CyrusOne two-part deal prices; Harland Clarke busy but unchanged; Frontier, Community Health, Tesla fall

By Paul Deckelman

New York, Nov. 1 – November got underway in Junkbondland on Wednesday with just one new issue heard to have come to market, as Cyrus One Inc. priced a two-part $400 million offering of add-on notes, augmenting the seven- and 10-year notes that the Dallas-based data centers-oriented REIT priced back in March.

Traders did not immediately report any initial aftermarket activity following the quick-to-market deal’s pricing.

Primaryside players meantime said that Billerica, Mass.-based specialty chemicals company Entegris Inc. will shop a $450 million 8.25-year deal around to investors on Thursday, with pricing on the issue seen possibly later that session or perhaps on Friday.

And Michael Baker International LLC, a Pittsburgh-based engineering firm, was heard to be planning a secured notes offering – once it completes a loan deal currently in the bank debt market.

In the secondary realm, traders saw continued brisk activity – but little real price movement – in Tuesday’s new add-on offering from Harland Clarke Holdings Corp.

But much of the market’s focus swung over to companies that reported earnings, producing sizable losses for the bonds of such varied companies as telecom provider Frontier Communications Corp., hospital operator Community Health Systems Inc. and electric car manufacturer Tesla Inc., all of whom reported disappointing quarterly numbers.

On the upside, energy credits such as California Resources Corp. and Denbury Resources Inc. firmed smartly – even though world crude oil prices finished on the downside Wednesday after recently surging.

Statistical market performance measures were mixed for a fourth consecutive session on Wednesday. They had first turned mixed on Friday after two straight lower across the board sessions and three mixed sessions in a row before that.

CyrusOne drives by

Back in the primary arena, there was one deal seen having come to market during the session, as market sources reported that Cyrus One had priced a $400 million two-part senior notes add-on offering (existing ratings Ba3/BB+), after adjusting the tranche sizes from the originally announced amounts.

That quick-to-market Rule 144A/Regulation S transaction, sold with registration rights, consisted of a $200 million add-on to the company’s existing 5% senior notes due March 15, 2024, which priced at 103.5 after the tranche was upsized from an originally announced $100 million, and a $200 million add-on to its existing 5 3/8% senior notes due March 15, 2027, which priced at 105.375 after the tranche was downsized from an originally announced $300 million.

The deal was brought to market via joint bookrunners J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., KeyBanc Capital Markets Inc., Capital One Securities, Inc., Stifel, Nicolaus & Co. Inc., MUFG Securities America Inc. and TD Securities (USA) LLC.

The notes will be issued by Cyrus One’s operating partnership. CyrusOne LP, and the partnership’s wholly owned Cyrus One Finance Corp. subsidiary, and will have substantially the same terms as the existing paper that those two entities priced back on March 3 – $500 million of the seven-year notes and $350 million of the 10-year bonds.

The data centers-oriented real estate investment trust plans to use the new-deal proceeds for repayment of borrowings outstanding under the Cyrus One LP revolving credit facility, and for general corporate purposes.

Entegris offering on tap

The syndicate sources said that Entegris, Inc. plans to sell $450 million of senior unsecured notes due in early 2026, with pricing on the deal expected either Thursday or Friday.

The transaction will be marketed to prospective investors via an investor call scheduled for 10 a.m. ET Thursday, plus small-group meetings on Thursday, with pricing expected thereafter.

That 8.25-year Rule 144A/Regulation S for life deal will be brought to market via left lead bookrunner Goldman Sachs & Co., with Bank of America Merrill Lynch and Morgan Stanley & Co. Inc. also serving as bookrunners.

The company, a provider of specialty chemicals and advanced materials solutions for the microelectronics industry, plans to use the new-deal proceeds to redeem its $360 million of currently outstanding 6% notes due 2022, to pay fees and expenses related to the redemption of the 2022 notes, and for general corporate purposes.

Michael Baker deal on the horizon

Looking further down the road, the sources said that engineering firm Michael Baker International plans a secured notes offering, which would launch at a later date, after completion of $360 million bank loan deal the company is currently pursuing.

That bank financing is being arranged through bookrunners Jefferies & Co., SunTrust Robinson Humphrey, Inc. and Citizens Bank. A bank meeting on that loan is scheduled for Thursday.

The company, a provider of engineering, development, intelligence and technology solutions, intends to use the proceeds from its bank and later bond financings to refinance its existing debt and to fund a distribution to shareholders of its SC3 subsidiary, in connection with the previously announced sale of SC3.

Harland Clark stays active

Traders did not immediately report any initial aftermarket dealings in the new CyrusOne notes, which priced late in the session.

However, they did see what one called “a fair amount of activity” in the new Harland Clarke 8 3/8% senior secured notes due Aug. 15, 2022.

More than $13 million of the notes traded, putting the issue among the day’s Most Active credits.

But the trader saw that paper about unchanged on the day at 105½ bid.

The San Antonio, Texas-based check printer and advertising solutions company had priced $450 million of those notes on Tuesday as an add-on to the company’s original $350 million of such notes, which had been sold back in early February.

The regularly scheduled forward calendar offering of add-on notes priced at 104.75 to yield 6.733% after the issue was downsized from an originally announced $500 million.

They traded up a little to around the 105½ bid mark in active initial aftermarket trading on Tuesday and stayed around those levels in Wednesday’s dealings.

Consol notes little seen

While there was some trading going on in the new Harland Clarke paper, traders saw little such activity Wednesday in Monday’s offering of 11% senior secured second-lien notes from Consol Mining Corp.

“They didn’t really actually trade today,” one trader opined, while a second saw just 2 trades in that paper, calling it unchanged at 102¾.

That was in contrast to Tuesday’s session, when the Pittsburgh-based coal mining company’s new paper had shot up to around a 102½-to-102¾ bid context on volume of more than $17 million.

The company had priced $300 million of those notes at par late Monday, after the forward calendar offering had first been downsized to $325 million from an originally announced $350 million, and then was further whittled down to $300 million from $325 million.

The bonds had originally been expected to price last week, but got floated over to this week, finally pricing at a considerably wider coupon than the 9% figure that had been talked around the market last week.

One saw the bonds trading between 101¾ and 103 during the day, with the final trades of the day in a bid range between 102¾ and 103.

Two others located the bonds around 102¾ bid at the close, on volume of more than $17 million.

Frontier bonds falter

Traders said that much of the day’s activity was focused not on new or recent deals, but on companies which were reporting quarterly results on Wednesday.

One such name was Stamford, Conn.-based telecommunications provider Frontier Communications Inc., with one trader lamenting that its paper “was down anywhere from 3½ to 4½ points” on the day following its earnings report.

He saw the company’s 11% notes due 2025 off by some 4¾ points on the day, closing at 81½ bid, with over $48 million having changed hands during the session.

He said that Frontier’s 10½% notes due 2022 were likewise getting hammered, losing some 3½ points to finish at 84¼ bid, on volume of more than $24 million.

“It was the most that those bonds have fallen in a year, said another trader, who saw Frontier’s 9% notes due 2020 down a deuce on the day at 88½ bid.

Frontier’s Nasdaq-traded shares lost around 25% of their value, on volume that was more than 10 times the norm.

Frontier’s bonds and shares swooned after the company reported that its per-share net loss had ballooned out to $1.19 per share from just 4 cents a share of red ink a year ago; the loss figure was also worse than the analysts’ expectations of around a $1.15 loss. With many customers dropping their service – a phenomena that is affecting all established telephone, internet, cable and satellite companies – revenues stayed flat at around $2.25 billion.

Community Health has a relapse

Another, even bigger loser was Community Health Systems, whose bonds and shares took it on the chin after the Franklin, Tenn.-based hospital operator reported a third-quarter loss of $110 million in its third quarter.

On a per-share basis, that works out to 98 cents, or 77 cents on an adjusted basis excluding one-time items.

That was more than double the roughly 30 cents of red ink Wall Street had been looking for,

Its quarterly revenues of $3.67 billion fell far short of $3.72 billion analysts had been anticipating.

Accordingly, a trader said, “it’s getting crushed,” with the company’s 6 7/8% notes due 2022 plunging more than 6 points on the day, down to the 67 bid mark, on volume of over $29 million.

Its 7 1/8% notes due 2020 “really got whacked,” the trader said, collapsing down to 78 bid, a loss of 9 point on the day, with over $10 million traded.

“It was just a bloodbath,” he exclaimed.

Tesla trades off

Palo Alto, Calif.-based Tesla Inc.’s 5.3% notes due 2025 ended down 1½ points, falling below the 95 bid figure, with over $30 million traded.

The electric car manufacturer reported a $619 million quarterly loss, and admitted that it will not meet its previously announced ambitious production targets for its Model 3, having to push its goal of 5,000 vehicles a week back to early next year instead of by the end of the current year.

Indicators stay mixed

Statistical market performance measures were mixed for a fourth consecutive session on Wednesday. They had first turned mixed on Friday after two straight lower across the board sessions and three mixed sessions in a row before that.

The KDP High Yield Daily Index saw its first gain since in more than a week on Wednesday, rising by 3 basis points to close at 72.26, after having eased by 2 bps on Tuesday, finishing unchanged on Monday and nosediving by 9 bps on Friday, its third straight losing session after one unchanged session and one gain.

Its yield came in by 1 bp Wednesday to end at 5.18%, its first such tightening after having widened out by 1 bp in each of the two straight previous sessions.

However, the Markit CDX Series 29 High Yield Index fell back by 1/16 point Wednesday, going home at 108 5/16 bid, 108 3/8 offered, in contrast to its having gained nearly 5/32 point on Tuesday. The index has recently been choppy, falling on Monday after having firmed last Friday – which in turn had followed four successive losses before that.

The Merrill Lynch North American High Yield Master II Index was up for a third straight session on Wednesday, after having suffered three straight losses before that.

It rose by 0.054%, on top of Tuesday’s 0.033% gain and Monday’s 0.045% improvement.

The latest gain lifted the index’s year-to date return to 7.517% on Wednesday, up from Tuesday’s 7.459% finish, but still down from the 7.636% cumulative return posted last Tuesday, Oct. 24 – the peak YTD return for 2017 so far.

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