Quiet primary wraps $4.8 billion week; more heavy trading in Rite Aid; Transocean tumbles again

By Paul A. Harris and Paul Deckelman

New York, March 20 – The high-yield primary sphere was quiet on Friday, with syndicate sources reporting no pricings of any U.S. dollar-denominated, fully junk-rated issues from domestic or industrialized-country borrowers.

The day’s only pricing action in Junkbondland involved a euro-denominated transaction from French recycling company Paprec Holding SA, which did a €480 million two-part deal consisting of seven- and eight-year notes.

Back in the dollar market, the absence of any new-deal action on Friday left the week’s tally of such paper where it had finished on Thursday, with $4.78 billion of new bonds having priced in six tranches, according to data compiled by Prospect News.

That was a far cry from the $17.45 billion that had come to market in 20 tranches the week before, ended March 13, mostly attributable to the giant-sized multi-part offering from Canadian drug manufacturer Valeant Pharmaceuticals International Inc. That was the heaviest new-issuance week in recent memory, if not all time, topping the more than $16 billion which came to market in last year’s busiest week and narrowly shading a $17 billion week in September of 2013, that year’s biggest.

This week’s new issuance, in turn, brought the year-to-date total as of Friday’s close up to $80.78 billion in 114 tranches, according to the data – running 40.3% ahead of last year’s pace, when some $57.54 billion of bonds had priced in 120 tranches by this point on the calendar.

In the secondary market, Thursday’s new deal from drugstore chain operator Rite Aid Corp. easily dominated the Most Actives list for a second straight session on Friday, holding onto the hefty gains it had run up in initial aftermarket dealings after pricing.

As had been the case on Thursday, there was also a fair amount of activity – though nowhere near Rite Aid’s volume – in the other deal that had priced that session, for electronic components manufacturer Sensata Technologies BV. Those bonds traded modestly above their issue price.

And for a second straight session, away from activity in new or recently-priced deals, Transocean Inc.’s bonds were being battered by waves of sellers, after the Swiss offshore energy drilling company’s debt was downgraded to junk bond status by Standard & Poor’s.

Statistical indicators of junk market performance were higher across the board on Friday after having been mixed on Wednesday and Thursday. It was the first stronger session since the previous Thursday.

The indicators were also mixed versus where they had finished last Friday, after two straight weeks before that of having been lower on a week-to-week basis.

Primary hushed

The dollar-denominated primary market remained dormant on Friday as players parsed the second consecutive big weekly cash outflow from the dedicated high-yield funds.

To recap, on Thursday Lipper-AMG reported $1 billion of outflows for the week to Wednesday’s close, which followed the previous week’s more substantial $1.96 billion of outflows.

In the first session of the present reporting period fund flows were mixed, according to a portfolio manager.

On Thursday, the most recent session for which numbers were available at press time, high-yield ETFs saw $198 million of inflows, while actively managed funds saw $305 million of outflows on the day, the manager said.

Paprec sells green bonds

All of Friday’s primary market news came from Europe.

Paprec Holding priced €480 million of green bonds in two resized tranches.

The transaction saw €15 million of proceeds shifted to the secured tranche from the subordinated tranche.

The notes in both tranches came with yields that printed at the tight end of yield talk.

The deal included an upsized €295 million issue of seven-year senior secured notes (B1/B+) which priced at par to yield 5¼%. The tranche was increased from €280 million. Yield talk was set in the 5½% area.

Paprec also priced a downsized €185 million tranche of eight-year senior subordinated notes (B2/B-) at par to yield 7 3/8%. The tranche was reduced from €200 million. Yield talk was set in the 7½% area.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas was also a global coordinator. Credit Agricole CIB, Natixis and SG CIB were joint bookrunners.

The Paris-based provider of recycling services plans to use the proceeds to repay debt used to finance eligible green projects.

Prysmian’s non-deal roadshow

Meanwhile Milan-based Prysmian SpA plans to run a non-deal roadshow targeting institutional fixed-income investors on Tuesday and Wednesday ahead of a possible euro-denominated offering of senior notes, pending market conditions.

Banca Akros, Banca IMI, Citigroup, Credit Agricole CIB, ING and UniCredit are the arrangers.

No deal size has been set.

However in a March 10 press release the telecommunications cable and systems provider said its board of directors authorized the sale of up to €800 million of bonds with a maximum duration of seven years, in one or more tranches.

All told the week ahead is expected to be active in the European primary market, according to a London-based debt capital markets banker who noted that the pre-Easter week, which gets underway on March 30, could see an exodus of market participants, many of whom are expected to head out on vacation.

The week ahead could see as many as five European deals for a total of about €3.5 billion, the banker said.

A thin calendar

At Friday’s close just one dollar-denominated deal was parked on the active forward calendar as business expected to price in the week ahead.

Iron ore producer Cliffs Natural Resources Inc. plans to sell $500 million first-lien senior secured notes due March 31, 2020 (Ba2/BB-) early in the week.

The deal is being discussed in a yield context of 9%, according to a market source.

BofA Merrill Lynch, Jefferies, Deutsche Bank and Credit Suisse are the joint bookrunners.

The past week saw Australian iron ore producer Fortescue abandon a $2.5 billion offering of secured notes directly on the heels of walking away from a $2.5 billion bank loan by shifting the proceeds to that notes offer.

Fortescue explained in a press release that in the present market its “disciplined cost objectives were not met.”

The deal had been talked at 8% to 8¼%.

However last week investors were looking for a 9-handle yield, a market source said.

Rite Aid rules aftermarket

In the secondary realm, the big new deal from familiar junk market issuer Rite Aid was easily the most active issue for a second consecutive session on Friday.

“RAD had by far the biggest volume,” said a trader, referring to the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator by its ticker symbol.

“They just dominated it, well up over $100 million, and then nothing nearby behind them.”

He last saw the company’s new 6 1/8% notes due 2023 trading in a 101¼ to 101½ bid context.

A second trader said later that when all was said and done over $144 million of the notes had changed hands – on top of the more than $99 million that had traded on Thursday after that $1.8 billion offering had priced at par as a regularly scheduled forward calendar deal after a brief roadshow.

“It had a pretty decent coupon,” he said – although he noted that the B3/CCC+ rated offering “came tighter than the average single-B index yield-to-worst of 6.54%.”

He said that during the session, “many times there was a locked market at 101 3/8,” and “all day long,” they traded between 101 and [101] 3/8, or 101 and [101] 5/8, all day.”

At another desk, a market source pegged the bonds going home at 101 3/8 bid, calling that up 1/8 point from the handsome gains the new issue had racked up in its initial aftermarket dealings on Thursday.

Sensata strengthens

For a second straight session, the other deal that had priced on Thursday – Attleboro, Mass.-based electronic sensors and controls manufacturer Sensata Technologies’ 5% notes due in October 2025 – saw a little upside movement in fairly active trading, although volume on the $700 million drive-by issue lagged that of the larger Rite Aid offering considerably.

“There were a lot of trades in Sensata, over $30 million,” one of the traders said, seeing the bonds at one point get up to 100 5/8 bid, before settling into more of a 100¼ to 100 3/8 bid context.

A second trader said the notes finished at 100 3/8 bid, on volume of over $33 million, on top of the more than $17 million that traded in initial aftermarket dealings on Thursday. He called the bonds up ¼ point on the session.

Recent deals trade around

Apart from Thursday’s deals, “there was a decent amount of trading in names that have come to market recently,” one of the market sources said.

The various tranches of Valeant International’s giant-sized new deal from last Friday were again active during the session, as they have been all week.

The company’s 5 7/8% notes due 2023 racked up more than $30 million of trades on Friday, putting it just behind the Rite Aid and Sensata offerings volume-wise. Those bonds were seen finishing up 1/8 point at 101 5/8 bid.

The company’s 6 1/8% notes due 2025 – which had firmed smartly to levels as elevated as 102½ to 103 in heavy trading during the days following the deal’s pricing – were actually weaker on the session Friday, ending at 102 3/8 bid, down 1/8 point on the day, with over $12 million changing hands.

Its 5 3/8% notes due 2020 were seen little changed at 100½ bid on volume of over $11 million.

The Laval, Quebec-based drug manufacturer priced $2 billion of the five-year notes and $3.25 billion each of the eight- and 10-year notes at par last Friday, along with €1.5 billion of 4½% notes due 2023, also at par, as it enlarged its regularly scheduled forward-calendar offering to $10 billion equivalent from an originally announced $9.6 billion equivalent. That bond deal was the biggest seen so far this year in the high-yield market and the second-biggest junk offering ever.

Among other recently priced credits, Wednesday’s offering of 6½% notes due 2022 from Infor (US) Inc. were quoted by one trader at 101¼ bid, about unchanged on the day, and by another at 101 1/8 bid, 101 5/8 offered, up 1/8 point on the day.

The Alpharetta, Ga.-based provider of enterprise software and services to business customers came to market on Wednesday with $1.03 billion of those 6½% notes as part of a $1.4 billion equivalent two-part transaction that also included €350 million of 5¾% notes due 2022. Both tranches priced at par.

Virgin Media’s 5¼% senior secured notes due 2026 were seen trading on Friday at 101 bid, 101¾ offered, up ¼ point on the day.

The notes had priced at par on Tuesday as part of a two-part, regularly scheduled forward calendar from the Hook, England-based provider of cable, broadband internet, wireless and wireline phone service in the United Kingdom, which also included £525 million of 4 7/8% notes due 2027. Those sterling bonds priced at par after the tranche was downsized from £550 million originally.

The Virgin dollar bonds saw heavy initial trading of more than $42 million, moving up about ½ point, and they continued to push up to Friday’s levels around 101 bid as the week wore on.

Transocean trades off

Away from the new deals, a trader said “there were a ton of RIGs trading,” referring to Swiss offshore energy drilling contractor Transocean by its ticker symbol.

He saw its 6 3/8% notes due 2021 off ½ point to 84 bid on volume of more than $21 million, while its 6.80% bonds due 2038 were going home down ¾ point at 73 1/8 bid, with over $14 million having changed hands.

He saw its 2½% notes due 2017 lower by ½ point on the day at 91 bid, also on $14 million of volume.

The company’s bonds were losing ground for a second straight session following Standard &Poor’s decision to drop the formerly investment-grade credit to junk bond status, making S&P the second major rating agency to do so; Moody’s Investors Service had also cut Transocean to junk, back in February. Fitch Ratings remains the sole major agency keeping the company at investment grade – barely – with a BBB- rating.

Indicators turn higher

Statistical indicators of junk market performance were higher across the board on Friday for the first time since last Thursday, having been either mixed or lower all around each session since then, including two straight mixed sessions on Wednesday and Thursday.

And the indicators were mixed versus where they had closed out the previous Friday after two consecutive weeks of having been lower, which in turn had followed four straight weeks before that of Friday-to-Friday gains.

The KDP High Yield Daily Index jumped by 14 basis points Friday to end at 71.06, after having eased by 2 bps on Thursday. Friday’s gain was its second in the past three sessions.

Its yield, meanwhile came in by 4 bps for a second straight session, declining to 5.44%, after having widened for four straight sessions before that.

However, its Friday levels compared unfavorably to the 71.12 index reading and the 5.42% yield seen last Friday, March 13.

The Markit Series 23 CDX North American High Yield Index rose by 11/32 point on Friday to end at 107 15/16 bid, 108 bid offered, after having eased by 9/32 point on Thursday. Friday’s advance was its second in the last three sessions and its third in the last five.

It was also up from the 107 3/16 bid, 107¼ offered at which it had finished last Friday.

The Merrill Lynch U.S. High Yield Master II Index posted its second consecutive gain on Friday, rising by 0.106%, on top of 0.294% on Thursday, which had been its first improvement after four straight lower sessions before that.

Friday’s gain raised its year-to-date return to 2.091% from Thursday’s 1.983%, although it remained down from its peak 2015 level of 3.125%, set on March 2.

For the week, the index was up by 0.045%, its first weekly gain after two straight weekly losses. Last week, the index declined by 0.551%, lowering the year-to-date return to 2.046%.

With 11 weeks in the books so far this year, the index has now been higher in eight of those weeks and lower in three of them.

© 2015 Prospect News.
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