Europe continues to lead news; McDermott, Coty plan deals; First Quantum hit with $7.9 billion bill

By James McCandless and Paul A. Harris

San Antonio, March 21 – Most of the high-yield primary news continued to come from Europe on Wednesday, although dollar-denominated tranches were announced.

In Europe, Virgin Media Inc. priced a £300 million issue of Virgin Media Receivables Financing Notes II Designated Activity Co. 5¾% five-year receivables financing notes.

Chicago-based LKQ Corp. set price talk in its €1 billion two-part offering of senior notes.

Coty Inc. kicked off a $2 billion equivalent four-part offering of senior notes in a deal that comprises both dollar and euro notes.

In the dollar-only new issue market, McDermott International Inc. plans to start a roadshow on Thursday for a $1.5 billion two-part offering of senior notes.

Trading in the high-yield secondary market on Wednesday was described as muted by traders, with pockets of activity in newer issues.

First Quantum Minerals Ltd. saw its newer issues become active. On Tuesday, the government of Zambia slapped the name with a $7.9 billion bill in alleged unpaid import duties.

U.S. Steel Corp.’s new issues were active again. On Tuesday, the company announced the results of a tender offering.

New issues from Frontier Communications Corp. held firm after days of being pressured downward.

Intelsat SA and Northern Oil and Gas, Inc. added to the day’s volume.

Virgin Media receivables financing notes

The preponderance of primary market news continued to flow from Europe on Wednesday, as has been the case throughout the present week.

However there was a stirring in the big American investment banks, as dollar-denominated tranches were announced.

In Europe, Virgin Media Inc. priced a £300 million issue of Virgin Media Receivables Financing Notes II Designated Activity Co. 5¾% five-year receivables financing notes at par to yield 5.741%.

The yield came near the wide end of the 5½% to 5¾% yield talk.

BNP Paribas, Credit Suisse, ING, Banca IMI and DNB Markets managed the sale.

Proceeds will be used to help finance Virgin Media's existing vendor financing program.

LKQ pricing Thursday

Chicago-based LKQ Corp. set price talk in its €1 billion two-part offering of senior notes (Ba2/BB).

The offer is coming in tranches of eight-year notes talked to yield 3½% to 3¾%, and 10-year notes talked to yield 4% to 4¼%.

Tranche sizes remain to be determined.

The roadshow was set to wrap up on Wednesday, and the acquisition financing deal is scheduled to price on Thursday.

HSBC and BofA Merrill Lynch are managing the sale.

Coty $2 billion four-part deal

In a deal coming in both dollars and euros, Coty Inc. kicked off a $2 billion equivalent four-part offering of senior notes on Wednesday.

The debt refinancing deal features two tranches, apiece, of dollar-denominated and euro-denominated notes.

They include euro-denominated five-year notes, dollar-denominated and euro-denominated eight-year notes and dollar-denominated 10-year notes.

Tranche sizes remain to be determined.

Joint bookrunner Morgan Stanley will bill and deliver for the dollar-denominated notes.

Joint bookrunner BNP Paribas will bill and deliver for the euro-denominated notes.

JP Morgan, BofA Merrill Lynch, Credit Agricole, Deutsche Bank, HSBC, ING, Mizuho, RBC and UniCredit.

McDermott $1.5 billion starts Thursday

In the dollar-only new issue market McDermott International Inc. plans to start a roadshow on Thursday for a $1.5 billion two-part offering of senior notes (B2/B-).

The deal features $950 million of six-year notes and $550 million of eight-year notes.

Joint global coordinator and joint bookrunner Barclays will bill and deliver. Credit Agricole is also a joint global coordinator and joint bookrunner. ABN Amro, Goldman Sachs, MUFG and RBC are also joint bookrunners.

The deal is coming in connection with the merger of McDermott and Chicago Bridge and Iron (CB&I), and will be used to repay debt at both entities, and for general corporate purposes.

KCA Deutag five-year secured deal

KCA Deutag UK Finance plc plans to launch a $375 million offering of five-year senior secured notes (expected ratings B3/B-) on a Thursday investor conference call.

The notes are expected to price on Friday.

Citigroup is the left bookrunner. HSBC, First Abu Dhabi Bank, Goldman Sachs and JP Morgan are the joint bookrunners.

The Aberdeen, UK, drilling and engineering contractor for onshore and offshore oil, gas and geothermal markets plans to use the proceeds to fund its acquisition of certain of Dalma Energy LLC’s subsidiaries and certain rigs located in Saudi Arabia, and other assets, and to refinance Dalma Energy debt.

Room for optimism

The high-yield new issue machine has spent notable stretches of 2018 idling, with equally notable sporadic bursts of issuance, a senior syndicate banker conceded on Wednesday afternoon, as early spring snow piled up on the streets of New York City.

Volatility, which has been the main driver of issuers having to pay concessions to high-yield investors, creates some hesitation among rate-sensitive credits.

When that volatility appears to ebb, dealers waste no time in shepherding such rate-sensitive issuers into the market, the banker said, adding that the “chunky” nature of 2018 new issue business – with dormant periods followed by sporadic bursts of activity – can be attributed to that volatility.

However there is room for optimism regarding the pace of issuance, heading deeper into 2018, the source said.

One bright spot is the barrel price of West Texas Intermediate (WTI) crude oil, now north of $65, the banker said.

The barrel price of WTI for May 2018 delivery was $65.45 in after hours Wednesday trading, up 28 cents or 0.43% on the day.

“That's a positive driver, not only for the energy sector (15% of the index), but for the broader high yield as well,” the source remarked.

The high yield has largely absorbed moves in Treasuries, the banker said.

Volatility in the broader capital markets is now the chief obstacle to a steady running new issue market.

Given a manageable or better level of volatility in the near term, look for activity to pick up in the pre-Easter week, the banker said, and pointed to the above-mentioned McDermott and KCA Deutag deals, already announced and set to clear the market during that week.

First Quantum to dispute tax bill

After being hit with a $7.9 billion bill for alleged unpaid import duties by the government of Zambia Monday, Vancouver-based mining company First Quantum reassured shareholders on Wednesday by informing them of its intention to dispute the bill and cooperate with the Zambian Revenue Authority to clarify the matter. Market sources confirmed a sharp increase in activity in its newer issues.

“It caused quite a stir in trading,” a trader said. “This is something that shouldn’t shock many people, though. These types of disputes tend to get settled favorably.”

The 6½% notes due 2026, which was part of a $1.85 billion pricing last month, lost about 1 point to close at 94 bid.

U.S. Steel continues trading

Pittsburgh-based integrated steel producer U.S. Steel’s new issues were active again Wednesday, traders confirmed. On Tuesday, the company announced that it had garnered $483,912,000 of f its $780 million of 8 3/8% senior secured notes due July 1, 2021 by Monday’s deadline.

The 6¼% issues due 2026, priced at $650 million last week, lost about 1¼ points to close at 100¾ bid.

Frontier holds

Norwalk, Conn.-based wireline telecom name Frontier Communications held steady Wednesday, traders confirmed, after days of negative trading for the $1.6 billion issue of eight-year second-lien secured notes.

Traders saw the 8½% paper due 2026 remain at the 97 bid level despite heavy volume.

Volume names trade

Luxembourg-based satellite communications company Intelsat was another active telecom name on the day.

The Intelsat Jackson SA 5½% notes due 2023 rose ½ point to close at 81 bid. The 7¼% notes due 2020 jumped up about 1 point to close at 94¼.

Minnetonka, Minn.-based independent oil and gas name Northern Oil and Gas saw its 8% issues due 2020 edged up ¼ point to close at 95¼ bid.

Indexes higher

The KDP High Yield Daily Index rose by 6 basis points to end the day at 70.33. Its yield lost 2 bps to end at 5.87%.

The Markit Series 29 CDX index gained 14.7 bps to end at 106.838.

The Merrill Lynch High Yield Index gained 3.7 bps to close at a return of negative 0.779% for the year so far.

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