Junk bond primary buy $800 million of new paper; Advanced Drainage, Builders dip

By Cristal Cody and Paul A. Harris

Tupelo, Miss., June 7 – New issue market news volume picked up on Tuesday, with two issuers – each bringing a single tranche of junk-rated, dollar-denominated notes – raising a combined total of $800 million.

In the secondary market, junk bonds priced in the past week mostly softened as the new issue market revved up Tuesday.

Advanced Drainage Systems Inc. ’s new 6 3/8% senior notes due June 2030 (Ba2/B+) fell ½ point by the close but remained better than issuance.

Also Tuesday, the 6 3/8% senior notes due June 2032 (Ba2/BB-) that Builders FirstSource, Inc. brought in the prior week traded down over 5/8 point by the day’s end.

Market tone during the session remained strong as stock indices climbed, crude oil gained and measured volatility dropped over 4%.

The iShares iBoxx High Yield Corporate Bond ETF finished up 18 cents at $78.23.

In other junk credits, Wendy's International, Inc.’s notes have gained so far in June, while its credit default swaps spreads widened nearly 50 basis points in the past week.

Wendy’s debentures have picked up over 2½ points in thin trading this month as speculation grows of a potential buyout, a source said.

Trian Fund Management, LP and affiliates in late May disclosed interest in exploring a possible sale or merger to enhance shareholder value.

Trian Fund reported in a May 24 regulatory filing that it owns 11.82% of Wendy’s shares.

The news regarding Trian Fund “may have something to do with it,” a source said of Wendy’s bond gains.

The restaurant chain’s $90 million of three-year paper is “not very active,” the source noted.

Tuesday new business

In a deal announced to the market on Monday, on Tuesday Cogent Communications Group, Inc. priced a $450 million issue of five-year senior notes (B3/B) at par to yield 7%.

The yield printed at the tight end of the 7% to 7¼% yield talk. Initial guidance was in the low-to-mid 7% area.

It was heard to be playing to $1.6 billion of orders at 2:30 p.m. ET on Tuesday.

Meantime KB Home priced a $350 million issue of eight-year senior notes (Ba2/BB) at par to yield 7¼% in a Tuesday drive-by.

The execution saw the issue price coming rich to the 98 to 99 price talk. The yield printed at the wide end of the 7 1/8% to 7¼% yield talk (initial guidance had the deal coming at a discount to yield in the high-6% area).

Although the yield came a good deal higher than the Los Angeles-based home builder was suggesting there were investors on the Tuesday call who were pushing for a good deal more, a market source said.

These investors were insisting that in light of the fact that some home builder stocks are down more than 30% on the year, the debt of high-yield home builders needs to be repriced.

Some on the call professed a belief that a yield in the context of 8% would not be out of line, given present conditions in the sector, and in the junk bond market in general, the source said.

In the back-and-forth that ensued the book was slow to build, the source said, but added that as KB Home came with yield talk that was considerably higher than initial guidance books eventually reached two-times deal size.

Also on Tuesday Univision Communications Inc. began shopping a $500 million offering of eight-year senior secured notes (B1/B+).

Initial guidance has the notes coming to yield in the high-7% area to 8%.

The deal is set to run a roadshow through the remainder of the week, with books closing Friday.

Univision joins a pair of deals that were already stationed on the active forward calendar, at Tuesday's opening.

Maxar Technologies Inc. is scheduled to be on the road through Wednesday with a $500 million offering of five-year senior secured notes (B2/B), initial guidance in the mid-to-high 7% area.

The Maxar book was heard to be at $300 million on Tuesday afternoon, a sellside source said.

And Iris Holdings Inc. was scheduled to start a roadshow on Tuesday for a $400 million offering of 6.5-year senior notes (Caa2/CCC+) backing the buyout of Intertape Polymer Group Inc. by Clearlake Capital Group LP.

Initial guidance has the notes coming with a 10% coupon at an issue price in the low 90s with an all-in yield in the high 11% area to the low 12% area. Pricing is expected in the early part of the week ahead.

And the calendar took aboard one additional offering late Tuesday afternoon as Central Parent Inc. and Central Parent Merger Sub Inc. announced plans to sell $750 million of seven-year senior secured first-lien notes to support the buyout of CDK Global Inc. by Brookfield Business Partners.

The deal is set to kick off on an investor call scheduled to begin at 10 a.m. ET on Wednesday.

Recent deals drop

In the secondary market, Advanced Drainage’s 6 3/8% senior notes due 2030 went out ½ point lower at 101 Tuesday, a market source reported.

The notes were quoted ending Monday flat at 101½.

Advanced Drainage priced $500 million of the notes on Thursday at par, at the tight end of yield talk in the 6½% area.

In other new issues traded Tuesday, Builders FirstSource’s 6 3/8% senior notes due June 2032 (Ba2/BB-) pulled back slightly by the close, going out more than 5/8 point lower at 99 3/8, a source said.

The notes were down ¾ point in early trading Tuesday.

The building materials supply company priced $700 million of the notes at par on June 1 at the wide end of talk in the 6¼% area.

Wendy’s gains in June

Elsewhere in the junk space, Wendy’s CDS spreads widened 47 bps in the past week ended Wednesday to 244 bps, a market source said.

The burger chain’s 7% senior debentures due 2025 (Caa2/B-) were last seen Monday at 106 in thin trading, another source said.

The issue has added over 2½ points since the end of May.

S&P Global Ratings bumped Wendy’s to B+ from B and the bonds to B- from CCC+ on May 26 on the company’s stronger-than-expected first-quarter results.

Monday fund flows

High-yield ETFs sustained $525 million of daily cash outflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were positive on the day, posting $150 million of inflows on Monday, the source said.

The combined funds are tracking $1.06 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index softened to 57.48 with a yield of 6.48% on Tuesday from 57.66 with a 6.43% yield on Monday.

The CDX High Yield 30 index rose to 100.997 from 100.94 on Monday.

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