E*Trade prices, gains; Friday deals up; Peabody pops on tender offer; Freescale firms on buyout

By Paul A. Harris and Paul Deckelman

New York, March 2 – E*Trade Financial Corp. kicked off the new month in Junkbondland on Monday with a quickly shopped $460 million offering of 8.5-year notes, syndicate sources said. Traders quoted the New York-based online brokerage company’s new issue modestly firmer.

The financial services sector also saw a split-rated new deal get done and trade around, as Discover Financial Services, Inc., the Riverwoods, Ill.-based parent of the eponymous major credit card company, did a $500 million 10-year issue (Ba/BBB-/BBB+), which saw active aftermarket dealings.

Back among the purely junk rated issue, European cable operator Unitymedia KabelBW, part of John Malone’s Liberty Global plc empire, drove by with €700 million of 12-year unsecured notes less than a week after doing a quick-to-market issue of 12-year secured paper.

Traders meanwhile saw continued brisk activity in the new issues that came to market on Friday from Bombardier, Inc., Riverbed Technology, Inc. and Nathan’s Famous, Inc., with Bombardier and Nathan’s moving higher and Riverbed easier.

Peabody Energy Corp. began shopping a $1 billion issue of seven-year secured notes around, planning to use the proceeds to tender for its existing 2016 bonds. The latter notes firmed smartly on the news in busy dealings.

Away from new or upcoming issues, Freescale Semiconductor, Inc.’s bonds firmed on the news that the Austin, Texas-based computer-chip manufacturer is to be acquired by Dutch sector peer NXP Semiconductors.

Statistical indicators of junk market performance turned mixed on Monday, after having been higher across the board on Friday for a fourth consecutive session.

E*Trade at the tight end

E*Trade Financial priced Monday's sole deal, a $460 million issue of 8.5-year senior notes (Ba2/BB-) at par to yield 4 5/8%.

The yield printed at the tight end of yield talk in the 4¾% area.

Morgan Stanley, J.P. Morgan and Goldman Sachs were the joint bookrunners for the drive-by debt refinancing deal.

Peabody roadshows $1 billion

Peabody Energy began a roadshow on Monday for a $1 billion offering of seven-year senior secured second lien notes (expected ratings B2/BB/BB).

Initial guidance has the deal coming in the mid-9s to 10%, according to a market source who listened in on Monday's investor call.

BofA Merrill Lynch and Morgan Stanley are the joint physical bookrunners.

BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, HSBC, J.P. Morgan and PNC are the joint bookrunners.

The St. Louis-based coal company plans to use the proceeds to fund the tender for its 7 3/8% senior notes due 2016 and for general corporate purposes.

KCG roadshow

KCG Holdings, Inc. will market a $500 million offering of five-year senior secured notes on a roadshow set to run through the early part of the March 9 week.

A group lunch is scheduled to take place on Wednesday in New York.

Jefferies LLC is the bookrunner for the debt refinancing and general corporate purposes deal.

Unitymedia unsecured deal

German cable operator Unitymedia priced a €700 million issue of 3¾% senior notes due Jan. 15, 2027 (expected ratings B3/B) at par to yield 3¾% on Monday.

The coupon came at the tight end of the 3¾% to 3 7/8% coupon talk. The reoffer price came o top of price talk.

The deal came less than a week after the company priced a €500 million issue of 3½% senior secured notes due Jan. 15, 2027 (Ba3/BB-) at par on Feb. 25, and the new unsecured notes came at a 25 basis points concession to last week's secured notes.

As with last week's secured deal, Credit Suisse was the lead left bookrunner for the new issue of unsecured notes.

Also in the syndicate of underwriters for the new unsecured issue were joint bookrunners Citigroup, JPMorgan, Royal Bank of Scotland and UBS.

The Cologne-based company plans to use the proceeds to refinance its euro-denominated senior notes due 2021.

E*Trade trades up

In the secondary realm, E*Trade’s 4 5/8% notes due in September of 2023 priced fairly late in the session, with terms circulating after 4 p.m. ET.

However, a trader said that he had heard the new bonds in a 100 3/8 to 100 5/8 bid context.

Discover issue seen active

A market source said that Discover Financial’s new 3¾% notes due 2025 saw brisk trading activity of more than $47 million, although he opined that most of that probably came from high-grade investors. This was despite the new deals’ Ba1 rating from Moody’s Investors Service, which renders it technically a split-rated transaction.

The bonds, which had priced at 170 basis points over comparable Treasuries – equivalent to 99.884 to yield 3.764% – firmed slightly to just a shade below par, tightening to 167 bps over.

Bombardier flies high

Back among the purely junk-rated issues, Friday’s big two-part offering from Montreal-based aircraft and railroad equipment manufacturer Bombardier easily topped the high-yield most-actives list.

The company’s 7½% notes due 2025 were seen by a trader having gained 1 1/8 points to end at 101 7/8 bid, on volume of more than $97 million. A second trader saw them at 102 bid, 102 3/8 offered, calling that a gain of 1 3/8 points.

He also saw the company’s new 5½% notes due in September of 2018 up ¾ of a point at 101¼ bid, 101 ½ offered. Another trader pegged the bonds in a 101¼ to 101¾ bid context, with more than $60 million having changed hands.

Bombardier had priced $750 million of the 3.5-year notes and $1.5 billion of the 10-year paper, both at par, in a quick-to-market issue on Friday, the total size of which was raised to $2.25 billion from an originally announced $1.5 billion.

Riverbed in retreat

Another active issue from Friday was the Project Homestake Merger Corp. 8 7/8% notes due 2023 that will help to finance the pending leveraged buyout deal for Riverbed Technology.

A trader saw the San Francisco-based networking technology company’s new issue in a 101 to 101½ bid context, calling that down ¼ of a point on the day.

A second located the bonds even lower, at 101 bid, saying that was a 1-point drop from Friday’s peak levels, on volume of more than $26 million.

That $525 million issue had priced at par on Friday as a regularly scheduled forward calendar deal, after having been twice downsized, first from $625 million and then from $575 million, as the term loan portion of the LBO financing was accordingly upsized.

The bonds got as good as the 102 area in initial aftermarket trading before coming down from that zenith to end at around 101¼ to 101½ on Friday.

Nathan’s climbs again

Friday’s other offering – the $135 million of 10% senior secured notes due 2020 from Jericho, N.Y.-based fast-food restaurant operator, grocery products and foodservice company Nathan’s Famous – continued to move up in Monday dealings.

That quickly shopped issue had priced at par on Friday, an immediately jumped above 103 bid, with some quotes as high as the 104 to 104¼ area heard later that session.

On Monday, a trader said he’d heard the bonds had moved up to 105, while a second saw them between 104½ and 105½ bid.

As had been the case on Friday, more than $10 million of the notes changed hands.

Thursday bonds stay active

There was also considerable trading Monday in several of the issues that had priced on Thursday.

CDW Corp.’s 5% notes due 2023 at 100 5/8 bid gained just under 1 full point in trading Monday, going home at 101 9/16 bid, a trader said, on volume of more than $18 million.

The Vernon Hills, Ill.-based technology products and services provider’s quick-to-market $525 million issue had priced at par and then had firmed to around a 100¼ to 100½ context later that session and on Friday.

More than $48 million of the bonds had traded on Thursday and another $20 million of Friday.

Traders saw Sabine Pass Liquefaction LLC’s 5 5/8% first-lien senior secured notes due 2025 trading a little lower on Monday, with one seeing the notes off ¼ of a point at 100¼ bid, 100 5/8 offered, on volume of more than $14 million, while a second saw them down 1/8 of a point at 100 ½ bid.

The Cameron Parish, La.-based liquefied natural gas transportation and storage company priced its $2 billion drive-by issue at par, doubling it in size from the originally announced $1 billion.

The bonds initially traded around their issue price, but on Friday, they were seen up 1/8 to ¼ of a point, getting as good as 100 5/8 bid. Over $38 million had traded on Thursday, nearly doubling to over $72 million on Friday.

New deals whet appetites

A trader noted that the new deals keep coming and investors jump eagerly into them.

“We are still at the top of the cycle,” he said. “We’re still having inflows to high yield and people have to put money to work.”

He added, “I would guess that everybody thinks that interest rates are going to stay where they are for a little while – and there’s no recession on the horizon.”

So the market, he said, is continuing to party on, “just like it’s been doing for more than five years.”

Peabody bonds pop

Among the more established issues, the news that St. Louis-based coal operator Peabody Energy plans to sell $1 billion of new seven-year senior secured notes and use the proceeds to fund a tender offer for its $650 million of existing 7 3/8% notes due 2016 sent the latter bonds winging skyward on Monday.

A trader saw the 2016s trading between 107 and 109, noting that “last week, they had been down around 105.”

A second market source said that the bonds jumped 4½ points on the day, to 109½ bid, on volume of more than $19 million.

The company’s 6% notes due 2018, which are not involved in the tender transaction, were meantime seen down 1/8 of a point at 91 1/8 bid, on volume of over $30 million.

Freescale firmer on NXP news

The news that NXP Semiconductors will acquire American sector peer Freescale Semiconductor to create a $40 billion high-tech powerhouse pushed Freescale’s bonds higher, although trading was restrained.

Freescale’s 6% notes due 2022 gained 1¾ points on the day, finishing at 109½ bid, though on only $5 million of volume, a market source said.

He saw the company’s 10¾% notes due 2020 up about ¾ of a point, also at 109½, with around $2 million traded.

Little activity was seen in NXP’s bonds with just over $1 million of its 5¾% notes due 2021 having changed hands, down ½ of a point at 106 bid.

Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of about $11.8 billion, based on NXP's closing stock price as of Feb. 27, and a total enterprise value of roughly $16.7 billion, including Freescale's net debt.

The transaction is expected to close in the second half of calendar 2015.

NXP intends to fund the transaction with $1 billion of cash from its balance sheet, $1 billion of new debt and about 115 million NXP ordinary shares.

Post-transaction, Freescale shareholders will own about 32% of the combined company.

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Monday after having been higher across the board on Friday for a fourth consecutive session and for a fifth session in the previous six.

The KDP High Yield Daily index eased off by 1 was basis point on Monday to end at 72.06, versus Friday’s 7 bps advance.

Monday’s downturn in the index was its first loss after seven straight gains, after having risen in 10 out of the previous 11 sessions and, on a longer-term basis, in 16 out of the previous 18 sessions.

Its yield, meanwhile, rose by 4 bps, to 5.11%, after having come in by 3 bps on Friday, which had been the yield’s fifth straight narrowing and eighth such tightening in the prior nine sessions.

The Markit Series 23 CDX North American High Yield index rose by 3/32 of a point on Monday to 107 5/8 bid, 107¾ offered, after having edged up by 1/16 of a point on Friday. The advance on Monday was its fifth in a row and the sixth in the last seven sessions.

The Merrill Lynch U.S. High Yield Master II index posted its 31st consecutive gain Monday, as it moved up by 0.032%, on top of Friday’s 0.063% gain. That winning streak dates back more than a month, to Jan. 19.

The latest improvement lifted its year-to-date return to 3.125%, marking its 27th straight new peak level for 2015, from Friday’s 3.036%, which had been its first time this year above the psychologically significant 3% mark, a level last previously reached on Dec. 5, 2014, when the index stood at 3.005%.

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