Downsized Transocean breaks new-deal drought; WhiteWave jumps on buyout; funds up $1.8 billion

By Paul Deckelman and Paul A. Harris

New York, July 7 – The high-yield primary market saw its first new deal in more than two weeks get done on Thursday, as global undersea energy drilling contractor Transocean Inc. priced a downsized $1.25 billion of seven-year notes, market sources said.

That broke a volatility-induced logjam that had paralyzed the market ever since its most recent prior pricing – the $1.35 billion two-part offering that propane retailer AmeriGas Partners, LP had brought back on June 20.

But getting the Transocean deal finally done was no easy task – syndicate sources said that the issuer and its underwriters had to downsize the deal, give more call protection and do some covenant tinkering – and even then it priced at a sizable discount to par.

The market saw another pricing on Thursday, though technically not a junk deal per se, as healthcare REIT Care Capital Properties, LP brought in a $500 million 10-year issue; despite its nominally investment-grade rating, that deal was run off both the high-yield and the high-grade syndicate desks, the sources said.

In the secondary market, WhiteWave Foods Co.’s bonds firmed smartly in active trading on the news that French food products company Danone has agreed to acquire it in an estimated $12.5 billion transaction.

Chemours Co. debt was active – and actually moved higher, making up from some losses seen on Wednesday on the news that the spinoff from chemicals giant DuPont had been found liable, along with its former corporate parent, in a court suit – one of potentially thousands – revolving around medical damages from years of DuPont’s chemical dumping practices.

Statistical market performance measures turned higher across the board on Thursday, after having been mixed for three straight days before that. Including four consecutive stronger sessions last week, Thursday marked the fifth higher session in the last eight trading days.

Meanwhile, another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – saw its first net inflow this week following three consecutive weekly outflows, market sources said Thursday.

Some $1.798 billion more came into those weekly-reporting-only domestic funds than left them during the week ended Wednesday – in sharp contrast to three straight outflows in the preceding weeks, totaling some $4.196 billion.

Transocean downsizes

Transocean priced Thursday’s sole junk deal, a downsized, restructured $1.25 billion issue of 9% seven-year senior notes (B1/BB-) that came at 97.5 to yield 9.499%.

The deal was cut from $1.5 billion.

The coupon printed on top of coupon talk. The reoffer price came 50 basis points cheap to the cheap end of the 98 to 99 discount talk.

Early yield guidance had the deal coming in the low 9% range.

In a structural change, call protection increased to four years from three years.

There was also a change to the future guarantors covenant, which was modified to include the addition of 85% of drilling rig and drillship book value.

Late in the afternoon, just prior to the market learning that the deal was officially launched, the order book was around $1.3 billion, according to a trader who was watching the deal.

Hedge funds were a conspicuous presence among the accounts that took part, an investor said.

The buzz in the market was that late in the marketing of Transocean’s new 9% notes an anchor order was withdrawn.

Volatility in crude oil prices, which sustained a precipitous drop during the post-Independence Day week, did not help Transocean’s deal, sources said.

Also, the earlier issuers to come into the market after the Brexit-induced pause were bound to be price-takers, they added.

Morgan Stanley and Goldman Sachs were the joint bookrunners for the debt refinancing deal.

Away from the Transocean deal, there is not much conviction as to when new issue business might start to pick up, the investor said, and added that in any case the deal pipeline is not vast.

Care Capital, a joint effort

Elsewhere Thursday Care Capital Properties, LP priced a $500 million issue of non-callable 10-year senior notes (Baa3/BBB-/BBB-) at par to yield 5 1/8%.

The yield printed at the tight end of yield talk that had been set in the 5¼% area. Initial guidance was also 5¼%.

In an attempt to reach a broad investor base, the investment grade-rated deal was run as a joint effort on the high-yield and high-grade syndicate desks, an informed source said.

Wells Fargo, Barclays, Citigroup, J.P. Morgan and BofA Merrill Lynch were the joint bookrunners for the debt refinancing.

Transocean debut underwhelms

In the secondary arena, traders did not immediately report any initial aftermarket dealings in the new Transocean 9% notes due 2023.

One trader opined that when the issue does start trading, “I can’t imagine it’s going to jump out of the gate.”

He said “I think it’s going to go to the guys that put in for it – and I don’t think you’ll see much in the way of other secondary trading, though you never know.”

He predicted that should it trade, “it will probably trade around issue [97.5] to slightly lower.”

He noted that with oil prices off by more than $2.25 per barrel on Thursday “and the whole market feeling kind of softer in general, I think this was one that they were lucky to get through the gate.”

The Vernier, Switzerland-based offshore energy drilling contractor’s existing bonds – which had initially rallied on the news of the new deal and the use of most of the deal’s proceeds to fund a tender offer for about $1 billion of the bonds, only to come down from those highs subsequently – continued to lose ground on Thursday.

A market source quoted its 6½% notes due 2020, one of the issues being partially tendered for, at 93¾ bid, down ¾ point on the day, with about $12 million having changed hands, making it the most active issue in the company’s capital structure.

The first trader said that he “really did not see a tremendous amount of trading” in the existing bonds on Thursday.

Transocean’s 7½% bonds due 2031 were seen down 1¾ points on the day at 64½ bid.

WhiteWave way up

Away from new-deal linked bonds, market participants saw WhiteWave Foods’ 5 3/8% notes due 2022 soar as high as 116¾ bid, before ending the day around 115 – still up more than 8 points on the session.

More than $16 million of the notes traded.

Those bonds got a big boost from the morning announcement that the Denver-based food company had agreed to a $12.5 billion acquisition offer from Danone, the French food firm best known in the United States as the market of the popular Dannon brand of yogurt.

“They’re obviously going to tender for those bonds, so that drove them up,” a trader said.

Thompson Creek holds gains

Also among issues benefitting from merger and acquisition news, Thompson Creek Metals Co. Inc.’s 9¾% senior secured notes due 2017 were seen by a market source to have gained ¼ point to 103¼ on volume of around $11 million.

The Littleton, Colo.-based gold, silver, copper and molybdenum mining company’s notes had gained around 3 points on Wednesday – and its two issues of unsecured notes had zoomed by around 30 points each to around the par level from the lower 70s – on the news that it will be acquired in a $1.1 billion deal, including debt assumption, by Canadian miner Centerra Gold Inc.

Chemours up despite suit news

Chemours’ debt was trending higher on Thursday despite news that the company had been slapped with a $5.1 million judgment against it and its former parent, DuPont.

The stock was also heading higher, though it had collapsed as much as 22% on Wednesday, right after the verdict was announced.

A trader saw the 6 5/8% notes due 2023 rising 5½ points to 80½, while the 7% notes due 2025 ticked up 2 to 78 3/8.

“It doesn’t look good,” the trader said of the news. “But maybe it’s not as bad as they thought.”

As for the equity, it improved by 63 cents, or 10.62%, closing at $6.56.

Late Wednesday, it was reported that Chemours and its former parent were found liable in an employee’s lawsuit that alleged his exposure to certain chemicals used to make the company’s famed Teflon products had resulted in the employee contracting testicular cancer.

The suit is one of thousands of similar cases brought against the companies.

Technically DuPont was the liable party but Chemours – spun-off from DuPont in July 2015 – is the one financially responsible.

The company has said it will appeal the ruling.

Indicators turn better

Statistical market performance measures turned higher across the board on Thursday, after having been mixed for three straight days before that. Including four consecutive stronger sessions last week, Thursday marked the fifth higher session in the last eight trading days.

The KDP High Yield Index firmed by 12 bps on Thursday to end at 68.25, its seventh consecutive gain and eighth advance in the last 10 sessions. It had edged up by 2 bps on Wednesday.

Its yield came in by 6 bps on Thursday to 5.97% – its low for the year, tying the mark also set on June 9. It was its seventh straight narrowing after having widened for two sessions. It had also tightened by 1 bp on Wednesday.

The Markit Series 26 CDX Index edged upward by 1/32 point on Thursday to end at 103 5/32 bid, 103 7/32 offered on top of Wednesday’s nearly 5/16 point gain. It was the second straight upturn after two sessions on the downside earlier in the week. Counting four straight gains before that, Thursday was the index’s sixth upturn in the last eight sessions.

And the Merrill Lynch High Yield Index rose by 0.422%, coming back from Wednesday’s 0.005% loss, which had been its first setback after six gains in a row before that.

Thursday’s gain raised its year-to-date return to 10.33% from Wednesday’s 9.867%. It also established a new peak level for the year, topping the previous zenith, Tuesday’s 9.872% finish.

It was the index’s first time above 10% since Dec. 31, 2012, when it closed out the year with a 15.583% return.

-Stephanie N. Rotondo contributed to this review

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