Meritor and TerraForm bring drive-by add-ons; Tenet rebounds, but other recent deals softer

By Paul A. Harris and Paul Deckelman

New York, June 8 – The high-yield primary market started the new week with a pair of quickly shopped add-ons to existing bond issues.

Syndicate sources said that auto components maker Meritor, Inc. priced a $225 million addition to its 6¼% notes due 2024.

And clean-power company TerraForm Power, Inc. did $150 million of additional 5 7/8% notes due 2023 via a subsidiary.

Both issues priced fairly late in the session, precluding any real aftermarket activity.

The $377 million of new dollar-denominated and fully junk-rated domestic paper was up from Friday’s session, which had seen no new issues come to market.

Traders said that secondary market activity was restrained.

While some recent bond deals were seen firmer, such as the big new issue of eight-year notes from Tenet Healthcare Corp., others, such as XPO Logistics, Inc. and Cable ONE, Inc., were seen lower.

Away from the issues that have already priced, several new deals joined the forward calendar, including offerings from Sealed Air Corp., ATS Automation Tooling Systems Inc. and Carmike Cinemas Inc. Some of Sealed Air’s existing notes that are to be refinanced using its new-deal proceeds moved up in Monday’s trading.

Statistical indicators of junk market performance were lower across the board for a fifth consecutive session on Monday.

Meritor taps 6¼% notes

The Monday primary market session saw two drive-by deals clear the market, generating a total of $377 million of proceeds.

Neither deal was upsized.

Both priced on top of price talk.

Meritor priced a $225 million add-on to its 6¼% senior notes due 2024 (B2/B-) at par to yield 6¼%.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan, Citigroup, RBC, Lloyds and BNP Paribas were the joint bookrunners.

The Troy, Mich.-based auto components manufacturer plans to use the proceeds to fund the purchase of an annuity to satisfy its obligations under a German pension plan for its employees, to replenish cash on hand used to repurchase about $78 million of its 7 7/8% convertible senior notes due 2026 and for general corporate purposes.

TerraForm taps 5 7/8% notes

TerraForm Power Operating priced a $150 million add-on to its 5 7/8% senior notes due Feb. 1, 2023 (B1/BB-) at 101.5 to yield 5.56%.

Morgan Stanley, Citigroup, Barclays, JPMorgan and Macquarie were joint bookrunners for the debt refinancing deal.

Sealed Air in dollars and euros

The Monday session also saw a substantial build of the active forward calendar.

Sealed Air began marketing an $850 million equivalent amount of senior notes (expected ratings B1/BB) in two bullet tranches.

The debt deal includes dollar-denominated notes due September 2025. Joint global coordinator Morgan Stanley will bill and deliver. BNP Paribas is also a joint global coordinator. BofA Merrill Lynch, Citigroup, Goldman Sachs and JPMorgan are the passive bookrunners.

In addition, Sealed Air plans to sell euro-denominated notes due September 2023. Joint global coordinator BNP Paribas will bill and deliver for the euro-denominated notes. Morgan Stanley is also a joint global coordinator. BofA Merrill Lynch, Credit Agricole, Goldman Sachs and JPMorgan are the passive bookrunners.

Official price talk has yet to surface. However initial guidance has the dollar-denominated notes coming at 5 3/8% to 5½% and the euro-denominated notes at 4% to 4½%.

ATS Automation eight-year deal

ATS Automation Tooling Systems kicked off a $250 million offering of eight-year senior notes (expected ratings B2/B+).

The debt refinancing and general corporate purposes deal, which is in the market with unofficial talk in the 6½% area, is expected to price Friday.

JPMorgan and Goldman Sachs are the joint bookrunners.

Carmike starts roadshow

Carmike Cinemas began a roadshow on Monday for a $230 million offering of eight-year senior secured notes (B1/BB).

The debt refinancing deal, which is expected to price during the middle part of the present week, is being whispered with a 6% to 6¼% yield.

JPMorgan, Macquarie and RBC are the joint bookrunners.

New Look in four tranches

There was also news from the European primary market on Monday.

Apparel and footwear retailer New Look plans to start a roadshow on Tuesday for a £1.2 billion equivalent four-part offering of high-yield notes.

New Look Secured Issuer plc is selling £1 billion equivalent of senior secured notes due 2022, which are coming in tranches of sterling- and euro-denominated fixed-rate notes as well as a tranche of euro-denominated floating-rate notes. Tranche sizes remain to be determined.

In addition, New Look Senior Issuer plc is selling £200 million of senior unsecured notes due 2023.

Joint global coordinator and joint bookrunner Goldman Sachs International will bill and deliver. JPMorgan and Nomura are also joint global coordinators and joint bookrunners. Deutsche Bank, HSBC, Lloyds Bank and Royal Bank of Scotland are joint bookrunners.

The Weymouth, England-based company plans to use the proceeds to refinance debt.

Grupo Antolin starts roadshow

Grupo Antolin Dutch BV began a roadshow on Monday for a €400 million offering of seven-year senior secured notes.

Deutsche Bank, Banca March, Bankinter, BBVA, BNP Paribas, CaixaBank, Sabadell, Santander and SG CIB are the joint bookrunners.

Proceeds will be used to help finance the purchase of Aurora, Ont.-based automotive supplier Magna Interiors.

Grupo Antolin is a Brujos, Spain-based supplier of automotive interior components.

Outflows

Dedicated high-yield funds continued to see outflows on Friday, the most recent session for which data was available at press time, according to a trader.

High-yield exchange-traded funds saw $508 million of outflows on the session, said the trader, who closely tracks the activity of the ETFs, and who added that ETFs continued to sell on Monday.

For the Friday session asset managers saw $205 million of outflows.

Combining the Thursday and Friday numbers, the dedicated funds were tracking $1 billion of aggregate outflows, week-to-date.

Meritor, TerraForm mostly unseen

In the secondary arena, traders said that there was no real aftermarket activity in the new Meritor 6¼% add-on notes due 2024.

The existing notes had been recently trading in a 103-104 bid context, though on not much volume; there were a couple of smallish trades on Monday around 100½-to-100¾, “but really nothing, volume-wise,” a market source said.

There were also a couple of small trades at slightly lower levels in the TerraForm 5 7/8% add-on notes due 2023; the Bethesda, Md.-based clean-power company’s existing paper had traded last week around the 102 5/16 level.

Tenet notes improve

Going back to some of the deals that priced last week, a trader said that Tenet Healthcare’s new 6¾% notes due 2023 “were pretty much the active bond of the day.”

He saw the new issue at 101 3/8 bid, which he called “up 3/8 or ½ point – so they traded well.”

At another shop, a market source also pegged the Tenet bonds at 101 3/8, calling them up 7/16 point on the day, on volume of more than $26 million.

The Dallas-based hospital operator had priced $1.9 billion of those notes at 99.5 to yield 6.832% in a quick-to-market offering that had priced last Tuesday.

The bonds were sold as part of an upsized $2.8 billion two-part offering that also included $900 million of senior secured floating-rate notes, upsized from $500 million originally and also pricing at 99.5 to yield 350 basis points over Libor.

Other recent deals easier

While the Tenet bonds were seen higher on the session, some of the other recently priced issues – all of which had been lower on Friday – continued to lose ground.

For instance, a market source said that XPO Logistics’ 6½% notes due 2022 were around ¼ point lower at 99¾ bid, on brisk volume of over $21 million.

Another trader, however, said that at 99¾, those notes “were about where they had been trading [late Friday].

While he said the issue was “another one that saw higher volume, they really didn’t move much.”

XPO, a Greenwich, Conn.-based transportation logistics company, had priced $1.6 billion of the notes at par last Thursday in a regularly scheduled forward calendar offering, along with €500 million of 5¾% notes due 2021, which also priced at par.

Among other recent deals to hit the market, a trader saw Cable ONE’s 5 3/8% notes due 2022 off 1/8 point on the day, at 101 bid, on volume of over $12 million.

The Phoenix-based cable systems operator priced $450 million of those notes at par on Wednesday in a regularly scheduled calendar deal; they had initially traded up to the 102 bid level late last week before coming down to around their present levels.

Going back a little further, MarkWest Energy Partners, LP’s 4 7/8% notes due 2025 were seen down ¼ point at 98 bid, with over $12 million traded.

The Denver-based oil and natural gas exploration and production company had priced $1.2 billion of the notes at 99.026 in a drive-by deal on May 28, yielding 5%; the bonds had traded around or slightly above that issue price over the next several sessions, before finally falling down into the 98-handle area around the middle of last week and pretty much staying there.

Sealed Air up on re-fi plans

Sealed Air’s 8 3/8% notes due 2021 firmed by about 1 3/8 points in Monday dealings, a trader said, lifting the bonds to 113 7/8 bid. Around $5 million of the notes traded.

That improvement came as the Charlotte, N.C.-based packaging manufacturer, known for its famous Bubble Wrap product, announced plans to sell $850 million equivalent of new dollar- and euro-denominated bonds, as noted, with the new-deal proceeds slated to fund a concurrently announced tender offer for the $750 million of outstanding 8 3/8s, at a price of $1,132.51 per $1,000 principal amount tendered.

At the Gimme Credit independent investment advisory service, senior analyst Kim Noland said in a research note Monday that the existing bonds actually are not callable until September of 2016, and then at 104.2, “but the company is paying up likely so it can pursue more share repurchases and other equity enhancements like a bigger dividend.”

Noland said that Sealed Air “is working its way back from two unfortunate acquisitions” – its 1998 purchase of W.R. Grace’s Cryovac packaging business for $4.9 billion, and its 2011 acquisition of JohnsonDiversey, Inc. for $4.3 billion.

She said that the company had made the last nearly $1 billion payment in connection with Cryovac and “it is finally turning around the Diversey business. We look for stable to slowly improving margins and credit measures.”

Indicators extend skid

Statistical indicators of junk market performance were lower across the board for a fifth consecutive session on Monday.

The KDP High Yield Daily index fell by 13 bps to 70.97 – the first time the index has been below the 71 mark since March 20, when it closed at 70.93.

Monday’s retreat was its fifth straight loss and its sixth setback in the last seven sessions. On Friday, it had slid by 16 bps, on top of a 15-bps drop on Thursday and smaller losses on Wednesday and last Tuesday.

Its yield rose by 7 bps to 5.55%, its fourth straight widening. On Friday, it had risen by 6 bps, after ballooning out by 10 bps in Thursday.

The Markit Series 24 CDX North American High Yield index lost 3/16 point on Monday to finish at 106 1/16 bid, 106 11/32 offered, its fifth consecutive loss. That followed declines of 7/32 point on Friday and 5/32 point on Thursday.

The Merrill Lynch North American Master II High Yield index meanwhile lost ground for a sixth successive session, dropping by 0.065%, on top of Friday’s 0.303% retreat.

Monday’s setback lowered the index’s year-to-date return to 3.225% from 3.293% on Friday. Those levels, in turn, were down from the previous Friday’s 4.062% reading, the index’s peak level for the year so far.

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