HudBay prices megadeal, new bonds move up; big session expected Friday; funds gain $342 million

By Paul Deckelman and Paul A. Harris

New York, Dec. 1 – For a second day in a row, the high-yield primary market saw just one new fully junk-rated and dollar-denominated issue price on Thursday – but this time it was a big one.

Junkbondland moved into the homestretch of 2016, opening the final month of the year, with a $1 billion two-part issue of six- and eight-year notes from Canadian mining company HudBay Minerals Inc.

That far surpassed the paltry $150 million which had come to market in just one tranche on Wednesday, according to data compiled by Prospect News.

When the new HudBay notes hit the aftermarket, traders said that both tranches firmed by several points from their respective par issue prices.

Syndicate sources meantime said that Friday is expected to be a busy session, with a pair of dollar-denominated issues from domestic companies possibly pricing.

They said that that price talk circulated on Thursday regarding the prospective transactions from Grinding Media Inc., selling $725 million of seven-year secured notes, and from AdvancePierre Foods Holdings, Inc., doing $350 million of eight-year paper. Catalent, Inc., and Thomas Cook Group plc are expected to bring euro-denominated deals during the session.

Away from the new deals, energy issues like California Resources Corp. continued to climb for a second straight session.

Statistical market performance measures turned mixed on Thursday after being higher on Wednesday, lower across the board on Tuesday and mixed on Monday, making it their second mixed session in the last four trading days.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a second consecutive week of net inflows after breaking a string of six straight outflows before that. Some $342 million more came into the weekly-reporting-only domestic funds than left them via investor redemptions during the week ended Wednesday, on top of last week’s $598 million inflow (see related story elsewhere in this issue).

HudBay at tight end

In Thursday’s primary market session, HudBay Minerals priced $1 billion of senior notes (B3/B) in two tranches.

The deal included $600 million of 7 5/8% notes due Jan. 15, 2025 that priced at par to yield 7.627%. The yield printed inside of yield talk set in the 7 7/8% area.

HudBay also priced $400 million of 7¼% notes due Jan. 15, 2023 at par to yield 7.252%. The yield printed in line with yield talk that had the short duration tranche pricing 37.5 basis points inside of the 2025 notes.

Talk tightened dramatically on both tranches after the deal came into the market earlier in the week, sources said.

The long tranche was guided earlier in the low-to-mid 8% area while the shorter duration notes were initially guided in the 8% area and were being discussed in the 7 5/8% area late Tuesday and early Wednesday, according to a portfolio manager.

Barclays was the lead left bookrunner. RBC and BofA Merrill Lynch were the joint bookrunners.

The Toronto-based mining company plans to use the proceeds to fund a tender offer for its 9½% senior notes due 2020 and for general corporate purposes.

Moly-Cop talked at 7½% to 7¾%

Looking ahead to what is expected to be a busy Friday in the primary market, formal price talk circulated on four deals during the Thursday session.

All are expected to clear the market before the weekend.

Grinding Media Inc. and MC Grinding Media (Canada) Inc. plan to price a $725 million offering of seven-year senior secured notes (B) backing the acquisition of Moly-Cop by American Industrial Partners on Friday.

The notes are talked to yield 7½% to 7¾%.

Morgan Stanley, Jefferies, Deutsche Bank and UBS are the joint bookrunners.

AdvancePierre talk set at 5½%

AdvancePierre Foods talked its $350 million offering of eight-year senior notes (B3/B-) to yield 5½%.

The talk comes tight to initial guidance in the high 5% area, a source said.

Barclays is the lead left bookrunner. Credit Suisse, Deutsche Bank, Morgan Stanley and Wells Fargo are the joint bookrunners.

Catalent talked in 4¾% area

Catalent talked its $400 million equivalent offering of euro-denominated senior notes (B3/BB-) to yield in the 4¾% area.

Morgan Stanley, J.P. Morgan, RBC and BofA Merrill Lynch are leading the deal.

Thomas Cook upsized

Thomas Cook upsized its offering of guaranteed senior fixed-rate notes due 2022 (B1//B+) to €500 million and talked the offering at a yield of 6¼% to 6½%.

The deal was announced earlier in the week at a minimum size of €300 million.

The offering is being led by global coordinators and physical bookrunners BofA Merrill Lynch, DNB and Lloyds.

Away from Catalent and Thomas Cook, prospects for a big buildup in the European high-yield calendar are not great, according to a London-based debt capital markets banker.

“Right now there is just so much liquidity for loans, which is likely to carry into the first quarter of next year,” the banker remarked.

“It could have a massive impact on bond supply.”

Avison Young via William Blair

As dealers worked to clear the substantial post-Thanksgiving calendar, only one new offer was announced on Thursday.

Avison Young (Canada) Inc. plans to start a roadshow on Monday in New York for a $130 million offering of senior secured notes due 2021.

William Blair is the sole bookrunner.

The notes are expected to garner a B2 or B3 rating from Moody’s Investor Service and a B+ from S&P, a market source said.

The Toronto-based commercial real estate firm plans to use the proceeds to refinance existing debt, to repurchase a portion of a minority partner’s shares and to put cash on the balance sheet for growth capital.

HudBay bonds higher

In the secondary market, traders saw initial aftermarket gains in both tranches of HudBay Minerals’ regularly scheduled forward calendar offering.

A trader initially saw both the 7¼% notes due in January 2023 and the 7 5/8% notes due January 2025 at 101¼ bid on the break, following the tranches’ par pricing.

Later on in the session, he saw the bonds move up to a 102 to 103 bid context.

At another desk, a trader also said those bonds were trading between 102 and 103 on the bid side. Later on, he saw them firm to 103 bid.

And yet another market source pegged both tranches late in the day around 102¾ bid.

Recent issues mixed

Looking at some of the market’s recently priced offerings, a trader said that Transocean Ltd.’s 6¼% senior secured notes due 2024 gained more than ½ point on the day – in line, he said, with better levels for energy and energy-related issues generally.

He saw the notes going out at 100 7/16 bid, with over $18 million traded.

The undersea energy drilling company had priced those notes, a quickly shopped $625 million issue, at 98.5 on Tuesday to yield 6½% after upsizing them from an originally announced $600 million.

The bonds initially traded with a 99 handle, then were wrapped around par in Wednesday’s dealings.

Non-energy credit Steel Dynamics, Inc.’s 5% notes due 2026 lost ¼ point on Thursday, falling to 100½ bid, a trader said, with over $16 million changing hands.

The Fort Wayne, Ind.-based steel producer and metals recycler priced $400 million of the notes in a quick-to-market deal on Tuesday. They initially moved above the 101 level when they hit the aftermarket later that same session, only to back down from those highs on Wednesday and again on Thursday.

Energy credits stay strong

Away from the new or recently priced deals, market participants saw energy-related issues continuing to climb in the wake of Wednesday’s news that the Organization of Petroleum Exporting Countries had agreed to cut the cartel’s oil production by 1.2 million barrels per day. Russia and other non-OPEC producers will trim another 600,000 barrels off the world’s daily oil output.

A trader said “the whole sector was up big time” on Wednesday, when oil prices rose by more than $4 per barrel across the board, and it stayed up there on Thursday.

“Oil came a little off its highs today,” another trader said, “but was still above $50 per barrel, so that’s turned in a pretty good performance this week.”

One energy benchmark credit – Los Angeles-based oil and natural gas exploration and production operator California Resources’ 8% notes due 2022 – gained 3 1/8 points on the session to end at 84 bid, a trader said, on top of its greater than 4 point climb on Wednesday.

More than $18 million of the notes traded, putting California Resources high up on the day’s junk Most Actives list.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday after being higher on Wednesday, lower across the board on Tuesday and mixed on Monday, making it their second mixed session in the last four trading days.

The KDP High Yield Index jumped by 16 basis points for a second consecutive session on Thursday, ending at 70.51, replicating Wednesday’s big gain, after easing by 1 bp on Tuesday. It was the index’s seventh gain in the last eight sessions.

Its yield came in by 3 basis points to 5.75%, its fifth straight narrowing. On Wednesday, it had declined by 4 bps.

But the Markit Series 27 CDX Index lost 3/16 point on Thursday to end at 104 19/32 bid, 104 5/8 offered, after rising by more than ¼ point on Wednesday. It was the index’s second loss in the last three sessions.

The Merrill Lynch High Yield Index made it two gains in a row, edging up by 0.010% on Thursday, after Wednesday’s 0.156% rise, versus Tuesday’s 0.058% downturn, which had followed six straight advances.

That raised its year-to-date return slightly to 15.233% from 15.222% on Wednesday.

But those levels remain well under its peak cumulative return for the year so far of 16.768%, set on Oct. 25.

© 2015 Prospect News.
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