Upsized Charter Communications, Huntsman deals drive by; Essar Steel Algoma on the way

By Paul Deckelman

New York, Oct. 29 – The high-yield primary sphere had one of its biggest-volume days in a while on Wednesday, as some $3.9 billion of new dollar-denominated, fully junk-rated paper came to market, syndicate sources said.

Most of that issuance was attributable to just one transaction: Charter Communications, Inc.’s massively upsized $3.5 billion two-part offering. It consisted of eight- and 10-year notes, with the proceeds to be used to help fund the cable and broadband operator’s acquisition of some Time Warner Cable assets from Comcast Corp., which the latter company is divesting in order as part of its acquisition of most of Time Warner Cable.

Charter’s quick-to-market offering – delayed by the great upsizing – priced too late for any kind of initial aftermarket activity.

Earlier in the session, Huntsman Corp. did a quickly shopped deal that was also upsized. The $400 million of eight-year paper will see its proceeds used to fund the redemption of some of the company’s existing notes.

Existing Charter and Huntsman bonds were seen lower on the news of the respective companies’ new deals.

The new Huntsman bonds, meanwhile, were heavily traded, moving up a little from their issue price.

Those two deals were the only news seen coming out of the primary market on Monday. New issue players continued to anticipate the pricing of Essar Steel Algoma Inc.’s $625 million two-part deal, as well as the conclusion of roadshows by Evraz Inc. NA Canada in the dollar market and by Abengoa Yield plc and Arrow Global plc in the euro-denominated market.

There was brisk trading at somewhat lower levels for Tuesday’s new issue from Jaguar Land Rover Automotive plc.

Traders said that apart from the new issues, little stood out in the high-yield secondary. They said that the overall market had a heavier tone to it, mirroring the afternoon slide in equities that followed the Federal Reserve’s announcement ending its long-running quantitative easing bond-buying plan.

While the end of that stimulus policy had been widely expected, some financial market players were taken aback by what they perceived to be “hawkish” language from the central bank touting the pace of the economy’s recovery, considered a potential negative for fixed-income investments.

Statistical indicators of junk market performance were mixed for a second straight session on Wednesday after having eased across the board on Monday.

Charter massively upsizes

Charter Communications’ $3.5 billion two-part drive-by offering (B1/B+) of new eight-year and 10-year senior unsecured notes was not only the big deal of the day – it was one of the biggest new issues seen so far this year.

According to data compiled by Prospect News, the deal occupied sixth place among the 2014 megadeals, although it came in well short of the $5.1 billion three-part behemoth priced earlier this month by power generator Dynegy Inc.

High-yield syndicate sources said that the Charter transaction was more than doubled from the original $1.5 billion offering announced earlier in the day.

The deal consisted of $1.5 billion of 5½% notes due 2022 and $2 billion of 5¾% notes due 2024. Both tranches priced at par and were in line with price talk released earlier in the day.

The notes are being sold by the Stamford, Conn.-based cable and broadband services provider’s CCOH Safari, LLC subsidiary via a Securities and Exchange Commission-registered public offering.

The deal was being brought to market via joint bookrunning managers Goldman Sachs& Co., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Merrill Lynch Pierce, Fenner and Smith, Inc.

Citigroup Global Markets Inc., Macquarie Capital (USA) Inc., RBC Capital Markets Corp., RBS Securities Inc., SunTrust Robinson Humphrey, Inc., UBS Securities LLC, U.S. Bancorp Investments, Inc. and Wells Fargo Securities LLC were co-managers on the transaction.

Charter plans to use the proceeds from the offering, together with new borrowings under its Charter Operating credit facility, to finance its previously announced acquisition from Comcast Corp. of cable systems serving roughly 1.5 million Time Warner Cable Inc. video customers. The increased proceeds from the bond sale will reduce the amount of credit facility borrowings needed to consummate the acquisition transaction.

However, what is considered to be the unlikely event that the Charter-Comcast transactions are not certified as complete by Nov. 5, 2015, or should the borrower inform the escrow trustee that the acquisition agreement between the two companies has been or will be terminated, the notes will become subject to a special mandatory redemption at par plus accrued interest.

Huntsman deal upsized

The day’s other pricing came from Huntsman, which came to market with an upsized $400 million issue of senior notes due 2022 (B1/B+) via its wholly owned subsidiary, Huntsman International LLC.

The syndicate sources said that quick-to-market issue priced at par to yield 5 1/8%, in line with price talk, after it was upsized from an originally announced $300 million.

The Rule 144A/Regulation S offering, which comes with registration rights, was brought to market via joint bookrunners J.P. Morgan Securities LLC, Citigroup, Barclays Capital Inc., Bank of America Merrill Lynch, Goldman Sachs, HSBC Securities (USA) Inc., PNC Capital Markets LLC, RBC Capital Markets and RBS Securities.

The deal, which priced just hours after its initial announcement, was marketed to investors via a morning (ET) investor call.

Huntsman, a specialty chemicals manufacturer based in Salt Lake City, Utah, intends to use the net proceeds of the planned offering to redeem a portion of its $350 million of outstanding 8 5/8% senior subordinated notes due 2020, as well as for general corporate purposes.

Essar deal awaits

Several market sources said on Wednesday that they saw no sign of the impending $625 million two-part deal being done by Essar Steel Algoma, a Sault Ste. Marie, Ont.-based maker of hot- and cold-rolled steel products.

The company began a roadshow last week for that Rule 144A/Regulation S deal, which consists of $350 million of five-year senior secured notes and $275 million of seven-year junior secured notes.

Market sources said that the five-year tranche was being talked at a discount to yield in the 8% area, while the seven-years were being talked at a discount to yield around 10½%.

Order books had been scheduled to close on Wednesday afternoon, with pricing expected sometime thereafter via bookrunners Deutsche Bank, Goldman Sachs and Jefferies LLC, plus co-managers Imperial Capital and Canaccord Genuity Corp..

The company was also in the process of bringing in a $350 million bank loan deal, with the proceeds from the bonds and loan transactions to be used to refinance debt and for general corporate purposes.

Roadshows continue

Investors looking for new deals also noted a trio of prospective offerings currently on the road.

In the dollar market, Evraz Inc. NA Canada, a Regina, Saskatchewan-based steel producer, is marketing its $500 million senior secured five-year note offering to potential buyers this week, assisted by joint bookrunners Citigroup and Goldman Sachs, plus co-managers Credit Agricole CIB, ING, Moelis, SG CIB and UBS.

In the euro-denominated market, Abengoa Yield, a London-based company that owns a portfolio of assets in the energy and environment sector, is shopping around €200 million of five-year senior notes via joint bookrunners BofA Merrill Lynch, Citi, HSBC and Santander Investment Securities Inc. That roadshow is slated to go through on Thursday.

Arrow Global, a Manchester, England-based company that invests in consumer debt and provides receivables management services, is getting ready to price €220 million of senior secured seven-year floating-rate notes via bookrunner Goldman Sachs International. That deal, too, is scheduled to be on its roadshow through Thursday.

New Huntsman a little higher

In the secondary market, traders saw the new Huntsman 5 1/8% notes due 2022 having edged up a little from their par issue price when they hit the aftermarket.

One trader said that after it priced, the new bonds “saw some trading.” Getting as high as 100½ bid, “they’re coming back in,” he said. He saw the notes finishing in a 100 1/8 to 100¼ bid context.

A second trader saw the Huntsman notes at 100¼ to 100½ bid.

At another desk, a market source said the notes edged up by about 1/8 of a point, but on volume of more than $48 million, easily topping the junk market’s most-actives list.

He also saw the company’s existing 4 7/8% notes due 2020 fall by ¾ of a point to 101 bid, on volume of more than $11 million.

Charter too late to trade

The new Charter issue – delayed as it was while the deal was massively upsized – saw no aftermarket activity on Wednesday, a trader said.

However, he said that the company’s existing notes “were trading off with the new deal coming.”

He saw the 5¾% notes due 2024 trader off in active dealings, ending around 102¼, which he called down 1 point, or even 1½.

Another trader, though, said that the loss was only about ½ of a point and estimated turnover at an intense $32 million.

Jaguar trades actively

Among the deals from earlier in the week, a trader said that the new Jaguar Land Rover 4¼% notes due 2019 were “just above their deal price.”

The British luxury carmaker priced $500 million of those notes at par on Tuesday in a drive-by transaction.

Another trader called the bonds down ½ of a point on Wednesday from Tuesday’s peak aftermarket levels around 101 bid, with over $19 million having traded.

Going back to Monday, one of the traders said that Building Materials Corp. of America’s 5 3/8% notes due 2024 traded between par 100¼ bid, “right about where they had been.”

The Wayne, N.J.-based manufacturer of building products brought a quickly shopped $1.1 billion of those notes to market at par on Monday.

And the trader said that Houston-based oil and natural gas exploration and production operator Carrizo Oil & Gas Inc.’s 7½% notes due 2020 were holding in a 101½ to 102 range.

The company had priced a quick-to-market $300 million add-on to its existing 2020 notes at 100.5 to yield 7.346%.

Chrysler climbs

Fiat Chrysler Automobiles NV’s bonds “popped,” a trader said, seeing the carmaker’s 8¼% notes due 2021 having moved up to 111½ bid, 111¾ offered, which he called up ¾ to 1 point.

He cited the news that the company plans to spin off its valuable Ferrari sports car franchise and will be doing some balance sheet cleanup as well.

The company plans to redeem its Chrysler Group outstanding secured senior notes and to refinance the group’s term loans and revolving credit facility.

The latter’s 5¾% notes due 2024 gained 7/8 of a point to end at 111 and 3/8 bid, on volume of more than $33 million.

Fed sets market back

A trader saw the overall market lower by around ¼ of a point generically. “We’re starting to see more sellers come out, scattered around out there.”

He said that things were not helped by what some observers saw as an unexpectedly sanguine tone in the Federal Reserve’s remarks about the shape of the economy – such bullishness traditionally does not bode well for fixed income.

“At some point, when [interest] rates start to head north, does everyone run for the exits?” the trader asked.

Indicators stay mixed

Statistical indicators of junk market performance were mixed for a second straight session on Wednesday, after having eased across the board on Monday.

The KDP High Yield Daily index was unchanged on Wednesday at 72.46, after two consecutive losses, including Tuesday’s 4 bps retreat. Its yield came in by 1 bp for a second straight session, ending at 5.31%.

The Markit CDX North American High Yield Series 23 index dropped by 3/8 of a point on the day to finish at 106 5/8 bid, 106 11/16 offered. It had risen by 5/32 of a point on Tuesday.

The Merrill Lynch High Yield Master II Index notched its second straight improvement on Wednesday, up 0.019%, almost identical to Tuesdays’ 0.018%. Those gains, in turn, followed Monday’s 0.035% downturn – its first loss after seven straight advances.

Wednesday’s gain lifted its year-to-date return to 4.712% from Tuesday’s 4.692%.

However, the year-to-date return remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

According to the Finra-Bloomberg Active US High Yield Bond index, Wednesday’s junk market volume fell to $3.132 billion from $3.809 billion on Tuesday.

© 2015 Prospect News.
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