Iron Mountain, Beacon Roofing price, firm despite market sell-off; funds gain $17.7 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 24 – The high-yield market, in the words of one trader, was “down hard again” on Thursday.

But that volatility did not stop a pair of issuers from bringing a total of $1.3 billion of new dollar-denominated, fully junk-rated paper to market during the session – including one pretty big transaction.

Iron Mountain, Inc., a records and document storage and disposal company, priced $1 billion of five-year notes in an upsized, quick-to-market offering. Traders saw those new notes up nearly a point in aftermarket dealings.

They also said that Beacon Roofing Supply Inc. brought a regularly scheduled $300 million issue of eight-year paper to market. Those bonds, too, were quoted higher Thursday.

There was brisk trading in Building Materials Corp. of America and, of course, in the recently priced bonds from Frontier Communications Corp., the latter credits continuing to slide after pricing at par back on Sept. 11.

Away from issues that have already priced, high-yield syndicate sources said that Cablevision Systems Corp.’s big new deal, which could get done during Friday’s session, was downsized by $1 billion to $5.3 billion, with the $1 billion shifted to its concurrent term loan, which is part of the financing for the acquisition of the cable operator and newspaper publisher by Europe’s Altice NV.

Away from the new deals, traders saw junk issues generally taking their licks as part of a broader financial market retreat amid continued worries about possible interest-rate hikes and sluggish economic growth, especially outside the United States.

Statistical measures of junk market performance were seen lower across the board for a third consecutive session on Thursday and for a fourth such lower session out of the last five.

But another indicator – flows of investor cash into and out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – showed a third straight week of net additions by investors in the latest reporting week.

Iron Mountain upsizes

Two deals were priced during the Thursday session, generating a total of $1.3 billion of proceeds.

And although the executions took place against a backdrop of volatility in the high-yield market and in the global capital markets beyond, the executions appeared solid.

One of the two deals came as a drive-by.

One was upsized.

One priced on top of talk while the other priced at the tight end of downwardly revised talk and through original talk.

In a drive-by, Iron Mountain priced an upsized $1 billion issue of five-year senior notes (Ba3/B+) at par to yield 6%.

The deal-size was increased from $800 million.

The yield printed on top of price talk.

Early guidance had the yield coming at 5¾% to 6%, according to a trader.

BofA Merrill Lynch, J.P. Morgan Securities LLC, Barclays, Wells Fargo Securities LLC, Credit Agricole CIB, HSBC Bank, Morgan Stanley & Co. LLC, PNC Capital Markets and RBC Capital Markets were the joint bookrunners for the debt refinancing.

Beacon Roofing comes tight

Beacon Roofing Supply priced a $300 million issue of eight-year senior notes (B3/B+) at par to yield 6 3/8%.

The yield came at the tight end of the 6 3/8% to 6½% revised yield talk and inside of the original 6½% to 6¾% yield talk.

Wells Fargo was the left bookrunner for the acquisition deal. Citigroup Global Markets Inc., BofA Merrill Lynch, JPMorgan and SunTrust Robinson Humphrey Inc. were the joint bookrunners.

In the wake of terms circulating, a portfolio manager professed astonishment that the deal came tighter than original talk but still appeared to go well. The bonds were trading in the secondary market at par ¾ bid, the manager said.

Cablevision downsized

Cablevision Systems downsized its high-yield bond offering to $5.3 billion from $6.3 billion and shifted $1 billion of proceeds to its concurrent term loan, increasing it to $3.3 billion from $2.3 billion.

The reworked bond deal, part of the financing backing the acquisition of the company by Altice NV, is now coming in three tranches instead of the two that were announced earlier in the week.

Included is a downsized $1.5 billion tranche of 10-year senior guaranteed notes (BB-) talked to yield 6½% to 6¾% (versus initial guidance in the 6½% area). The guaranteed notes tranche is downsized from $2 billion.

In addition the deal includes a downsized $3.8 billion amount of senior unsecured notes (B-) coming in two tranches.

Included is a tranche of seven-year notes talked to yield 10% to 10¼% and 10-year notes talked to yield 10¾% to 11% (versus initial guidance of 9¾% to 10%).

Tranche sizes remain to be determined.

The unsecured portion of the financing is downsized from $4.3 billion. When the deal was announced, that amount was coming as a single tranche of 10-year notes. The seven-year notes were announced along with the resizings on Thursday.

Books are scheduled to close at noon ET on Friday, and it is set to price thereafter.

JPMorgan, Barclays, BNP Paribas Securities Corp., Credit Agricole CIB, Deutsche Bank Securities Inc., RBC Capital Markets, Scotia Capital, SG CIB and TD Securities are the joint bookrunners.

Aside from Cablevision, the Friday session could produce news and possibly deal terms on Olin Corp.'s $1.5 billion of senior notes in two tranches. The deal is struggling, and a process of price discovery is underway, market sources say.

Also in the market is Unisys Corp. with $350 million of five-year senior secured notes that were expected to price earlier in the week.

Early yield guidance is in the 7½% area, a trader said.

Formal talk has not yet circulated.

Soho House postpones

In the European market Soho House Bond Ltd. postponed its £200 million offering of five-year senior secured notes (Caa1/B-) due to market conditions.

The deal was talked on Wednesday to yield in the 8¾% area.

The London-based company had planned to use the proceeds to refinance debt, including the redemption of its 9 1/8% secured notes due 2018, and for general corporate purposes.

Day’s deals seen higher

In the secondary arena, a trader said that Beacon Roofing Supply’s new 6 3/8% notes due 2023 “did a little bit better,” quoting the new bonds around 101 bid, up from their par issue price.

However, he said that he had not seen much activity in the Herndon, Va.-based residential and commercial roofing materials distributor’s new issue.

The day’s other deal, Boston-based Iron Mountain’s upsized $1 billion drive-by offering of 6% notes due 2020, priced fairly late in the session.

Even so, a trader said that the bonds had firmed to about a 100¾-to-101 bid context in initial aftermarket activity.

Building Materials bonds busy

Going back to Tuesday’s $1.1 billion offering from Building Materials Corp. of America, a market source said that those 6% notes due 2025 were among the busiest credits of the day in Junkbondland, with over $17 million having changed hands.

He saw the bonds at 100¾ bid, calling that down 1/8 point.

A second trader meantime pegged the bonds at 100 5/8 bid, 101 1/8 offered, calling them unchanged on the day.

The Wayne, N.J.-based roofing manufacturer priced its regularly scheduled forward-calendar offering at par during Tuesday’s session, and they were seen having moved up from that issue price on Wednesday.

Frontier continues to falter

The recently priced megadeal from Frontier Communications remained in its usual position on Thursday as one of the market’s favorite whipping boys.

A trader noted that the Stamford, Conn.-based wireline telecommunications and internet broadband service provider’s new notes “have been active every day,” and he said that Thursday was no exception.

He said that the new seven- and 10-year notes were down ¾ point to 1 full point from Wednesday’s close, while its five-year bonds were ½ point softer

Another trader said that Frontier’s 11% notes due 2025 were finishing at 97½ bid, which he called down 1 full point, on volume of over $29 million, putting the credit high up on the junk market’s Most Actives list, while its 10½% notes due 2022 were down 1 3/8 points at 98¼ bid, with over $24 million traded.

Its 8 7/8% notes due 2020 were seen ½ point easier at 98 5/8 bid, 99 3/8 offered.

Frontier priced $1 billion of the five-year notes, $2 billion of the seven-year notes and $3.6 billion of the 10-year notes, all at par, in a regularly scheduled forward calendar offering on Sept. 11.

The long-awaited $6.6 billion deal was the second-biggest offering the junk market has seen so far this year, according to data compiled by Prospect News, taking a back seat only to Canadian drug manufacturer Valeant Pharmaceuticals International Inc.’s $8.5 billion three-part transaction on March 13.

Energy names off

Overall, a trader said that “there was generic weakness across the high-yield market,” particularly in chemicals, metals and energy, “all of which underperformed.”

In energy, Los Angeles-based California Resources Corp.’s widely traded benchmark issue, its 6% notes due 2024, were seen by one trader having fallen to 61-61½ bid from 63½ on Wednesday, while a second trader saw them off by 3 points on the day, trading in a 60ish context.

“Just on the week, they’re down at least 3 or 4 points,” one of the traders said.

He noted that the bonds “closely correlate” with crude oil price movements, acting as a proxy for crude.

Indicators continue to slide

Statistical measures of junk market performance were seen lower across the board for a third consecutive session on Thursday and for a fourth such lower session out of the last five.

The KDP High Yield Daily index suffered its 10th straight loss on Thursday, plunging by 40 basis points to go home at 66.89, breaching the psychologically significant 67.00 level and recording its lowest close since Sept. 9, 2009, when it had finished at 66.65.

On Wednesday, the index had fallen by 16 bps.

Its yield, meanwhile, ballooned out by 11 bps, closing at 66.65%, after having risen by 5 bps on Wednesday. It was the yield’s seventh straight widening as well as its eighth in the last nine sessions and its ninth in the last 11 trading days.

The Markit Series 24 CDX North American High Yield index posted its third straight loss and fourth in the last five sessions, falling by 5/16 point on Thursday to end at 103 21/32 bid, 103 23/32 offered. It had declined by 5/32 point on Wednesday.

And the Merrill Lynch North American Master II High Yield index continued to languish for an 11th straight session on Thursday, losing 0.562% on top of Wednesday’s 0.051% retreat.

Thursday’s loss brought its year-to-date loss to 1.133% from 0.575% on Wednesday.

That year-to-date loss is dangerously close to the 1.136% recorded on Aug. 24 – its biggest cumulative deficit for the year. Those levels remain well down from the positive 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Funds gain $17.7 million

But another numerical gauge managed to stay positive – though not by much.

High-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends, showed a third straight week of net additions by investors in the latest reporting week.

Those inflows follow two straight weeks before that of net redemptions.

Sources familiar with the fund-flow statistics said Thursday that $17.7 million more had come into those weekly-reporting-only funds than had left them during the week ended Wednesday. (See related story elsewhere in this issue.)

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