AssuredPartners prices; Cengage, McGraw-Hill jump on merger; Envision drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 1 – While the domestic high-yield primary market slowed on Wednesday, it did not stop, with one deal pricing and $1.61 billion of deals set to clear the calendar before the week comes to a close.

AssuredPartners, Inc. priced a $475 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 8% late Wednesday.

The European primary market is also poised for a big finish with €4.17 billion in junk set to clear ahead of Friday's close.

EG Group set official price talk on its upsized €1.64 billion offering of senior secured notes (B2/B/B+) on Wednesday.

Meanwhile, the secondary space was soft on Wednesday with trading volume relatively light.

As several recent deals drifted from focus, earnings and company specific news pushed outstanding issues into the spotlight.

McGraw-Hill Education and Cengage Learning, Inc.’s junk bonds jumped in high-volume activity on Wednesday after the two education groups announced a merger.

Envision Healthcare Corp.’s 8¾% senior notes due 2026 dropped in high-volume activity on Wednesday with the move most likely earnings related.

Frontier Communications Corp.’s junk bonds were also trading down after disappointing first quarter earnings.

AssuredPartners prices

On Wednesday, AssuredPartners priced a $475 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 8%.

The yield printed 12.5 basis points inside of price talk in the 8¼% area, and well inside of initial guidance in the mid-to-high 8% area, sources said.

BofA Merrill Lynch was the left bookrunner for the acquisition financing.

Upsized EG for Thursday

On Wednesday, filling station operator EG Group set official price talk on its upsized €1.64 billion offering of senior secured notes (B2/B/B+).

The deal, which is upsized from €1,355,000,000, comes in three tranches, with a tranche of shorter maturity euro-denominated notes added to what had previously been a two-part deal in dollars and euros.

The revamped deal features an expected €970 million amount of notes in two tranches: notes due 2024 (the added tranche), talked to yield 3¾% to 4%, versus initial talk in the 4% area, and notes due February 2025, talked in the 4½% area versus initial talk in the 4¾% area.

Early guidance on the euro-denominated notes due 2025 was in the 5% area. The split between the 2024 notes and the 2025 euro-denominated notes remains to be determined.

In addition, EG Group is offering an expected $750 million amount of notes due February 2025, talked to yield 6¾% to 7% versus initial talk in the 7% area.

Early guidance on the dollar-denominated notes was in the low 7% area.

Pricing is set for Thursday.

Left global coordinator Barclays will bill and deliver. Deutsche Bank and UBS are also joint global coordinators. ING is the joint bookrunner.

The Blackburn, U.K.-based company plans to use the proceeds, including the additional proceeds resulting from the €285 million upsizing of the deal, to repay new dollar- and euro-denominated bridge facilities, pay off its revolving credit facility, and make partial pro rata payments on its dollar- and euro-denominated second lien term loans.

The merger

Cengage and McGraw-Hill’s junk bonds were making large gains following news the competing text book publishers would merge in an all stock deal.

Cengage’s 9½% senior notes due 2024 rose 4¾ point to 98, according to market source. More than $35 million of the bonds were on the tape by the late afternoon.

The credit spread on the notes tightened by more than 125 bps.

McGraw-Hill’s 7 7/8% notes due 2024 jumped 12 points, a market source said. The notes traded up to 94¾ on Wednesday. The illiquid issue last traded on April 24 at 82¾, a source said.

While the notes may have traded up based on the assumption the merger would trigger the change of control clause in the notes’ indentures, it was not clear whether it would, a market source said.

McGraw-Hill and Cengage announced they would combine in an all-stock merger to become the second largest provider of college textbooks in the United States.

The company, to be named McGraw Hill, is valued at $5 billion, CNBC reported.

Envision drops

Envision Healthcare’s 8¾% senior notes due 2026 were taking a hit in high volume activity on Wednesday.

The notes traded down 3¾ points to 90¾, according to a market source.

More than $50 million of the bonds were on the tape by the late afternoon.

The notes were trading at more than 7x their normal volume, a market source said.

The movement in the notes was most likely due to earnings-related news.

The 8¾% notes priced at par as part of a leveraged buyout of the company by KKR in September 2018.

They have struggled since hitting the market with the notes trading in the low 90s for the majority of their existence.

Frontier under pressure

Frontier Communications’ junk bonds were under pressure on Wednesday following an earnings miss.

Frontier’s 10½% notes dropped 1¼ point to 73¾, a market source said. More than $32.5 million of the bonds were on the tape by the late afternoon.

Frontier’s 11% senior notes due 2025 dropped ¼ point to 66 with more than $16 million of the bonds on the tape.

The notes were trading down after Frontier reported a larger than expected first-quarter loss.

Frontier reported a loss per share of 18 cents versus analyst expectations for losses per share of 10 cents.

However, revenue was in line with analyst expectations at $2.1 billion, and EBITDA was slightly higher than expected at $873 million.

Mixed Tuesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $164 million of inflows on the day.

However actively managed high-yield funds sustained $25 million of outflows on Tuesday, the source said.

With only Wednesday's daily fund flow numbers left to tally, the combined funds are tracking $170 million of inflows in the week to Wednesday's close, according to the trader.

Indexes mixed

Indexes were again mixed on Wednesday, as they have been for most of the week.

The KDP High Yield Daily index was flat at 70.39 with the yield remaining at 5.77% for the third consecutive trading session.

The index slipped 1 basis point on Tuesday with the yield flat at 5.77%.

The index was also down 1 bp on Monday after a cumulative loss of 21 bps on the week last week.

The ICE BofAML US High Yield index gained 5.1 bps with the year-to-date return now 8.955%.

The index gained 5.5 bps on Tuesday and 9.8 bps on Monday after a cumulative gain of 19.8 bps on the week last week.

The CDX High Yield 30 index dropped 18 bps to close Wednesday at 107.45. The index rose 5 bps on Tuesday and dropped 11 bps on Monday after a cumulative gain of 5 bps on the week last week.

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