Upsized Diamond Resorts prices, Big Tex as well; Tallgrass Energy on tap; new Big Tex firmer

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 – The busy high-yield primary market continued to generate new paper on Wednesday, with $1.76 billion of dollar-denominated and fully junk-rated securities having priced during the session, on top of the $1.55 billion that got done in five tranches on Tuesday.

Unlike Tuesday, which was dominated by small-to-medium deals, including several quickly shopped drive-by offerings – none were bigger than $500 million – Wednesday’s session saw two pretty sizable transactions, totaling three tranches, both of them regularly scheduled forward calendar issues.

Diamond Resorts International Inc., a hospitality and vacation ownership company, brought an upsized $1.1 billion of new paper to market in the form of seven-year secured notes and eight-year unsecured notes.

The secured piece of paper initially firmed when it hit the aftermarket, then dropped back, but it eventually ended on a firmer note in active dealings while the unsecured notes struggled from the get-go, also on busy volume.

Big Tex Trailers, a freight container company, priced $670 million of seven-year secured notes, which firmed smartly on brisk volume when they hit the secondary sphere.

Primaryside players meantime were awaiting a Thursday pricing of $400 million of eight-year notes from Tallgrass Energy Partners, LP, a midstream energy master limited partnership.

In the secondary arena, traders saw active dealings in Tuesday’s new deals from, among others, Boise Cascade Co., Wolverine World Wide , Inc. and MGM Resorts International.

Statistical market performance measures were mostly firmer on Wednesday for a second time in the last three sessions. They had turned mixed on Tuesday, after having been higher across the board on Monday, following three straight mixed sessions before that.

Diamond International upsizes

Two issuers priced a combined three tranches of high-yield notes to raise an overall total of $1.76 billion on Wednesday.

Though it was an active session, news volume was diminished compared to the two busy sessions that began the week.

All of Wednesday's business had been marketed by means of full roadshows.

Two of the session's three tranches featured secured paper.

All of Wednesday's business had undergone covenant changes while in the market.

Diamond Resorts International priced its upsized $1.1 billion two-part offering of high-yield notes.

The deal included an upsized $500 million of seven-year senior secured notes (B1/B+) that priced at par to yield 7¾%. The secured notes tranche was increased from $400 million. The yield printed on top of yield talk.

In addition, Diamond Resorts International priced $600 million of 10¾% eight-year senior unsecured notes (Caa1/CCC+) at 98.691 to yield 11%. The yield printed 12.5 basis points beyond the wide end of yield talk in the 10¾% area.

The buzz in the market shortly before books were scheduled to close on Diamond Resorts had the secured piece playing to $500 million of orders, with no word on demand for the unsecured tranche, according to a trader who correctly predicted that the unsecured piece would come with an 11% yield, wide of yield talk.

The overall deal, via left bookrunner RBC Capital Markets, was upsized to $1.1 billion from $1 billion after having previously been upsized from $600 million with the addition of the $400 million senior secured notes tranche last week.

The late additional $100 million upsize represented a further decrease in the amount of the concurrent term loan to $700 million from $800 million. That decrease followed the previous downsize to $800 million from $1.2 billion that came when proceeds were shifted to the secured notes tranche from the loan last week.

Proceeds will be used to fund the leveraged buyout of the company by Apollo Global Management LLC and to refinance some existing Diamond Resorts International debt.

The unsecured notes offering ran an Aug. 1 to Aug. 4 roadshow and was subsequently delayed when the company elected to restate earnings.

Big Tex prices tight

Big Tex Trailers/American Trailer Works priced a $670 million issue of seven-year senior secured notes (B3/B) at par to yield 9 5/8%.

The yield printed at the tight end of yield talk in the 9¾% area. Early guidance was in the 10% area.

Goldman Sachs & Co. was the left bookrunner. Barclays was the joint bookrunner.

The Southlake, Texas-based freight container company plans to use the proceeds to finance the acquisition of American Trailer Works by Bain Capital and to refinance American Trailer Works’ existing debt, including debt incurred in connection with the Big Tex transactions.

Tallgrass talk 5½% to 5¾%

One deal is on deck for Thursday.

Tallgrass Energy Partners and Tallgrass Energy Finance Corp. talked their $400 million offering of eight-year senior notes (B1/BB+) to yield 5½% to 5¾%, a market source said on Wednesday.

Official talk came in line with the mid-to-high 5% initial guidance, according to an investor.

Books close at 11 a.m. ET on Thursday, and the debt refinancing deal, via left lead bookrunner Barclays, is set to price thereafter.

Inflows on Tuesday

The cash flows of the dedicated high-yield bond funds, which have been positive over the past week, remained so on Tuesday, the most recent session for which numbers were available at press time, a trader said.

High-yield exchange-traded funds saw $29 million of inflows on the day.

However, the ETFs were doing some selling on Wednesday morning, the trader added.

Actively managed funds, meanwhile, saw $35 million of inflows on Tuesday.

Upsized Diamond Resorts mixed

In the aftermarket, traders said that the new Diamond Resorts International issue had mixed results when it began trading around.

The Las Vegas-based hospitality and vacation ownership company’s new 7¾% senior secured notes due 2023 were seen by a trader at 100½ bid, 101 offered, but later on he said that the bonds had dropped back from that peak to around 99¾ bid, 100½ offered, versus their par issue price.

However, a second trader later saw them back around a 100½-to-101 bid context.

And yet another market source pegged them at a more modest 100 3/8 bid going out, with over $48 million having traded, putting the credit high up on the Most Actives list for the day.

The Diamond Resorts 10¾% senior unsecured notes due 2024 did not fare as well.

After pricing at 98.69 to yield 11%, a trader saw them trading between 97½ and 98½ bid on the break, then retreating to a 97-to-98 bid context.

And by the time trading had wound down, a market participant was quoting the eights as low at 96¼ bid, on volume of around $27 million.

Big Tex trades up

The new Big Tex 9 5/8% senior secured notes due 2023 meanwhile encountered no such problems.

A trader said that Big Tex was “the big winner” on the day, initially trading in a 101½-to-102½ bid range, while another saw the bonds get as good as the 102¼-to-103¼ range, before finally ending around 102½ bid.

However, volume was less than big, at a relatively modest $14 million.

Tuesday deals trade actively

Among the issues that came to market on Tuesday, a trader said that Bose Cascade’s 5 5/8% notes due 2024 were the busiest, with over $43 million having changed hands.

He quoted the Boise, Idaho-based wood products company’s deal at 101 bid, while a second trader located them at 101 bid, 101¼ offered, about unchanged on the session.

The company had priced $350 million of the notes at par on Tuesday in a scheduled forward calendar offering.

Wolverine World Wide’s 5% notes due 2026 were seen by a trader anchored around the par level at which the Rockford, Mich.-based apparel company had priced its quickly shopped $250 million issue on Tuesday.

Another trader also had them at par, on volume of over $27 million.

Las Vegas-based gaming giant MGM Resorts International’s 4 5/8% notes due 2026 were seen by a market source at 99 7/8 bid, down 3/8 point on the day, with $25 million changing hands. The $500 million drive-by deal had priced at par on Tuesday.

Indictors trending better

Statistical market performance measures were mostly firmer on Wednesday for a second time in the last three sessions. They had turned mixed on Tuesday, after having been higher across the board on Monday, following three straight mixed sessions before that.

The KDP High Yield index climbed by 8 bps on Wednesday to end at 70.29, after having jumped by 20 bps on Monday and by another 13 bps on Tuesday.

It was the index’s fourth straight gain and its ninth advance in the last 10 sessions. Wednesday’s close marked its fourth straight new high for the year so far and 52-week high, surpassing the old mark of 70.21 set on Tuesday.

Its yield came in by 1 bp to 5.27%, its fourth consecutive narrowing and ninth in the last 10 sessions. It had tightened by 6 bps on Tuesday.

The Markit Series 26 CDX index was unchanged on Wednesday as it finished at 104 25/32 bid, 104 13/16 offered. It had lost 1/8 point on Tuesday, its second in the three prior sessions, after having gained slightly more than ¼ point on Monday.

The Merrill Lynch High Yield index was meanwhile up for an 11th successive session on Wednesday, firming by 0.026%, on top of the 0.147% advance seen on Tuesday.

The streak-prone index’s gains of the last 11 sessions follow a six-session slump before that.

Wednesday’s upturn brought the index’s year-to-date return up to 14.034%, its ninth straight new peak level for the year, versus Tuesday’s 14.004%, the former peak level as well as also the first time the index had finished above the 14% mark since Dec. 31, 2012, when it had closed out the year with a 15.583% cumulative return.

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