Tronox, KCG deals price; Monday deals trade actively; overall market lower

By Paul A. Harris and Paul Deckelman

New York, March 10 – Activity in the high-yield primary realm slowed a little on Tuesday, with syndicate sources seeing $1.1 billion of new dollar-denominated and fully junk-rated paper having priced in two tranches.

That was off from Monday, when a total of $1,475,000,000 of such bonds had come to market in three tranches.

Chemical manufacturer Tronox Ltd. priced $600 million of seven-year paper, while financial services provider KCG Holdings, Inc. did $500 million of five-year secured notes.

The latter notes priced at a discount and traded around their issue price in initial aftermarket dealings.

The Tronox bonds came later and saw no significant secondary market activity.

The secondary did see busy trading in the three new deals that had priced on Monday for building products manufacturer Masonite International Corp., energy operator Crestwood Midstream Partners LP and hospital company HealthSouth Corp. All of them were up from their respective issue prices, though Masonite and Crestwood were off from where they had been seen on Monday.

The forward calendar grew, with builder Shea Homes LP and printer Cimpress NV heard to be shopping deals around to prospective investors.

Away from the new deals, the junk market generally was seen lower, and traders reported continued daily outflows from high-yield mutual and exchange-traded funds, a key barometer of overall Junkbondland liquidity trends.

Statistical market-performance measures were lower across the board for a third consecutive session and for a fifth time over the last six sessions.

Tronox prices wide

The primary market saw $1.1 billion of issuance on Tuesday.

It came in the form of single-tranche deals from two issuers, both of whom marketed their offerings via brief roadshows.

Neither deal upsized.

Executions bore the scars of what a debt capital markets banker described as an “ugly” session in which both stocks and high-yield exchange-traded funds traded sharply lower: one deal came wide of talk while the other came at the wide end.

Tronox priced a $600 million issue of seven-year senior notes (B3/BB-) at par to yield 7½%.

The yield printed 25 basis points beyond the wide end of the 7% to 7¼% yield talk.

UBS was the lead left physical bookrunner for the merger financing deal. Credit Suisse, RBC, Citigroup, Goldman Sachs and MCS Capital were also joint physical bookrunners.

KCG at a discount

KCG Holdings priced a $500 million issue of 6 7/8% five-year senior secured notes (B1/BB-) at 98.962 to yield 7 1/8%.

The yield printed at the wide end of yield talk in the 7% area.

Jefferies LLC was the sole bookrunner.

The Jersey City-based financial services firm plans to use the proceeds to refinance debt and for general corporate purposes.

Talk and whispers

GFL Environmental Inc. talked its $250 million offering of senior notes due 2020 (B3/B) to yield 7½% to 7¾%.

The deal is set to price Wednesday.

BMO Securities and Credit Suisse are the joint bookrunners.

Meanwhile there were whispers on the Valeant Pharmaceuticals International Inc. $9.6 billion four-part mega-deal (B1/B), sources said.

The dollar-denominated five-year notes are whispered at 5½%. The dollar-denominated eight-year notes are whispered at 6¼%. The euro-denominated eight-year notes are whispered at 5%. And the dollar-denominated 10-year notes are whispered at 6½%.

The acquisition deal, via left bookrunner Deutsche Bank, is set to price at the end of this week.

Shea Homes starts roadshow

The forward calendar built up on Tuesday.

Shea Homes started a roadshow for a $750 million two-part offering of senior notes (expected ratings B2/B+).

It features tranches of eight-year notes and 10-year notes, the sizes of which remain to be determined.

J.P. Morgan has the books for the debt refinancing.

Cimpress pricing Friday

Cimpress plans to price a $275 million offering of seven-year senior notes (expected ratings B2/B) on Friday, at the conclusion of a roadshow.

JPMorgan, MUFG, Santander and SunTrust are the joint bookrunners.

The Venlo, Netherlands-based supplier of printed and promotional material and marketing services plans to use the proceeds to repay outstanding debt under an unsecured line of credit, as well as under its revolver, and for general corporate purposes.

Faurecia at the tight end

In the European session, Faurecia priced a €500 million issue of senior notes due June 15, 2022 (Ba3//BB-) at par to yield 3 1/8%.

The yield printed at the tight end of yield talk in the 3 ¼% area.

Timing was moved ahead, as the roadshow was previously expected to run through Wednesday.

Global coordinator BNP Paribas will bill and deliver. SG CIB was also a global coordinator.

Credit Mutuel CIC, Commerzbank, Natixis and Santander were bookrunners for the debt refinancing deal.

Merlin upsizes, sets talk

Elsewhere in the European session, Merlin Entertainments plc upsized its offering of non-callable seven-year senior notes (expected ratings Ba2/BB) to €500 million from €480 million, and talked the notes to yield 2¾% to 3%.

Books close at 5 a.m. ET Wednesday, and the Rule 144A and Regulation S deal is set to price thereafter.

Timing was moved ahead, as the roadshow was expected to run through Wednesday. With the foreshortening of the roadshow meetings in Paris, those in Frankfurt and Edinburgh were canceled.

Physical bookrunner HSBC will bill and deliver. Barclays and Royal Bank of Scotland are also physical bookrunners.

BNP Paribas, Citigroup, Goldman Sachs International, Lloyds, Mizuho, SMBC, SG CIB and UniCredit are passive bookrunners.

Flows turn negative

The technical tides of the high-yield market have turned once again, this time toward the negative, according to a trader.

“We have seen outflows all week,” the trader said, adding that high yield ETFs saw $321 million of outflows on Monday, the most recent session for which data was available at press time.

In the same session, actively managed funds saw $105 million of outflows.

For the week to date – Wednesday's close to Monday's close – the cash-flow monitors are tracking an even $1 billion of aggregate outflows, the source added.

A second trader also mentioned the $1 billion figure in estimating flows of cash out of the funds so far this week, adding “so there could be a significant outflow number this week.”

If so, it would be the first such outflow in seven weeks, as the previous six consecutive weeks have all seen inflows, according to data from funds-tracker Lipper, with the same pattern also having been seen by the other major fund-tracking service, EPFR Global.

According to the Lipper figures, inflows to those mutual and ETF funds over the past six weeks have totaled more than $11 billion, which is also roughly the year-to-date cumulative net inflows number.

However, after three consecutive weeks of inflows topping the $2.5 billion mark, the flows started to slacken off, with just $309 million more seen having come into the funds than having left them in the week ended last Wednesday, March 4.

KCG stays near pricing level

Among the newly priced issues, a trader saw the new KCG Holdings 6 7/8% senior secured notes due 2020 trading in a 98¾-to-99 bid range.

That was around the 98.962 level at which those notes had priced.

Traders meantime did not see any significant aftermarket action in the new Tronox 7½% notes due 2022, which had priced at par fairly late in the session.

The Stamford, Conn.-based chemical manufacturer’s deal was priced through a special-purpose funding entity, Evolution Escrow Issuer LLC, as part of the financing for Tronox’s pending acquisition of FMC Corp.’s Alkalai Chemicals division.

Monday’s bonds busy

The new deals that came to market on Monday all saw active trading during Tuesday’s session.

The busiest was Masonite International’s 5 5/8% notes due 2023. A market source saw more than $45 million of those notes having changed hands, putting them high up on the junk market’s Most Actives list. He saw the notes at 100 5/8 bid, down some 3/8 point from where they had closed in initial aftermarket trading following their pricing.

A second trader pegged the bonds in a 100½-to-100¾ bid range, down around ½ point from the 101 area where he had seen the notes on Monday.

Masonite, a Tampa, Fla.-based manufacturer of interior and exterior doors for the residential construction market, priced a quick-to-market $475 million of those notes at par on Monday.

The second trader also saw Crestwood Midstream Partners’ new 6¼% notes due 2023 “wrapped around 100½.” At another desk, the notes were quoted at 100 9/16 bid, down 11/16 from Monday’s closing levels above 101 bid, although those initial aftermarket dealings had been thin. Tuesday’s volume, in contrast, was a robust more than $40 million.

The Houston-based master limited energy partnership had priced its quickly shopped $700 million of the notes at par on Monday.

That session’s third offering – Birmingham, Ala.-based hospital operator HealthSouth’s $300 million of 5 1/8% notes due 2023 – were trading at 101 1/8 bid, unchanged on the day, with more than $44 million having changed hands.

That was up solidly from the par level at which that drive-by deal had priced on Monday.

Another trader said the bonds were going home “wrapped around 101.”

Recent deals stay active

There was continued busy trading on Tuesday in some of the deals that priced last week.

Peabody Energy Corp.’s 10% senior secured second-lien notes due 2022 eased by around 5/16 point on Tuesday, going home at just under 97¾ bid on volume of more than $34 million.

The St. Louis-based coal producer’s regularly scheduled forward calendar deal had priced at 97.566 late Thursday to yield 10½%. The bonds started trading on Friday, firming a little on heavy volume of over $100 million, and then continued to rise on Monday, hitting the 98 bid mark, on volume of over $23 million.

Comstock Resources Inc.’s 10% senior secured first-lien notes due 2020 were a big loser on Tuesday, dropping some 2½ points to 97½ bid on volume of more than $32 million.

The Frisco, Texas-based independent oil and natural gas E&P company had priced its $700 million issue last Wednesday at par as a scheduled forward calendar deal, and the bonds had pretty much stayed around that level for the rest of last week and on Monday.

Energy XXI Gulf Coast, Inc.’s 11% senior secured second-lien notes due 2020 were also getting hammered on Tuesday, falling by 1 3/8 points on the day, a trader said, going home at 97 3/8 bid. Volume was a brisk $24 million.

While down from the highs around 99 that they reached in Friday’s hectic trading, when over $92 million of the notes had changed hands in initial aftermarket dealings, they were still up from the 96.313 level at which the Houston-based oil and gas company had priced its $1.45 billion issue on Thursday to yield 12%. Those bonds came to market after the scheduled forward calendar offering had been upsized from an originally announced $1.25 billion.

Overall market weaker

A trader said that “the market in general was pretty heavy today. There was a broad-based weakness across the board.”

He added that “most of the higher volumes were coming from the new or recently priced issues.”

Indicators stay weaker

Statistical indicators of junk market performance were lower on Tuesday for a third straight session and for the fifth time in the last six sessions, a slide interrupted only by last Thursday’s mixed session.

The KDP High Yield Daily index plunged by 42 basis points to close at 71.22, its seventh consecutive loss. On Monday, it had been off by 9 bps.

Its yield, meanwhile, ballooned out by 15 bps on Tuesday to 5.4%, its seventh successive widening. It had risen by 6 bps on Monday.

The Markit Series 23 CDX North American High Yield index fell by 11/32 point for a second straight session on Tuesday to 107 5/16 bid, 107 3/8 offered.

The Merrill Lynch U.S. High Yield Master II index retreated by 0.349%, its third loss in a row and its fifth setback in the last six sessions It had been down by 0.102% on Monday.

The latest retreat dropped its year-to-date return to 2.148%, down from Monday’s 2.507% and well down from its peak 2015 level of 3.125%, set last Monday.

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