Mallinckrodt, Targa break primary drought, firm modestly; Frontier falls on deal announcement

By Paul Deckelman and Paul A. Harris

New York, Sept. 9 – The high-yield primary sphere’s long late-summer drought officially came to a close on Wednesday as Junkbondland saw pricings on a pair of quick-to-market offerings totaling $1.35 billion. They were the first such dollar-denominated, fully junk-rated transactions to get done in three weeks.

British pharmaceuticals company Mallinckrodt plc broke the ice with a $750 million issue of eight-year notes via a pair of financing subsidiaries.

The new bonds traded briskly when they moved to the aftermarket, initially firming by as much as 1 point before paring those gains to go home only modestly firmer.

Domestic midstream energy company Targa Resources Partners LP later priced an upsized $600 million offering of 8.5-year notes that were quoted slightly above their issue price.

The Mallinckrodt and Targa deals were the first such dollar-denominated deals to price in the junk bond market since Canadian swimming-pool chemicals, personal care and household products provider KIK Custom Products Inc. did a $390 million offering of 9% notes due 2023 back on Aug. 19, according to data compiled by Prospect News.

Frontier Communications Corp. began a roadshow for a $6.6 billion three-part offering. News that the telephone and broadband service provider would do a big bond deal pushed its existing bonds down by 1 point or more across the board in active trading.

Syndicate sources said that packaging manufacturer Berry Plastics Group, Inc. will be selling $600 million of seven-year secured notes in conjunction with a previously announced $1.9 billion bank debt placement. Berry’s existing bonds firmed on the news.

Away from new-deal developments, Chesapeake Energy Corp.’s bonds were solidly higher in active trading for a second consecutive session following the oil and natural gas company’s announcement that it had signed new gas-gathering agreements with Williams Cos., Inc. that will effectively lower Chesapeake’s unit costs at two of its main natural gas fields.

Statistical measures of junk market performance turned mixed on Wednesday, the second mixed session in the last four. In contrast, they had been higher across the board on Tuesday for a second straight day.

Mallinckrodt price tight

The first dollar-denominated issuance of September cleared the market on Wednesday.

It came in the form of two single-tranche drive-by deals that generated $1.35 billion of total proceeds.

One of the two deals was substantially upsized.

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

Mallinckrodt priced a $750 million issue of 5 5/8% eight-year senior notes (B1/BB-) at par to yield 5.624%.

The yield printed at the tight end of yield talk in the 5¾% area.

Barclays was the lead left bookrunner for the acquisition financing deal. Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. and Wells Fargo Securities LLC were joint bookrunners.

Targa upsizes

Targa Resources Partners priced an upsized $600 million issue of 8.5-year senior notes (Ba2/BB+) at par to yield 6¾%.

The deal size was increased from $400 million.

The yield printed on top of yield talk and at the tight end of initial guidance in the high 6% to low 7% yield context, according to a trader.

BofA Merrill Lynch was the left bookrunner. Barclays, Citigroup, Deutsche Bank and Wells Fargo were the joint bookrunners.

The Houston-based midstream energy company plans to use the proceeds to reduce borrowings under its senior secured credit facility. Any remaining proceeds will be used for general partnership purposes, which may include repaying other debt, redeeming or repurchasing outstanding notes, as well as funding working capital, capital expenditures and acquisitions.

Frontier launches $6.6 billion

Frontier Communications began a roadshow on Wednesday for a $6.6 billion three-part offering of senior bullet notes (expected ratings Ba3/BB-).

The deal is coming in tranches of notes with five-, seven- and 10-year maturities.

Tranche sizes remain to be determined.

J.P. Morgan Securities LLC, BofA Merrill Lynch and Citigroup are the joint bookrunners for the acquisition financing, which is expected to price late on Sept. 15 or early Sept. 16.

Frontier falls on bond deal news

In the secondary market, Frontier’s existing bonds were seen lower all around in active dealings in reaction to the announcement that the Stamford, Conn.-based provider of wireline phone, broadband internet and digital television service was doing such a big deal.

One trader quoted the notes “down anywhere from 1 to 3 points on the day.”

At another desk, a trader said that Frontier’s 8½% notes due 2020 were its busiest on the day, with over $23 million having traded. He saw those bonds going home at 100 7/8 bid, down 1 5/8 points.

Frontier’s 7 1/8% notes due 2023 were down 1 point on the session at 88½ bid, with over $13 million having traded.

Its 6 7/8% notes due 2025 lost 1½ points to end at 83 bid, on volume of over $11 million.

Yet another trader declared that “all the bonds were down.” He pegged its 9% notes due 2031 down a deuce on the day at 86, although he said that the 7 5/8% notes due 2024 “were only down a little bit, for whatever reason,” going home at 88 5/16 bid.

Another market source said that the 2031 bonds had moved back up to around 89 in late dealings.

Mallinckrodt moves up

Among the day’s new deals, a trader quoted the new Mallinckrodt 5 5/8% notes due 2023 “wrapped around 101” when those notes were freed for aftermarket activity following their par pricing.

But other traders saw the Chesterfield, England-based pharmaceuticals company’s notes, issued by subsidiaries Mallinckrodt International Finance SA and Mallinckrodt CB LLC, come off that peak level by the end of the day.

One quoted the notes “draped around 100½.”

Another said that Mallinckrodt “looked interesting” but opined that “it priced too tight. It’s not going anywhere.”

He saw the paper – originally trading in a range of about 100 7/16 to 101 – tighten later in the session to a 100½-to-100 5/8 bid context, “trading very tight”

He said that over $50 million of the new notes had changed hands, shooting the issue up to the top of the high-yield Most Actives list.

Targa seen firmer

The day’s other new deal, from energy midstream operator Targa Resources Partners and its Targa Resources Partners Finance Corp. funding subsidiary, finally emerged late in the session, well after Mallinckrodt, and was not initially seen trading around a lot.

One trader did quote the bonds in a 100 3/8-to-101 bid context, up from their par pricing level, but indicated that he had not seen any kind of real activity in them.

Chesapeake continues to firm

For a second straight session, Oklahoma City-based oil and natural gas operator Chesapeake Energy’s bonds were the standout performers in the junk market, fueled by the announcement that it has finalized new gas-gathering agreements with Williams Cos. in Chesapeake’s Haynesville Shale operating area in northwest Louisiana and its dry gas Utica Shale operating area in eastern Ohio.

A trader saw the bonds up another 1½ points, on top of the gains notched on Tuesday.

Its 6 1/8% notes due 2021 gained more than 1½ points on Wednesday to finish a little above 82 bid after having risen by 7/8 point on Tuesday. Volume was a heavy $25 million-plus.

Chesapeake’s 5¾% notes due 2023 were likewise up 1½ points, at 77½ bid, with over $15 million having traded.

Chesapeake said that its renegotiated deal with Williams – a big gatherer, processor and transporter of natural gas – represented the alignment of the two companies’ strategic interests and said that expected drilling economies and more efficient utilization of Williams’ midstream assets make the deal “a win-win” for both parties.

It said that the agreement would result in “a significant improvement” in per-unit gathering rates. It estimates savings of 20 cents per thousand cubic feet in 2016 and 2017 and as much as 30 cents in 2018 in the Haynesville Shale.

Chesapeake will also devote more capital to those areas and increase its volume, allowing it to meet its contractual minimum volume obligations, letting Williams in turn gather and ship more gas.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Wednesday, the second mixed session in the last four. In contrast, they had been higher across the board on Tuesday for a second straight day; those indicators that were published on Monday despite the Labor Day holiday market close had also been unchanged to higher, while the market gauges had been mixed on Friday after having seen gains last Wednesday and Thursday.

The KDP High Yield Daily index rolled to its fifth straight gain on Wednesday, jumping 14 basis points to end at 68.25, after having moved up by 12 bps on Tuesday. Besides being the fifth consecutive upside session, it was also the index’s eighth advance in the last nine sessions and its ninth such gain in the last 11 sessions.

Its yield, meanwhile, came in by 5 bps on Wednesday to 6.23% after having narrowed by 4 bps on Tuesday. Wednesday’s tightening was its fifth decline in a row as well as its eighth in the last nine sessions and its ninth in the last 11 sessions.

However, the Markit Series 24 CDX North American High Yield index lost 3/16 point on Wednesday to end at 104 13/32 bid, 104 7/16 offered after having soared by 27/32 point on Tuesday. Unlike some of the other indexes, which have put together performance streaks, the CDX has lately been choppy. It published on Monday, despite the official holiday, and was unchanged on the day from its levels on Friday, when it had dropped by 11/32 point, which had been its fourth loss in the previous six sessions. But the index had risen in two sessions before that.

The Merrill Lynch North American Master II High Yield index rose by 0.242% on Wednesday, its third straight gain, its fifth advance in the last six days, its eighth gain in the last 10 sessions and its ninth in the last 12. The index had risen by 0.214% on Tuesday.

Wednesday’s gain raised its year-to-date return to 0.744% from 0.50% on Tuesday. However, it still remains well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.