Cliffs, Consol calendar deals, four others price in busy session; Heinz jumps on Kraft news

By Paul A. Harris and Paul Deckelman

New York, March 25 – The high-yield new-deal world saw its second straight busy session on Wednesday, as half a dozen deals priced, most of them opportunistically timed and quickly shopped drive-by offerings.

The day’s tally of new junk bonds amounted to $2.57 billion, spaced over six tranches, according to syndicate sources – up from Tuesday’s $1,875,000,000 that got done in four tranches.

Two of Wednesday’s transactions were regularly scheduled offerings off the forward calendar, from coal operators Cliffs Natural Resources Inc., which mines and processes iron ore, and Consol Energy Inc., also a natural gas producer. The latter deal priced after having been downsized.

Besides those expected deals, favorable issuance conditions attracted a quartet of borrowers, including well-known junk issuer Ally Financial Inc. The auto loan and online banking concern’s $750 million five-year offering was the session’s biggest.

There were also quick-to-market deals from another Michigan-based automotive lender, Credit Acceptance Corp., from financial services company Navient Corp. and from funding subsidiaries of outdoor advertising company Outfront Media Inc. The latter deal was an add-on to its existing notes. All of the deals except for Outfront priced at a discount to par, and those that saw aftermarket action were little changed from their respective issue prices, though on busy volume.

Away from the new deals, H.J. Heinz Co.’s bonds and those issued by its H.J. Heinz Finance Co. subsidiary were mostly up sharply in active dealings on the news that the packaged foods giant will merge with sector peer Kraft Foods Group to create the third-largest food and beverage company in North America and the fifth-largest such company in the world.

Statistical indicators of junk market performance were mixed for a second straight session on Wednesday versus their levels the session before.

Ally drive-by

Half a dozen issuers completed single-tranche deals on Wednesday, raising an overall total of $2.57 billion.

Executions were choppy.

Of those for which price talk widely circulated, only one came tight: a $100 million add-on from Outfront Media, which was priced at the rich end of price talk.

However two of Wednesday's deals came wide of talk.

Two others came at the wide ends of talk.

And five of the six priced at discounts.

Ally Financial Inc. priced a $750 million issue of non-callable 4 1/8% five-year senior notes at 98.888 to yield 4 3/8%.

Barclays, Citigroup, Deutsche Bank and J.P. Morgan were the bookrunners.

Cliffs prices wide

Cliffs Natural Resources Inc. priced a $540 million issue of 8¼% five-year first-lien senior secured notes (Ba2/BB-) at 93.243 to yield 10%.

The face amount of the deal was upsized from $500 million.

The reoffer price came in line with the price talk of 93.

The yield was 100 basis points wide of the official 9% yield talk; however, talk widened late in the marketing of the deal, according to a market source.

Call protection was increased to three years from two years.

BofA Merrill Lynch was the left bookrunner. Jefferies, Deutsche Bank and Credit Suisse were the joint bookrunners.

Consol downsizes

Consol Energy Inc. priced a downsized $500 million issue of 8% eight-year senior notes (B1/BB) at 98.552 to yield 8¼%.

The deal was downsized from $650 million.

The yield printed at the wide end of the 8% to 8¼% yield talk.

Initial talk had the deal coming with a yield in the high 7% yield context, the source added.

Goldman Sachs, PNC, BofA Merrill Lynch, Credit Suisse, JPMorgan, MUFG and Wells Fargo were the joint bookrunners.

Navient at the wide end

Navient Corp. priced a $500 million issue of 5 7/8% non-callable six-year senior notes (Ba3/BB/BB) at 99.379 to yield 6%.

The yield printed at the wide end of the 5 7/8% to 6% yield talk.

Barclays, Credit Suisse, JPMorgan and BofA Merrill Lynch were the bookrunners for the general corporate purposes deal.

Credit Acceptance drive-by

Credit Acceptance Corp. priced a $250 million issue of 7 3/8% senior notes due March 15, 2023 (B1/BB) at 99.266 to yield 7½%.

The yield printed 25 bps beyond the wide end of the 7% to 7¼% yield talk.

Wells Fargo was the left bookrunner. BMO and BofA Merrill Lynch were the joint bookrunners.

Outfront taps 5 5/8% notes

Outfront Media priced a $100 million add-on to its 5 5/8% senior notes due Feb. 15, 2024 (B1/BB-) at 103.75 to yield 4.974%.

The reoffer price came at the rich end of the 103.5 to 103.75 price talk.

BofA Merrill Lynch was the left bookrunner. Morgan Stanley was the joint bookrunner.

Proceeds will be used to repay revolver debt and for general corporate purposes.

Outfront Media, formerly known as CBS Outdoors America, is a New York-based lessor of advertising space on out-of-home advertising structures and sites.

The original $400 million issue priced at par in January 2014 via issuers CBS Outdoor Americas Capital LLC and CBS Outdoor Capital Corp.

AA roadshow

In the European primary market, United Kingdom-based roadside assistance provider AA (Automobile Association) began a European roadshow on Wednesday for a £735 million offering of class B secured notes.

The notes come with a seven-year expected maturity and a final maturity on July 31, 2043.

Credit Suisse is the lead left global coordinator. Royal Bank of Scotland and Lloyds are also global coordinators. Barclays, JPMorgan, Morgan Stanley and Santander are joint bookrunners.

The Basingstoke, United Kingdom-based company plans to use the proceeds to refinance its existing notes.

Those notes are rated BB- by Standard & Poor's, the market source said.

New deals hold near issue

In the secondary arena, traders said the day’s new offerings that moved into the aftermarket were mostly little changed from their discounted pricing levels.

Consol Energy’s 8% notes due 2023 were the busiest of the bunch, a trader said, pegging the Pittsburgh-based coal and natural gas company’s issue at 98 5/8 bid on volume of more than $11 million.

That was not far from the 98.552 level at which the bonds had priced after the deal was downsized to $500 million.

Separate traders at two other desks meanwhile quoted the issue within a 98½-to-99 bid context.

Consol’s outstanding 8¼% notes due 2020 gained ¼ point on the day to end at 104½ bid.

A trader saw Navient’s 5 7/8% notes due 2021 initially moving around in a 98 3/8-to-98 5/8 bid range – actually down almost 1 point from the New York-based financial services company’s 99.379 issue price.

But another trader later on quoted the bonds nearer to that pricing level, at 99 5/8 bid, with volume of about $10 million.

The company’s existing 8.45% notes due 2018 meanwhile were down 3/8 point on the day, at 111¾ bid, with more than $12 million changing hands.

One of the trader saw Credit Acceptance’s 7 3/8% notes due 2023 going home in a 99¾-to-100¼ bid context, versus the Southfield, Mich.-based consumer auto-loan provider’s 99.266 pricing level.

One new deal that did manage to firm smartly after pricing was Cliffs Natural Resources’ 8¼% notes due 2020; a market source saw the bonds get up to 94½ bid, 95 offered, up from their 93.245 issue price.

The Cleveland-based coal and iron ore mining company’s existing 5.95% notes due 2018 jumped 1½ points to 79¾ bid, another market source said, on busy volume of more than $18 million.

Detroit-based automotive lender and online banking company Ally Financial’s 4 1/8% notes due 2020 came to market too late in the session for any kind of appreciable aftermarket.

But a trader did see the company’s established 3¾% notes due 2019 retreat by around 3/16 point on volume of about $9 million, ending at 98 7/8 bid.

There likewise was no immediate aftermarket seen in Outfront Media Capital LLC/Outfront Media Capital Corp.’s $100 million add-on to its existing $400 million of 5 3/8% notes due 2024.

Whiting whacked again

Among the news that priced during Tuesday’s session, Whiting Petroleum Corp.’s 6¼% notes due 2023 were seen down for a second consecutive session.

“Those are struggling,” said a trader about the Denver-based oil and natural gas exploration and production company’s quick-to-market $700 million offering, which priced on Tuesday at par. He quoted the bonds in a 98¾-to-par trading range.

At another desk, a market source said that Whiting’s new deal had eased by ¼ point from where they had gone home on Tuesday, ending the session at 99½ bid. Whiting was one of the day’s busiest issues, with volume of over $83 million seen.

The company’s existing 5¾% notes due 2021, which on Tuesday had swooned by 5½ points to end at 101¾ bid on the announcement that the company would be bringing a new bond deal to market, selling $1 billion of new shares and pricing a $1 billion convertible issue in order to generate liquidity, lost another 1 5/8 points on Wednesday, ending at 99 1/8 bid.

Senior analyst Evan Mann of the Gimme Credit independent investor advisory services is of the opinion that the company’s unexpected capital markets activity is an indicator that Whiting – which had been rumored to be on the sales block for months, “is giving up on finding a strategic buyer.”

Whiting’s acquisition last year of sector peer Kodiak Oil & Gas “looks like a good longer-term strategic fit,” he said in a research note Wednesday, “but the continuing decline in energy prices will likely result in some near-term indigestion.”

While the Kodiak purchase and the need to repurchase the latter company’s notes for $750 million under a change of control boosted outstanding revolver borrowings to $2.1 billion pro forma, the company still has “adequate” revolver availability, Mann said, which along with proceeds from potential asset sales “should provide sufficient liquidity to weather this industry downturn.”

Among Tuesday’s other deals, Reston, Va.-based internet domain-name and infrastructure security provider VeriSign Inc.’s 5¼% notes due 2025 firmed solidly for a second straight session, with a trader seeing the notes up by ¾ point on the day, on top of the ½-point gain seen in initial aftermarket dealings after the upsized $500 million forward calendar offering priced at par. Volume topped $48 million, on top of the more than $74 million of the new bonds that had traded after pricing.

Heinz higher on Kraft merger deal

Away from the new deals, H.J. Heinz’s bonds were the big gainers of the day, as investors ate up the Pittsburgh pickle producer’s paper with relish on the news that Heinz will combine its famous 57 varieties with those of another iconic U.S. food and beverage producer, Kraft Foods Group, to create a nearly $40 billion company that will be the third-largest food products producer in North America and fifth largest in the world.

Its H.J. Heinz Finance Co. subsidiary’s 7 1/8% bonds due 2039 opened at 115 bid, then zoomed as high as 135¼ bid, before coming down from that peak a little to end around 133¾, up some 25 points on the day, on volume of more than $25 million.

Finance’s 6¾% bonds due 2032 jumped to 123 5/8 bid, up nearly 16 points from their close on Tuesday, on round-lot volume of over $8 million, plus numerous smaller odd-lot transactions.

Parent H.J. Heinz Co.’s 4 7/8% second-lien notes due 2025 – $2 billion of which were sold just this past January – were the busiest in the Heinz capital structure, and in fact were the busiest of all Junkbondland issues on Wednesday, with over $134 million having changed hands. The bonds climbed 8 points on the session to end at 108½ bid.

Heinz’s 4¼% senior secured second-lien notes due 2020 saw brisk volume of over $33 million on a round-lot basis, plus many odd-lot pieces as well, although they experienced the smallest price gain, ending up 1 point on the day at 102¾ bid.

The bonds moved up as Heinz – acquired two years ago by billionaire investor Warren Buffett's Berkshire Hathaway Inc. and Brazilian private equity firm 3G Capital in a $28 billion transaction, including debt assumption – announced the planned merger with Northfield, Ill.-based Kraft, whose venerable brands such as Kool Aid, Jell-O, Maxwell House coffees and Philadelphia brand cream cheese are probably at least as famous as Heinz’s ubiquitous signature tomato ketchup, vegetarian baked beans and pickles.

Under the terms of the deal, Kraft shareholders will own a 49% stake in the new Kraft Heinz Co., which will maintain Kraft’s spot as a publicly traded company, while the current shareholders of Heinz, which was taken private when Berkshire Hathaway and 3G bought it in 2013, will own 51% of the merged firm on a fully diluted basis. Kraft shareholders will receive stock in the new combined company and a special cash dividend of $16.50 per share. The aggregate special dividend payment of about $10 billion is being fully funded by an equity contribution by Berkshire Hathaway and 3G Capital.

The merger statement said that with the cash consideration being fully funded by common equity from Berkshire Hathaway and 3G, the merger is not expected to increase Kraft Heinz Co.’s debt levels.

The announcement said that the new company “is fully committed to deleveraging in a timely manner and to maintaining an investment-grade rating going forward.”

Kraft’s existing bond debt is currently rated Baa2/BBB/BBB, while Heinz’ most recent bond deal carried ratings of B1/BB/BB.

Standard & Poor’s put Heinz’s current ratings on Credit Watch with positive implications on news of the planned merger, and put Kraft on Credit Watch with negative implications. Fitch ratings also put Heinz on positive watch.

During a morning conference call explaining the deal terms, Heinz’s chairman, Alexandre Behring – who will become the chairman of the new combined company – said that $9.5 billion of existing Heinz high-yield debt will be refinanced with investment-grade debt at the transaction’s closing, which will take place sometime during the second half of the year. Some $2.2 billion of second-lien notes will remain in place until they can be refinanced.

In addition, Heinz plans to refinance its $8 billion of preferred equity as soon as it becomes callable in June. This, too, will be replaced with investment-grade debt, resulting in annualized cash savings of between $450 million and $500 million.

Behring said that the combined company’s total debt will be about $28 billion at the closing.

Kraft Heinz will focus on reducing leverage through EBITDA growth and a targeted debt paydown of $2 billion within two years.

Net leverage is targeted at below three times in the near term.

Indicators stay mixed

Statistical indicators of junk market performance were mixed for a second straight session on Wednesday versus their levels the session before. They had turned mixed on Tuesday after having been higher over the previous two sessions before that.

The KDP High Yield Daily index moved up by 6 bps on Tuesday to 71.18, its fourth straight gain and its fifth such advance in the prior six sessions. On Tuesday, it had been up by 4 bps.

Its yield, meanwhile, came in by 3 bps on Wednesday, declining to 5.38%, its fifth straight narrowing. It had eased by 2 bps on Tuesday.

But the Markit Series 23 CDX North American High Yield index was on the downside for a second consecutive session on Wednesday, losing 3/16 point to end at 107 11/16 bid, 107¾ offered. On Tuesday, it had declined by 1/16 point, after having been essentially unchanged on Monday. On Friday, the index had risen by 11/32 point – its second advance in three sessions and its third in the previous five.

The Merrill Lynch U.S. High Yield Master II index notched its fifth consecutive gain on Wednesday, rising by 0.091%, following Tuesday’s 0.112% improvement. The five straight gains followed four successive losses before that.

Wednesday’s advance raised its year-to-date return to 2.391% from 2.298% on Tuesday, although it remained down from its peak 2015 level of 3.125%, set on March 2.

Lisa Kerner contributed to this review.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.