Downsized Zebra megadeal prices, market rebounds from rough patch, though in quiet activity

By Paul Deckelman and Paul A. Harris

New York, Sept. 30 – The high-yield market closed out the month of September and the calendar third quarter of the year on Tuesday on a considerably firmer note, continuing to bounce back from the recent lows which many issues saw in the early part of Monday’s dealings.

However, overall activity levels were fairly quiet; as had been the case on Monday, traders cited a variety of factors, including the usual fall-off in activity as a quarter comes to an end, with accounts having closed their books. There was also the Deutsche Bank leveraged finance conference going on in Arizona and continued wariness among some participants in the wake of the big shakeup announced Friday at investment giant Pimco, which had been suffering heavy recent redemptions from its bond funds, leading to the exit of long-time bond kingpin Bill Gross.

The primary sphere finally saw a pricing, following two sessions before that in which no U.S. dollar-denominated, fully junk-rated issues had come to market. And the deal which did come was a big one, as Lincolnshire, Ill.-based printing technology company Zebra Technologies Corp. did a downsized $1.05 billion of eight-year notes.

It was the only U.S.-dollar issue to price, although sterling and Canadian-dollar bond deals from pub operator Enterprise Inns plc and natural resources concern Sherritt International Corp., respectively, got done.

The new Zebra deal came to market too late for any secondary activity.

There meanwhile was continued brisk trading in some of the other recently priced credits, including Burger King Worldwide, Inc., T-Mobile USA, Inc., Alcoa Inc., iHeart Communications, Inc. and Ally Financial, Inc., all of which were seen on the upside.

Statistical indicators of junk market performance were likewise seen on the rebound on Tuesday, after having been lower over the previous three sessions and in five sessions out of the previous six.

Zebra downsizes, prices tight

News volume remained muted on Tuesday, with just one issue clearing in the dollar-denominated primary market.

Zebra Technologies launched and priced a downsized $1.05 billion issue of eight-year senior notes (B2/B) at par to yield 7¼%.

The deal was reduced from $1.25 billion, with $200 million of proceeds being shifted to a concurrent term loan, increasing its size to $2.2 billion from $2 billion.

The yield printed at the tight end of the 7¼% to 7½% yield talk.

During the time that the deal was in the market the company added registration rights to the notes, making the deal a Rule 144A with registration rights offering. It had previously been in the market as a Rule 144A for life offering.

Morgan Stanley and J.P. Morgan were the joint bookrunners for the acquisition financing.

Apart from Zebra, the dollar-denominated new issue market remained dormant, with no new deals announced.

There are deals that must come and will, syndicate officials say, referring especially to big merger and acquisition deals, particularly those for which bridge financing is in place.

However opportunistic issuers appear content to bide their time, a syndicate official said Tuesday.

The “wait-and-see” crowd no doubt derived solace from calls Monday from three Federal Reserve presidents, Charles Evans of the Chicago Fed, William Dudley of the New York Fed, and Narayana Kocherlakota of Minneapolis, for a “patient” approach to moving rates, a debt capital markets banker said.

Issuers might interpret it to mean that the Fed is mulling continued monetary accommodation, which could set the stage for another rally in high yield once the present volatility subsides, suggesting that rates could once again move in issuers’ favor, the banker added.

Enterprise Inns at wide end

In the European market, Enterprise Inns plc priced £249.52 million of nine-year fixed-rate secured notes (/BB-) at par to yield 6%.

The yield printed at the wide end of the 5 7/8% to 6% yield talk, market sources said.

The announced deal size was £200 million minimum.

Barclays, Deutsche Bank AG, London Branch and Royal Bank of Scotland were the global coordinators. BNP Paribas and Lloyds were bookrunners.

The proceeds will be used to help fund a tender for £600 million of the company’s 6½% secured bonds due 2018.

Sherritt plans C$300 million

There was a deal announcement in the Canadian dollar-denominated market on Tuesday.

Sherritt International Corp. is marketing up to C$300 million of eight-year senior notes.

Marketing is set to conclude on Thursday, and the deal will price sometime after that, depending on market conditions.

The deal will be led by left bookrunner National Bank Financial Inc. and joint bookrunner Scotiabank.

The Toronto-based company plans to use the proceeds to redeem its 7¾% senior unsecured debentures due Oct. 15, 2015.

No Zebra trading seen

In the secondary realm, the new Zebra Technologies bonds came too late in the session for aftermarket dealings.

Recent deals busy and better

Despite the generally quiet market, traders did see fairly brisk trading, at mostly better levels, among some of the other recently priced issues.

For instance, Miami-based fast-food giant Burger King Worldwide’s 6% senior secured second-lien notes due 2022 gained 3/8 point on the day to end at 99 3/8, a market source said. Whopper-sized volume of over $23 million put the issue high up on the Most Actives list.

Burger King had priced $2.25 billion of those notes at par last Wednesday.

T-Mobile’s 6 3/8% notes due 2025 gained slightly more than 1 point on the day to end just above par, on volume of more than $21 million.

The Bellevue, Wash.-based Number-Four U.S. wireless carrier had priced $1.7 billion of those notes at par on Sept. 3 as part of a $3 billion behemoth of a deal that also included $1.3 billion of 6% notes due 2023, which also came at par.

Alcoa’s 5 1/8% notes due 2024 were seen up by 13/16 point to close at 100 3/8 bid, with over $25 million of turnover.

Another trader who saw the bonds finishing at that level said they were up by ½ point.

The Pittsburgh-based aluminum products manufacturer had come to market with a split-rated (Ba1/BBB-/BB+) $1.25 billion offering on Sept. 17, pricing those bonds at par.

San Antonio, Texas-based broadcaster and outdoor advertising company iHeart Communications’ 9% notes due 2022 jumped ¼ point to end at 99¼ bid, on volume of more than $16 million.

It priced $250 million of those priority guarantee notes at 101 to yield 8.778%, as an add-on to the $750 million of those notes that the company had come to market with just weeks earlier, on Sept. 5, when it was still known as Clear Channel Communications Inc. prior to its official name change to iHeart.

The notes had moved down from those lofty levels at which the add-on had priced, with a trader seeing them having eventually moved as low as around 98 on Monday.

“But they rebounded a little bit from that to 99 3/8, so they’re up 1 3/8 points on the day, on a dozen or so trades.”

However, he said some of the company’s other existing bonds “haven’t really joined in the rebound.” He saw its 10% notes due 2018, “the former CCMOs, still trading around 85, probably up ½ on the day.”

He also saw Ally Financial’s 5 1/8% notes due 2024 last trading at 98 1/8, up ¾ point on the day, with more than $20 million changing hands.

Detroit-based Ally, an automotive loan company and online banking concern, priced $700 million of those notes at 98.085 on Sept. 24 to yield 5 3/8%. The notes were part of a quick-to-market $1 billion two-part deal that also included $300 million of 3¼% notes due 2017 that priced at 99.646 to yield 3 3/8%.

Market stays quiet

The same dynamics that produced a relatively quiet market on Monday were in play as well on Tuesday – the reluctance of investors who had already closed their books on the third quarter to do anything before the fourth and final quarter of 2014 begins on Wednesday, combined with the impact of many participants being absent from the market, attending Deutsche Bank’s leveraged finance conference this week in Scottsdale, Ariz.

And there was the continued cautious market response to the surprise announcement of Bill Gross’s exit from Pimco – the giant investment firm that he co-founded and served as chief investment officer of for many years; that exit comes amid heavy redemptions by investors pulling money out of its huge bond funds.

“People are still digesting if Pimco supposedly has all of this money flowing out, how much junk or high yield [credits] are they having to punt for liquidation,” a trader said.

He noted that “if you look back, with a lot of the new issues, people complained that they weren’t getting large enough allocations on those deals – they said that most of the allocations only go to a handful of accounts. Well, one of those accounts was Pimco – so they’re big holders of a lot of stuff, and when they sell, you start to see things go down rather sharply.”

Overall market better

Overall, market sources saw stronger conditions in Junkbondland on Tuesday, with the market seen rebounding from lows seen over the past few sessions. That downside movement culminated in its weakness early Monday, before those losses were trimmed later in that session.

That late upside momentum was seen continuing into Tuesday.

A trader – even as he called the overall activity level “pretty boring” – said that “the market was up maybe 3/8 to ½ point today, off of yesterday’s [Monday’s] selloff.”

Another trader said that “most of the market seemed like it was up ½ to ¾ [point] and it kind of oscillated.”

At another shop, a market source opined that “it looks like there was a major effort to mark things up today for the quarter’s end.

“It will be interesting to see how much these marks give in the sessions ahead.”

Indicators bounce back

Statistical indicators of junk market performance were on the rebound on Tuesday, after having been lower over the previous three sessions and in five sessions out of the previous six.

The KDP High Yield Daily Index rose by 20 basis points to finish on Tuesday at 74.83, its first gain after six consecutive sessions before that on the downside. That was up from Monday’s 28-bps plunge, which caused the index to close at 71.63 – its lowest reading since Dec. 16, 2011, when it had finished at 71.61.

Its yield came in by 7 bps, to 5.76%, its first narrowing after five straight sessions in which it had widened out including Monday’s 8 bps rise.

The Markit CDX Series 22 index gained 9/16 point to end at 105 29/32 bid, 106 offered. On Monday it had lost 17/32 point, its third downturn in a row.

The widely followed Merrill Lynch High Yield Master II Index broke a six-session losing streak on Tuesday, gaining 0.377%, versus Monday’s 0.258% setback.

That improvement lifted its year-to-date return to 3.607% from Monday’s 3.218%, which had been its lowest level since April 3, when it had closed at 3.127%. However, the cumulative return remained well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was closed for all intents and purposes due to the Labor Day holiday break.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.