit Suisse, Citigroup, Morgan Stanley, Goldman Sachs, Deutsche Bank and Barclays managed the sale.

The Boise, Idaho-based supermarket operator plans to use the proceeds to repay all the borrowings outstanding on its senior secured asset-based loan facility and $500 million under its existing term loan facility, with any remaining proceeds for general corporate purposes which may include capital expenditures, working capital and potential acquisitions and strategic transactions.

CNH drives through

CNH Industrial also came with a drive-by deal, pricing a $600 million issue of seven-year senior bullet notes (Ba2/BB+) at par to yield 4½%.

The yield printed on top of yield talk.

The issue was launched at benchmark size earlier Thursday.

BNP Paribas, Citigroup, Deutsche Bank and J.P. Morgan were the joint bookrunners for the debt refinancing deal.

SPX Flow prices tight

In a deal that traveled the high-yield road, SPX Flow priced $600 million of senior notes (B1/BB) in two tranches on Thursday.

BofA Merrill Lynch was left bookrunner for both tranches.

The deal included $300 million of eight-year notes which priced at par to yield 5 5/8%. The yield printed at the tight end of yield talk that had been in the 5¾% area.

In addition, SPX Flow priced $300 million of 10-year notes at par to yield 5 7/8%. The yield printed at the tight end of yield talk set in the 6% area.

The debt refinancing deal appeared to go well, said the portfolio manager who spotted both tranches trading at 101½ bid, 102½ offered in the secondary.

Avon upsizes

Avon Products priced an upsized $500 million issue of six-year senior secured notes (Ba1/BB-) at par to yield 7 7/8%.

The issue size was increased from $400 million.

The debt refinancing deal had been guided in the 8% area, sources said.

The market had been anticipating an upsize.

High-yield portfolios lately have tended to be underweight in the consumer products sector, sources say.

Also Avon posted solid earnings earlier in the week.

And the late June deal from Revlon Inc., a $450 million issue of 6¼% senior notes due Aug. 1, 2024 (B3/B+), went well, they add.

Apparently there would have been room for Avon to upsize even further, as its notes shot up to 102¼ bid, 102¾ offered in the secondary market, the portfolio manager said.

BofA Merrill Lynch was the left bookrunner for the Avon deal. Citigroup and Goldman Sachs were joint bookrunners.

Engility downsized and tight

Engility priced a downsized $300 million issue of eight-year senior notes (Caa1/B-) at par to yield 8 7/8%.

The amount was decreased from $380 million, with the proceeds shifted to the concurrent term loan.

The yield printed at the tight end of yield talk set in the 9% area.

Morgan Stanley, Barclays, SunTrust, Regions, Deutsche Bank and J.P. Morgan were the joint bookrunners for the debt refinancing deal.

Adient for Friday

The Friday session is set to get underway with just one announced deal on deck.

Adient Global Holdings, the automotive seating and interiors business which Milwaukee-based Johnson Controls Inc. is spinning off, set tranche sizes and price talk in its $2 billion equivalent two-part senior notes offer (expected Ba3/confirmed BB) on Thursday.

Global coordinator Citigroup is at the helm of the deal which will help to fund the spinoff.

A $1 billion equivalent offering of euro-denominated eight-year bullet notes is talked to yield 3½% to 3¾%, tight to initial guidance in the low 4% yield context.

The dollar-denominated tranche features $1 billion of 10-year notes talked to yield in the 5% area, tight to initial guidance in the low 5% area.

The notes in both tranches are scheduled to be priced and allocated late Friday morning.

Big ETF outflows continue

Thursday’s solid executions appeared not to be impacted by sizable consecutive daily outflows sustained by high-yield ETFs since the month began on Monday, the portfolio manager said.

The ETFs saw $357 million of outflows on Wednesday. That followed a $476 million outflow on Tuesday and a $397 million outflow on Monday.

Actively managed high-yield accounts were also negative on Wednesday, sustaining $75 million of outflows on the day, the source said.

Biggest day in seven weeks

The day’s tally of new issuance – $3.25 billion of paper from five borrowers in six tranches – was the most seen in Junkbondland in some seven weeks, according to data compiled by Prospect News.

It was the most new dollar-denominated and fully junk-rated paper from domestic or industrialized-country issuers seen since June 13, when five borrowers priced a total of $4.91 billion in seven tranches – most of it coming from one deal, a $2.9 billion three-part bond behemoth from consumer food packaging products company Reynolds Group Issuer SA.

Avon, CNH deals move up

Traders did not see all that much initial aftermarket activity in Thursday’s new issues, with most of that paper having come to market relatively late in the session.

However, one trader did quote the new Avon 7 7/8% senior secured notes at 102 bid, 102½ offered – well up from the par level at which the New York-based beauty-care products maker’s offering had priced.

At another shop, a trader meanwhile said that the new CNH Industrial 4½% notes had firmed modestly in active trading, with over $23 million of those notes having changed hands.

He quoted the notes at 100 3/8 bid, versus the par level at which the Basildon, England-based heavy equipment manufacturer’s quick-to-market deal had priced earlier in the day.

Recent deals not much seen

Traders meantime also did not see any real volume on Thursday in the new deals which had come to market earlier in the week, or last week.

“It’s like they dropped off the map,” one of them said.

He did quote SBA Communications Corp.’s 4 7/8% notes due 2024 up 3/8 point on the day at par bid, 100 3/8 offered, though on not much volume.

The Boca Raton, Fla.-based communications antenna tower owner had priced a quick-to-market $1.1 billion of the notes at 99.178 to yield 5% on Monday after the offering had been upside from an originally announced $800 million.

Monday’s other issue – from New York based MSCI Inc., a provider of analytical and research services to investment companies – was up by ¼ point, the trader said, seeing it finish at 100 5/8 bid, 101 offered, but also on only limited volume.

MSCI had priced a quickly shopped $500 million of the notes at par on Monday after the transaction was upsized from an originally announced $400 million.

Chesapeake, CalRes active

Away from the news deals, traders noted sizable activity among the bonds of energy operators Chesapeake Energy and California Resources, both of which reported quarterly results on Thursday.

Chesapeake Energy reported a narrower loss for the second quarter, though the results still missed forecasts.

But asset sales and debt reduction efforts were in focus, which helped the bonds improve.

One trader said feeling behind the gains was “probably more forward looking than looking at the absolute numbers.”

He said the 8% second-lien notes due 2022 were “pretty active,” rising “about a point” to “around 92.” More than $35 million of the notes changed hands, tops among the purely junk credits.

The 6 5/8% notes due 2020 were meantime deemed up a deuce, “around 79-ish,” he said, on volume of about $14 million.

For the quarter, the Oklahoma City-based company posted a loss of $1.79 billion, or $2.48 per share. That compared to a loss of $4.15 billion, or $6.27 per share, the year before.

Revenue dropped 54% year over year to $1.62 billion.

The net loss was due in part to a $1 billion impairment charge on gas fields and a $1.05 billion reduction in the value of the company’s assets.

On an adjusted basis, the loss was 14 cents per share – worse than the 11 cents per share loss analysts polled by Bloomberg had expected.

That being said, Chesapeake noted that it had upped its divesture target to $2 billion from $1.2 billion to $1.7 billion previously. Those funds will likely be used to deal with the company’s $8.68 billion debtload – of which $1.28 billion becomes putable in 2017.

In addition to touting its asset sales, Chesapeake also said that its production guidance for the current year was increased by 3%.

However, it also said that production in 2017 would likely decrease by 5%.

California Resources’ earnings weren’t all that stellar either, but the company’s ability to shave off about $700 million in debt from its peak debt levels in early 2015 managed to hold the bonds mostly steady.

A trader said the 8% second-lien notes due 2022 traded actively, off just a touch to a 55 handle. More than $20 million of the notes traded.

In the second quarter, the Los Angeles-based oil and gas producer reported a net loss of $140 million, or $3.51 per share. That compared to a net loss of $68 million, or $1.78 per share, the year before.

On an adjusted basis, the loss per share was $1.80, versus the $1.30 per-share-loss seen in the same quarter of 2015.

Revenues declined 50.4% to $317 million.

Company executive also noted on their conference call that California Resources is continuing its efforts to chop away at the mountain of debt incurred when it was spun off from former corporate parent Occidental Petroleum Corp. in late 2014.

Its president and chief executive officer, Todd A. Stevens, told analysts on a Thursday conference call following the release of its 2016 second-quarter results that “over the past year, we have reduced our debt by approximately $700 million from the post-spinoff peak reached in early 2015.”

As of the end of the second quarter on June 30, the company’s balance sheet showed total debt of $5.9 billion (see related story elsewhere in this issue).

Indicators show improvement

Statistical market performance measures turned higher across the board on Thursday after having been mixed over the previous four consecutive sessions.

The KDP High Yield Index jumped by 20 basis points on Thursday to end at 69.32, its third gain in the last four sessions, though on Wednesday it had finished down 3 bps.

Its yield narrowed by 6 bps to 5,66% after having been unchanged on Wednesday at 5.72% and having risen by 1 bp on Tuesday – its fourth straight higher yield.

The Markit Series 26 CDX Index, saw its second straight gain on Thursday, improving by 9/32 point to close at 104 1/8 bid, 104 3/16 offered, which followed Wednesday’s 13/32 point upturn, its first gain after two losses in a row.

And the Merrill Lynch High Yield Index also made it two successes in a row, rising by 0.392% on Thursday; on Wednesday, it had broken out of a six-session slide, ending better by 0.056%.

Thursday’s gain brought the index’s year-to-date return back above the psychologically significant 12% mark, to 12.307%, up from 11.868% at Wednesday’s close.

The improved year-to-date reading was still down from last Monday’s close at 12.546%, the index’s peak year-to-date return.

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