Iron Mountain, Steel Dynamics drive-bys end primary drought; Toys ‘R’ Us tumbles on bankruptcy talk

By Paul Deckelman and Paul A. Harris

New York, Sept. 6 – The high yield primary market saw its first new dollar-denominated issuance in more than two weeks on Wednesday, as a pair of quickly shopped offerings generated $1.35 billion of paper, syndicate sources said.

Document storage and record-keeping company Iron Mountain, Inc. brought an upsized $1 billion issue of 10-year notes to market, while metals producer and recycler Steel Dynamics, Inc. chimed in with a $350 million issue of eight-year notes.

The two issues were the first such dollar-denominated high-yield deals seen in Junkbondland since Aug. 18, when financial services company Enova International Inc. priced $250 million of seven-year notes.

Secondary market traders quoted both of the day’s new issues a little higher, but on not much volume.

While those two domestic issuers were pricing their dollar deals, two other companies based in the United States were tapping the euro junk bond market for fresh cash – data services provider Equinix, Inc. and specialty chemical manufacturer Kronos Worldwide, Inc.

Away from the day’s new deals, the recently priced eight-year issue from electric car manufacturer Tesla, Inc. once again saw fairly brisk trading volume.

Energy issues such as oil and gas exploration and production operator California Resources Corp. were seen better, in line with firmer oil prices.

But Toys ‘R’ Us, Inc.’s bonds were down sharply in active dealings – although almost all of the lower late-session trading came in smallish odd-lot transactions – in response to news reports indicating that the underperforming specialty retailer had hired legal advisers from a firm well known in bankruptcy circles, raising investor concerns that there could be a filing in the company’s future.

Statistical market performance measures turned improved across the board on Wednesday, after having turned mixed on Tuesday, which followed three consecutive stronger sessions last Wednesday, Thursday and Friday.

Iron Mountain upsizes

The Wednesday primary market session saw $1.35 billion raised by two issuers bringing single-tranche offers.

Both deals came as drive-bys.

One was upsized.

One came inside of talk while the other priced at the tight end.

Iron Mountain Inc. priced an upsized $1 billion issue of 10-year senior notes (Ba3/BB-) at par to yield 4 7/8%.

The issue size was increased from $750 million.

The yield printed at the tight end of yield talk in the 5% area, and inside of the 5% to 5¼% initial guidance.

JP Morgan, BofA Merrill Lynch, Barclays, Citizens Bank, Goldman Sachs, Morgan Stanley, RBC and Wells Fargo were the joint bookrunners.

The Boston-based data storage and information management services company plans to use the proceeds to fund the redemption of all of its outstanding $1 billion 6% senior notes due 2020.

Steel Dynamics inside talk

Steel Dynamics, Inc. priced a $350 million issue of eight-year notes (Ba1/BB+) at par to yield 4 1/8%.

The yield printed 12.5 basis points below the tight end of the 4¼% to 4½% yield talk. Initial guidance was in the mid-4% area.

Physical bookrunner BofA Merrill Lynch will bill and deliver. JP Morgan was also a physical bookrunner. Goldman Sachs, Morgan Stanley and Deutsche Bank were joint bookrunners.

The Fort Wayne, Ind.-based steel producers and metals recycler plans to use the proceeds to tender for and/or redeem its 6 3/8% senior notes due 2022.

Oversubscribed Equinix upsizes

In the European primary market two American firms raised cash with euro-denominated offers.

Equinix, Inc. priced an upsized €1 billion issue of eight-year senior notes (B1/BB+/BB) at par to yield 2 7/8%.

The issue, which played to approximately €3 billion of orders, was upsized from €750 million.

The yield printed on top of final yield talk which tightened from earlier talk in the 3% area. Initial guidance was in the 3¼% area.

Lead left bookrunner Barclays will bill and deliver. BofA Merrill Lynch, JPMorgan and ING were joint bookrunners.

The Redwood City, Calif.-based data services company plans to use the proceeds to redeem all of its outstanding 4 7/8% senior notes due 2020 and for general corporate purposes, which may include debt repayment, capital expenditures, working capital and acquisitions of complementary businesses or assets.

Kronos prices tight

Kronos Worldwide, Inc. priced a €400 million issue of eight-year senior secured notes (B2/B+BB) at par to yield 3¾%.

The yield printed at the tight end of the 3¾% to 4% yield talk.

Deutsche Bank ran the books.

The Dallas-based producer of titanium oxide products intends to use the proceeds to prepay in full its existing $338.6 million term loan and pay off its North American revolver, with any remaining proceeds to be used for general corporate purposes.

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, according to an investor.

High-yield ETFs sustained $194 million of outflows on the day.

Actively managed high-yield accounts saw $75 million of inflows on Tuesday, the investor said.

Day’s deals quoted better

In the secondary sphere, traders greeted the news of the two new deals with relief, expecting that with the two drive-by issues having now broken the ice and ended the primary market’s long-drought (the most recent prior junk bond deal was Chicago-based financial concern Enova International’s $250 million offering back on Aug. 18), other new deals would follow.

Traders quoted both new issues a little higher, although they did not immediately report a lot of actual aftermarket activity in those names.

A trader saw Iron Mountain’s 4 7/8% notes due 2027 in a 100-to-100½ bid context, while a second heard the notes offered at 101, although he had not seen a bid side at that point.

And a third market source initially pegged the bonds trading between 100½ and 101 bid, although he later said that they had subsequently eased from those early highs, going out in a 100¼-to-100¾ range.

A trader meantime saw Steel Dynamics’ 4 1/8% notes due 2025 at 100½ bid, 101 offered.

Tesla still among actives

As has been the case pretty much constantly since their pricing, the recent Tesla, Inc. 5.3% notes due 2025 were among the busier credits on Wednesday, although unlike Tuesday, they did not top the Most Actives list.

A trader said that the Tesla bonds were up about 1/8 point, at 98 1/8 bid, “on good volume.”

A second trader quoted them essentially unchanged at 98 bid.

A market source at another desk estimated the day’s Tesla volume at around $15 million, down from the more than $37 million which had changed hands on Tuesday.

The Palo Alto, Calif.-based electric car manufacturer and power storage technology company’s $1.8 billion megadeal priced at par back on Aug. 11 as a regularly scheduled forward calendar offering, after upsizing from an originally announced $1.5 billion size.

After their pricing, the bonds struggled almost from the get-go when they were cleared for secondary dealings, getting gradually hammered down to around a 97ish handle before starting to rebound and push back upward.

On Friday, the Tesla notes had closed just below the 99 mark – before losing their upside momentum in Tuesday trading and staying in a lower-98 context on Wednesday.

Toys trades terribly

A market source said that the biggest bond-price movement on the day was in Toys ‘R’ Us’ 7 3/8% notes due 2018, which had finished out on Tuesday around 97¼ bid, opening around that same level on Wednesday morning.

However, at mid-afternoon, the bonds dropped nearly 30 points, to around the 70 bid mark, and then continued to fall, with a number of trades taking place right around the 50 bid level.

The bonds ultimately bounced off those session lows and came back to finish at 78 bid – still down nearly 20 points on the day.

While there were a lot of transactions, traders did not see any of them as large round-lot dealings, but instead as mostly smaller odd-lot pieces.

The company’s 8¾% notes due 2021 fell to a closing price of 66 bid from about 95½ at midday and 98½ at the tail end of last week, the most recent prior trades.

Here too, activity was confined to smallish odd lots.

Toys “R” Us tumbled on news reports indicating that the Wayne, N.J.-based specialty retailer of toys, games and products for children and, through a separate division, for babies and toddlers) had hired the law firm of Kirkland & Ellis to help restructure its roughly $400 million in debt due in 2018 – raising investor worries that the underperforming store chain could conceivably file for bankruptcy protection.

While hiring such restructuring attorneys in and of itself does not necessarily point to a bankruptcy filing ahead, it always looms as at least a theoretical possibility for debt-laden companies looking to restructure their obligations.

Toys “R”Us sought to downplay the significance of the hiring.

In a statement, it said that “as we previously discussed on our first quarter earnings call, Toys R Us is evaluating a range of alternatives to address our 2018 debt maturities, which may include the possibility of obtaining additional financing.”

It further said that it expects to provide an update about its restructuring activities on its upcoming fiscal second-quarter earnings call.

PetSmart paper pops

Also in the retailing segment, traders saw some upside movement in PetSmart, Inc.’s paper on Wednesday.

PetSmart “has recently been weak,” a trader said, “but seemed to get a reprieve today.” He saw the Phoenix-based pet food and pet supplies retailer’s 7 1/8% notes due 2023 up ¼ point at 81½ on “pretty good volume.”

A trader said that PetSmart “was more active,” ahead of the release of the company’s second-quarter report after Wednesday’s close, and its scheduled Thursday conference call.

“Maybe people are squaring up ahead of the numbers,” he suggested, locating the 7 1/8% notes in an 81-to-81½ context, while its 5 7/8% senior secured notes due 2025 were “a little better, a little north of 90,” from 89½ on Tuesday.

More than $29 million of the 7 1/8% notes changed hands, with a market source seeing them going home at 81 7/8 bid, calling that a 5/8 point gain on the day.

He saw over $17 million of the 5 7/8% notes trading, gaining 7/8 point as they finished above 90 bid, while its 8 7/8% senior unsecured notes due 2025 were perhaps ¼ point better on the session at 83¼ bid, with around $11 million traded.

Energy names improve

In the energy sphere, a trader said that “one of our bellwether oil-related names,” the California Resources 8% notes due 2022, gained more than 1 point on Wednesday to end at 56 7/8 bid, “with oil [prices] continuing to rally a little bit here.

Several other traders also saw the Los Angeles-based oil and natural gas exploration and production company’s bonds finishing up around a point in the mid-50s, on turnover of more than $25 million.

Elsewhere in the E&P space, Plano, Texas-based oiler Denbury Resources’ 9% notes due 2021 gained 1½ points on the day to end at 91¼ bid, while Houston-based EP Energy’s 8% notes due 2025 were seen by a trader to have jumped more than 3 points, to around 66¾ bid.

Calgary, Alta.-based shale oil producer MEG Energy’s 7% notes due 2024 gained ¼ point to finish at 80¾ bid.

Among the energy drilling companies, Cayman Islands-based Noble Holding International’s 7¾% notes due 2021 were up by a deuce on the day at 81 bid, while its 6.20% bonds due 2040 gained 2¼ points, ending at 63¼ bid.

Swiss-based Transocean 7½% bonds due 2031 were up by 1¾ points at 87 bid, while Houston-based Atwood Oceanics’ 6½% notes due 2020 came off its day’s lows to end at 99 bid, up 1 point on the day, with over $22 million traded.

The E&P credits, and the drillers alike, benefitted from a second straight session of firmer o world crude oil prices.

October-delivery West Texas Intermediate crude gained 50 cents in New York Mercantile Exchange trading Wednesday to settle at $49.16 per barrel, on top of Tuesday’s $1.37 per barrel jump, while November-delivery Brent crude oil moved in a similar trajectory both days in London dealings.

Indicators move up

Statistical market performance measures turned improved across the board on Wednesday, after having turned mixed on Tuesday, which followed three consecutive stronger sessions last Wednesday, Thursday and Friday.

The KDP Daily High Yield Index rose by 5 basis points on Wednesday to end at 72.25, its 10th straight gain after five consecutive losses. It had also been up by 8 bps on Tuesday.

Its yield was unchanged at 5.16%; on Tuesday, it had come in by 3 bps, its sixth straight narrowing.

The Markit CDX Series 28 High Yield Index edged up marginally on Wednesday to close at 107 1/32 bid, 107 3/32 offered, after having lost nearly 11/32 point Tuesday, its second successive loss after three gains in a row before that.

And the Merrill Lynch North American High Yield Index firmed by 0.111% on Wednesday, its sixth straight gain after one loss and six straight gains before that. It had also improved by 0.003% on Tuesday.

The latest gain raised the index’s year-to-date return to 6.323% from Tuesday’s 6.205% close, establishing a new year-to-date peak level, surpassing the previous mark of 6.233%, which had been set back on Aug. 2.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.