Targa, Graphic Packaging drive by; new Tesoro Logistics trades up; funds gain $1.71 billion

By Paul Deckelman and Paul A. Harris

New York, Oct. 23 – Drive-by issuers took the wheel on Thursday in the high-yield primary sphere, with two quickly shopped, single-tranche deals accounting for $1.05 billion of new paper, according to syndicate sources.

Energy operator Targa Resources Partners LP priced an upsized $800 million of five-year notes. Those bonds came to market late in the session, and traders said they had not seen any of the Targas in initial aftermarket dealings.

Graphic Packaging International, Inc. did $250 million of eight-year notes, which were quoted later trading up by as much as 1 point.

On Wednesday, $1.3 billion of new bonds had priced in two tranches of dollar-denominated, junk-rated paper – although all of that came in just one deal, a two-part offering from Tesoro Logistics LP. Those bonds, meanwhile, were seen by several market sources to have firmed solidly on heavy volume, continuing the recent pattern of busy activity to the upside on new deals.

There were also continued busy dealings in Tuesday’s issues from Schaeffler Holding Finance BV and IHS, Inc., although these were well down, volumewise, from Tuesday’s and Wednesday’s sessions.

Traders said the overall market was better, continuing its rebound from recent losses, and statistical indicators of market performance turned higher across the board after having been mixed on Wednesday. It was the fifth such stronger showing in the last six sessions.

And another statistical measure – flows of investor cash in to and out of high-yield mutual funds and exchange-traded funds, considered a key barometer of overall Junkbondland liquidity trends – was strongly positive, with a $1.71 billion net inflow seen for the week ended Wednesday. That was in contrast to the previous week’s nearly $549 million net cash loss from those funds. (See related story elsewhere in this issue.)

Targa, upsized and tight

Two issuers priced single-tranche drive-by deals during the Thursday session in the dollar-denominated high-yield primary market.

The day's proceeds totaled $1.05 billion.

One of the two tranches was upsized.

Both priced at the tight ends of yield talk.

Targa Resources Partners and Targa Resources Finance Corp. priced an upsized $800 million issue of five-year senior notes (expected Ba2/confirmed BB+) at par to yield 4 1/8%.

The deal was upsized from $550 million, and the yield printed at the tight end of yield talk in the 4¼% area.

BofA Merrill Lynch, RBS Securities Inc., Wells Fargo Securities LLC, Goldman Sachs & Co. and UBS Investment Bank were the joint bookrunners.

The Houston-based provider of midstream natural gas and NGL services plans to use the proceeds to repay bank debt and for general partnership purposes, which may include debt repayment, redeeming or repurchasing some of its outstanding notes, working capital and funding capital expenditures and acquisitions.

Graphic Packaging prices tight

Graphic Packaging priced a $250 million issue of non-callable eight-year senior notes (Ba3/BB+) at par to yield 4 7/8%.

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

BofA Merrill Lynch, J.P. Morgan Securities LLC, SunTrust Robinson Humphrey Inc., Citigroup Global Markets Inc., Goldman Sachs and Rabo Securities were joint bookrunners for the debt-refinancing deal.

Fresenius for Friday

Fresenius Medical Care US Finance II, Inc. set price talk for its $900 million two-part offering of non-callable senior notes (expected ratings Ba2/BB+) on Thursday.

Notes maturing on Oct. 15, 2020 are talked at 4 1/8% to 4¼%.

Notes maturing on Oct. 15, 2024 are talked at 4¾% to 4 7/8%.

Tranche sizes remain to be determined.

Books were scheduled to close late Thursday, and the deal is set to price Friday morning.

Wells Fargo is the left bookrunner. Citigroup, Deutsche Bank Securities Inc., Scotia Capital, HSBC and SunTrust are joint bookrunners.

Rhiag taps 7¼% notes

Italy's Rhiag SpA priced a €50 million add-on to its 7¼% senior secured notes due Nov. 15, 2020 (expected ratings B2/B) at par to yield 7¼%.

The price printed on top of price talk.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas was also a global coordinator. Goldman Sachs International was the joint bookrunner.

Proceeds will be used to repay debt and for general corporate purposes.

Graphic Packaging seen firmer

In the secondary arena, a trader saw Graphic Packaging’s new 4 7/8% notes due 2022 “wrapped around 101,” up from the bonds’ par issue price.

With the issue having come to market fairly late in the day, “we were just starting to see markets out there” in the Marietta, Ga.-based packaging products company’s quickly shopped issue, another market source said, pegging those bonds in a 100½-to-101 context.

The traders meantime reported no immediate aftermarket dealings in the day’s other issue, Targa Resources Partners, which arrived even later in the day than the Graphic Packaging paper did.

Tesoro Logistics active

Easily the busiest junk name of the day was Tesoro Logistics, with both halves of its $1.3 billion two-part offering seen having moved up in heavy trading.

A trader saw its 5½% notes due 2019 having moved up by ¼ point on the day to 102 bid, on volume of more than $84 million.

He said that the 6¼% notes due 2022 were even more active, with close to $90 having changed hands.

He saw the bonds up 3/8 point around the 103 bid area.

A second trader, who saw both series of bonds top the $80 million mark, said that the 6¼% notes were up by as much as 1 3/16 points from the gains they had notched in relatively light-volume initial aftermarket dealings after their Wednesday pricing.

“They traded a fair amount today,” said a trader at another desk, who saw both tranches of the new bonds going out about where others in the market were quoting them.

The San Antonio, Texas-based owner and operator of pipelines and other energy transportation and storage facilities infrastructure had priced $500 million of the 5½% notes and $800 million of the 6¼% notes late Wednesday, both at par.

New deals busily post gains ...

A trader said that the rise of the new Tesoro Logistics bonds mirrored the recent trend in the marketplace – new deals come to market and then trade up by one or more points from their issue price in very busy trading.

He opined that the issuers and their respective underwriters “are probably pricing these things cheaper to get them out the door.

“With the lack of a decent pipeline of prospective new issues, and people sitting on all of this cash, they’re chasing these things.”

... at least for a while

But not for very long.

The trader noted that “you get a flurry of activity in these deals the first day or so, and then it slowly dies down.”

For instance, German ball-bearing manufacturer Schaeffler AG’s $1.15 billion of new dollar-denominated senior secured PIK toggle paper that came to market in two tranches on Tuesday – which was part of a larger €1.2 billion equivalent three-part offering that also included a tranche of euro-denominated bonds – had traded fairly heavily its first two days out of the chute. Its 6¾% notes due 2022 had racked up over $49 million of volume on Tuesday, jumping to 103 1/8 bid after $675 million of the notes had priced earlier that day at par, while its $475 million of 6¼% notes due 2019 had soared to 102 5/8 bid after pricing at par, with over $32 million having traded initially.

On Wednesday, volume on the 2022s had moderated to about $32 million and they were unchanged from their Monday levels, while the 2019s eased by ¼ point to around 102 3/8 bid, while volume declined to around $18 million.

By Thursday, the trader said, only about $9 million of the 2022 notes were trading, although he called them up 3/8 point at 103 3/8. Volume in the 2019s was a little better at around $12 million, and the bonds hung in there at “right around” 102½ bid.

A second trader located both tranches of those bonds at around the 102½ bid area.

The first trader meantime saw the new IHS 5% notes due 2022 down 1/8 to ¼ point at around 101 3/8 bid, on volume of about $20 million.

On Wednesday, more than $73 million of those bonds had traded in the 101½ bid area.

The Englewood, Colo.-based provider of business information, research and analytics had priced $750 of the notes at par on Tuesday after upsizing the quick-to-market deal at par, and they had shot as high as 101 7/8 bid, on more than $24 million of turnover.

Indicators turn better

Away from the new-deal names, a trader said that overall, Thursday’s market was “unchanged to up slightly, versus the rally [Wednesday]. We definitely underperformed equities [which were strongly higher] by a fair amount.

“You had a few outliers, but it wasn’t like you had buyers only, taking the market up.”

However, statistical indicators of junk market performance were stronger across the board for the fifth time in the last six sessions on Thursday. They had turned mixed on Wednesday.

The KDP High Yield Daily index posted its sixth consecutive advance, rising by 8 basis points to end at 72.53, on top of Wednesday’s 13-bps improvement.

Its yield came in by 6 bps to 5.32% after having been unchanged on Wednesday. It was the yield’s fifth decline in the last six sessions.

The Markit CDX North American High Yield Series 23 index rebounded on Thursday from Wednesday’s ½ point loss, regaining that same ½ point to close at 106 5/8 bid, 106¾ offered. It was the index’s sixth gain in the last seven sessions.

The Merrill Lynch High Yield Master II index continued to chug along for a sixth successive upside session, rising by 0.076% on Thursday. It had moved up by 0.127% on Wednesday.

The latest gain lifted its year-to-date return to 4.704% from Wednesday’s 4.625% reading. But the year-to-date return remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

According to the Finra-Bloomberg Active US High Yield Bond index, Thursday’s junk market volume was $4.35 billion, up from Wednesday’s $3.9 billion total.

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