No pricings, but primary restarts as forward calendar builds; Navistar jumps on Volkswagen deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 6 – The junk bond market got back to work on Tuesday after the long Labor Day holiday break in the United States that signaled the unofficial end of summer (although the calendar still gives it another two weeks) and along with it the end of the market’s traditional summer lull.

As had been the case pretty much throughout that more than two-week pause, syndicate sources did not report any pricings of new dollar-denominated and fully junk-rated issues by domestic or industrialized country borrowers.

However, as had been predicted, the Junkbondland forward calendar began growing, and rapidly so, with the announcement of new deals totaling more than $4 billion equivalent.

Some $1.565 billion equivalent could come to market as soon as Wednesday, with European packaging company Ardagh Group SA said to be bringing in tranches of dollar- and euro-denominated seven-year senior secured notes.

In contrast, the day’s other three new-deal announcements were all single-tranche affairs.

Building materials distributor BMC Stock Holdings, Inc. and medical device maker Acelity LP Inc. were heard by the sources getting ready to hit the road starting Wednesday to market their respective deals – BMC’s $325 million of eight-year secured paper and Acelity’s $1.75 billion of notes, also a secured deal.

And energy operator Antero Midstream Partners LP is slated to price a $500 million offering on Thursday.

Away from the bidding new-deal calendar, Navistar International Corp. was the most notable name, its three series of bonds each jumping in very active dealings on the news that German automotive giant Volkswagen plans to take a 16.6% ownership stake in the truck and bus maker, as part of a $256 million strategic alliance between the two companies.

For a second straight day, statistical market performance measures were mixed on Tuesday. Although the market was not formally in session on Monday due to the holiday, the indexes that did publish turned mixed, after having been higher across the board on Friday.

Tuesday was the fourth mixed session in the last six days.

Ardagh in dollars and euros

As forecast, the post-Labor Day primary market wasted no time getting its legs.

Four prospective issuers rolled out five tranches of notes totaling $4.14 billion equivalent of business launched during the Tuesday session.

Four of those five tranches are set to price before the end of the week.

Ardagh Group SA expects to price $1,565,000,000 equivalent of seven-year senior secured toggle notes on Wednesday.

The deal is coming in tranches of dollar-denominated and euro-denominated notes, with the tranche sizes remaining to be determined.

However the deal is expected to be weighted toward the dollar tranche in two-thirds/one-third split, according to a trader who said that the dollar-denominated notes are taking shape with early yield guidance in the mid-7% context while the euro-denominated notes are shaping up with early guidance in the 7% area.

Ardagh expects to pay the coupons in cash, but wants the option to PIK if the need arises, the trader added.

Citigroup is the left bookrunner. Barclays is the joint bookrunner.

Proceeds from the sale will be used to redeem the existing PIK notes due 2019, and to provide shareholder liquidity.

BMC Stock Holdings for Friday

BMC Stock Holdings, Inc. plans to start a roadshow on Wednesday for a $325 million offering of eight-year senior secured notes.

The offer is set to price and allocate on Friday.

Early whisper has the debt refinancing deal shaping up with 5½% to 5¾% yield guidance.

Barclays is the lead left bookrunner. Wells Fargo, Goldman Sachs and RBC Capital Markets are the joint bookrunners.

Antero $500 million

Antero Midstream Partners LP plans to price a $500 million offering of eight-year senior notes on Thursday.

Early guidance has the debt refinancing deal coming with a yield of 5¾%.

JP Morgan is the lead bookrunner.

The Denver-based limited partnership plans to use the proceeds to repay bank debt.

Acelity starts Wednesday

Acelity LP Inc. plans to start a roadshow on Wednesday in New York for a $1.75 billion offering of second-lien senior secured notes, in a deal set to price on Tuesday, Sept. 13.

Early guidance has the debt refinancing deal shaping up with a yield in the mid-9% range.

Goldman Sachsis the left bookrunner. BofA Merrill Lynch, Credit Suisse, Nomura, SunTrust, RBC and UBS are the joint bookrunners.

Other new deal announcements are expected as the holiday-shortened week unfolds, sources said on Tuesday.

Look for a big deal on Thursday, said a trader who claimed to have no further information.

And look for JP Morgan to roll out three or four deals during the remainder of the present week into the week ahead, the trader added.

Friday inflows to junk funds

Dedicated high yield bond accounts saw flat to slightly positive cash flows during the illiquid Friday session, prior to the holiday weekend, a trader said.

High yield ETFs saw $9 million of inflows on the day.

Actively managed funds saw $15 million of inflows last Friday.

Dedicated bank loan funds, meanwhile, were negative on Friday, with $25 million of outflows on the day.

More deals to come

A secondary market trader, noting the quartet of news deals being announced, believes that the junk space will see further deals announced in the coming days – both scheduled forward calendar offerings that will be marketed to investors via roadshows, “and a handful of drive-by deals as well.”

He noted the fact that “historically, September has been one of the larger months in new-deal issuance,” once the traditional mid-summer lull ends and issuers move to meet investors’ pent-up demand for new paper.

In 2015, according to data compiled by Prospect News, September saw a respectable $20.621 billion of new junk paper priced in 23 tranches, out of the year’s total tally of $260.767 billion in 409 tranches.

And in 2014, September led all of that year’s months with an astounding $45.348 billion priced in 76 tranches – 14.45% of the year’s total issuance of $313.772 billion in 584 tranches, according to the data.

Navistar rolls on VW buy

Outside of the new-issue realm, the most notable name of the day was Naivstar – the Lisle, Ill.-based maker of trucks, buses, defense vehicles and truck engines sold to other manufacturers.

One of the traders notes that its 8¼% notes due 2021 jumped more than15 points on the day to end at 98¾, well up from last week’s levels in the lower 80s, on round-lot volume of more than $48 million, easily topping the day’s Most Actives list among junk credits.

Besides all of the round-lot-trades there was also intense activity in smaller odd-lot transactions as well, with a market source noting “many pages on Trace” of such smaller purchases.

Navistar’s 4¾% notes due 2019 zoomed by more than 22 points on the day to just under 93 bid from prior levels around 70, with over $35 million of those notes having changed hands.

Its 4½% notes due 2018 firmed to 93½ bid, a gain of more than 16 points on the session, with some $16 million of volume.

Navistar’s New York Stock Exchange-traded shares likewise soared by $5.72, or 40.65%, ending at $19.79, on nearly 14 times their normal volume.

The bonds and shares got a giant-sized turbo boost from the announcement that Navistar and German automotive powerhouse Volkswagen Truck & Bus will “pursue strategic technology collaboration and establish a procurement joint venture.

VW will take a 16.6% stake in Navistar, investing $256 million in the U.S. company at $15.76 per share, which will give it the right to appoint two directors to Navistar's board of directors.

Noting Navistar’s recently troubled history, including its attempted introduction of a new proprietary emissions control system for its truck fleet that failed to meet federal clean-air standards, producing a giant-sized tangle of legal and financial headaches – one of the traders quipped that “they hadn’t exactly been firing on all cylinders,” although the company had made substantial progress since 2012 in getting on top of those problems, with the new deal vindicating those who had bought and held its securities since then.

Indicators turn mixed

For a second straight day, statistical market performance measures were mixed on Tuesday. Although the market was not formally in session on Monday due to the holiday, the indexes that did publish turned mixed, after having been higher across the board on Friday.

Tuesday was the fourth mixed session in the last six days.

The KDP High Yield index lost 1 basis point on Tuesday to end at 70.65, after having gained 2 bps on the session on Friday.

The index was not published on Monday, with the junk market closed for Labor Day.

Its yield rose by 4 bps to 5.24%, after having come in by1 bp on Friday.

The Markit Series 26 CDX index rose by about ¼ point on Tuesday to end at 104 25/32 bid, 104 13/16 offered.

It had published on Monday despite the market close, declining marginally, after having risen by 13/32 point on Friday - the first gain after three consecutive losses before that.

And the Merrill Lynch High Yield index improved by 0.154%, its third straight upturn.

The index had published on Monday, rising by 0.054%, on top of Friday’s 0.72%, which was its first advance after two straight retreats.

Tuesday’s improvement upped its year-to-date return to 14.831% – its second straight new 2016 peak cumulative level, eclipsing the old mark of 14.654%, set on Monday.

© 2015 Prospect News.
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