HD Supply, Asbury price in calmer junk primary; recent deals steady; Cliffs paper gyrates

By Paul Deckelman and Paul A. Harris

New York, Nov. 19 – The high-yield primary sphere calmed down considerably on Wednesday from Tuesday’s frenetic pace, which had seen more than $3.5 billion of new junk paper in nine tranches from seven issuers price in a nearly non-stop bond barrage.

In contrast, things were almost sedate in Junkbondland on Wednesday, with syndicate sources counting just three quickly shopped single-tranche issues totaling some $1.68 billion.

Atlanta-based wholesale facilities maintenance and building supplies distributor HD Supply, Inc. had the day’s big deal, a $1.25 billion offering of seven-year senior secured notes.

Asbury Automotive Group, Inc., a Duluth, Ga.-based operator of auto retail and collision repair centers, drove by with $400 million of 10-year senior subordinated notes.

There was also a $25 million add-on from Great Lakes Dredge & Dock Corp. to the Oak Brook, Ill.-based provider of maritime dredging services’ existing 2019 notes.

Traders reported not seeing much in the way of any initial aftermarket dealings in the day’s new issues.

They meantime saw Tuesday’s slew of new bonds mostly holding steady near where they had gone home after initial secondary dealings, with the new paper from Mercer International Inc. and Moog Inc. holding onto the solid secondary gains they had notched in Tuesday trading, while Owens-Illinois Inc., Lear Corp., Lennar Corp., MarkWest Energy Partners, LP and Penske Automotive Group Inc. all hovered near their respective par issue prices. Trading was especially brisk in the new MarkWest, Lear and Owens-Illinois bonds.

The new and recently priced deals continued to dominate secondary trading, market participants said.

One of the few non-new-deal names that they saw making any kind of an impact was Cliffs Resources, Inc., whose bonds got whacked down but then recovered some of their lost ground while its stock got killed, as the coal and iron ore company warned that it may have to close one of its Canadian iron ore mines after efforts to find an investor in the project proved fruitless.

Statistical indicators of junk market performance were meantime lower for a sixth consecutive session on Wednesday.

HD Supply $1.25 billion deal

Three issuers came with single-tranche drive-by deals on Wednesday, raising a combined total of $1.68 billion.

One deal came at the tight end of talk, one on top of talk and the other at the wide end of talk.

HD Supply, Inc., a wholly owned subsidiary of HD Supply Holdings, Inc., priced a $1.25 billion issue of senior secured first-priority notes due 2021 (B1/B+) at par to yield 5¼%.

The yield printed at the tight end of yield talk in the 5 3/8% area.

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

Asbury Automotive senior subs

Asbury Automotive Group priced a $400 million issue of 10-year senior subordinated notes (B1/B+) at par to yield 6%.

The yield printed at the wide end of the 5¾% to 6% yield talk.

BofA Merrill Lynch was the left bookrunner. JPMorgan and Wells Fargo were the joint bookrunners.

The Duluth, Ga.-based operator of auto retail and collision repair centers plans to use the proceeds to fund the tender offer for its 8 3/8% senior subordinated notes due 2020 and for general corporate purposes, which may include, among other things, share repurchases and acquisitions.

Great Lakes Dredge 7 3/8% notes

Great Lakes Dredge & Dock priced a $25 million add-on to its 7 3/8% senior notes due Feb. 1, 2019 (Caa1/B) at 99.5 to yield 7.512%.

The reoffer price came on top of price talk.

Deutsche Bank was the sole bookrunner.

The Oak Brook, Ill.-based provider of dredging services and commercial and industrial demolition services plans to use the proceeds to repay revolver debt incurred in connection with its recently announced acquisition of Magnus Pacific Corp. and for general corporate purposes.

DHX Media to sell C$150 million

DHX Media Ltd. plans to sell C$150 million of seven-year senior notes (/BB-/).

Timing on the deal had not circulated the market by press time on Wednesday, sources said.

RBC and Scotia will be the joint bookrunners.

The Halifax, Nova Scotia-based media production, distribution, and broadcasting company plans to use the proceeds to refinance debt and for general corporate purposes.

Day’s deals unseen

In the secondary market, a trader noted the small size – $25 million – of the Great Lakes Dredge & Dock add-on, suggesting that “it probably got tucked away.”

Neither he nor several other market sources queried by Prospect News saw any immediate aftermarket action in the HD Supply 5¼% seven-year secured notes or the Asbury Automotive 6% 10-year subordinated paper, both of which came to market relatively late in the day.

Tuesday deals hold steady

A trader said that the new issues that had gotten done during Tuesday’s seemingly non-stop pricing parade “were all kind of trading around today,” and were generally not much changed from the levels at which they had gone out on Tuesday.

For most of them, that meant levels not far removed from their respective par issue prices.

MarkWest Energy’s 4 7/8% notes due 2024, for instance, were trading around par, he said.

A market source at another desk also pegged the Denver-based oil and natural gas limited partnership’s new issue right at that level where the quickly shopped $500 million issue had gotten done. He said that trading in the new deal was intense, with over $38 million having changed hands, putting MarkWest right near the top of the junk market’s Most Actives list.

Another Tuesday deal seen trading actively on Wednesday was Lear’s new 5¼% notes due in January of 2025, with turnover of more than $26 million, on top of the more than $24 million that had traded in initial aftermarket activity Tuesday.

The Southfield, Mich.-based automotive seating components and electrical systems manufacturer’s $650 million drive-by offering had priced at par, and that’s where they were seen going home on Wednesday.

Owens-Illinois’ 5% notes due in January of 2022 were likewise busy around their par issue level on Wednesday, with over $17 million having traded. That was in addition to the over $40 million of the notes that had traded on Tuesday after they were freed.

The Perrysburg, Ohio-based manufacturer of glass containers had priced $500 million of those notes at par on Monday via its Owens-Brockway Glass Container Corp. unit as part of an $800 million two-part regularly scheduled forward calendar offering, upsized from an originally announced $700 million.

The other half of that issue – its $300 million of 5 3/8% notes due in January of 2025, were also seen trading on Wednesday not far from their par issue price, though on considerably less volume than the seven-year tranche.

A trader said that he had seen “all 1/8 point, ¼ point type-trades” in a par to 100½ bid context.

He also saw Miami-based homebuilder Lennar’s $350 million issue of 4½% notes due 2019 and Bloomfield Hills, Mich.-based vehicle retailer Penske Automotive Group, Inc.’s 5 3/8% senior subordinated notes due 2024 in that same par region, where they had priced and had initially traded on Tuesday.

Exceptions to the rule

There were several issues that had moved up solidly after having priced at par on Tuesday, and they held those higher levels in Wednesday’s dealings.

A trader saw Moog’s 5¼% notes due 2022 unchanged Wednesday at 101 bid, 101½ offered, while at another desk, those bonds were seen having gotten as good as 101½ bid, 102 offered.

The East Aurora, N.Y.-based designer, manufacturer and integrator of precision control components and systems had priced its $250 million issue off the forward calendar, and they had firmed smartly when freed to trade.

That was also the case with Mercer International’s $650 million two-part offering, consisting of $250 million of 7% notes due 2019 and $400 million of 7¾% notes due 2022. The Vancouver, B.C.-based company, which sells wood pulp and also sells excess “green” energy to third-party utilities, priced both tranches at par Tuesday as a scheduled forward calendar deal, and they shot up above the 101 bid level.

A paper glut

A trader said that most of the issues other than Mercer and Moog – and apart from Monday’s issue of 6 1/8% notes due 2022 from Cincinnati-based product label maker Multi-Color Corp., which also moved up to the 101-101½ bid area after that $250 million forward calendar deal had priced at par, and stayed there – “were trading around deal price” possibly because there is just so much new paper sloshing around in Junkbondland.

Some $9.5 billion of combined new issuance occurred on Friday, Monday and Tuesday.

“There’s been a lot – and again, the theme we’re seeing this week so far is that accounts are literally not looking at secondary; they’re just looking at primary issue, and everything on their pad is focused on that.”

Falling off a Cliff

One of the few secondary names seen making an impact Wednesday was Cliffs Resources, whose bonds gyrated around as the Cleveland-based coal and iron ore company said it was looking to sell some assets.

The company had previously been looking for an investment partner in the Quebec-based Bloom Lake mine. But with no firm deals in line, it said that it needed to shed the asset.

On the news, the company’s debt was “initially way down,” a trader said. The bonds recovered some by the end of the day, however.

One trader said the 6¼% notes due 2040 hit a low of 56 before bouncing back up to “+/-60,” which he said was “kind of unchanged.”

A second trader saw them ending at 59, down 1 point on the day on volume of over $26 million.

Its 4 7/8% notes due 2021 were even busier, with over $47 million having traded, going out down around ¼ point at 66 bid.

The 3.95% notes due 2018 meantime hit lows in the low-70s, the trader said, but ended in a 73½ to 74½ context.

That was still “down a couple points” from the previous session, he said.

Over $26 million of those bonds traded, with a source pegging them down 2½ points on the day.

However, some of the company’s paper showed some strength.

A trader said that debt “got hit at the beginning of the day, then it came back.”

The 6¼% notes finished half a point better at 60½, the trader said. And the 4.8% notes due 2020 traded up nearly 2 points to 66¼ – up from the low tick of 61, on volume of over $19 million. Its 5.9% notes due 2020 put on 2½ points to close around 70½ after having hit a low of 66.

Equity investors were not nearly as forgiving – the company’s New York Stock Exchange-traded shares nose-dived by $2.04, or 19.98% on the day to end at $8.17 on volume of 29.4 million shares, nearly three times the norm.

“Despite the continued interest of the prospective equity partners in Bloom Lake and in its high-quality ore, the potential investment is not achievable within a time frame acceptable to Cliffs,” said Lourenco Goncalves, president and chief executive officer, in a statement. “With expansion no longer viable, we have shifted our focus to executing an exit option for Eastern Canadian operations that minimizes the cash outflows and associated liabilities.”

It is believed that a closure of the mine is likely, which could run the company $650 million to $700 million.

Indicators keep falling

Statistical indicators of junk market performance were lower for a sixth consecutive session on Wednesday.

The KDP High Yield Daily index lost 16 basis points to close at 71.69, its fourth straight loss and seventh loss in the last eight days, a skid interrupted only by one session during which it finished unchanged on the day. On Tuesday, the index had dropped by 21 bps, on top of Monday’s 11-bps nosedive.

Its yield meantime rose by 7 bps to 5.54%, its fifth widening in a row. That followed Tuesday’s 8 bps increase.

The Markit CDX North American High Yield Series 23 index posted its seventh consecutive loss on Wednesday, down 5/32 point to end at 106 3/8 bid, 106 7/16 offered. It had been down by 1/8 point on Tuesday.

And the Merrill Lynch U.S. High Yield Master II index lost ground for a sixth successive session on Wednesday, moving downward by 0.243%, on top of Tuesday’s 0.214% setback.

The latest loss lowered its year-to-date return to 3.724% from Tuesday’s close at 3.977%, which had been the first time the cumulative return had fallen below the psychologically significant 4% mark since Oct. 20, when it finished at 3.855%. The index also remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

Stephanie N. Rotondo contributed to this review.

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