CVR upsizes to close out less busy $3 billion primary week; new Yum! bonds climb in heavy trading

By Paul Deckelman and Paul A. Harris

New York, June 3 – The high yield primary market closed out the first week of June on Friday with an upsized new deal – though it still left the week’s issuance well below the sizzling pace seen last week.

CVR Partners, LP, a maker of nitrogen-based fertilizer, came to market with an upsized $645 million of seven-year secured notes that priced as a regularly scheduled offering off the forward calendar.

CVR’s transaction brought the week’s new-issuance total up to $3.08 billion in four tranches, though that was but a fraction of the $11.2 billion of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers which got done last week in 20 tranches, according to data compiled by Prospect News. Last week was the heaviest new-issue volume of any week so far this year, the data indicated.

That weekly total, in turn, raised issuance for the year so far to $95.70 billion in 133 tranches – although that still was down 43.7% from the intense pace seen last year, when some $169.86 billion of new junk paper had priced in 267 tranches by this time on the calendar, the data indicated.

Traders saw busy dealings in all of this week’s new issues.

They said the new CVR notes moved up solidly from their deeply discounted price on active volume when they hit the aftermarket.

But the busiest name of the day was Yum! Brands, Inc., the fast-food giant which had brought $2.1 billion of new eight- and 10-year notes to market on Thursday. The 10-years were the most active bonds in Junkbondland, with the eight-years not far behind, and both were about a point above their respective issue prices.

Thursday’s other new deal, from supply-chain management company Wesco Distribution, Inc., was also busy, but with the new bonds little changed from their issue price.

Away from those new deals, Chemours Co.’s bonds were getting clobbered for a second straight session, with investors worried after a scathingly critical research report said the chemical company – spun off just a year ago from industry giant DuPont – might face enormous environmental-related liabilities from its former parent’s decades of chemical dumping activities.

Statistical market performance measures were higher on Friday after being mixed on Thursday and lower across the board on Wednesday. It was the first higher session since May 25 and the third such stronger session in the last nine trading days.

For the week, however, the indicators finished Friday mixed versus where they had been last Friday, May 27, when they were higher week-over-week. It was their second mixed week in the last three.

CVR prices wide

CVR Partners priced Friday’s sole deal, a $645 million issue of 9¼% seven-year senior secured notes (B1/B+) that came at 97.499 to yield 9¾%.

The issue size was increased from $625 million – although given the size of the discount the proceeds were only slightly more than that figure.

The yield printed 50 basis points beyond the wide end of the 9% to 9¼% yield talk and there were also covenant changes to the notes.

The deal launched into the market early in the past week with initial guidance in the low-to-mid 8% yield context, market sources said.

Credit Suisse and UBS were the joint bookrunners for the debt refinancing deal.

Direct ChassisLink roadshow

Also on Friday, Direct ChassisLink, Inc. began a roadshow for a $325 million offering of seven-year senior secured second-lien notes.

Initial guidance has it coming with a yield in the high 8% to 9% range.

Goldman Sachs is the left bookrunner. BNP Paribas is the joint bookrunner.

Proceeds, together with borrowings under the company’s ABL facility and equity investments, will be used to finance the acquisition of Direct ChassisLink by EQT Infrastructure II Fund, as well as to repay or redeem existing third-party debt.

The week ahead

Although there were no formal announcements, roundabout the market sources expect Dell Inc. to launch $3.25 billion of speculative-grade senior unsecured notes in the week ahead.

JP Morgan and BofA Merrill Lynch will lead the deal to help fund the acquisition of EMC Corp., a trader said on Friday.

On May 17 Dell priced $20 billion of investment grade-rated secured notes (Baa3/BBB-/BBB-) in six tranches, a deal that played to $80 billion of orders, 20% of which came from high-yield accounts, sources said.

The European primary market should be busy in the week ahead, a London-based debt capital markets banker said.

Look for at least five deals, the source advised.

Most of this business will come from repeat issuers but there could be one or two new names as well, the banker said.

Mixed Thursday flows

Cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs sustained $16 million of outflows on the day.

However actively managed funds were positive on the day, seeing $65 million of inflows on Thursday.

The news trails Thursday’s weekly report from Lipper-AMG that dedicated high-yield bond funds saw $145 million of net inflows for the week to Wednesday’s close.

In the leveraged loan market, dedicated bank loan funds saw $35 million of daily inflows on Thursday, the trader said.

New CVR notes move up

In the secondary market, a trader said the new CVR Partners 9¼% senior secured notes “were doing pretty well,” seeing those bonds going out in a 99¼ to par bid context, which he called “up almost 2 points.”

A second trader saw the bonds circulating between 98 and par bid – well up from the 97.499 level at which the Sugar Land, Texas-based producer of nitrogen-based fertilizer and its wholly-owned CVR Nitrogen Finance Corp. subsidiary had priced their regularly scheduled forward-calendar offering.

At another desk, a market source estimated that more than $30 million of the new bonds had traded, seeing them going out at 99¾ bid.

Yum! dominates Most Actives

Easily the busiest bonds in the junk space were the two tranches making up the new megadeal from Yum! Brands, the Louisville, Ky.-based corporate parent of the KFC, Pizza Hut and Taco Bell fast-food restaurant chains.

One of the traders said that Yum! was “extremely busy,” with over $105 million of the company’s 5¼% notes due 2026 having traded, easily topping the day’s Most Actives list. He saw the bonds trading all day between 100½ and 101 1/8 bid, with the last trades of the day between 100 7/8 and 101 bid.

He also saw more than $75 million of the company’s new 5% notes due 2024 changing hands, “basically trading the same as the other one,” in a 100 3/8 to 101 1/8 bid context.

At another desk, both bonds were seen ending the session at 101, although a market source there said that the 10-year bonds were down ¼ point on the day while the eight-years were up by ¼ point.

Another trader opined that “with the rally in Treasuries after the crummy payroll number, the Yum ! bonds did well.”

He saw them both going out at 100 7/8 to 101 1/8.

Yum! Brands priced its $2.1 billion two-part offering – downsized from an originally announced $2.3 billion – on Thursday afternoon, breaking the week-long new-issuance drought that had begun the previous Friday.

The transaction was split into equally sized $1.05 billion tranches of eight- year and 10-year notes, each pricing at par.

With no new junk bonds having been seen in the market since the $2.72 billion which had gotten done in five tranches from four issuers the Thursday before, paper-starved high-yield investors gobbled the new Yum! bonds up the way that hungry KFC diners wolf down the tasty fried chicken parts seasoned with The Colonel’s famous secret recipe.

A market source said that more than $46 million of the 5% notes traded during the relatively short time between their pricing and the Thursday’s market close, and more than $55 million of the 5¼% notes. Most of the trades in both were in a 100½ to 101 bid context.

Wesco holds steady

Thursday’s other new-deal – Wesco Distribution’ 5 3/8% notes due2024 – “wasn’t doing quite as well” as the CVR and Yum! issues, one of the traders said, pegging those bonds “right around the issue price” in a 100 to 100 1/8 bid context.

“They were basically wrapped around par,” a second trader said, locating them between 99 7/8 bid and 100¼ bid.

He said that more than $40 million traded on Friday.

Wesco Distribution – a Valencia, Calif.-based provider of supply-chain management services to the aerospace industry and a subsidiary of Wesco International, Inc., a Pittsburgh-based provider of electrical, industrial and communications maintenance, repair and operating products, construction materials and through Distribution, supply-chain and logistics services – priced its quickly shopped $350 million issue on Thursday at par.

A trader said that the new bonds firmed slightly in the aftermarket following their pricing, closing around 100¼ bid with $9 million trading in initial aftermarket action.

Chemours under pressure again

Away from the new deals, Chemours’ bonds were seen continuing to take losses, hurt by investor reaction to a highly critical report about the Wilmington, Del.-based chemical company.

Its 6 5/8% notes due 2023 – which on Thursday had fallen 3 points to 86 bid on volume of more than $20 million – were seen dropping another point on Friday, ending at 85 bid after having traded as low as around 84 during the session. Around $10 million changed hands on Friday.

The company’s 7% notes due 2025 fell 2½ points on Friday to 83 bid though on only a handful of large-sized trades.

On Thursday, those notes had been down a deuce on the day at 85½ bid on volume of over $16 million.

Short-seller Citron Research charged in a report on Thursday that Chemours would be stuck with untold millions of dollars of environmental liabilities that former corporate parent DuPont transferred to the new company when it was spun off last year.

Chemours denied Citrons’ assertions.

Indicators show improvement

One of the traders said that overall “the market did pretty well today – lower Treasury rates helped it.”

Treasury yields fell after the Labor Department reported that just 38,000 new non-farm payroll jobs were created in May – well below analysts’ expectations.

The anemic monthly jobs figure was seen by some analysts as likely to cause the Federal Reserve to pause before continuing to raise interest rates in the short run.

Statistical market performance measures were higher on Friday, after being mixed on Thursday and lower across the board on Wednesday. It was the first higher session since May 25 and the third stronger session in the in the last nine trading days.

For the week, however, the indicators finished Friday mixed versus where they had been last Friday, May 27, when they were higher week-over-week. It was their second mixed week in the last three.

The KDP High Yield Daily Index was unchanged on Friday at 67.46%, after having dropped by 6 basis points on Thursday and by 5 bps on Wednesday. The index had also been unchanged on Tuesday.

Its yield came in by 1 bp on Friday to 6.15% after being unchanged on Thursday and narrowing by 2 bps on Wednesday.

Friday’s index reading was down from 67.57 last Friday though its yield was in slightly from last Friday’s 6.17%

The Markit Series 26 CDX North American High Yield Index posted its first gain on Friday after having suffered six straight losses before that. It firmed by 1/16 point on Friday to end at 102 21/32 bid, 102 11/16 offered. On Thursday, it had eased by 1/16 point.

Despite Friday’s small gain, the index was down week over week from last Friday’s 102 27/32 bid, 102 7/8 offered closing level, when it had risen versus the week before.

But the Merrill Lynch North American High Yield Master II Index was up on both the day and the week.

It rose by 0.12% on Friday, its second consecutive gain after one loss – which in turn had followed eight straight upside sessions before that. On Thursday, it had firmed by 0.118%.

For the week, the index strengthened by 0.166%, its fourth consecutive weekly gain following one weekly loss and five straight weekly gains before that. It had risen by 0.793% last week.

So far this year, the index has seen 16 weeks during which it improved from the previous Friday, versus six weeks when it moved down on the week.

Friday’s gain raised the index’s year-to-date return to 8.189% - a new peak level for the year so far – up from 8.059% on Thursday and up as well from Tuesday’s 8.147% close, its previous 2016 peak level.

Friday’s year-to-date return is its highest closing level since Dec. 31, 2012, when the index had closed out the year with a 15.583% return.

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