Mercer, upsized Owens-Illinois deals lead $3.5 billion session; new issues dominate trading

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 – The high-yield primary sphere – already busy during the past two sessions – kept up a steady pace of pricings on Tuesday, with syndicate sources hearing that some $3.55 billion of new junk bonds had come to market in nine tranches by the time things wrapped up for the day.

That topped the $2.7 billion of new dollar-denominated, fully junk-rated paper that had gotten done in five tranches on Monday, as well as the $3.23 billion of proceeds priced in three tranches on Friday.

A pair of big two-part transactions, both of them regularly scheduled offerings off the forward calendar, led the way.

The big deal of the day came from familiar junk issuer Owens-Illinois Inc., as the Perrysburg, Ohio-based glass container manufacturer did an upsized $800 million two-part deal split into seven- and 10-year notes, which moved up slightly after pricing in brisk trading.

Mercer International Inc., a Vancouver, B.C.-based wood-pulp producer and seller of excess “green” energy, did its own $650 million two-parter, consisting of five- and eight-year notes, which firmed smartly when they hit the aftermarket.

Also pricing off the calendar was East Aurora, N.Y.-based precision components manufacturer Moog Inc., which upsized its eight-year note offering to $300 million. Those bonds also were seen solidly higher in post-pricing trading.

Four other issues were quickly shopped drive-by deals.

Lear Corp., a Southfield, Mich.-based automotive seating and electronics systems maker, priced $650 million of 10-year notes, which were quoted trading slightly below their issue price on busy volume.

Denver-based oil and natural gas operator MarkWest Energy Partners, LP brought $500 million of 10-year notes to market, but they were not seen initially trading.

Miami-based homebuilder Lennar Corp.’s $350 million of five-year notes were up slightly from their issue price.

There was no immediate aftermarket seen in Bloomfield Hills, Mich.-based vehicle retailer Penske Automotive Group Inc.’s $300 million of 10-year senior subordinated notes.

Traders meantime reported continued heavy volume in the issues that had priced on Monday – Equinix, Inc., Level 3 Communications, Inc., Huntington Ingalls Industries, Inc. and Multi-Color Corp.

They said that – as had been the case on Monday – new or recently priced deals pretty much dominated the Junkbondland Most Actives list.

Statistical market-performance measures remained lower across the board.

Owens-Illinois upsized and tight

A busy Tuesday session saw seven issuers bring a total of nine tranches to raise an overall amount of $3.55 billion.

Four of the seven issuers showed up Tuesday morning at the drive-through window.

Two of the seven issuers upsized the amount of bonds offered.

Executions were mixed, however. Of the nine tranches, three priced at the tight ends of talk. Three priced on top of talk. And three priced at the wide ends of talk.

Owens-Illinois issuing via Owens-Brockway Glass Container Inc., appeared to be a tight two-part execution that saw an upsize in the overall amount of notes offered, with both bullet tranches of senior notes (Ba3/BB+) coming at the tight ends of talk.

A $500 million tranche of seven-year notes priced at par to yield 5%, at the tight end of yield talk in the 5 1/8% area.

A $300 million tranche of 10-year notes priced at par to yield 5 3/8%, at the tight end of yield talk in the 5½% area.

The overall amount was increased to $800 million from $700 million.

Deutsche Bank was the left bookrunner for the debt refinancing and general corporate purposes deal.

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

Lear drives through

Lear priced a $650 million issue of 10-year senior notes (Ba2/BB) at par to yield 5¼%.

The yield printed at the wide end of the 5% to 5¼% yield talk.

Citigroup was the left bookrunner. Barclays, BofA Merrill Lynch, HSBC, JPMorgan and RBC were the joint bookrunners.

Proceeds will be used to pay a portion of the purchase price for the Eagle Ottawa acquisition, redeem the remaining 8 1/8% senior notes due 2020 and for general corporate purposes including the payment of fees and expenses associated with the Eagle Ottawa acquisition and related financing transactions.

Mercer two-part deal

Mercer International priced $650 million of senior notes (B2/B+) in two tranches at the conclusion of a roadshow.

A $250 million tranche of five-year notes priced at par to yield 7%, on top of yield talk.

A $400 million tranche of eight-year notes priced at par to yield 7¾%, at the wide end of the 7½% to 7¾% yield talk.

Credit Suisse, Barclays and RBC were the joint bookrunners for the debt refinancing.

MarkWest Partners 10-year bullet

MarkWest Energy Partners priced a $500 million issue of non-callable 10-year senior notes (Ba3/BB) at par to yield 4 7/8%.

The yield printed on top of yield talk.

Wells Fargo was the left bookrunner for the debt refinancing deal. Barclays, BofA Merrill Lynch, Goldman Sachs, Morgan Stanley, RBC, SunTrust and US Bancorp were the joint bookrunners.

Lennar at the wide end

Two weeks after postponing a virtually identical deal because it was dissatisfied with interest rate prospects, Lennar returned to the primary market on Tuesday to price a $350 million issue of non-callable five-year senior notes (Ba3/BB) at par to yield 4½%.

The yield printed at the wide end of the 4 3/8% to 4½% yield talk.

JP Morgan, RBC, Wells Fargo, Citigroup, BofA Merrill Lynch, Deutsche Bank, RBS, BMO and UBS were the joint bookrunners for the general corporate purposes deal.

The deal Lennar walked away from earlier in the month had been talked to yield in the 4 1/8% area.

The tight end of price talk on Tuesday's deal, 4 3/8%, was 25 basis points wider than the mid-point of the earlier offer (12.5 bps wider than the tight end of the earlier offer).

The ultimate print on Tuesday's deal, 4½%, came 25 bps beyond the wide end of that 4 1/8% area talk on the deal the company walked away from.

An investor who watched from the sidelines said that 25 bps near enough reflects the amount by which the market widened from the time Lennar walked away from its deal on Nov. 5 and Tuesday, when the company ultimately priced its bonds.

The earlier deal, which the company abandoned, had been in the market via bookrunner RBS. That bank was among the right bookrunners for Tuesday's deal.

Moog upsizes

Moog priced an upsized $300 million issue of eight-year senior notes (Ba3/BB) at par to yield 5¼%.

The debt refinancing deal was upsized from $250 million.

The yield printed at the tight end of the 5¼% to 5½% yield talk.

JPMorgan, BofA Merrill Lynch and HSBC were the joint bookrunners.

Penske prices senior subs

Penske Automotive Group priced a $300 million issue of 10-year senior subordinated notes (expected ratings B1/B+) at par to yield 5 3/8%, on top of yield talk.

BofA Merrill Lynch was the left bookrunner. RBS, JPMorgan and Wells Fargo were joint bookrunners.

The Bloomfield Hills, Mich.-based automotive retailer plans to use the proceeds to repay bank debt and to fund working capital.

Flows continue mixed

As has been the case throughout the present reporting period that began last Thursday and will conclude with Wednesday's close, the cash flows seen by dedicated high-yield funds were mixed on Monday, the most recent session for which information was available, sources said.

High-yield exchange traded funds saw $186 million of outflows on Monday, while actively managed funds saw $160 million of inflows.

“Flows have not been all that great,” a portfolio manager remarked on Tuesday afternoon, adding that corporate earnings season has seen some “major hiccups.”

A considerable amount of on-the-run names was offered on Tuesday, said the buysider.

That could be an indication of outflows, the source said.

Although the Monday and Tuesday sessions put up a combined $6.25 billion of issuance, the remaining time before the market breaks for the four-day Thanksgiving holiday weekend in the United States could see less volume, sources said Tuesday.

One of the major dealers claimed to have just one or two more deals during that interval, which sources expect to wrap up no later than Tuesday, Nov. 25, as market participants are expected to begin to file out for holiday celebrations.

Meanwhile the active forward calendar has $3 billion of potential issuance, spread among five prospective issuers, expected to clear before Friday's close.

There was no news on any of those five deals heading into press time on Tuesday, sources said.

New deals again dominate

As had been the case on Monday, a trader said that market activity on Tuesday “was all new-issue. That’s all everybody is focused on – new deals, new deals.”

“They just kept on coming all afternoon.”

Among specific new issues, a trader said that both parts of the Owens-Brockway deal were heavily traded, estimating volume at over $30 million each.

He saw both the 5% notes due 2022 and the 5 3/8% notes due 2025 trading around a 100 1/8-to-100 3/8 bid context, after having priced at par.

Another trader saw the 5% notes at 100¼ bid, putting volume at some $40 million.

Lennar’s 4½% notes due 2019 were seen trading between 100 1/8 and 100½ bid on volume of more than $27 million. That was up slightly from their par issue price.

There was also heavy volume, topping the $24 million mark, a trader said, in Lear’s 5¼% notes due 2025. They had priced at par, but had eased slightly to around 99 7/8 bid.

Other new deals did better in the aftermarket.

A trader saw Moog’s 5¼% notes due 2022 trading between 101¼ and 101¾, while two others pegged the bonds in a 101-to-101½ bid context, up from par.

Both halves of Mercer International’s new deal were definitively on the upside. One trader saw both the 7% notes due 2019 and the 7¾% notes due 2022 trading between 101 and 101½ after having priced at par.

A second saw the 7¾% notes at 100¾ bid, 101¾ offered.

A trader said of the new deals that “they either go up a point or so – or they’re struggling to keep their head above water.”

Monday deals trade actively

Traders noted that Monday’s offerings continued to hog the secondary spotlight on Tuesday.

For instance, Equinix’s 5 3/8% notes due 2022 were going home at 100½ bid, down 3/8 point on volume of over $61 million.

Its 5¾% notes due 2025 were even busier, with over $77 million seen having changed hands.

The Redwood City, Calif.-based interconnection and data center company priced $1.25 billion of those bonds – $750 million of the 5 3/8s and $500 million of the 5¾s – in a quick-to-market offering that was upsized from an originally announced $1 billion. Both tranches priced at par.

Broomfield, Colo.-based telecommunications company Level 3’s new 5¾% notes due 2022 were up 1/8 at 100 3/8 bid on volume of over $39 million. Some $600 million of the bonds had priced on Monday in a drive-by transaction.

Newport News, Va.-based shipbuilder Huntington Ingalls’ 5% notes due 2021 were seen up ¼ point on Tuesday at 101¼ bid on volume of over $47 million.

The company had priced $600 million of the notes at par in a quickly shopped deal on Monday.

And Multi-Color’s 6 1/8% notes due 2022 moved up to 101½ bid when they were freed for secondary dealings on Tuesday, with more than $25 million traded.

The Cincinnati-based product labels company’s $250 million issue had priced at par late in the day on Monday, that session’s only regularly scheduled forward calendar offering.

Indicators continue slide

Statistical indicators of junk market performance were meantime lower for a fifth consecutive session on Tuesday.

The KDP High Yield Daily index slid by 21 bps to close at 71.85, its third straight loss, after having fallen 17 bps on Monday.

Its yield rose by 8 bps to 5.47%, its fourth widening in a row, after having been up by 4 bps on Monday.

The Markit CDX North American High Yield Series 23 index posted its sixth consecutive loss on Tuesday, declining by 1/8 point to end at 106 17/32 bid, 106 9/16 offered. It had been down by 9/16 point on Monday.

And the Merrill Lynch U.S. High Yield Master II index lost ground for a fifth successive session on Tuesday, moving downward by 0.214% on top of Monday’s 0.15% setback.

The latest loss lowered its year-to-date return to 3.977% from Monday’s 4.2% close. It was the first time the cumulative return had fallen below the psychologically significant 4% mark since Oct. 20, when it finished at 3.855%. The index also remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

According to the Finra-Bloomberg Active US High Yield Bond index, junk market volume fell to $3.309 billion on Tuesday from $3.341 billion on Monday.

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