TopBuild upsizes; Drax on tap; Hilton dominates; energy sector outperforms; HCA active

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 11 – The high-yield primary market saw one new deal price on Wednesday with another on tap for Thursday and the calendar for dual-currency and euro-denominated deals filling up.

TopBuild Corp. priced an upsized $400 million issue of eight-year senior notes (B1/BB-) at par to yield 5 5/8% on Wednesday.

Drax Group Co. talked its $300 million offering of senior secured notes due November 2025 (BB+/BB+) to yield in the 6¾% area with pricing expected on Thursday.

Novafives SAS also plans to price its euro-denominated tranche offering on Thursday with offerings from Vallourec, Piaggio and Aurum also on the calendar.

Meanwhile, Hilton Worldwide Holdings, Inc.’s newly priced 5 1/8% senior notes due 2026 (Ba2/BB+) dominated trading activity in the secondary market with the notes seen trading up.

While some sources said the deal was priced rich, others felt it was fair.

While few bonds traded, Silversea Cruise Holding Ltd.’s upsized $70 million add-on to the Silversea Cruise Finance 7¼% senior secured notes due Feb. 1, 2025 (B2/expected BB-) also traded well above their issue price.

With the price of crude oil at its highest since December 2014, California Resources Corp.’s 8% senior secured second-lien notes due 2022 were again up alongside other names in the energy sector on Wednesday.

HCA Holdings, Inc.’s 6½% senior secured first-lien notes due 2020 were active on Wednesday with buyers interested in the short duration of the bonds, a market source said.

Sprint Corp.’s junk bonds remained active in the secondary market on Wednesday with the longer duration notes continuing to see gains on news of renewed merger talks with T-Mobile.

Tenneco Inc.’s 5% senior notes due 2026 were down 2¼-point and 5 3/8% senior notes due 2024 (Ba2/BB) were down 1 point on news of its buyout of Federal-Mogul LLC.

TopBuild upsizes

TopBuild priced an upsized $400 million issue of eight-year senior notes (B1/BB-) at par to yield 5 5/8%.

The issue size increased from $375 million.

The yield printed in the middle of yield talk in the 5 5/8% area, and tight to initial guidance in the mid-to-high 5% area.

BofA Merrill Lynch was the left bookrunner for the acquisition financing. The Daytona Beach, Fla.-based installer and distributor of insulation products will use proceeds to finance its previously announced acquisition of United Subcontractors, Inc.

The all-cash transaction is valued at $475 million, according to a company news release.

Drax talk in 6¾% area

The active calendar is replete with issuers planning to sell dollar-denominated notes as part of dual-currency offerings.

On Wednesday, England-based Drax Group talked its $300 million offering of senior secured notes due November 2025 (BB+//BB+) to yield in the 6¾% area.

Books close at 10 a.m. ET Thursday, and the debt refinancing deal is set to price thereafter.

Global coordinator Barclays will bill and deliver.

Drax joins a trio of Europe-based issuers aiming to price dollar-denominated tranches in the April 16 week.

France's CGG is marketing $650 million equivalent in dollar- and euro-denominated five-year senior secured notes.

The dollar portion is in the market with early talk in the high 9% area. The euro-denominated notes have early talk in the high 8% to 9% area. The deal is expected to price April 17.

Amsterdam-based OCI is roadshowing $1 billion equivalent five-year senior secured notes in dollar- and euro-denominated tranches.

The dollar notes were guided in the low 7% area. The euro-denominated notes have initial talk in the mid-to-high 5% area. Pricing is set for the April 16 week.

And Lycra is offering $500 million seven-year senior secured notes whispered in the 8% area, part of an $810 million offer that also features €250 million five-year senior secured notes with initial price talk in the 6% area. Both tranches are set to price April 19.

Novafives for Thursday

In the euro-denominated market, Novafives set price talk in its €600 million offering of seven-year senior secured notes (B3/B+) in two tranches.

The offer includes fixed-rate notes talked at 4 7/8% to 5 1/8%, on top of initial price talk, and floating-rate notes talked at a 425 to 450 basis points spread to Euribor, tight to initial price talk in the Euribor plus 450 bps area.

Tranche sizes remain to be confirmed.

Books close Thursday, and the deal is set to price thereafter.

There is a substantial European calendar expected to clear ahead of Friday's close.

It includes France-based Vallourec which is marketing €300 million senior notes due October 2023 (S&P: B) whispered in the low-to-mid 6% area. The deal could price Thursday.

Italy's Piaggio seeks to issue €250 million senior notes due 2025, including notes issued as part of a concurrent exchange offer (expected ratings B1/BB-). The roadshow wraps up Friday.

And England-based Aurum is on the road with a £265 million offer five-year senior secured notes (S&P: B-). That roadshow also ends on Friday.

Hilton dominates

As the primary market works to clear its calendar, Hilton’s 5 1/8% senior notes due 2026 dominated secondary market activity with more than $115 million bonds traded during Wednesday’s session.

The notes opened at par 1/8 and closed at par 5/8, a market source said.

“They were grinding up all day,” the source said. Some add-on buyers who backed out of the deal on Tuesday due to “macro noise” jumped back in on Wednesday, a trader said.

Hilton priced a massively upsized $1.5 billion issue of the eight-year senior notes on Tuesday.

The deal size was increased from $500 million. The yield printed in the middle of yield talk in the 5 1/8% area and tight to early guidance in the 5¼% area.

There was a perception in the market that the deal was “priced on the screws,” with a low-ball rate, sources said.

While pricing “did seem a little rich, the market is a little starved for new issuances,” a market source said. Based on the demand for new paper, Hilton’s notes were expected to trade OK, which they have.

Other sources felt the deal was priced fairly at 235 basis points over Treasuries. “For a double B credit, that’s not crazy, and it’s not a cyclical business,” a market source said.

If Hilton was a cyclical business, the deal most likely would have traded down, the source said.

Silversea holds

While the trades were well above the issue price, Silversea’s $70 million add-on to its 7¼% senior secured notes due Feb. 1, 2025.

The notes were seen trading in a range of 105½ to 106 but only about $2 million bonds traded on Wednesday.

“Those won’t really trade,” a market source said. Existing holders usually buy more to keep, sources said.

Silversea priced the add-on at 104.50 to yield 6.148% in a Tuesday drive-by. The issue size was increased from $60 million.

The reoffer price came rich to price talk in the 104.25 area; initial guidance was 103.75 to 104.25.

Energy outperforms

With the cost of crude oil reaching its highest price on Wednesday since December 2014, names in the energy sector were on an upswing.

“The energy sector was definitely the outperformer,” a market source said.

California Resources’ 8% senior notes were up another 1¼ point on Wednesday to 81¼. The 8% notes also gained 1 point on Tuesday.

EP Energy LLC’s 9 3/8% senior notes due 2024 were also up about 1 point on decent volume, a market source said. The 9 3/8% notes were seen trading at 72 on Wednesday with more than $20.5 million bonds traded.

The barrel price of West Texas Intermediate crude oil for May 2018 delivery was again up on Wednesday after climbing more than $3 since the week’s beginning.

The price was $66.74 on Wednesday, up $1.23 or 1.88% from Tuesday. The price of crude oil reached its highest level on Wednesday since December 2014, Bloomberg reported.

HCA active

HCA’s 6½% senior secured first-lien notes due 2020 were active during Wednesday’s session.

The notes were seen trading down ¼-point to 105 with more than $30.5 million bonds traded.

With less than two years until maturity the bonds were being sought out by short-duration buyers, a market source said.

Sprint’s gains continue

Sprint’s longer-duration junk bonds continued to see gains on Wednesday on news the telecommunications company is again at the table with T-Mobile to discuss a merger.

“This structure’s been fairly active,” a market source said with the longer dated notes generally up about ¼-point.

Sprint’s notes were seen up 2 to 3 points on Tuesday when news of the merger negotiations broke.

Sprint’s 6 7/8% notes due 2028 (B3/B) were seen up by a little more than ¼-point to trade at 101 1/8.

Sprint’s 7 5/8% notes due 2026 (B3/B) were up 3/8-point to trade at 104.2.

Sprint’s 8¾% notes due 2032 (B3/B) were seen up ¼-point to trade at 112¾.

Sprint’s 7 7/8% notes due 2023 were up 3/8-point to trade at 107.

Tenneco’s losses continue

While investors responded favorably to renewed merger talks between Sprint and T-Mobile, there has been a negative reaction to news Tenneco will acquire Federal-Mogul from activist investor Carl Icahn’s Icahn Enterprises.

Tenneco’s 5% senior notes dropped 2¼ point to 94¾ in active trading on Wednesday. Tenneco’s 5 3/8% notes dropped another point to trade at par. The 5 3/8% notes were quoted down 1 point on Tuesday after news of the acquisition broke.

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 $32 million of inflows on the day.

However, actively managed funds sustained $132 million of outflows on Tuesday, the trader said.

Indexes mixed

The KDP High Yield index is on a roll with five consecutive trading days of seeing gains.

The index was up 10 basis points to 70.69 on Wednesday with the yield down to 5.73%.

The index was up 14 basis points on Tuesday.

The Merrill Lynch High Yield index also saw another day of gains with the index up 7.7 bps shaving the negative year-to-date return to 0.124%.

The index was up 28.7 bps on Tuesday shaving the negative year-to-date return to 0.201% after gaining 11.4 bps on Monday.

However, the CDX high yield 30 index was down on Wednesday losing 8 bps after gaining 44 bps on Tuesday.

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