Upsized Digicel, Walter Energy, Kennedy-Wilson deals pace $2.4 billion day; Fed takes its toll

By Paul Deckelman and Paul A. Harris

New York, March 18 - High-yield new-issuance volume churned higher on Wednesday, with syndicate sources seeing some $2.38 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers having priced in six tranches by the close, well up from the previous session's $1.08 billion in two tranches.

A trio of upsized, quick-to-market offerings accounted for most of the day's trading.

Digicel Group Ltd., a Kingston, Jamaica-based international wireless communications provider, had the big deal of the day - a $1 billion issue of eight-year notes, which were heard by traders to have stayed a little bit above their issue price when they hit the aftermarket.

Coal producer Walter Energy, Inc. did a $550 million two-part senior secured offering, consisting of a $200 million add-on to its existing 2019 bonds coupled with a $350 million stand-alone tranche of six-year PIK toggle notes. The issue priced too late in the session for any real aftermarket. Walter's existing bonds, meantime, were actively traded.

And Beverly Hills, Calif.-based real estate investment and services company Kennedy-Wilson Holdings, Inc. priced $300 million of 10-year notes via a subsidiary. The notes moved up in heavy secondary market dealings.

A pair of regularly scheduled forward calendar deals that were not upsized rounded out the day's primary action.

iGATE Corp., a Fremont, Calif.-based integrated technology and operations company, came to market with $325 million of five-year notes, which moved up slightly when they were freed for trading.

And First Cash Financial Services, Inc., an Arlington, Texas-based pawn-shop chain operator, did a $200 million issue of seven-year notes, which were heard to have firmed smartly when they hit the aftermarket.

Traders did not see much happening in the non-new-deal secondary realm, which seemed to ease after the Federal Reserve signaled that interest rates may start to rise about a year from now, considerably quicker than much of the financial community was expecting.

Statistical market performance indicators turned mixed on the session after having been higher across the board on Monday and again on Tuesday.

Digicel upsizes drive-by

A busy Wednesday in the dollar-denominated primary market saw five issuers bring a combined six tranches of notes, raising a total of $2.38 billion.

Three of the six tranches were upsized.

Four of the six came as drive-bys.

Two priced at the tight end of talk, one priced on top of tightened talk, and the other three priced on top of original talk.

Digicel Group priced an upsized $1 billion issue of eight-year senior notes (Caa1//B-) at par to yield 7 1/8%.

The deal was upsized from $865 million.

The yield printed on top of final yield talk; earlier talk had the notes pricing to yield in the 7¼% area.

Citigroup, J.P. Morgan, Barclays, Credit Suisse, Deutsche Bank and Davy were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Walter two-part secured deal

Walter Energy priced an upsized $550 million two-part secured notes transaction (Caa1//).

The coal producer priced an upsized $200 million add-on to its 9½% senior secured notes due Oct. 15, 2019 at 101½ to yield 9.147%. The tranche was increased from $100 million. The reoffer price came on top of price talk.

Walter Energy also priced a $350 million tranche of six-year senior secured second-lien PIK toggle notes at par, with a cash yield of 11%. The 11% cash coupon steps up by 50 basis points to 12% for PIK payments. The cash and PIK rates both came on top of talk.

Morgan Stanley, Barclays, Citigroup, Credit Agricole, Goldman Sachs, JPMorgan and Scotia were the joint bookrunners for the deal, the overall size of which was increased from $450 million.

The Birmingham, Ala.-based pure-play metallurgical coal producer plans to use the proceeds to repay $406.6 million of its term loan A and to increase its liquidity.

iGATE five-year notes price

iGATE priced a $325 million issue of five-year senior notes (B1/BB-) at par to yield 4¾%.

The yield printed on top of yield talk.

RBC was the left bookrunner for the debt refinancing deal. Deutsche Bank and UBS were the joint bookrunners.

Kennedy-Wilson upsized, tight

Kennedy-Wilson, Inc. priced an upsized $300 million issue of 5 7/8% 10-year senior notes (B2/BB-) at 99.068 to yield 6%.

The deal was upsized from $250 million.

The yield printed at the tight end of yield talk in the 6 1/8% area.

BofA Merrill Lynch and Deutsche Bank were the joint bookrunners for the quick-to-market debt refinancing and general corporate purposes deal.

First Cash at the tight end

First Cash Financial Services priced a $200 million issue of seven-year senior notes (Ba3/BB-) at par to yield 6¾%.

The yield printed at the tight end of the 6¾% to 7% yield talk.

Wells Fargo was the left bookrunner for the debt refinancing and general corporate purposes deal. Deutsche Bank was the joint bookrunner.

Ocean Rig talk is 7¼% area

Ocean Rig UDW Inc. talked its $500 million offering of five-year senior notes (Caa1//) to yield in the 7¼% area.

Books close at 11 a.m. ET Thursday, and the deal is set to price thereafter.

Credit Suisse and Deutsche Bank are the joint bookrunners for the debt refinancing deal.

KB Home $300 million bullet

KB Home plans to price a $300 million offering of non-callable five-year senior notes on Thursday.

Citigroup, BofA Merrill Lynch, Credit Suisse and Deutsche Bank are the joint bookrunners.

The Los Angeles-based homebuilder plans to use the proceeds for general corporate purposes including the purchase and development of land.

Entegris starts roadshow

Entegris, Inc. began a roadshow on Wednesday for a $360 million offering of eight-year senior notes (B3/BB-).

The deal is expected to price on March 26.

Goldman Sachs is the sole bookrunner for the acquisition financing. Jefferies, PNC, Stifel Nicolaus and US Bancorp are the co-managers.

Almirall prices inside talk

In the European session, Barcelona-based pharmaceutical firm Almirall SA priced a €325 million issue of seven-year senior notes (Ba3/BB-) at par to yield 4 5/8%.

The yield printed 25 bps beneath the tight end of yield talk in the 5% area.

The roadshow was cut short with the cancellation of planned Wednesday stops in Paris and Frankfurt, and timing on the deal was moved ahead.

Joint global coordinator and joint bookrunner Deutsche Bank will bill and deliver. BBVA was also a joint global coordinator and joint bookrunner.

Proceeds will be used to refinance debt and for general corporate purposes.

Kennedy-Wilson trades actively

In the secondary market, Kennedy-Wilson's new 5 7/8% notes due 2024 were seen by a trader to have easily topped the day's Most Actives List, with over $42 million of the bonds having changed hands, more than twice the volume of the next busiest issue. He quoted the bonds at 100¼ bid, up more than 1 full point from their 99.068 issue price.

A second trader said the bonds "traded inside" of a par to 100¼ bid context once they were freed, while a third pegged them at 99¾ bid, 100¼ offered.

First Cash firms solidly

A trader said that First Cash Financial Services' new 6¾% notes due 2021 had jumped to 101½ bid, 102 offered when they began trading in the aftermarket, versus their par issue price.

However, a second trader said he had seen no signs of the deal, the smallest of the session's five transactions.

Digicel megadeal up a little

The biggest deal of the day - Caribbean cellular service provider Digicel's upsized $1 billion of 7 1/8% notes due 2022 - moved up a little from its par issue price, traders said.

One quoted the bonds offered at 100¼ but had seen no bids on the paper, although another saw two-sided markets at par bid, 100½ offered.

At another desk, a trader located the bonds trading as high as a 100¼ to 101¼ context.

Among the day's other deals, a trader quoted iGATE's 4¾% notes due 2019 at 100½ bid, 101½ offered, versus their par issue price.

New Walters not traded

Walter Energy's new $550 million two-part deal priced too late in the day for any kind of aftermarket activity, a trader said.

However, the metallurgical coal producer's existing bonds were actively traded, with its 9 7/8% notes due 2020 racking up over $16 million of volume and more than $10 million of its 8½% notes due 2021 having changed hands, a market source said.

He saw the 2020 bonds little changed at 74 bid, and the 2021s steady around 70 bid.

Another trader said the 9 7/8% notes were "lower at the outset, but then they kind of recovered."

He said the issue went out at 73½ bid, 74½ offered, which compared to 71 bid, 73 offered on Tuesday.

He also saw the 8½% notes around 69, which he said was off a point.

Yet another trader deemed both the 9 7/8% notes and the 8½% notes lower at 69 and 73, respectively.

However, he noted that the company's 9½% notes due 2019 had inched up to around 103.

MultiPlan moves up

A trader said that MultiPlan Inc.'s new 6 5/8% notes due 2022 had moved up to 103 bid, 103 3/8 offered, calling that a jump of some 1¾ points from the level around the 101¼ bid, 101¾ offered level that the bonds finished up on Tuesday, which in turn was well up from the par level at which the New York-based health-care cost-management solutions provider had priced its $1 billion forward calendar deal earlier that session.

A second trader on Wednesday quoted the bonds as having gotten as good as 103 bid.

"They did very well," he said, although he noted that later in the day they were around 102½ bid, 103½ offered at the close, "probably a little bit softer [versus their higher earlier levels] with the market in."

Fed news has an impact

The trader said that the overall junk market came in a little in the afternoon in apparent reaction to statements by new Federal Reserve chief Janet Yellin to the effect that the central bank will probably end its massive "QE3" bond-buying program this fall - and could start raising interest rates around six months later, or about a year from now.

That would represent a speeding up of the timetable for raising rates, which many in the market had assumed would not begin until later 2015, or even beyond.

The Fed, which began cutting back the scope of its purchases of Treasury bonds and mortgage-backed securities several months ago from their peak level of $85 billion a month, also announced a further ratcheting-down of those bond buys, to $55 billion in the coming month from the present $65 billion.

That cutback had been pretty much expected - but the apparent change to what is perceived by investors as a slightly more hawkish tone on interest rates was not, and that caused all of the major stock indexes to retreat on Wednesday and Treasury yields to rise.

In Junkbondland, a trader said that "things were pretty quiet" until the Fed boss made her statements.

After that, he said, "when the issues were being priced, you saw at first a bunch of offerings come in. Then stuff was just offered, and people were pulling their bids."

However, he opined that "about 15 minutes later, everything leveled out and went back to normal."

The downside flurry, he said, was a short-lived "kind of one-hit wonder."

Market indicators turn mixed

Statistical junk performance indicators turned mixed on Wednesday, after having been higher across the board on Monday and Tuesday, when they broke out of a recent slump.

The Markit Series 21 CDX North American High Yield index lost ¼ point on Wednesday, snapping a two-session winning streak. It ended at 107 7/16 bid, 107 9/16 offered. The index had gained 11/32 point on Tuesday and 7/16 point on Monday.

But the KDP High Yield Daily index made it three gains in a row on Wednesday, rising by 2 bps to close at 74.88, on top of Tuesday's 6 bps advance. It had also firmed by 7 bps on Monday.

Its yield, meanwhile, narrowed for a third straight session, coming in by 1bp to finish at 5.24%. It had declined by 3 bps on Tuesday and 1 bp Monday.

The gains on Monday and Tuesday had followed seven consecutive losing sessions through last Friday for both indexes.

The widely-followed Merrill Lynch High Yield Master II index rose for a third straight day, gaining 0.078%, on top of Tuesday's 0.146% advance and Monday's 0.093% improvement. Unlike the prolonged recent losses in the Markit and KDP indexes, the Merrill Lynch gauge had spent the previous week or so alternating gains and losses in a choppy pattern.

Wednesday's firming raised the index's year-to-date return to 2.732% from the 2.651% reading seen on Tuesday, although it remained well below the 2.812% reading seen on March 5, its 2014 peak level.

With Treasury yields rising in reaction to the news coming out of the Fed, the index's spread to worst over comparable government paper narrowed to 392 bps - its tightest level of the year - from 404 bps on Tuesday. The previous 2014 tight level had been 395 bps, recorded on March 6.

Stephanie N. Rotondo contributed to this review.

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