Ardagh, upsized Ensco price, trade up; Community Health bonds surge; funds jump $2.65 billion

By Paul Deckelman and Paul A. Harris

New York, Jan. 11 – The high-yield primary pricing parade continued to roll on during Thursday’s session, with $1.35 billion of new dollar-denominated and fully junk-rated paper heard by syndicate sources to have come to market successfully.

Marine energy drilling company Ensco plc had the big deal of the day, doubling its eight-year offering to $1 billion in size.

And glass and metal packaging container company Ardagh Group SA priced a $350 million five-year secured issue.

Both of those new deals firmed smartly on busy volume when they hit the aftermarket.

Ensco’s several series of existing notes were also better on the day in busy trading.

But the most actively traded issue of the day was Wednesday’s 10-year offering from business services, foodservice and uniform supply company Aramark Services, Inc. which was also up by multiple points on the day.

Traders said that Tuesday’s three-part transaction from motor fuels and petroleum products distributor Sunoco LP continued to move up across the board – but on considerably reduced volume from Wednesday’s very active levels.

Away from new or recently priced deals, the traders saw robust activity in hospital operator Community Health Systems Inc.’s several series of bonds, all of them up multiple points in line with a surge in the company’s shares after its biggest investor increased its equity holdings.

Energy names like California Resources Corp. and EP Energy Corp. showed solid gains as crude oil prices continued their recent firming trend.

And retailer Rite Aid Corp.’s bonds continued to add to gains seen on Wednesday.

Statistical market performance measures turned higher across the board on Thursday, after being lower all around for two straight sessions.

Another numerical indicator – the flow of funds into or out of high yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – continued its positive momentum this week and so far this year, according to numbers released on Thursday, posting its second consecutive weekly net inflow after ending 2017 with three straight weeks of net outflows.

Some $2.65 billion more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, Jan. 10, on top of the $186 million inflow reported last week. It was the biggest cash infusion the funds had seen since mid-December of 2016. The two inflows so far this year follow the three weekly outflows, totaling $2.27 billion, which had closed out 2017 (see related story elsewhere in this issue).

Ensco doubles size

In Thursday’s primary market Ensco doubled the size of its deal to $1 billion from $500 million and priced the new issue of eight-year senior notes (Ba3/BB-) at par to yield 7¾%.

The yield printed 12.5 basis points inside yield talk that had been set in the 8% area.

Initial guidance was 8% to 8½%, a trader said.

The deal came with an investment grade-style covenant package.

Deutsche Bank and Citigroup were the global coordinators and bookrunners.

BNP Paribas, BofA Merrill Lynch, DNB, HSBC and Morgan Stanley were the joint bookrunners.

The London-based offshore drilling contractor plans to use the proceeds to fund tender offers for the 8½% senior notes due 2019 and 6 7/8% senior notes due 2020 issued by wholly owned subsidiary Pride International, Inc. and for Ensco’s 4.7% senior notes due 2021. The size of the tenders will be increased in proportion to the $500 million upsizing of the new 7¾% notes.

Ardagh PIK prices tight

Another Europe-based issuer, Ardagh Group, priced a $350 million issue of five-year senior secured PIK notes (Caa2/B-) at par to yield 8¾% on Thursday.

The yield printed at the tight end of the 8¾% to 9% yield talk.

As an indication of the trajectory of the high-yield market’s early 2018 temperature, initial conversations on the Ardagh PIK dividend deal had taken place in the mid 9% to 10% range, a trader said.

Citigroup was the left bookrunner. Credit Suisse was the joint bookrunner.

Moss Creek talk 7¼% to 7½%

Moss Creek Resources Holdings, Inc. talked its $650 million offering of eight-year senior notes (B3/B+) to yield 7¼% to 7½%.

There were also covenant changes.

The books close at noon ET Friday and the deal is set to price subsequently.

BMO is the left bookrunner. Wells Fargo and Capital One are the joint bookrunners.

The Dallas-based independent oil and gas exploration, production and acquisition company plans to use the proceeds to pay off its term loan and a portion of its revolver, with any remaining proceeds to be used for general corporate purposes.

Arby’s sets roadshow

IRB Holding Corp., also known as Arby’s Restaurant Group, Inc., plans to start a roadshow on Tuesday for a $485 million offering of eight-year senior notes.

The deal, which will help support Arby’s acquisition of Buffalo Wild Wings, roadshows through Thursday, Jan. 18 and is set to price thereafter.

Barclays is the left bookrunner. BofA Merrill Lynch, Credit Suisse, Morgan Stanley and Wells Fargo are the joint bookrunners.

Friday call for RCN Grande

RCN Grande plans to price $300 million of five-year senior notes during the Jan. 15 week.

The deal is set to launch on an investor conference call scheduled to take place on Friday.

Credit Suisse is the lead bookrunner for the acquisition financing. UBS, Morgan Stanley, Nomura, Goldman Sachs and BofA Merrill Lynch are the joint bookrunners.

Zoopla prices tight

In the sterling-denominated market, Zoopla Property Group plc and ZPG plc priced a £200 million issue of 5.5-year senior notes (Ba3/BB-) at par to yield 3¾%.

The yield printed at the tight end of the 3¾% to 4% yield talk. Initial talk was in the 4% area.

HSBC Securities was left lead on the debt refinancing deal.

A strengthening market

In the secondary arena, a trader opined that, initially at least, “I think there was a little bit of fear about this news report that came out about the Chinese [supposedly] saying that they were going temper their U.S. Treasury bond purchases.”

But he noted that the original Bloomberg News story “turned out to be roundly discredited by the Chinese, they said it didn’t come from a reliable source – and so the market kind of turned” and strengthened.

He noted that generally speaking, “we’ve had cash inflows” – more than $2.6 billion in the latest reporting week, according to mutual and ETF fund-flow data released on Thursday.

“Some investment managers that have a tremendous amount of cash waiting to be invested. So as new deals appear – and allocations, I think, have been a little bit thin – guys have been forced to come in and buy them in the secondary [market].”

While he said that the junk secondary market “sold off about a point [Wednesday], it rallied right back” on Thursday and then some.

He said that “it will be interesting to see where the BB spreads wind up overnight – but my guess is we opened the day at 190 [basis points above Treasuries], we closed at 196 and [Friday] morning, I’ll bet you it’s back close to the tights again.”

He concluded that “the fear in the Treasury market was a little bit of a shock, I think initially, but guys are kind of resigned to the fact that that you could see a selloff in Treasuries and stocks are going to continue to trade well. As you can see today they were up significantly,” with the bellwether Dow Jones Industrial Average finishing up by 205.60 points, or 0.81%, at 25,574.73, “and there is a bid for spread product.

“So it may be a bear market for Treasuries – but everybody else is coming out with guns blazing.”

New Ensco issue trades up

Among specific credits, both of Thursday’s new regularly scheduled forward calendar offerings from Europe-based issuers firmed smartly in very active trading once they hit the aftermarket.

Ensco’s sharply upsized 7¾% notes due 2026 were seen by a trader in a 101½ to 102½ bid context.

At another desk, a market source quoted the bonds finishing at 102¼ bid – well up from their par issue price – with over $56 million changing hands, putting the credit high up on the day’s Most Actives list.

The oil driller’s existing paper came along for the upside ride as well, with its 5¾% long bonds due 2044 seen up by just under 1½ points on the day at a shade less than 76 bid, with over $23 million traded.

Its 5.20% notes due 2025 ended at 90½ bid, up ½ point, while its 4½% notes due 2024 were seen holding steady at 89 bid.

Ardagh bonds better

Meantime Ireland-based packaging maker Ardagh’s new ARD Securities Finance Sarl 8¾% senior secured PIK notes due 2023 were seen to have shot up to around the 102 7/8 to 103 bid level after pricing at par on turnover of more than $61 million.

A trader noted that the new bonds “got all the way up to 103,” pointing out that “it’s a first-lien piece of paper, priced at 8¾% – so it looks like they left a little bit on the table” for investors to grab.

He said that a price of 103 translates to a yield of “almost 7.75% so it’s like a full [percentage] point” tightening.

Aramark tops Actives

Traders said that the busiest bond of the day was the new Aramark 5% notes due 2028, which pushed up by between 2 and 3 points on the day, with over $115 million traded during the session.

One market source said “the Aramarks traded pretty well, like 102¼ 102¾ at this point,” noting that the issue was actively traded at his shop.

A second trader pegged the issue in a 102¾ to 103¼ bid context, while yet another located them at 102¾ bid at the close.

The Philadelphia-based business services, foodservice and uniform supply company priced $1.15 billion of the notes at par on Wednesday in a quickly shopped drive-by transaction.

Sunoco better, but less busy

Also among recently priced paper, traders saw all three tranches of Sunoco’s new notes continuing to firm on Thursday, although on considerably less volume than that seen on Tuesday after that sharply upsized forward calendar offering had priced and on Wednesday when volume had zoomed.

“All of the Sunoco bonds traded up,” a market participant said.

“I was buying bonds at 100-100¼ [Wednesday] in the morning, then by the afternoon they were trading at 101½ and today [the 5-year and 8-year notes] were up at 101¾-102¼. And the 10 year is even better, around 102¼-102½.

Sunoco, a Dallas-based gasoline, other motor fuels and petroleum products distributor, priced $1 billion of 4 7/8% notes due 2023, double the originally planned $500 million, plus $800 million of 5½% notes due 2026, also up from $500 million originally, and $400 million of 5 7/8% notes due 2028, with the latter tranche not being upsized.

They had all moved up modestly in Tuesday’s aftermarket, on volumes of $53 million, $33 million and $34 million, respectively, and then proceeded to push well above 101 bid – and, in the case of the 10-years, to 102 bid – in Wednesday’s dealings, with the three issues generating well over $200 million of total volume.

But on Thursday, action dwindled as investors moved on to newer paper, with just $10 million of the five-year notes, $14 million of the eight-year notes and $9 million of the 10-year piece traded.

Community Health up with stock

Outside of the new-deal world, “a fair amount” of Community Health Systems’ bonds traded around, one market source said, seeing the Franklin, Tenn.-based hospital operator’s 8% notes due 2019 “up 3 or 4 points” in a 90½ to 90¾ bid context, with over $60 million changing hands during the session.

A second trader declared that “CYH had been much maligned over the last year – but had a lot of volume today.”

To underscore that contention, he marveled “holy cow!” when he looked at the actual volume levels.

He noted that the 8% notes “were trading between 87½ and 87¾ on Monday – now they’re 90½ to 90¾.”

The company’s 6¾% notes due 2022 jumped by 3 7/8 points, a trader said, ending at 63 7/8 bid, with more than $34 million of volume, while its 6¼% notes due 2023 improved by 1¼ points to 92¾ bid. Its 7 1/8% notes due 2020 likewise firmed to 80 1/8 bid, with over $12 million of each of the latter two issues traded.

The bonds got a boost from a surge in Community Health’s New York Stock Exchange-traded shares, which zoomed by 95 cents, or 23.63%, finishing at $4.97. Volume of 11.6 million shares was almost four times the norm.

The shares and bonds shot up after Shanda Group, a Chinese investment company that is currently Community Health’s largest shareholder, said in a Securities and Exchange Commission filing that it had increased its already considerable stake, bringing its holding to 24% of the outstanding shares.

Energy issues keep improving

Traders said that energy credits continued to head skyward, in line with another rise in crude oil prices Thursday.

Among the exploration and production names, a market source said that Los Angeles-based California Resources’ 8% second-lien senior secured notes due 2022 – considered a sector bellwether issue – rose by 1¼ points Thursday, closing at 88¼ bid, on volume of more than $34 million.

Houston-based exploration and production company EP Energy’s 8% notes due 2025 were up 1 1/8 points at 80½ bid, with more than $40 million of turnover, while its 9 3/8% notes due 2024 improved by 5/8 point on the day to 87 1/8 bid, with more than $36 million of activity.

Among the offshore drilling contractors, Transocean Ltd.’s 6.8% bonds due 2038 gained nearly ¾ point on the day, finishing at 86¼ bid, with over $17 million traded.

Cayman Islands-based sector peer Noble Holding International Ltd.’s 7¾% notes due 2024 were seen pushing upward by 1 7/8 points to 95¼ bid, on over $16 million of volume.

Those gains – quite a comeback from mostly lower levels in the sector on Wednesday, despite higher oil prices – took place against a backdrop of crude prices that were yet again firmer, their fourth straight gain and sixth advance in the last seven sessions. Crude prices are now at their highest point since early 2015.

Key domestic grade West Texas Intermediate for February delivery rose by 23 cents per barrel in New York Mercantile Exchange dealings, settling at $63.80 – coming off intraday highs of nearly $1 above that. The main international grade, March-contract North Sea Brent crude, was up by 6 cents per barrel in London futures trading, ending at $69.26. Brent reached an intra-day high above the symbolic $70 per barrel level.

Rite Aid rise continues

Elsewhere, Camp Hill, Pa.-based drugstore chain operator Rite Aid’s paper was seen solidly better for a second straight session on Thursday.

Its benchmark 6 1/8% notes due 2023 jumped by 2¼ points Thursday to 94¼ bid, as more than $32 million traded.

Its 6¾% notes due 2021 gained 1 full point Thursday to finish at 101¾ bid, on volume of more than $17 million.

Market sources pointed to new reports indicating that company executives had given a well-received presentation on Wednesday at the 36th annual J.P. Morgan Healthcare Conference, touting the benefits – including substantial deleveraging – that will accrue from the company’s pending nearly $4 billion sale of almost half of its more than 4,000 United States-based stores to larger rival Walgreens Boots Alliance.

They unveiled what they called “the new Rite Aid” – which they claim will be smaller but more nimble and able to operate with more flexibility and efficiency.

Indicators firm up

Statistical market performance measures turned higher across the board on Thursday, after being lower all around for two sessions. They had dropped on Tuesday – their first overall negative performance since Dec. 19 – breaking a string of six consecutive sessions in which the indicators had all been higher.

The KDP High Yield Daily Index rose by 5 basis points Thursday to close at 72.17, its first gain after two straight sessions on the downside, including Wednesday’s plunge of 10 bps. Before the losses Tuesday and Wednesday, the index had risen over eight successive trading days.

Its yield came in by 1 bp to 5.19% after rising by 5 bps on Wednesday – its first widening out after two unchanged sessions and five tighter sessions in a row before that.

The Markit CDX Series 29 index gained more than 3/16 point on Thursday to finish at 108 11/16 bid, 108¾ offered. On Wednesday, it had lost 5/32 point after easing by 9/32 point on Tuesday, its first losses following six straight sessions before that on the upside.

And the Merrill Lynch High Yield Index was also better on Thursday, firming by 0.114%, in contrast to losses of 0.247% on Wednesday and 0.011% on Tuesday. Before that, the index had improved over five straight sessions including Monday, when it had closed up by 0.057%.

Thursday’s rebound lifted its year-to-date return to 0.716% from 0.602% on Wednesday. However, it remained below Monday’s close at 0.862%, its peak cumulative level for the new year so far.

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