New paper in focus; Darling Ingredients, Surgery Center trade up; MGM, Realogy gains continue

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 29 – The domestic high-yield primary market was dormant on Friday with the active forward calendar cleared.

However, sources anticipate Staples, Inc. will surface with its $2,125,000,000 two-tranche offering in the week ahead.

E.W. Scripps and Multi-Color Corp. are also expected to surface with deals in the near-to-intermediate future, sources say.

While the domestic primary market was quiet, the Nordic market saw some action.

Sweden's DDM Holding AG set price talk for its €100 million offering of three-year senior secured floating-rate notes with pricing expected on Monday.

Meanwhile, the secondary space rounded out the week and the quarter on firm footing, despite periods of softness.

While no new paper priced on Friday, the paper to price throughout the week was in focus in the secondary space.

Darling Ingredients Inc.’s 5¼% senior notes due 2027 (Ba3/BB+) and Surgery Center Holdings, Inc.’s 10% senior notes due 2027 (Caa2/CCC) put in a strong performance in the secondary space with the notes trading well above their issue price.

MGM Resorts International’s 5½% senior notes due 2027 (existing ratings Ba3/BB-) continued to post gains in high-volume trading.

Realogy Group LLC’s 9 3/8% senior notes due 2027 (B2) also continued to climb after a strong start in the secondary space.

Awaiting a calendar

Friday's primary market news flow remained extremely thin; were it not for the Nordic market, it would have practically been non-existent.

Sweden's DDM Holding talked a €100 million offering of three-year senior secured floating-rate notes with an 850 basis points to 950 bps spread to three-month Euribor, a market source said.

Order books are set to close on Monday.

And they are covered, the source added.

Meantime, as the primary market awaits prospective issuers to finish reporting fresh earnings numbers, and thus move past their end of quarter issuance blackout periods, sources anticipate the formal unveiling of Staples’ $2,125,000,000 two-part offering, which is expected in the week ahead.

The deal is set to feature $750 million of secured notes, with early guidance in the mid-to-high 7% area and $1,375,000,000 of unsecured notes with early guidance in the high 9% to low 10% area.

Goldman Sachs has the helm for the big debt refinancing deal.

Junk deals from E.W. Scripps and Multi-Color Corp. are also believed to headed to market in the near-to-intermediate future, sources say.

Darling trades up

Darling Ingredients’ 5¼% senior notes due 2027 were putting in a strong performance in the secondary space, despite pricing tight.

The 5¼% senior notes were quoted at 101¼ bid, 101¾ offered and were seen changing hands at 101½, sources said.

The developer and producer of sustainable natural ingredients priced a $500 million issue of the 5¼% senior notes at par on Thursday.

The yield printed at the tight end of the 5¼% to 5 3/8% yield talk and well inside of initial talk in the high 5% area.

Surgery Center jumps

While Surgery Center’s 10% senior notes due 2027 were heard to have experienced pushback during bookbuilding, the notes were in demand in the secondary space.

The 10% notes were seen at 101¼ bid, 102¼ offered on Friday.

Surgery Center priced a $430 million issue of the 10% notes on Thursday.

The yield printed 25 basis points beyond the wide end of the 9½% to 9¾% yield talk and well wide of initial guidance in the 9¼% to 9½% area.

There deal also underwent covenant changes prior to pricing.

MGM improves

Despite doubling in size during the subscription process, MGM Resorts’ 5½% senior notes due 2027 continued to post gains in high-volume activity in the secondary space on Friday.

The 5½% notes gained about ½ point during Friday’s session.

They were quoted at 101 1/8 bid, 101 3/8 offered early in the session and traded up to close the day at 101½, sources said.

The notes closed Thursday at 101.

The notes were priced well and double B credits have been in demand, a market source said.

MGM priced an upsized $1 billion issue of the 5½% notes at par in a Wednesday drive-by.

The yield printed in the middle of yield talk in the 5½% area and inside of initial talk in the 5¾% area.

Realogy gains continue

Realogy Group’s 9 3/8% senior notes due 2027 continued to climb higher in active trading on Friday.

The notes gained another ¼ point after jumping out of the gate. They were seen at 102 1/8 bid, 102 5/8 offered early in the session and closed the day at 102½.

The notes jumped out of the gate and closed Thursday at 102¼.

In a deal that was driven by reverse inquiry, Realogy priced an upsized $550 million issue of the 9 3/8% notes at par on Wednesday.

The initial size of the deal was $400 million.

The notes jumped in the secondary space despite pricing 12.5 bps beneath the tight end of the 9½% to 9¾% yield talk.

Thursday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $194 million of inflows on the day.

Actively managed high-yield funds saw $90 million of inflows on Thursday, the trader said.

News of those daily flows follows a Thursday afternoon report that the combined funds saw $590 million of inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

Right now, the backdrop for junk is extraordinarily supportive, the trader said, noting junk returned 7.04% for the year to Thursday's close, the strongest start to a calendar year on record, topping the 6.3% that the asset class returned in the first quarter of 2003.

Retail cash flows for the year to Thursday's close are positive $12.2 billion.

Cash balances of the accounts are high.

The central bank has taken the threat of rate hikes off the table, for the time being.

The phenomenal dive that the stock market took in December now seems like a distant, if disturbing, memory.

And with energy comprising around 15% of the junk index, the barrel price of West Texas Intermediate crude oil, which bottomed out at just over $45 in December, closed above $60 on Friday.

The signals ahead are green, the source asserted.

Under these circumstances the calendar is expected to grow.

Indexes gain

After a mixed week, indexes closed Friday with gains.

The KDP High Yield Daily index rose 6 bps to close Friday at 70.15 with the yield now 5.88%.

The index dropped 1 bp on Thursday, rose 4 bps on Wednesday and 1 bp on Tuesday and dropped 7 bps on Monday.

The index saw a cumulative loss of 3 bps on the week.

The CDX High Yield 30 index gained 39 bps to close Friday at 106.65.

The index rose 29 bps on Thursday, dropped 19 bps on Wednesday, gained 19 bps on Tuesday, and dropped 14 bps on Monday.

The index saw a cumulative gain of 54 bps on the week.

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