Griffon’s upsized add-on caps nearly $6.9 billion week; new Cheniere bonds dominate actives

By Paul Deckelman and Paul A. Harris

New York, May 13 – It was Friday the 13th and only one issuer was feeling lucky enough to buck a generally more negative market and price a new junk bond issue.

Griffon Corp., a New York-based maker of building products, tools, communications equipment and plastics, did an upsized quick-to-market add-on to its existing $600 million of 2022 bonds.

That deal pushed the week’s new-issuance total to $6.87 billion in 12 tranches, up from the $3.77 billion of new dollar-denominated and fully junk rated paper that had priced in six tranches last week, according to data compiled by Prospect News.

That weekly total, in turn brought year-to-date junk bond issuance by domestic or industrial-country borrowers up to $73.56 billion in 99 tranches, although that was still running some 47.6% behind the new-deal pace set last year, when $140.43 billion of new notes had priced in 218 tranches by this time on the 2015 calendar, according to the data.

Traders did not report any immediate aftermarket in the Griffon issue.

However, they saw considerable action in several other newly priced bonds.

Liquefied natural gas company Cheniere Energy, Inc.’s new eight-year secured issue, which came to market on Thursday, was easily the busiest credit of the day, trading off a little from the highs it had hit in initial dealings following its pricing.

There was also heavy volume in Thursday’s eight-year offering from hospital operator LifePoint Health, Inc., though that issue struggled to stay above its par pricing level.

Statistical market performance measures turned lower across the board on Friday, after having been higher all around on Thursday and mixed on Wednesday. Counting four straight lower sessions last week, Friday was the fifth lower session in the last nine trading days.

However, all of the indicators were up from where they had been last Friday, May 6, when they were lower on the week. It was the third higher week out of the last five weeks.

Griffon upsizes

Griffon priced Friday’s sole deal, an upsized $125 million add-on to its 5¼% senior notes due March 1, 2022 (B2/BB-) that came at 98.76 to yield 5½%.

The deal was increased from $100 million.

There was no widely circulated formal price talk, a market source said.

Deutsche Bank was the bookrunner for the debt refinancing deal.

The week ahead

Market conditions stayed dealers’ hands on one or two big transactions that might have showed up in the past week, a debt capital markets banker said on Friday.

With some improvement the week ahead, factoring in that relatively modest backlog, could see substantial volume in the new issue market, the banker said.

Look for Reynolds Group to show up with a deal of substantial size, the source said, adding that Credit Suisse and BofA Merrill Lynch are expected to lead.

Also look for Dell Inc. to roll into the high-grade primary market with $16 billion minimum of secured notes (BBB-) in a deal that is expected to come in six tranches.

Pricing conversations got underway late in the present week.

A six-part structure is envisioned, sources say: three-year notes in a 4% context, five-year notes in a 4¾% context, seven-year notes in a 5½% context, 10-year notes around 6%, 20-year notes in an 8% context and 30-year notes also in an 8% context.

Even though the debt appears priced to move at those rates, look for pricing to move incrementally north, a trader said on Friday, noting that the yield curve between the 20-year and 30-year tranches is flat.

Even if, as expected, the secured notes tranche receives investment-grade ratings from Moody’s and Fitch, as well as the already assigned BBB- from S&P, the secured portion of the bond financing backing the acquisition of EMC Corp. will attract a high-yield crowd, sources say.

That is especially true given that if secured portion upsizes, as expected, the junk-rated unsecured bonds – possibly kicking off in the week of May 23 – will come substantially downsized from the previously expected $9 billion amount.

Fund flows

The $1.9 billion of outflows from dedicated high-yield bond funds that Lipper AMG reported on Thursday for the week that ended with Wednesday’s close took much of the market by surprise, sources said on Friday. EPFR also reported a substantial outflow of $812 million from high-yield funds for the most resent week, a source said.

Even more astonishing is a breakdown of the Lipper number, which has over 90% of the $1.9 billion outflow coming out of high-yield ETFs, a trader said.

It’s especially surprising because in the last two days of the reporting period in question high-yield ETFs were strongly positive. They saw $511 million of daily inflows on Wednesday, May 11, the final day of the period in the report released on Thursday. The day before that, Tuesday May 10, the ETFs saw $347 million of inflows.

The last big outflow from ETFs that Lipper reported was the loss of $809 million on Thursday, May 5, the first day of the most recently reported period, sources say.

While the weekly reports are useful, they lag the market, a trader said on Friday morning, suggesting that the daily fund flows numbers, which tend to circulate the following day, have become more useful.

As to the most recent daily numbers, for Thursday – the most recent available at press time, and encompassing the first session of the new reporting period – ETFs remained strongly positive, with $253 million of inflows for the day.

Asset managers, meanwhile, saw $50 million of inflows on Thursday.

New Cheniere is volume champ

In the secondary market, traders reported that the new issue of 7% senior secured notes due 2024 from Houston-based liquefied natural gas operator Cheniere Energy was easily the day’s most actively traded name in Junkbondland.

“The new bonds traded yesterday [Thursday] – but they traded more today,” one said, seeing over $126 million of that paper changing hands.

He said that the bonds moved around in a bid range between 100¾ and 101½, with the final prints of the day “all at a 101 handle” – 101 1/8, 101¼, and 101 3/8.

At another shop, a trader said the issue was actually down by 1/8 point on the day at 101 3/8 bid.

He said that after the $1.25 billion regularly scheduled forward calendar offering priced at par on Thursday afternoon via the company’s Cheniere Corpus Christi Holdings, LLC subsidiary, following its upsizing from an originally announced $1billion, there was some aftermarket activity – around $24 million of it – with the bonds firming to 101½ bid.

He then saw them coming down slightly from that peak level in Friday’s busy dealings.

Yet another market source quoted the Cheniere bonds going home Friday at 101 1/8 bid, 101 5/8 offered.

New LifePoint issue struggles

Thursday’s $500 million drive-by bond deal from Brentwood, Tenn.-based hospital and healthcare facilities operator LifePoint Health was also among the day’s busiest credits – but a trader declared that those bonds “are not going anywhere.”

He saw those 5 3/8% notes due 2024 trading between 99 7/8 bid and 100¼ bid, anchoring the issue right around the par level at which it priced on Thursday.

A second trader quoted the bonds right at par, calling them down ¼ point on the day. He estimated volume in the bonds was around $76 million.

LifePoint’s deal priced at par after the offering was upsized from the originally announced $400 million. The new bonds firmed by around ¼ point in initial aftermarket dealings late Thursday of some $40 million.

Yet another trader pegged the bonds late Friday in a 99 7/8-to-1001/8 bid context.

Performance Food stays firm

Elsewhere among Thursday’s new issues, Performance Food Group Inc.’s 5½% notes due 2024 hung on to most of the gains that the Richmond, Va.-based foodservice distributor’s new issue had notched after pricing at par.

One trader located the bonds at 101 7/8 bid – down about 1/8 point on the session – on volume of over $25 million.

Another saw the bonds trading in a wide range between 101 and 102 bid.

The bonds had traded as high as102 late Thursday, on initial aftermarket volume of over $40 million, after the regularly scheduled $350 million forward calendar deal had priced at par.

NRG below par

One of the traders said the most notable deal of the week – in a negative sense – was NRG Energy, Inc.’s 7¼% notes due 2026.

The Princeton, N.J.-based wholesale power producer had priced $1 billion of those notes on Monday at par after the quick-to-market issue was upsized from an originally announced $700 million.

The notes moved up to around 100 5/8 bid later in the session on initial aftermarket volume of over $41 million –but while volume remained active, including more than $92 million traded on Tuesday, the notes struggled after that, coming off their peak and dipping below par by Wednesday and Thursday.

By Friday, the trader said, they were moving around well below par – he quoted them trading at bid levels anywhere between 97 15/16 and 99 7/8, finally ending the day “with a 98 handle.”

“Someone paid 99 7/8 for them – then they traded down, and they continued to trade down.”

Intelsat loses altitude

Away from the new issues. Intelsat SA bonds were called “very active,” but weaker in the wake of Thursday’s news of a tender offer.

A trader said the Luxembourg-based communications satellite company’s Intelsat Jackson Holdings SA 7¼% notes due 2019 declined more than 2½ points to 77¼, on volume of over $51 million, while the 7¼% notes due 2020 dropped 4 points to 70½, with over $22 million changing hands.

The 5½% notes due 2023 meantime fell 2½ points to 65½, with over $13 million traded.

“They definitely traded off pretty good,” another trader said. “These bonds were down 5 points before rebounding some.”

He saw the 2020 maturity hitting a low of 67 before it rallied back to around 70.

“But it was still down on the day,” he said.

He also pegged the 5½% notes at 65, up from the intraday lows in a 63 to 64 range, but down from 68 as of Thursday’s close.

Under the terms of the tender, Intelsat Jackson is offering to spend $625 million to buy some of its $815.25 million of 6 5/8% notes at $740 per $1,000 of notes, its $2 billion of 5½% notes at $730 per $1,000 and $1.15 billion of 7½% notes due 2021 at $775 per each $1,000.

The prices include a $20 early tender premium for each $1,000 tendered by 5 p.m. ET on May 25.

The tender will expire at 11:59 p.m. ET on June 9.

News of the tender came after the Jackson unit said in a regulatory filing that it had repurchased approximately $460 million of its 6 5/8% notes since April 28. The notes were acquired via the open market as well as from privately negotiated purchases, all at a discount to par.

Indicators off on day, up on week

Statistical market performance measures turned lower across the board on Friday, after having been higher all around on Thursday and mixed on Wednesday. Counting four straight lower sessions last week, Friday was the fifth lower session in the last nine trading days.

However, all of the indicators were up from where they had been last Friday, May 6, when they were lower on the week. It was the third higher week out of the last five weeks.

The KDP High Yield Daily Index slid by 15 basis points on Friday to end at 67.28, its first loss after three straight gains, including 14-bps rises on both Wednesday and Thursday, and counting a string of recent losses, its seventh such setback in the last 10 sessions.

Its yield correspondingly rose by 6 bps on Friday to 6.29%, its first such widening after three consecutive sessions during which the yield had narrowed, including Thursday, when it came in by 4 bps. Friday was the yield’s fifth widening in the last nine sessions.

However, Friday’s levels compared favorably with the 67.08% index reading and 6.35% yield seen at the close last Friday.

The Markit Series 26 CDX North American High Yield Index moved down by 13/32 point on Friday to close at 102 bid, 102 1/32 offered, versus Thursday’s 3/32 point gain. Friday was the index’s second loss in the last three sessions.

But it was up from last Friday’s closing level at 101½ bid, 101 5/8 offered.

The Merrill Lynch North American High Yield Master II Index turned southward on Friday, losing 0.077% after three consecutive gains, including Thursday’s 0.051% advance. Those three gains, in turn, had followed five successive losses, making Friday the index’s sixth loss in the last nine sessions.

Friday’s retreat cut the index’s year-to-date return to 6.908%, down from Thursday’s 6.99%, and down further still from last Monday’s close of 7.398%, the peak level for the year so far.

For the week, the index rose by 0.463%, after having lost 0.869% last week. This week, plus the five straight weekly gains before last week’s setback, marks the index’s sixth gain in the last seven weeks. With 19 weeks in the books so far this year, the index has risen in 13 of those weeks, against six weeks – mostly during the beginning of the year – during which it declined.

-Stephanie N. Rotondo contributed to this review

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