Ken Garff prices; Herbalife, BMC on tap; Intelsat sees massive demand; FS, PGT gain

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 3 – The domestic high-yield primary market rounded out the week with the pricing of one new deal.

Ken Garff Automotive Group sold an upsized $375 million issue of five-year senior notes (B1/B) at par to yield 7½%.

The deal was seen trading at a slight premium to its issue price in the secondary.

The new paper that entered the secondary space over the past week performed well with PGT Innovations, Inc.’s newly priced 6¾% notes due 2026 (B3/B) more than 1¼ points above their issue price.

FS Energy, LLC’s newly priced 7½% senior notes due 2023 (Ba3/BB-) also continued to improve and were seen about ¾ point above their issue price.

However, no deal was as highly sought after as Intelsat Connect Finance SA’s newly priced 9½% notes due 2023, which was massively oversubscribed during bookbuilding despite garnering a Ca/CCC- rating.

Those notes dominated trading activity on Friday, a day some called “painfully slow.”

While the forward calendar is thin, BMC Software Inc. (Banff Merger Sub Inc.)’s $1,825,000,000 equivalent dual-currency offering of eight-year senior notes (Caa2/CC+) is on deck for the Aug. 6 week.

Herbalife Nutrition Ltd.’s $400 million offering of eight-year senior notes is also on tap.

While trading activity was light in the secondary space, the market remained strong.

However, there remains “a liquidity squeeze,” with money looking to be put to work but paper hard to come by, a market source said.

Ken Garff upsizes

A quiet Friday in the primary market saw Ken Garff Automotive Group price an upsized $375 million issue of five-year senior notes (B1/B) at par to yield 7½%.

The offering was increased from $350 million.

The yield printed in the middle of yield talk set in the 7½% area and towards the wide end of early guidance announced in the 7¼% to 7½% area, a trader said.

J.P. Morgan was the sole bookrunner for the acquisition financing.

The notes were seen trading at a slight premium to their issue price after breaking for trade, but were not active. The notes closed Friday at par ¼ bid, par ¾ offered, sources said.

The lack of activity was attributed to its Friday afternoon pricing.

The week ahead

Herbalife Nutrition plans to start a roadshow on Monday for a $400 million offering of eight-year senior notes.

The deal is set to price late in the week of Aug. 6.

Jefferies LLC is the left bookrunner.

The Los Angeles-based nutrition company plans to use the proceeds, along with new term loans A and B, to refinance its existing credit facility.

Herbalife joins BMC Software on a thin calendar.

BMC is selling $1,825,000,000 equivalent of eight-year senior notes (Caa2/CCC+) in dollar-denominated and euro-denominated tranches.

The dollar-denominated paper is in the market with early guidance in the 9¾% area.

A roadshow is scheduled to wrap up on Wednesday.

Low supply helps risky deals

Lest the triple-hook ratings adorning the BMC deal turn high yield heads, Thursday’s Intelsat Connect deal cut a significantly lower credit profile.

Intelsat Connect’s new 9½% senior notes due February 2023 garnered a Ca from Moody’s and a CCC- from S&P.

Notwithstanding those ratings, the deal upsized to $1.25 billion from $1 billion, played to massive demand that reached $3.5 billion an hour before the books closed, a trader said, and was said to be driven by $1 billion of reverse inquiry.

Intelsat also appeared to get an efficient execution, as the bonds, which priced at 98.25 to yield 10.004%, were trading up more than 1¼ points on Friday.

Part of the explanation for this notable appetite for a deal that came with risk well beyond the middle range of high-yield credit is a thin calendar generating a weekly run rate of $2 billion to $3 billion issuance, which is insufficient to meet investor demand for paper.

That’s part of the Intelsat story, a trader said.

The other part is that investors were satisfied that the Intelsat Connect deal saw the company doing all the right things, including a fair price for the bonds.

Also, investors in the new Intelsat Connect bonds derived encouragement from the fact that holders of Intelsat (Luxembourg) SA’s bonds were parked beneath Intelsat Connect on the capital structure, the trader said.

Week sees $3 billion

The latest week was in line with the recent trend of issuance, seeing $3.21 billion come to market in six deals.

That was actually an improvement on the previous week’s $1.63 billion and also on the $2.97 billion the week before that.

Year-to-date U.S. market issuance now totals $121.74 billion, lagging 2017’s comparable figure of $162.56 billion by 25.1%.

Intelsat’s rise

Intelsat’s new 9½% notes dominated trading activity on a “painfully slow” Friday in the secondary space, a market source said.

The notes, which priced at 98.25, broke the day at par but dipped as the session progressed.

They were seen trading at 99¾ bid, 99 7/8 offered mid-day and were poised to close the day at 99¼ bid, 99½ offered, a market source said.

While the focus was on Intelsat’s new notes, Intelsat Luxembourg’s 8 1/8% senior notes due 2023 remained active in the secondary space.

The notes were largely unchanged from Thursday’s levels at 87½ bid, 88 offered. However, they gained 3 points on the week, a market source said.

The notes have seen a dramatic comeback in recent months. As recently as February, they were trading in the low 40s.

While many wrote Intelsat off for dead one year ago, the communications satellite service provider rose as its C-band proposal gained traction.

With recent FCC approval and a rule change to enable the execution of the proposal under review, there is optimism Intelsat will be able to become a provider of telecommunications, not just television broadcasts, through the repositioning of satellite feeds, a market source said.

“Now there’s some optionality,” a market source said.

In addition to a reinvigorated business strategy, Intelsat’s recent capital raises, both the recent senior note offering and a $402.5 million convertible senior note offering, which priced in June, have met with success.

“Some people think they’ll be able to refinance the whole capital structure if they need to,” a market source said.

Thursday’s deals improve

While Intelsat’s new notes were the focus of the secondary space, the two other deals to price on Thursday put in a solid performance.

PGT Innovations’ 6¾% senior notes due 2026 continued to see gains. The notes gained about 1 point in secondary trading on Friday.

They were seen at 101¼ bid, 102¼ offered.

“They’ve done well,” a market source said.

PGT Innovations priced a $315 million issue of the 6¾% notes at par on Thursday.

The yield printed in the middle of talk set in the 6¾% area and tight to early guidance in the 7% area, a trader said.

FS Energy’s 7½% senior notes due 2023 were also on the rise in secondary trading on Friday.

The notes were seen at 98½ bid, 99 offered on Friday. The were at 98¼ bid, 98¾ offered after breaking for trade on Thursday.

FS Energy priced a $500 million issue of the 7½% notes at 97.973 to yield 8% on Thursday.

The yield printed in the middle of official yield talk in the 8% area; official talk had come on top of initial guidance.

Thursday inflows

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

High-yield ETFs saw $255 million of inflows on the day.

Actively managed high-yield funds saw $30 million of inflows on Thursday.

The news on Thursday’s daily flows follows a report that the dedicated junk funds saw $37 million of inflows in the week to the Wednesday, Aug. 1 close.

That inflow was completely skewed toward the high-yield ETFs, which saw $530 million of inflows on the week, the trader said. Actively managed high-yield funds were therefore decisively negative.

The latest weekly numbers notwithstanding, the junk funds are deep in the red in terms of year-to-date cash flows, the trader said.

Net outflows are $24.1 billion year to date, the trader said, adding that the breakdown has the actively managed funds at negative $19.6 billion year to date and high-yield ETFs at negative $4.6 billion.

Indexes mixed

Three benchmarks for the high-yield secondary market rounded out the week mixed.

The KDP High Yield Daily index again saw a slight decrease on Friday. The index was down 1 basis point to close the day at 70.50 with the yield now 5.82%.

The index also gave up some ground on Thursday after three consecutive days of gains earlier in the week.

The was down 3 bps on Thursday, 1 bps on Wednesday, 9 bps on Tuesday and 11 bps on Monday.

The Merrill Lynch High Yield index saw another week of solid gains with a double digit rise on Friday.

The index was up 11.7 bps with the year-to-date return now 1.379%. The index was up 4.3 bps on Thursday, 2.5 bps on Wednesday, 10.9 bps on Tuesday and 5.3 bps on Monday.

The CDX High Yield 30 index was up 5 bps to close Friday at 107.1. The index saw a mixed week. It was up 6 bps on Thursday, down 5 bps on Wednesday, up 12 bps on Tuesday and down 22 bps on Monday.

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