TerraForm, Cable & Wireless deals cap $2.46 billion week, new bonds firm; energy names off

By Paul Deckelman and Paul A. Harris

New York, July 31 – After a very slow start to the week, the high-yield primary sphere finished the week - and the month of July – with flying colors on Friday.

Syndicate sources reported that two single-tranche deals totaling $1.54 billion came to market during the session, up from the $920 million which had gotten done in two tranches during Thursday’s session.

Clean-power producer TerraForm Global, Inc. priced $810 million of seven-year notes.

British telecommunications provider Cable & Wireless Communications plc meanwhile did $750 million of seven-year notes.

Both of the day’s offerings were regularly scheduled deals off the forward calendar. Both priced at a substantial discount to par, with a 98 handle, and both were seen by traders having moved up in initial aftermarket dealings.

Friday also saw the emergence of terms on a deal which had actually gotten done very late on Thursday, unbeknownst to most in the market – Euramax Holdings, Inc., a maker of metal and vinyl products used in construction and recreational vehicles, priced $385 million five-year secured notes.

Those three deals, plus Thursday’s other offering – from specialty insurance brokerage firm Alliant Holdings I, LP – brought the week’s total of U.S. dollar-denominated, fully junk-rated bonds from domestic or industrialized-country borrowers to $2.46 billion – up from $1.31 billion that had priced in three tranches the previous week, ended July 24.

The week’s issuance brought the year-to-date total of new junk paper to $192.08 billion in 312 tranches, according to data compiled by Prospect News, running about 5% behind the $202.34 billion that had priced in 384 tranches by this time on the calendar last year.

In the secondary market, last Friday’s issue of new bonds from construction materials provider Builders FirstSource, Inc. continued to firm smartly, traders said.

While the overall market tone was seen to have improved from where it had been earlier in the week, the traders noted that energy-oriented credits such as California Resources Corp. were lower on the day, in line with sliding crude oil prices.

Statistical indicators of junk market performance were mixed for a second consecutive session on Friday, after having risen across the board for two straight sessions before that.

However, they appeared to be on track to finish higher than where they had ended last Friday, the first such stronger week seen in Junkbondland since late May.

TerraForm brings green bonds

Two issuers priced single-tranche deals on Friday, raising a combined total of $1.54 billion.

Both deals came on the heels of roadshows.

Both priced in line with final talk that widened substantially with the market during roadshows which ran earlier in the week.

TerraForm Global priced an $810 million issue of green-eligible 9¾% seven-year senior notes (B2/B+) at 98.753 to yield 10%.

The coupon and yield came on top of talk which widened with the market during the week, sources say. Early whispers had it coming with a yield in the low 7s. Later, initial price talk circulated in the 9% area.

J.P. Morgan and Barclays were the joint physical bookrunners. Citigroup, Morgan Stanley, Goldman Sachs, BofA Merrill Lynch and Deutsche Bank were the joint bookrunners.

The Bethesda, Md.-based clean power generator plans to use the proceeds to fund, in whole or in part, renewable energy projects (eligible green projects), including the financing or refinancing of, or investments in, equipment and systems which generate or facilitate the generation of energy from renewable sources.

Cable & Wireless at a discount

Cable & Wireless Communications priced a $750 million issue of 6 7/8% seven-year senior notes (Ba3/B) at 98.644 to yield 7 1/8%.

The yield printed at the tight end of yield talk in the 7¼% area. Official talk came wide of initial guidance in the high 6% area.

The deal had an emerging markets aspect owing to the company’s operations in the Caribbean and Central America, a trader said on Friday.

J.P. Morgan, BNP Paribas, RBC and Scotia were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Cognita prices tight

In the European market, Cognita Financing plc priced a £280 million issue of six-year senior secured notes (B2/B) at par to yield 7¾%.

The yield printed at the tight end of the 7¾% to 8% yield talk.

Joint global coordinator Morgan Stanley will bill and deliver for the debt refinancing deal. KKR and Barclays were also joint global coordinators. Commerzbank and HSBC were joint bookrunners.

The week ahead

No high-yield roadshows were underway at Friday’s close, market sources said.

However the first week of August figures to see at least a modicum of primary market activity.

Look for two deals from the health care sector and one apiece from the energy, industrial and technology sectors, a syndicate banker said on Friday.

All of them should show up as drive-bys and none of them is expected to be sized higher than $500 million, the banker added.

It’s a decent bet that Alcatel-Lucent will use new bonds to finance the tender offer for up to $300 million of its 6¾% senior notes due 2020, a trader said Friday.

Citigroup and Credit Suisse are the dealer managers for the tender which expires on Sept. 1.

Also Berry Plastics Group Inc. will almost certainly use some bond debt to help fund the $2.45 billion acquisition of Avintiv, the trader said, noting that Avintiv bonds were up 10 points on Friday on news of the acquisition.

Credit Suisse and Barclays acted as financial advisers for Berry Plastics while Citigroup and BofA Merrill Lynch acted as financial advisers for Avintiv.

Timing on the Berry Plastics deal is not thought to be imminent, the trader said.

Elsewhere there is a backlog of deals that have completed roadshows but have not yet priced.

Some of them have been on the sidelines over a month.

However sources have confirmed that at least some of these are still “in the market.”

Among them is Prime Healthcare Services, Inc. with $700 million of eight-year senior notes (B3/B+) via Wells Fargo.

That deal was talked to yield in the 7½% area late in the July 17 week.

Georgia Renewable Power, Inc. remains in the market with a $225 million offering of seven-year first-lien senior secured notes (Ba3) via Seaport Global, an informed source said.

And Globo plc announced in a Tuesday press release that in spite of recent declines in its share price it continues to market its $180 million offering of five-year senior secured notes (B2/BB-/BBB+).

Outflows

Dedicated high-yield funds underwent cash outflows on Thursday, the most recent session for which information was available at press time.

High-yield ETFs saw $28 million of outflows on the day.

Asset managers sustained $385 million of outflows on Thursday.

Day’s deals firm

In the secondary realm, a trader – noting the four new deals which had priced on Thursday and Friday in contrast to the complete lack of any such pricings the first three days of the week – observed that “we finally got something going here.”

He saw the new TerraForm Global Operating LLC 9¾% notes due 2022 “up pretty good” in a 100¼ to 100 3/8 bid context, after the deal had priced at 98.753%.

Another market source pegged the new bonds at par bid, 100½ offered.

Yet another trader saw the issue at 100¼ bid, on volume of over $26 million, making it one of the most actively traded junk names on the day.

Friday’s other pricing, from Cable & Wireless subsidiary Sable International Finance Ltd., also did quite well, with a trader seeing those 6 7/8% notes due 2022 right at par bid – versus their 98.644 pricing level – on volume of over $28 million.

A second trader saw the London-based telecommunications provider’s bonds in a 100 to 100¼ bid context, “so that one moved up.”

Yet another trader saw the notes changing hands between 99¾ and 100¼ bid.

Alliant hangs in

For a second straight session, traders did not see much activity in the new Alliant Holdings 8¼% notes due 2023, $535 million of which had priced at par on Thursday in a regularly scheduled deal.

A trader quoted the bonds at 100¼ bid on Friday morning, saying “that didn’t trade much at all.”

On Thursday, the Newport Beach, Calif.-based specialty insurance brokerage firm’s issue had been quoted late in the day between par and 100½ bid, but again with little real activity seen.

Euramax near issue price

The new Euramax 12% senior secured notes due 2020 were seen by a trader somewhere between par and 100½ bid after that $385 million regularly scheduled forward calendar issue had priced at par late Thursday, though terms on the Norcross, Ga.-based manufacturer’s deal did not hit the market until Friday morning.

A trader at another shop said he “didn’t really see anything going on market-wise” in the new paper.

“They must have really been placed,” he opined, seeing here and there a transaction at 100 1/8 or 100¼ bid.

Builders rise continues

Last Friday’s new deal from Builders FirstSource continued to add to its gains this Friday.

A trader saw those 10¾% notes due 2023 at 103 bid, 103¾ offered, calling them up ¾ point on the day.

“That one really moved up,” said a second trader, who saw the bonds going out at 103 bid, 103¼ offered.

The Dallas-based building supplies distributor had priced its $700 million issue at par last Friday in a regularly scheduled forward calendar offering that had been downsized from an originally shopped $750 million.

After initially trading around their issue price, they had fallen back to around the 99 bid level by Monday, but started moving back up on Tuesday and continued to gain each successive day after that.

Energy names trade off

A trader said that “the overall tone of the market was good today.”

However, he said that “flows were light – and stuff started to get a little softer towards the end of the day, with equities selling off and the WTI getting smacked.”

Benchmark U.S. crude oil grade West Texas Intermediate for September delivery fell $1.62, or 3.34%, to $46.90 a barrel in Friday trading on the New York Mercantile Exchange. The drop came as a Reuters survey indicated OPEC nations intended to continue churning out oil at record highs, despite the volatility in the market. It was also reported Friday by Baker Hughes that five additional domestic drilling rigs began pumping during the last week.

In response, several oil and gas names were taking hits.

A trader said there was “many, many trades” in SandRidge Energy Inc.’s 8¾% notes due 2020. He deemed the Oklahoma City-based oil and natural gas exploration and production operator’s issue down 2½ points at 78 bid.

A market source said that over $25 million of the bonds traded, pegging them at 79¼.

California Resources’ 6% notes due 2024 were also busy, the trader said, seeing the paper falling almost 3 points to 79¾.

Over $12 million of the Los Angeles-based E&P company’s paper traded.

Even Linn Energy LLC, which had run up recently following its latest earnings release, gave up some of its gains.

A trader pegged the Houston-based oil company’s 6½% notes due 2019 at 61½, down nearly 2 points on the day. The 8 5/8% notes due 2020 weakened 3 points to 62 while the 7¾% notes due 2021 declined over 2 points to 58¾.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a second consecutive session on Friday. The had turned mixed on Thursday, after having decisively snapped a seven-session losing streak on Tuesday and then firmed again on Wednesday.

The indicators finished higher across the board versus where they had ended the previous week on Friday, July 24 – the first such stronger week the junk market had seen since the week ended May 29.

The KDP High Yield Daily Index eased by 1 basis point on Friday to end at 69.33, after having risen for three straight sessions before that, including Thursday’s 21 bps jump – which had come on the heels of an even larger rise – 29 bps – on Wednesday.

Its yield, meanwhile, edged up by 1 bps on Friday to 5.93%, after having come in for two sessions in a row, including Thursday’s 5 bps tightening.

Those levels compared favorably with the previous Friday’s 69.03 index reading and 6.01% yield.

The Markit Series 24 CDX North American High Yield Index improved by 1/32 point on Friday to end at 106 1/8 bid, 106¼ offered, after having lost 3/32 point on the day on Thursday, its first loss after two successive gains. The index has now posted three gains in the last four sessions.

Besides ending up on the day, it was also higher on the week from the previous Friday’s 105 25/32 bid, 105 13/16 offered reading.

The Merrill Lynch North American Master II High Yield Index posted its fourth straight advance, adding 0.007% on top of Thursday’s 0.27% improvement. On Wednesday, it had zoomed by 0.405% – the second-biggest single-session gain seen so far this year, surpassed only by its 0.407% rise back on Jan. 8.

The index had also risen by 0.137% on Tuesday, abruptly snapping a seven-session losing streak.

Friday’s upturn lifted the index’s year-to-date return up to 1.863% from 1.855% on Thursday, although it remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

For the week, the index gained 0.439%, in contrast to its 1.019% plunge the week before – the steepest loss seen so far this year, which had left the year-to-date return at 1.418%.

It was the second weekly gain in the last three weeks, although the index has still shown losses in four out of the past six weeks.

For the year, it has recorded 19 weekly gains, against 11 weekly losses.

Stephanie N. Rotondo contributed to this review

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