Studio City two-parter, downsized Conduent deals price, firm in aftermarket; recent issues add to gains

By Paul Deckelman and Paul A. Harris

New York, Nov. 22 – Primary sphere activity picked up on Tuesday in Junkbondland, with the pricing of a pair of deals totaling $1.7 billion, both regularly scheduled forward calendar offerings.

That was up from the $700 million of new dollar-denominated and fully junk-rated paper from domestic or industrialized country borrowers that came to market on Monday.

Macau-based entertainment and lodging company Studio City Ltd. had the big deal of the day, a $1.2 billion offering of three- and five-year senior secured notes. The deal saw interest from both traditional junk bond and emerging markets investors.

The day’s other issue was Xerox spinoff Conduent Inc.’s downsized $510 million of eight-year notes.

Traders quoted both of the day’s new issues as trading solidly higher in the aftermarket.

That strength also included other new or recently priced issues, including Monday’s Genesys Telecommunications Laboratories, Inc. bonds, as well as last week’s credits such as Hilton Grand Vacations Borrower LLC, EP Energy LLC and Tenet Healthcare Corp.

Statistical market performance measures were higher across the board for a second consecutive session on Tuesday; they had turned higher on Monday after having weakened on Friday. It was their third stronger session in the last four trading days.

Studio City two-part secured deal

Two issuers priced a combined three tranches of dollar-denominated notes on Tuesday, to raise a combined total of $1.7 billion.

Both issuers priced their notes at the conclusions of roadshows.

Although none of Tuesday's issuance was upsized, one tranche was downsized.

Two tranches came at the tight ends of talk, while the third blew out well beyond talk and much further beyond initial guidance.

Studio City Co. Ltd. priced $1.2 billion of senior secured notes (B1/BB-) in two tranches.

The short-duration tranche featured $350 million of three-year notes which priced at par to yield 5 7/8%. The yield printed at the tight end of yield talk in the 6% area.

The long tranche featured $850 million of five-year notes which priced at par to yield 7¼%. The yield printed at the tight end of yield talk in the 7 3/8% area.

The deal played to $2.3 billion of orders, with a lot of Asian accounts putting in orders as late as Monday, a high yield bond trader said.

Although the deal came with emerging markets aspects – the issuer is based in Macau – there was a lot of participation among high yield accounts, the trader added.

Global coordinator and left bookrunner Deutsche Bank will bill and deliver. BofA Merrill Lynch was a joint bookrunner.

The hotel and entertainment company plans to use the proceeds, together with cash on hand, to pay off its HK$10,855,880,000 senior secured term loan and revolver dated Jan. 28, 2013.

Conduent prices, rockets higher

In a deal that faced headwinds as it was being marketed, Conduent Inc. priced a downsized $510 million issue of 10½% eight-year senior notes (B2/B+/BB) at 98.672 to yield 10¾% on Tuesday.

The issue size was decreased from $750 million.

The yield printed 75 basis points beyond the wide end of the 9¾% to 10% yield talk. That official talk came dramatically wide to initial guidance of 7¾% to 8%, market sources said.

In a structural change, call protection was increased to four years from three years. The notes become callable after Dec. 15, 2020 at 105.25.

The order book was heard to be at deal size, according to a trader. However the notes, which came at 98.672, were 102¼ bid shortly after the terms circulated, the source added.

Not long after the conversation with the trader a sellside source reported seeing trades of the new Conduent 10½% notes at 103¼.

Ultimately the market saw the deal as having come cheap, sources said.

BofA Merrill Lynch, J.P. Morgan, BNP Paribas, Citigroup, Credit Suisse, Goldman Sachs and Mizuho were the joint bookrunners.

Proceeds will be used to help fund the company’s spinoff from Xerox Corp.

Run-up to 2017

Tuesday's burst of issuance is likely to be the last dollar-denominated issuance to clear ahead of the extended Thanksgiving holiday weekend, in the United States, which gets underway following Wednesday's close.

As to the 2016 home stretch, post-Thanksgiving to year-end, there is an expectation taking hold that issuance could run about the same as- or slightly higher than that which cleared in the home stretch of 2015, a syndicate banker said on Tuesday.

At that pace, the December market would put up modest numbers.

From Nov. 30, 2015, when activity resumed after the 2015 Thanksgiving Holiday weekend, until the end of the year the market saw $3.33 billion of dollar-denominated issuance in eight tranches, according to Prospect News data.

Day’s deals gain ground

In the secondary market, both of the day’s new issues were reported doing well when they were freed to trade.

A trader pegged Conduent’s 10½% notes due 2024 at 102¾ bid, 103¾ offered – well up from the par level at which the Norwalk, Conn.-based business process services company being spun off from document technology giant Xerox Corp. priced.

The trader also saw both halves of Studio City’s two-part offering in a 100¾ to 101¼ bid context.

At another desk, a trader said that the Studio City 5 7/8% senior secured notes due 2019 had moved up to 100½ bid, 101 offered, while also seeing the company’s 7¼% senior secured notes due 2021 at 100¾ bid, 101¼ offered.

Genesys notes move up

Monday’s new issue of 10% notes due 2024 from Genesys Telecommunications Laboratories were seen firmer, with one trader saw pegging the San Francisco-based communications solutions provider’s deal at 103¼ bid, though on only light volume of around $4 million.

That was a 1¼ point gain from Monday’s initial aftermarket levels.

The bonds had firmed by 2 points after the $700 million regularly scheduled issue had priced at par.

Bombardier gets busy

Among the issues that came to market last week, traders said that Bombardier, Inc.’s 8¾% notes due 2021 were easily the busiest, racking up more than $45 million of volume, as those bonds – which have struggled in the aftermarket ever since their pricing last Wednesday – gained nearly 1 point on the day.

A market source saw them up by 13/16 point at 98¾ bid, suggesting that the notes had risen in line with the Montreal-based aircraft and railroad equipment manufacturer’s equity, which firmed on the news that the company had received a $330 million equipment supply and maintenance contract from a Montreal-area commuter rail system.

That $1.4 billion forward calendar deal had priced at 99.001 to yield 9%, but had fallen to levels below 98 bid in subsequent aftermarket activity.

Recent issues better

Among other recently priced deals, Dallas-based hospital operator Tenet Healthcare’s 7½% senior secured second-lien notes due 2022 continued to shine in the secondary, as it gained another 3/8 point on Tuesday to end at 104 3/8 bid.

That $750 million quick-to-market offering had priced at par last Wednesday after having been upsized from $500 million, and then went on a tear as soon as they were freed to trade in the secondary, jumping by 3 points.

They remained at those lofty levels and added to those gains on Thursday, Friday, Monday and again on Tuesday, when over $11 million traded.

Elsewhere, Hilton Grand Vacations Borrower’s 6 1/8% notes due 2024 were seen about ¼ point better for a second consecutive session on Tuesday, with a trader locating them at 104¼ bid, though on volume of only $6 million.

The Orlando, Fla.-based vacation timeshares company – being spun off from global hotels giant Hilton Worldwide Holdings Inc. – had priced its $300 million deal at par coming off the forward calendar on Friday, and the bonds had pushed up by more than 1 full point in initial aftermarket dealings after that and continued firming on Monday and Tuesday.

EP Energy’s new 8% senior secured notes due 2024 jumped by some 1¼ points on the day on Tuesday to 102¼ bid, on volume of about $7 million.

That was on top of Monday’s rise of nearly 1 full point.

The Houston-based oil and natural gas exploration and production company had priced its $500 million forward calendar transaction at par on Thursday after the deal was upsized from $350 million originally. The notes initially clung to their issue price in the aftermarket, but pushed up solidly on Monday and again on Tuesday, amid firm world crude oil prices.

Energy names better

Away from the new deals, a trader said that strength in the oil markets continued to benefit existing energy-related issues.

He saw Oasis Petroleum Corp.’s 6 7/8% notes due 2022 up 1 point on the session at 101½ bid.

And he said that California Resources Corp.’s 8% notes due 2022 zoomed by 1½ points on the day, topping the 75 bid level.

Indicators again stronger

Statistical market performance measures were higher across the board for a second consecutive session on Tuesday; they had turned higher on Monday after having weakened on Friday. It was their third stronger session in the last four trading days.

The KDP High Yield index rose by 13 basis points to close at 70.07, its second advance in a row after having dropped by 5 bps on Friday, its first loss after three straight gains.

The index’s yield fell by 5 bps to 5.86%, after having been unchanged on Monday and wider on Friday. It was the index’s second such tightening in the last four sessions.

The Markit Series 27 CDX index posted its second gain in a row, firming by 17/32 point to finish at 104 15/32 bid, 104½ offered. It had rebounded by 3/8 point on Monday after having lost 3/16 point on Friday. Tuesday was its third advance in the last four sessions.

The Merrill Lynch High Yield index gained 0.335% on Tuesday, on top of Monday’s 0.192% rise which had followed a loss of 0.147% on Friday. Tuesday was its fifth gain in the last six sessions.

That lifted its year-to-date return to 14.882% from 14.499% at the close on Monday.

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