Jaguar Land Rover, Fortress Drawbridge add-on drive by; Cliffs Resources jumps on Q3 numbers

By Paul Deckelman and Paul A. Harris

New York, Oct. 28 – The high-yield primary sphere saw a pair of opportunistically timed, quickly shopped deals on Tuesday for a second consecutive session.

Syndicate sources said that the day’s total of new paper came to $600 million in two tranches – less than half of the $1.4 billion of new dollar-denominated, fully junk rated debt from domestic or developed-country issuers that had priced on Monday.

Luxury British carmaker Jaguar Land Rover Automotive plc led the day’s drive-by parade with a $500 million offering of five-year bullet notes. The new bonds moved up modestly in active trading.

There was also an upsized $100 million add-on issue to New York-based investment partnership Drawbridge Special Opportunities Fund LP’s existing 2021 notes.

Traders meanwhile saw a little bit of upside movement, though on no large volume, in Monday’s quick-to-market $1.1 billion sale of 10-year notes from construction supplies provider Building Materials Corp. of America.

Monday’s other offering – a $300 million add-on by Carrizo Oil & Gas Inc. to its existing 2020 notes – was firmer in fairly busy trading.

Away from the new deals that have already priced, primaryside sources heard price talk on metal manufacturer Essar Steel Algoma Inc.’s $625 million two-part secured notes offering, which could price after the order books close on Wednesday afternoon.

Away from the new deals altogether, favorable quarterly numbers were driving iron and coal miner Cliffs Natural Resources Inc.’s recently beleaguered bonds solidly higher in very active dealings.

However, not-so-favorable numbers were seen as the catalyst for radio and outdoor advertising company iHeartMedia, Inc.’s notes to retreat, also in busy trading.

Statistical indicators of junk market performance turned mixed on Tuesday, after having eased across the board on Monday.

Jaguar Land Rover drives by

The primary market passed a relatively quiet Tuesday.

Wednesday could also be quiet ahead of the Federal Open Market Committee meeting, sources said.

However it’s possible that an issuer from the media/telecommunications space will show up with a $2 billion deal, according to a sellside source who declined to name the issuer.

“Could it be Charter Communications?” Prospect News pressed.

Go fish, the sellsider recommended.

On Tuesday Jaguar Land Rover brought the session’s sole dollar-denominated junk deal, a $500 million issue of non-callable five-year senior notes (Ba2/BB) that priced at par to yield 4¼%.

The yield printed at the tight end of the 4¼% to 4 3/8% yield talk.

BofA Merrill Lynch, Citigroup, Credit Suisse and JPMorgan, ANZ, Deutsche Bank and Standard Chartered were the bookrunners.

The Coventry, United Kingdom-based automobile manufacturer plans to use the proceeds for general corporate purposes, including to support ongoing growth and capital spending plans.

Drawbridge seen as high yield

Elsewhere Fortress/Drawbridge Fund priced an upsized $100 million add-on to its non-callable 5% senior notes due Aug. 1, 2021 (/BBB/) at par to yield 4.998%.

The deal was increased from $50 million.

The price came on top of price talk.

The transaction was done on the high-yield desk despite its BBB rating from Standard & Poor’s; in the absence of ratings from either Fitch Ratings or Moody’s Investors Service, investors view the deal as “high yield,” the source said.

Wells Fargo Securities LLC was the left bookrunner. Natixis was the joint bookrunner.

The New York-based investment partnership plans to use the proceeds for general corporate purposes including new investment opportunities.

Essar Steel Algoma fixes talk

Essar Steel Algoma set price talk for its $625 million two-part offering of secured notes on Tuesday, according to a market source.

The deal includes $350 million of five-year senior secured notes (Ba3/B+), which come with two years of call protection, and is talked at a discount to yield in the 8% area.

In addition, $275 million of seven-year junior secured notes (B3/B-), which come with three years of call protection, are talked at a discount to yield in the 10½% area.

Books close at 2 p.m. ET on Wednesday.

Deutsche Bank is the left bookrunner. Goldman Sachs and Jefferies are the joint bookrunners.

Official talk has yet to surface on the Evraz Inc. NA Canada $500 million offering of five-year senior secured notes (Ba3//) which began roadshowing on Monday. That roadshow is scheduled to wrap up Friday.

Initial guidance has the deal shaping up in the 7% area, according to a portfolio manager.

Joint bookrunner Citigroup will bill and deliver. Goldman Sachs is also a joint bookrunner.

Also Abengoa Yield plc began a roadshow on Monday for a €200 million offering of unrated, non-callable five-year senior notes.

No price talk has been released yet but early yield discussions have taken place in the 5% area, according to the portfolio manager who expects to see it go wider.

The roadshow wraps up Thursday.

Joint bookrunner BofA Merrill Lynch will bill and deliver. Citigroup, HSBC and Santander are also joint bookrunners.

Arrow Global starts roadshow

Elsewhere in the euro-denominated sector, Arrow Global plc began a roadshow for a €220 million offering of seven-year senior secured floating-rate notes.

The roadshow wraps up on Thursday.

Goldman Sachs is the global coordinator and bookrunner.

Proceeds from the Rule 144A and Regulation S notes, together with cash on hand, will be used to fund the acquisition of Capquest group and to pay down Arrow Global’s revolving credit facility.

Inflows build

Continuing inflows of cash could jump-start the sluggish autumn primary market, sources said on Tuesday.

Net weekly inflows to dedicated high-yield funds to Monday’s close come to $1.35 billion, with three of the current reporting period’s five market sessions in the book, sources said Tuesday.

That is despite $102 million of daily outflows from exchange-traded funds on Monday.

Flows for actively managed funds remained positive on Monday at $215 million, sources said.

High yield was quiet on Tuesday, in spite of a late-day surge in equities, a trader said.

Jaguar drives higher

In the secondary market, several traders saw the new Jaguar Land Rover Automotive bonds move up a little after the British luxury carmaker’s new 4¼% notes due 2019 priced at par in a drive-by transaction.

One said “they were up a little bit,” pegging the issue in a 100½ to 101 context.

Two other traders also quoted the new Jaguar paper around that level.

At another desk, a market source located the bonds up 5/8 point from their issue price.

He said that the issue was seeing some “pretty decent volume,” with over $32 million having traded, putting the credit high up on the Junkbondland Most Actives list.

Traders meantime reported no immediate aftermarket dealings in the Fortress/Drawbridge 5% notes due 2021 after its upsized $100 million offering priced at par.

Building Materials improves

Among Monday’s new deals, a trader said that “a fair amount” of Building Materials Corp. of America’s 5 3/8% notes due 2024 traded, seeing them “right around their issue price at par.”

A second trader also saw them around that par level, calling them unchanged from where they had gone home after pricing late Monday.

“They really didn’t go anywhere,” said another trader who quoted the notes at 100¼ bid.

And yet another market source saw a locked market at 100 1/8.

The Wayne, N.J.-based manufacturer of building products brought a quickly-shopped $1.1 billion of those notes to market at par on Monday.

Active dealings in Carrizo

Houston-based oil and natural gas exploration and production operator Carrizo Oil & Gas’ 7½% notes due 2020 were trading as high as a 101½ to 102 context earlier in the day a trader said, although he saw them going home trading between 101 and 101½.

Still, he said, “they were a little better,” versus the 100.5 issue price at which the company priced Monday’s quick-to-market $300 million add-on to yield 7.346%, after it had been upsized from $250 million originally.

At another shop, a trader saw the bonds ½ point better at 101 bid, on brisk volume of more than $12 million.

Cliffs Resources climb

Away from the new deals, a trader said that “one of the big movers” was Cliffs Natural Resources, “after their conference call,” which followed the Cleveland-based coal and iron-ore mining company’s release of its third-quarter numbers.

He saw the company’s various bonds up 3 to 4 points in response to the earnings news.

“There’s a big short in them too, so I’m sure that the bonds got squeezed as well, and that accounted for the move up.”

Another trader said that “Cliffs came out of the gate a little better, then roared up, and now they’re coming in.”

He said that “there was some [short]-covering, then I think some people decided that this was probably a good time to sell some bonds,” following their early advance.

“But they’re all better [on the day], even though they’re coming back a little.”

He said that across the spectrum “they were up about 5 points or so after they came out with good number.”

One of the most active issues, he said, was the 4 7/8% notes due 2021 which “was up something like 6 or 7 [points], but now that they’re coming back in a little, they’re up 5,” around the 77 bid mark.

The company’s 3.95% notes due 2018 “got up to around 88, now they’re back to 86 – but they started the day around 82-83.”

A market source said the company’s 4 7/8s were easily the most heavily traded junk bond on Tuesday, with turnover of more than $58 million and a closing price of 77¾ bid.

They were joined at the top of the Most Actives list by Cliffs’ 6¼% bonds due 2040, which gained 3¾ points to end just below 71 bid, with over $51 million traded.

The 3.95% notes saw more than $20 million change hands, with the bonds up 3½ points at 86 bid.

That paper was “up a good bit post-numbers,” yet another trader said.

He opined that “they’ve been under a lot of pressure over the past month or so, and everybody’s been very negative, puking them [up].

“This could be some short-covering, it could be a relief rally that the numbers weren’t worse and they had some positive things to say on the call.”

Coal a mixed bag

In that same coal sector, a trader saw Arch Coal Inc.’s bonds unchanged to off a little after the St. Louis-based thermal and metallurgical coal producer reported 2014 third-quarter numbers.

He said “the round-lot markets” on the company’s 7% notes due 2019 “were looking the same,” at around the 40 bid mark.

He said its 7¼% notes due 2021 “look a little lower – about a point or so,” just under 40 bid.

The secured 8% notes due 2019 were also down 1 to 1½ points “so it looks like they’re a little off,” around the 70 mark.

Another trader said that Arch “was under a fair amount of pressure [Monday] versus where they were on Friday.”

He suggested that “they stabilized or maybe were even a smidge better, but not a lot.”

With continued weak conditions in the coal business, Arch continued to lose money during the quarter – though its losses were reduced from where they had been a year ago.

In the latest quarter, revenues fell to $742.2 million from $791.3 million in the year-earlier period.

But with improved margins from its operations in the Western part of the United States mining thermal coal, used for heating and power generation, its loss from operations came in sharply to $35.3 million from $234.8 million a year ago, and adjusted EBITDA increased to $71.9 million from $69.4 million.

The company’s net loss narrowed to $97.2 million, or 46 cents per diluted share, versus $128.4 million of red ink, or 61 cents per diluted share, a year earlier.

The company also reported that it ended the quarter with $1.3 billion of total liquidity, including nearly $1.1 billion of cash, and said that it had no debt maturities coming due before the middle of 2018 (see related story elsewhere in this issue).

He meantime saw sector peer and cross-town rival Peabody Energy Corp.’s bonds were better, with the company’s 6% notes due 2018 trading at 96-97, which he called up ½ point.

He saw Peabody’s 6¼% notes due 2021 going out around 92½, calling that up ¾ point.

“That was the active one,” he said, with more than $16 million traded.

Another trader mapped the bonds going home at 93½ bid, up 1 point, while its 6½% notes due 2020 gained ¾ point to end at 94¼ bid.

iHeart off after results

Apart from the energy names, a trader said that iHeartMedia’s bonds – issued by the company formerly known as Clear Channel Communications – were weaker after the San Antonio, Texas-based radio broadcaster and outdoor advertising firm reported quarterly results.

He saw its 10% notes due 2018 down around 83, while its 14% notes due 2021 were at 88 bid, calling those levels down 1 to 2 points.

The company’s 9% notes due 2022, which it had sold just last month, “weren’t nearly as active, down a little bit.”

He located them at around a 99 to par context.

Over $32 million of the 10% notes traded, and over $24 million of the 14% paper.

Indicators turn mixed

A trader said that “broad-wise, the market is better – it’s grinding a little higher.”

Statistical indicators of junk market performance turned mixed on Tuesday, after having eased across the board on Monday.

That downturn had followed Friday’s second straight higher session, which had been its sixth in seven previous market days.

The KDP High Yield Daily Index posted its second consecutive loss on Tuesday, retreating by 4 basis points to end at 72.46. On Monday, it had edged off by 2 bps, a loss that followed seven straight sessions on the upside before that.

Its yield, though, atypically came in by 1 bp to 5.32% on Tuesday, after having risen by 1 bp on Monday. The yield would normally move inversely to the index reading and rise when the index falls.

Monday’s gain in the yield had been its first widening in nine sessions, or since Oct. 15, when it rose by 13 bps, its sixth consecutive rise. Since then, it had mostly been lower, or else unchanged on the day, as had been the case on Friday.

The Markit CDX North American High Yield Series 23 index rose by 5/32 point on Tuesday to end at 107 bid, 107 1/32 offered. On Monday, it had been by 1/16 point, following two straight advances on Thursday and Friday.

The Merrill Lynch High Yield Master II Index was back on the winning track on Tuesday, improving by 0.018% after falling off by 0.035% on Monday – its first loss after seven straight advances.

Tuesday’s gain lifted its year-to-date return to 4.692% from Monday’s 4.673%.

However, the year-to-date return remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

According to the FINRA-Bloomberg Active US High Yield Bond Index, Tuesday’s junk market volume rose to $3.809 billion from Monday’s $2.218 billion.

© 2015 Prospect News.
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