Constellium dollar notes price to cap $3.33 billion week, seen firmer; energy a mixed bag

By Paul Deckelman and Paul A. Harris

New York, Dec. 5 – The junk bond market closed out the first trading week of the final month of the year on Friday with one deal worth $400 million having priced, high-yield syndicate sources said.

Dutch aluminum products manufacturer Constellium NV came to market with an upsized dual-currency deal that included tranches of dollar- and euro-denominated eight-year notes. Traders quoted the new dollar notes a little above their issue price.

That transaction brought the week’s total of new junk-rated, dollar-denominated paper from domestic or industrialized-country borrowers to $3.33 billion in nine tranches, according to data compiled by Prospect News. That was up from the roughly $2.3 billion that priced in four tranches during the Thanksgiving holiday-shortened week before, ended Friday November 28.

The latest week’s issuance meanwhile raised the year-to-date total of new paper to $310.18 billion in 579 tranches – up from the $307.7 billion of bonds sold in 645 tranches by this time on the calendar last year. However, statistically speaking, the two cumulative figures were essentially a wash, separated by less than one full percentage point.

Traders said that Thursday’s new issues from ADT Corp., Cott Beverages Inc. and Dana Holding Corp. moved within a narrow range, each near their respective issue price.

Away from the new deals, oil and natural gas names like Halcon Resources Corp. were the main features in the market, with that company’s paper seen having firmed despite continued oil-price deterioration. Other sector names, however, were lower.

Statistical market-performance measures were seen lower across the board on Friday after having been mixed on Thursday. They were also off versus the levels at which they had finished out the previous week.

Constellium upsizes

Constellium priced an upsized €565 million equivalent two-part offering of senior notes due Jan. 15, 2023 (B1/B/) on Friday.

A $400 million tranche priced at par to yield 8%. The yield printed 50 basis points beyond the wide end of the 7¼% to 7½% yield talk.

Deutsche Bank, Goldman Sachs and BNP Paribas were the joint bookrunners for the dollar-denominated tranche.

A €240 million tranche priced at par to yield 7%. The yield printed at the wide end of the 6¾% to 7% yield talk.

Deutsche Bank, Goldman Sachs and SG CIB were the joint bookrunners for the euro-denominated tranche.

The overall size of the transaction was increased from the equivalent of €535 million.

Proceeds will be used to finance the acquisition of Wise Metals Intermediate Holdings LLC.

One other deal was expected to price Friday.

JBS USA LLC talked $750 million of 10-year senior notes (Ba3/BB/BB) to yield in the 6 1/8% area early in the session, and the deal was expected to price before the Friday close. However no terms were available at press time.

Global Cash roadshow

Global Cash Access Holdings Inc. began a roadshow on Friday for a $700 million two-part offering of notes.

The deal is slated to price late in the week ahead.

It features a $350 million tranche of senior secured notes due March 15, 2021 (B1/B+) and a $350 million tranche of senior unsecured notes due Jan. 15, 2022 (Caa1/CCC+).

BofA Merrill Lynch and Deutsche Bank are the joint bookrunners for the acquisition deal.

Global Cash joins Westmoreland Coal Co. which talked its $400 million of seven-year senior secured first-lien notes (existing Caa1/confirmed B) to yield in the 8½% area on Thursday. The deal is expected to price on Monday via BMO.

OneMaine Financial Holdings, Inc. has been roadshowing a $1 billion two-part offering of senior notes (B2/B+).

The debt refinancing deal, which is expected to price Monday via Citigroup, is coming in tranches of five-year notes and seven-year notes.

And Real Alloy Holding Inc. is in the market with a $300 million offering of five-year senior secured notes via joint bookrunners Goldman Sachs and Deutsche Bank.

Inclined to sit tight

The week ahead is shaping up to be somewhat muted, sources said on Friday.

Aside from deals carried across the weekend, there could be three or four more deals announced, a debt capital markets banker said.

One of them could be sizable, although there is a chance that this sizable deal could be pushed into 2015.

All four deals, should they materialize, emanate from different sectors, the banker said, declining to provide any issuer names.

Meanwhile Europe is likely done for the year, a London-based banker said on Friday.

One exception might be Siemens Audiology Solutions’s €315 million of notes due 2023, to fund the acquisition of the business by funds managed by EQT Partners AB and Santo Holding GmbH and management.

Moody’s assigned Caa1 rating to the notes on Friday.

However that deal could also be pushed into the year ahead, the London banker said.

“Accounts here are very long cash, and hanging on ’till year-end,” the source added.

Presently the buyside seems inclined to sit tight, sources roundabout the market said on Friday.

High-yield investors may be content to lock in year-to-date returns, especially given the volatility in the sizable oil and gas sector, which is hammering portfolios and rocking the market, a trader explained.

Of 2014 dollar-denominated issuance, 13.24% has come from the oil and gas sector year-to-date, according to Prospect News data.

Given that a barrel of crude oil, which was selling for $103 in June, was going for $65.60 on Friday, it is not surprising that bonds throughout that sector have been marked drastically lower, and portfolios marked down proportionally, the trader said.

Thursday flows mixed

Tracking the week-by-week cash flows of dedicated high-yield funds, the most recent week got underway on Thursday with those funds seeing net negative flows, a market source said.

High-yield exchange-traded funds saw $97 million of inflows while actively managed funds sustained $125 million of outflows.

The Thursday flows trail the most recent weekly report from Lipper-AMG which had the dedicated high yield funds sustaining $859 million of outflows to last Wednesday’s close, the greater part of which were sustained by the actively managed funds, sources said.

Possibly the last week

For reasons discussed above, the Dec. 8 week might be the last week to see any kind of meaningful volume in the primary market, sources said on Friday.

Given that the buyside is inclined to hang out on the sidelines until 2015, issuers can expect to pay a premium to coax them out onto the field.

Evidence of that could be seen in the dollar-denominated tranche of the Constellium deal (above), which came 50 basis points wide of the wide end of price talk, one sellsider asserted.

Constellium bonds seen firmer

In the secondary arena, a trader quoted Constellium’s new $400 million of 8% notes due January 2023 at par bid, 100¾ offered, versus the par level at which the regularly scheduled forward calendar offering had priced.

A second trader quoted the bonds a little narrower, in a 100 1/8 to 100 5/8 context.

At another desk, a trader said that he “didn’t see too much” in the way of activity in the new credit.

Dana bonds active

For a second consecutive session, Dana Holding’s new 5½% notes due 2024 were seen trading actively.

A trader quoted those bonds in a par to 100¼ bid context.

A second saw the notes ease by 1/8 point to end at par, on volume of more than $18 million.

The Maumee, Ohio-based automotive systems manufacturer’s $425 million drive-by issue had traded up to around the 100 1/8 bid level after pricing at par on Thursday, with over $33 million having changed hands at that time.

Among Thursday’s other issues, a trader pegged ADT’s 5¼% notes due March 2020 at 99 7/8 bid, par offered. That was slightly easier than the par level at which the Boca Raton, Fla.-based home security services provider’s quick-to-market $300 million issue had priced on Thursday after it was downsized from an originally announced $400 million.

At another desk, the bonds were being quoted at 99½ bid, 100 1/8 offered.

Cott Beverages’ 6¾% notes due 2020 were seen trading under their par issue price on Friday.

One trader saw the Mississauga, Ont.-based soft-drink bottler’s new bonds at 99½ bid, par offered, while a second located them at 99 3/8 bid, 100 1/8 offered.

On Thursday, the notes had traded between 99 5/8 and 100 1/8 in initial aftermarket dealings following the scheduled forward calendar offering’s pricing.

Two traders meantime saw Unitymedia KabelBW’s 5% senior secured notes due January 2025 at par bid, 100½ offered.

The German cable television systems operator had priced $550 million of those notes at par on Wednesday after the issue was upsized from $500 million.

Those notes were part of a €1.45 billion equivalent two-part issue that also included a tranche of similar euro-denominated notes.

The deal had been upsized twice and was restructured to include the dollar tranche in addition to the originally planned euro paper.

Energy bonds remain active

Away from the new deals, a trader said that once again there was “massive pressure on energy” credits, as world crude oil prices continued to slide.

On Friday, the benchmark U.S. crude grade, West Texas Intermediate, fell 97 cents to settle at $65.84 a barrel, while another benchmark grade, Brent crude oil, slipped 57 cents to settle at $69.07 a barrel. Both grades registered their ninth weekly loss in the past 10 weeks. Those were the lowest closing levels for both benchmarks in more five years; prices slid anew after Saudi Arabia offered its Asian oil customers the biggest discount within recent memory – a signal that it aims to defend its market share. Both grades had been trading at over $100 per barrel earlier this year, but have been sliding in recent months on oversupply concerns.

Against that somber backdrop, the trader said that “new lows were continuing” among some bonds, particularly “those that were more levered up.

Among the names seen lower were SandRidge Energy Inc.’s 7½% notes due 2021, down 2 3/8 points at 69 7/8 bid.

Samson Investment Co.’s 9¾% notes due 2020 eased to 54 bid.

However, Halcon Resources’ 8 7/8% notes due 2021, one of the day’s most active issues, firmed by 1 point to go home at 74¼ bid, on volume of over $35 million.

Traders and analysts continued to watch the beleaguered sector, with some seeing further declines in the cards, but others feeling that most of the damage has already been done and expecting that some investors will treat the current low price levels as a buying opportunity (see related story elsewhere in this issue).

Indicators off for day, week

Statistical indicators of junk market performance turned lower across the board on Friday after having been mixed on Thursday for the second time in three sessions.

They were also lower versus where they had finished out the previous week, after having been mixed for the past two weeks.

The KDP High Yield Daily Index eased on Friday after posting two straight gains, falling by 2 basis points to 71.21. It had risen by 2 bps on both Wednesday and Thursday.

Its yield rose by 3 bps to 5.66%, its first widening after having narrowed by 2 bps in both of the previous two sessions.

Those levels compared unfavorably with the 71.70 index reading and 5.49% yield seen at the close of the previous week on Friday, Nov. 28.

The Markit CDX North American High Yield Series 23 index finished lower for a second straight session, losing ¼ point to end at 106 13/32 bid, 106 27/32 offered. On Thursday, it had declined by 9/32 point, breaking a two-session winning streak before that.

The Merrill Lynch U.S. High Yield Master II Index lost 0.111% on Friday, its first setback after two straight gains, including Thursday’s 0.013% advance.

The loss dropped its year-to-date return to 3.003% from Thursday’s 3.118%. The index also remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

For the week, it lost 0.957%, its first loss after one weekly gain and its fourth weekly loss in the last five weeks.

With 49 weeks of the year now in the books, gains have now been seen in 33 weeks so far this year, against 16 weeks of losses.

Last week, it was up by 0.022%, with a year-to-date return of 3.998%.

According to the FINRA-Bloomberg Active US High Yield Bond Index, junk market volume fell to $3.268 billion on Friday from $3.599 billion at the close on Thursday.

© 2015 Prospect News.
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