Upsized Scientific Gaming, Realogy drive-by wrap $7 billion week; Hertz hurt on accounting woes

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 – The high-yield primary market closed out a holiday-shortened week on Friday with a bang, almost doubling its prior new-issuance total.

Most of that paper came from just one issuer – Scientific Games International Inc., a New York-based maker of gaming industry technology.

It upsized its planned $2.9 billion two-part scheduled forward calendar offering of senior secured and unsecured notes to $3.15 billion, divided into a $950 million tranche of seven-year secured notes and $2.2 billion of eight-year unsecured notes. Both tranches were seen having moved up after pricing, with the latter bonds having come to market at a deep discount to par.

The day’s other deal was a $300 million quick-to-market issue of seven-year notes from Realogy Holdings Corp., a Madison. N.J-based provider of residential real estate services. Its new bonds were seen firmer after their par pricing.

Those deals just about doubled the amount of new paper that had priced earlier in the week – which was short one day due to Tuesday’s market close for the Veterans Day holiday observance in the United States. They brought the final tally up to $7.02 billion in 15 tranches, versus the $8 billion of new fully junk-rated, U.S. dollar denominated paper from domestic or industrialized-country borrowers that had priced in 17 tranches the week before, ended Friday, Nov. 7, according to data compiled by Prospect News.

The week’s new deals, in turn, lifted year-to-date issuance to $293.15 billion in 549 tranches, running about 1.9% ahead of the new-issuance pace seen last year, when $287.69 billion had priced in 605 tranches by this point on the calendar.

Among recently priced deals, Thursday’s offering from Australian airline operator Virgin Australia Holdings Inc. continued to gain altitude in the aftermarket, and on busy volume.

Away from the new-deal realm, Hertz Corp.’s several issues of bonds were seen skidding lower, and on considerable volume, after the vehicle-rental giant confirmed investor worries that its accounting issues ran even deeper than previously thought, saying it would restate its results for 2012 and 2013, on top of the earlier restatement of its 2011 numbers.

Statistical indicators of junk market performance were meantime lower for a third consecutive session on Friday. They had turned southward on Wednesday, after having been mixed over the previous four sessions, and continued in that mode on Thursday.

The indicators were ending the week lower across the board from where they had finished up the previous Friday.

Scientific Games upsizes

The Friday primary market session generated a steady volume of news.

Two issuers raised $3.23 billion through a total of three tranches of junk.

Scientific Games priced a $3.15 billion high-yield note transaction. The two-part offering was increased from the originally announced $2.9 billion amount.

The deal included an upsized $950 million tranche of seven-year senior secured notes (Ba3/BB-) which priced at par to yield 7%. The yield printed at the tight end of the 7% to 7¼% yield talk. The tranche was expanded by $250 million from an initial size of $700 million.

In addition the company priced $2.2 billion of 10% eight-year senior unsecured notes (Caa1/B) at 89.865 to yield 12%. The coupon came on top of coupon talk. The yield printed at the wide end of the 11¾% to 12% yield talk.

With the increase in size, the company withdrew a proposed $250 million incremental term loan and shifted the proceeds into the senior secured notes tranche.

J.P. Morgan, BofA Merrill Lynch, Deutsche Bank, Fifth Third, HSBC and PNC were the joint bookrunners for the two-part bond deal.

Proceeds will be used to help fund the acquisition of Bally Technologies Inc. for about $5.1 billion, including about $1.8 billion of net debt.

Scientific Games unsecured notes

Scientific Games’ unsecured bonds generated a steady buzz throughout the period that the deal came into view.

An effort to syndicate the bridge loan backing the unsecured notes was abandoned, according to buyside sources.

Price talk on the unsecured notes – for a 10% coupon at a discount to yield 11¾% to 12% – widened dramatically from early guidance of 9½% to 10%, according to sources who attributed the widening to substantial selling of Scientific Games’ existing 6 5/8% senior subordinated notes due May 15, 2021 and 6¼% senior subordinated notes due Sept. 1, 2020, sources said.

The existing notes underwent price drops because they take a back seat to the new senior unsecured notes in the company’s capital structure, said a buysider, who added that the prices on the subordinated notes implied yields in the 11½% to 12½% range.

As prices on the existing subordinated notes dropped, talk on the proposed senior unsecured notes widened, the source added.

The 6 5/8% notes, which were seen at 74 bid on Thursday, were seen at 72 bid on Friday, shortly before the market heard final terms, a sellside source said. He added that the price drop could cause talk on the unsecured paper to widen further still.

“There’s blood in the water,” the sellsider remarked.

Realogy prices tight

In a Friday drive-by, Realogy priced a $300 million issue of seven-year senior notes (Caa1/B) at par to yield 5¼%.

The yield printed at the tight end of the 5¼% to 5 3/8% yield talk.

J.P. Morgan, Goldman Sachs, Barclays, Credit Suisse, Citigroup, Credit Agricole and Wells Fargo were the joint bookrunners for the debt refinancing.

Tibco starts Monday

Given that it is the final full week of market activity prior to the abbreviated Nov. 24 week which includes the four-day Thanksgiving Holiday weekend, the week ahead should be a busy one, syndicate bankers said on Friday.

Factoring the $2.5 billion of announced business on the calendar heading into the weekend, the Nov. 17 week could see issuance of $10 billion or more, a syndicate official said.

“There is a bunch of deals, but nothing all that big,” said the banker.

One sizable offering was unveiled on Friday.

Tibco Software Inc. plans to start a roadshow on Monday for a $950 million offering of seven-year senior notes (Caa2/CCC).

The LBO deal, via J.P. Morgan, Jefferies and MCS, is expected to price on Friday.

Campofrio plans roadshow

There was also news from the European primary market on Friday.

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

The roadshow wraps up on Wednesday.

Joint bookrunner JPMorgan will bill and deliver. 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% senior notes due 2016.

Thursday cash flows mixed

After posting $890 million of inflows for the week to last Wednesday’s close, dedicated high yield funds saw mixed flows in the first session of the present reporting period that will conclude at the close on Wednesday, Nov. 19, according to a trader.

High-yield exchange-traded funds saw $224 million of inflows on Thursday, the source said.

However actively managed funds sustained $75 million of outflows on the session.

Scientific Games moves up

In the secondary market, a trader said that Scientific Games’ new 7% senior secured notes due 2021 were “just above par,” the level at which the $950 million issue had priced after having been upsized from $700 million earlier in the session.

A second trader, though, saw the bonds having gotten as good as a 100½ to 101 context.

At another desk, a trader pegged them in a 100 5/8 to 100 7/8 context.

And yet another market participant saw them get as good as 100¾ bid, 101½ offered.

One of the traders meantime saw its 10% senior unsecured notes due 2022 “just above their new-issue price” of 89.865, quoting the notes at 90 to 90¼ bid.

Another trader saw them get up to 90½ bid, 91 offered.

He said there was “pretty decent volume” in the company’s two tranches of bonds.

Realogy bonds better

The day’s second deal, Realogy’s 5¼% notes due 2021, were seen by a trader at 100 5/8 bid, 101 1/8 offered.

That was well up from the par level at which that $300 million drive-by deal had priced.

Virgin Australia is active

Among other recently priced issues, a market source Virgin Australia Holdings’ 8½% notes due 2019 at 102 bid, calling that up 1¼ points.

Its volume of over $18 million made it one of the most active junk bond issues of the day.

A second trader saw the notes at 101½ bid, 102 offered, well up from the 100¼ bid, 101 offered level at which he had seen the notes when they were freed for trading on Thursday.

The Canberra, Australia-based airline operator had priced its $300 million issue at par earlier Thursday.

Away from the Virgin bonds, though, another trader said that he “really didn’t see much” in the way of trading in other new deals from this week, including names such as Ally Financial Inc. and SuperValu Inc.

Hertz is hurting

Away from the new issues, a trader noted that Hertz Corp.’s paper “was active on the accounting stuff,” after the Naples, Fla.-based vehicle-rentals giant’s corporate parent, Hertz Global Holdings Inc., said in a regulatory file that it would restate its results from 2012 and 2013 – thus dropping the other shoe, as some investors had feared, after indicating earlier this year that it would have to restate its 2011 results because of accounting issues and would consider doing the same for 2012 and 2013.

As a result, Hertz warned that it “does not currently expect to complete the process and file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified.”

The news sent the company’s 6¼% notes due 2022 down some 1¾ points on the day to 99 7/8 bid, with over $39 million traded, putting the credit high up on the high yield Most Actives list.

Its 5 7/8% notes due 2020 lost 3/8 point and its 7½% notes due 2018 eased by 1/8 point, each on active volume of over $15 million, ending at 100¼ bid and 104 bid, respectively.

Hertz’s New York Stock Exchange-traded shares meanwhile plunged by $1.04, or 4.58%, to end at $21.69, on volume of 49.8 million shares, more than four times the norm.

In its 8-K filing with the Securities and Exchange Commission, the company and its subsidiaries said that they had obtained an extension to waivers from their lenders through June 30, 2015 in connection with the failure to file some quarterly reports and certain of its subsidiaries’ failure to file statutory financial statements within specified time periods. The company originally obtained waivers on Nov. 4 effective through Nov. 14.

In addition, Hertz’s special-purpose subsidiaries Hertz Vehicle Financing LLC and Rental Car Finance Corp., which previously obtained similar waivers from the required noteholders of medium-term asset-backed notes issued by Hertz Vehicle Financing and Rental Car Finance, effective through Dec. 31, will seek extensions for those waivers.

Hertz said it also expects to seek waivers from the lenders under its credit agreement dated March 11, 2011 with respect to defaults under the senior term facility arising out of the company’s failure to timely file its periodic reports and in connection with the restatement of its 2011, 2012 and 2013 financial statements.

Indicators off on day, week

Statistical indicators of junk market performance were meantime lower for a third consecutive session on Friday. They had turned southward on Wednesday, and stayed there on Thursday, after having been mixed over the previous four sessions.

They ended lower across the board versus where they had gone home at the end of last week, while they had been mixed for the two previous weeks.

The KDP High Yield Daily Index dropped by 11 basis points to close at 72.23, after having been unchanged on Thursday; before that, it had been in retreat over the previous three sessions.

Its yield rose by 5 bps to 5.35%, its second widening in a row. It had been up by 2 bps on Thursday, after two consecutive sessions before that of having narrowed.

The numbers compared unfavorably with the 72.47 index reading and 5.32% yield at which the index had ended the previous Friday, Nov. 7.

The Markit CDX North American High Yield Series 23 index posted its fourth consecutive loss on Friday, declining by 3/32 point to end at 106 7/8 bid, 106 15/16 offered. It had been down 5/32 point on Thursday.

The index ended the week lower than it had been the previous Friday, when it stood at 107 bid, 107 1/32 offered.

The Merrill Lynch U.S. High Yield Master II Index lost ground for a third successive session on Friday, moving downward by 0.216%. On Thursday, it had eased by 0.08%; and it had dropped by 0.017% on Wednesday, its first loss after three straight gains.

The latest loss lowered its year-to-date return to 4.356%, down from Thursday’s 4.582%. close. The index also remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

For the week, the index was off by 0.268%, its second straight weekly loss. It had also been down by 0.142% the previous week, when its year-to-date return was 4.637%. The index has now seen 32 weeks out of the 46 since the start of the year during which it ended higher, against 14 weeks during which it ended lower.

According to the FINRA-Bloomberg Active US High Yield Bond Index, Friday’s junk market volume fell to $2.918 billion from $3.261 billion on Thursday.

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