Bombardier upsizes drive-by megadeal, Riverbed, Nathan’s also price to cap $6.6 billion week

By Paul A. Harris and Paul Deckelman

New York, Feb. 27 – After a slow start to the week, the high-yield primary market finished with a flourish on Friday, as three issuers brought a total of $2.91 billion of new junk-rated, dollar-denominated paper to market.

The big deal of the day came from familiar junk issuer Bombardier, Inc., the Canadian aircraft and railroad equipment manufacturer. It priced an upsized and quickly shopped $2.25 billion two-part issue, consisting of 3.5-year and 10-year notes.

Both halves of that deal firmed when they reached the aftermarket, with the 10-year notes among the most heavily traded bonds of the day.

Project Homestake Merger Corp., a special-purpose vehicle for the financing of the pending leveraged buyout of Riverbed Technology, Inc., priced a $525 million issue of eight-year notes, in a deal that was twice downsized before it finally got done. The California-based network technology company’s new bonds firmed smartly, also in heavy trading, when they were freed for secondary dealings.

There was also a smallish drive-by offering from hot dog restaurant and food service company Nathan’s Famous, Inc. – and investors greeted the new deal with relish, taking the bonds several points higher in brisk aftermarket dealings.

Friday was the second straight session of active new-deal issuance and brought the week’s total to just under $6.6 billion in eight tranches, according to data compiled by Prospect News – just a little more than the roughly $6.5 billion that priced, also in eight tranches, last week.

That closed out the month of February with issuance of $31.02 billion in 47 tranches – a considerable pickup from January’s $19.21 billion in 29 tranches.

That in turn swelled year-to-date issuance to $50.23 billion in 76 tranches, running nearly 37% ahead of the $36.71 billion that had come to market in 72 tranches by this point on the calendar last year.

Traders also saw continued strong trading volume Friday in the new deals which priced on Thursday, from Sabine Pass Liquefaction LLC, MarkWest Energy Partners LP, CDW Corp. and American Airlines Group, Inc., all of which improved from Thursday’s closing levels.

In general, junk names were seen firmer by around ¼ to ½ point.

Statistical indicators of junk market performance were higher across the board for a fourth consecutive session on Friday, and were also higher all around versus where they had been the previous Friday for a fourth straight week.

Bombardier sees big upsize

A busy Friday in the primary market saw three issuers bring a total of four tranches, to raise an overall amount of $2.91 billion.

Two of the three were quick-to-market issuers.

Two of the three issuers upsized the amounts of bonds they sold.

And executions were remarkably tight.

Three of the four tranches came at the tight end of price talk, while the fourth came inside talk.

Bombardier priced $2.25 billion of senior notes (B1/B+/B+) in a two-part transaction that was upsized from $1.5 billion.

The deal included $750 million of 3.5-year notes that priced at par to yield 5½%, at the tight end of the 5½% to 5¾% yield talk.

In addition Bombardier priced $1.5 billion of 10-year notes at par to yield 7½%, also at the tight end of talk, in this case set at 7½% to 7¾%.

The deal was announced late Thursday and was marketed via a Friday morning investor call.

J.P. Morgan, Barclays, BNP, BofA Merrill Lynch, Commerzbank, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, Natixis, RBS and SG CIB were the joint bookrunners.

Riverbed prices inside talk

In the only Friday deal to have run a roadshow, Riverbed Technology priced a $525 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8 7/8%.

The yield printed 12.5 bps better than the 9% to 9¼% yield talk.

Demand for the paper had to be robust, according to a trader who was active in the name. He watched it ride to as high as 102¼ on the bid side, before easing to a context of 101½ to 101¾ bid.

Citigroup, Credit Suisse, Barclays and Morgan Stanley were the joint bookrunners for the LBO deal.

Nathan’s Famous upsizes

Nathans Famous priced an upsized $135 million issue of five-year senior secured notes (Caa1/B-) at par to yield 10%.

The quick-to-market deal was increased from $125 million.

The yield printed at the tight end of the 10% to 10¼% yield talk.

Jefferies was the bookrunner.

The Jericho, N.Y.-based company plans to use the proceeds, including the additional $10 million, to fund a $116 million special dividend to its shareholders, with the remainder to be used for general corporate purposes.

Where’s the calendar?

Despite the burst of late-week deals that trailed the JP Morgan Global High Yield & Leveraged Finance Conference – and JP Morgan itself was left books on four drive-by deals that priced Thursday and Friday – the calendar is thin, sources say, especially given the massive amount of cash now thought to be looking for a home in the high-yield asset class.

The formal evidence of all that cash came Thursday, when Lipper-AMG reported that dedicated high yield funds saw $1.09 billion of inflows for the week to Wednesday.

Cash continued to flow in on Thursday, the opening session of the new reporting period, sources say.

On Thursday high-yield ETFs saw $251 million of inflows while actively managed funds registered $110 million of inflows.

“ETFs have lately been looking to put hundreds of millions to work in high yield,” a trader said, and other sources concurred.

“What we really need is a $10 billion per week calendar,” the trader added.

Valeant Pharmaceuticals International Inc.’s anticipated $9.6 billion of senior notes to help fund its acquisition of Salix Pharmaceuticals Ltd. will help to accomplish that, said the trader.

The deal, expected to be structured in at least three tranches, could come before mid-March via Deutsche Bank, the trader said.

However right now there is no visibility on any other megadeals, sources say.

The week ahead gets underway to a thin calendar with just $960 million of expected issuance from two companies.

Digestion

The question of what the largest amount of issuance a single issuer could bring at one time was a topic of discussion at the JP Morgan conference, which wrapped up last Wednesday, an investor told Prospect News.

In a roundtable discussion there seemed to be some consensus that the right issuer – for example HCA, Inc., the buysider said – could bring $30 billion.

To the gasp that ensued, the investor replied by pointing out that in April 2014 Altice and its 40% owned Numericable Group AG combined to bring a record-setting €12 billion equivalent of high-yield bonds in seven tranches, in a deal that was said to have played to as much as $100 billion of aggregate demand.

The “$30 billion” number is assuming that leverage is below six times, the source added.

The six-times leverage threshold is presently under careful consideration by the banks, the investor added.

Beyond that threshold bank regulators are putting deals under the microscope, the source said.

One possible structure which might help to keep high-yield financings beneath that threshold is a bond/preferred share issuance model, which the banks are now considering, the source said.

Longer maturities was another topic that came under discussion at the conference, the investor said, adding that issuers would be keen to bring 12-year and even 15-year bonds.

However the buyside is apt to be resistant to the concept of anything longer than a 10-year junk bond, the source added.

Energy was another hot topic, the buysider said, noting that energy companies and their underwriters are taking a look at what issuance strategies might work in the wake of the hit that the sector has taken with the phenomenal crash of crude oil prices.

The banks have been pitching second-lien bond deals to them, the investor said.

However so far the energy companies don’t seem interested.

“Maybe they’re expecting a big rebound in oil prices,” the buysider remarked.

Campofrio to roadshow

A comparatively quiet week in European high yield was capped off Friday with just one new deal announcement.

Spain’s Campofrio Food Group, SA plans to begin a roadshow on Monday in Europe for a €500 million offering of seven-year senior notes (expected ratings Ba3/BB+).

Joint bookrunner JPMorgan will bill and deliver for the Rule 144A and Regulation S for life offer. BBVA, Barclays, BNP Paribas, Morgan Stanley and Santander are also joint bookrunners.

The Madrid-based processed meat company plans to use the proceeds to refinance its 8¼% notes due 2016.

Bombardier bonds among busiest

In the secondary market, Bombardier’s new 7½% notes due 2025 were among the day’s busiest issues, with a market source seeing more than $71 million having changed hands and quoting them up almost 1 full point from their par issue price.

At another desk, a trader pegged the bonds trading in a 100 5/8 to 101 1/8 bid context, while a third saw them between 100 3/8 and 100¾ bid.

That was also the general range in which he saw the other half of the Montreal-based aircraft and railroad equipment manufacturer’s deal, its 5½% notes due September 2018.

Another trader saw them at 100½ bid, 101 offered.

Volume on the shorter bonds was considerably less than on the longer issue.

Several existing Bombardier issues were also among the day’s actively traded credits, including its 6 1/8% notes due 2023, which were seen around 1/8 point better at 95 5/8 bid, on volume of more than $13 million, as well as its 6% notes due 2022, which were also up 1/8 at 95¾ bid, on turnover of more than $12 million.

Riverbed trades up

Traders said that new 8 7/8% notes due 2023 backing the LBO deal for Riverbed Technology pushed solidly higher in heavy trading when they hit the aftermarket.

One trader saw the bonds in a 101 3/8 to 101 5/8 bid context, while a second saw the San Francisco-based network technology company’s new bonds get as good as 102 to 102½ at one point, although he last saw them in a 101½ to 101¾ range on “very active volume” of around $70 million.

The trader noted the hefty coupon of nearly 9% making the bonds attractive, even with its considerable leverage, as indicated by the company’s risky CCC rating.

“It’s pretty levered,” he declared – but that having been said, he also noted that “this is an LBO – and somebody in the private equity investors obviously thinks they are going to make a lot of money on this LBO deal.”

Nathan’s notes jump

The day’s other deal – the Nathan’s Famous 10% senior secured notes due 2020 – saw considerably less aftermarket activity, with about $10 million having traded, although one traders said that was not out of line with the issue’s relatively small size of $135 million.

When those trades did come, they pushed the new bonds way up, to levels above 103 bid and even 104¼ from their par offering price.

When the issue opened, around 1 p.m. ET, one of the traders said, “there wasn’t one print at 101, or 101½ – they traded at 103, 103½ 104¼.”

He noted that the 10% coupon, and the bond’s status as a secured piece of paper, gave it some instant cachet among investors.

Another trader quipped “Hot dog!” – a reference to the Jericho, N.Y.-based food service and fast-food restaurant operator’s fabled beginnings nearly a century ago, selling frankfurters, French fries and other culinary treats by the millions, at its famous flagship location on Surf Avenue in Coney Island, Brooklyn. Besides now operating over 300 additional locations nationwide, it sells its franks, mustard and other food products in supermarkets and a variety of other outlets.

Thursday bonds keeping busy

Besides the day’s new deals, traders reported intense activity in the quartet of issues that priced on Thursday, with all of them seen having pushed higher.

The day’s busiest issue – even surpassing the new Bombardier 10% notes – was Sabine Pass Liquefaction’s 5 5/8% first-lien senior secured notes due 2025. More than $72 million of those notes traded, on top of the $38 million that had changed hands on Thursday, after 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 point, getting as good as 100 5/8 bid.

A trader said the new MarkWest Energy Partners 4 7/8% notes due 2024 “did really well,” seeing those bonds trading between 102¾ and 103¼. Volume on Friday was $18 million, although that was well down from the more than $54 million initially traded on Thursday.

The Denver-based independent oil and natural gas exploration and production company priced its quickly shopped $650 million add-on to its existing 2024 notes at 101.625 to yield 4.661%, after upsizing the addition from an originally announced $500 million, and the bonds were seen going home on Thursday north of the 102 bid mark.

“CDW continues to do well,” one of the traders said, quoting the company’s 5% notes due 2023 at 100 5/8 bid.

That was up from the 100¼ to 100½ context in which the Vernon Hills, Ill.-based technology products and services provider’s quick-to-market $525 million issue had traded after pricing at par on Thursday. Friday’s volume was more than $20 million, although that was down from Thursday’s initial aftermarket turnover of more than $48 million.

And several traders saw American Airlines Group’s 4 5/8% notes due 2020 trading in a 100¼ to100 3/8 range on Friday, on volume of more than $50 million.

The Fort Worth, Texas-based airline giant had priced its unscheduled $500 million offering on Thursday at par, although that came to market too late in the session for any real aftermarket dealings.

Market generally better

One of the traders opined that “overall, the market – even with a little bit of a selloff in equities – had just a really strong tone.

He noted “all of these inflows” of investor cash coming into Junkbondland, including the $1.085 billion that was added to the junk-rated mutual funds and exchange-traded funds – a key indicator of overall market liquidity trends – in the week ended Wednesday.

“There’s just no paper around,” he continued, so the cash is driving up prices of the bonds that are available for sale.

He estimated that things generally were up between ¼ to ½ point on the session Friday.

“Overall, the market continues to grind higher.”

Indicators stay strong

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

They were also higher all around from where they had finished the previous Friday for a fourth straight week and for the fifth week in the last six.

The KDP High Yield Daily Index was up by 7 basis points on Friday, about half of the 14 bps jump seen on Thursday. It was the index’s seventh straight gain and its 10th such rise in the last 11 sessions.

Longer-term, it was the index’s 16th gain in the last 18 sessions.

Its yield meanwhile came in by 3 bps on Friday to end at 5.07%, after having narrowed by 5 bps for each of the previous two sessions. It was the yield’s fifth straight narrowing and eight such tightening in the last nine sessions.

Those levels compared favorably with the previous Friday’s 71.72 index reading and 5.23% yield.

The Markit Series 23 CDX North American High Yield Index edged up by 1/16 point Friday to 107 19/32 bid, 107 5/8 offered, after having been up by 5/32 point on Thursday. The advance on Friday was its fourth in a row and the fifth in the last six sessions.

The Merrill Lynch U.S. High Yield Master II Index reached a significant milestone on Friday, racking up its 30th consecutive gain as it moved up by 0.063%, on top of Thursday’s 0.206% gain. That winning streak dates back more than a month, to Jan. 19.

The latest improvement lifted its year-to-date return to 3.036% its 26th straight new peak level for 2015 and its first time this year above the psychologically significant 3% mark. That was up from 2.971% on Thursday.

The index gained 0.73% on the week, its sixth successive weekly gain and seventh such weekly improvement this year, against just one week on the downside, back in early January. Last week, it gained 0.376%, for a 2.289% year-to-date return.

© 2015 Prospect News.
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