U.S. Concrete is 2017’s first deal, breaks ice for others; Bonanza Creek jumps on Chapter 11

By Paul Deckelman and Paul A. Harris

New York, Jan. 4 – The high-yield market’s long, traditional early-winter new-deal drought came to an end on Wednesday as cement products provider U.S. Concrete, Inc. priced a smallish, quickly shopped add-on offering to its existing 2024 notes.

That $200 million offering was the first new deal seen in Junkbondland since Dec. 20, when two transactions totaling $195 million had gotten done from Avison Young (Canada) Inc. and Gogo Intermediate Holdings LLC.

Syndicate sources said now that the ice has been broken, other issuers will likely bring deals to market during the narrow window of opportunity ahead of the Martin Luther King Jr. federal holiday later this month, with new-deal announcements possible as early as Thursday.

In the secondary arena, traders quoted the U.S. Concrete notes slightly above their issue price, about where the existing bonds had already been trading before the new-deal announcement.

There was continued activity in Noble Holding International Ltd.’s new 2024 notes, which had priced in mid-December, with the offshore oil drilling company’s bonds moving back up to their issue price after a long time trading well under that level.

Away from the new or recent offerings, Bonanza Creek Energy Inc.’s bonds jumped in active dealings as the beleaguered oil and natural gas company initiated its previously announced pre-packaged Chapter 11 proceedings, which will see holders of its $867 million of outstanding notes and other general unsecured creditors walk away with the lion’s share of the restructured company’s stock.

Statistical market performance measures were firmer for a fourth consecutive session on Wednesday.

2017 sees its first deal

In the first high-yield bond deal to clear the market in 2017, U.S. Concrete priced a $200 million add-on to its 6 3/8% senior notes due June 1, 2024 (B2/BB-) at 105.75 to yield 5.14% on Wednesday.

The reoffer price came in the middle of the 105.25 to 105.875 price talk but rich to the 105 to 105.25 early guidance, sources said.

Secondary market activity in the freshly minted 6 3/8% add-on notes was light, the trader said.

J.P. Morgan Securities LLC managed the sale.

The Euless, Texas-based supplier of ready-mixed concrete and concrete-related products plans to use the proceeds for general corporate purposes including future acquisitions to expand its business.

The window's open

Although pronouncements have been hard to come by, syndicate officials say there is a good amount of new issue activity ahead, at least in the American market.

We ought to hear announcements on Thursday, one syndicate official said.

With the Yuletide tinsel barely in the dumpster, there is another holiday weekend approaching, this one a three-day weekend culminating in the Monday, Jan. 16, holiday commemorating Dr. Martin Luther King Jr. It gets underway following the Friday, Jan. 13, close.

With the approach of that extended weekend there is a window open for issuers and dealers to launch a week-long or 10-day roadshow, the syndicate official said. And it should remain open until next Monday's close.

The long weekend, just ahead of the scheduled Jan. 20 transition in the U.S. presidency, could deter some from bringing a roadshow that might cross the three-day weekend, with any headline risk that might ensue, the source said.

Hence a window is open, but this particular one won't remain open long. And any issuer contemplating a pass through it with a roadshow deal might reasonably be expected to appear in short order, the official remarked.

Although the pipeline is considerable, during the run-up to year’s end just two deals were heard to be expected early 2017 business.

TeamHealth Holdings Inc. is on the apron with $1.02 billion of high-yield bonds in a bridged deal via Barclays. Proceeds will be used to help fund the leveraged buyout by Blackstone.

TeamHealth is scheduled to hold a bank meeting on Thursday to launch its proposed $2.6 billion seven-year term loan B. JPMorgan is the left lead on the bank deal.

And Novolex Holdings, Inc. (Flex Acquisition Co. Inc.) is expected to bring $625 million of eight-year senior notes via Credit Suisse Securities (USA) LLC to help fund the leveraged buyout by Carlyle Group.

U.S. Concrete add-on trades

In the secondary market, traders were quoting the new U.S. Concrete 6 3/8% add-on notes due June 2024 slightly above their 105.75 issue price.

One pegged the bonds at around 106 bid, noting that the existing $400 million of those notes, which had been sold last May, “were trading at 106 prior to the announcement, so it’s no surprise they’re trading at 106.”

A second trader located the notes in a 106-to-106½ bid context, while a third said that the bonds traded between 106 and 106 3/8 bid toward the end of the day, with the final prints going off at 106¼.

He characterized the activity in the quick-to-market new deal as “small volume,” only around $8 million.

He also called the trading level “amazing, considering how they were in bankruptcy just a few years ago.”

U.S. Concrete restructured its debt under Chapter 11 in 2010, emerging from bankruptcy in August of that year.

Bonanza Creek gets bounce

A new bankruptcy filing sent the battered bonds of Bonanza Creek Energy soaring on Wednesday, as the Denver-based oil and natural gas company began a previously announced pre-packaged restructuring under the protection of the U.S. Bankruptcy Court in Wilmington, Del.

Under the terms of that process, the holders of its $531.89 million of 6¾% notes due 2021 and its $335.18 million of 5¾% notes due 2023 will convert their notes into equity of the restructured company, with the noteholders and other general unsecured creditors in line to get 95% of the stock in the greatly deleveraged company. (See related story elsewhere in this issue.)

“So they are cutting debt by $867 million and fixing the balance sheet, swapping debt for equity,” a trader said in seeing the 6¾% notes zoom to 89½ bid, up nearly 12 points on the day. More than $34 million of the notes traded, putting them high up on the day’s Most Actives List.

“The company is going to delever and going to do great, and the equity will move higher.”

He saw around $14 million of the 5¾% notes traded, also up about a dozen points, at 89 bid.

He noted that the bonds had traded at 77 bid on Tuesday and had finished out last year at 74 bid.

Noble gains continue

Elsewhere, traders saw continued strength in energy-related names, particularly in the new Noble Holding 7¾% notes due 2024, which gained another 1¼ points on Wednesday to end around 85 bid, with over $18 million traded.

That rise came on the heels of a gain of more than 1 point in Tuesday’s dealings.

Noble Holding, the wholly owned Cayman Islands-based unit of global offshore energy drilling company Noble Corp., had priced $1 billion of those notes in a regularly scheduled forward calendar deal back on Dec. 14. The issue priced at 98.01, yielding 8 1/8%, after being doubled in size from an originally announced $500 million.

Despite that investor interest that warranted an upsizing, the Noble deal has struggled since then in the secondary market, never trading above its already sharply discounted pricing level and most days trading well below it.

The issue recently bottomed out at just above 94 bid this past Friday. It rebounded off that low point in Tuesday’s dealings, a surge that continued Wednesday, bringing it back up to its issue price.

Indicators stay firm

Statistical market performance measures were firmer for a fourth consecutive session on Wednesday, after having turned mixed a week ago. It was their fifth stronger session in the last seven trading days.

The KDP High Yield index jumped by 23 basis points on Wednesday to end at 71.88, its fifth consecutive advance after one loss and its eighth gain in the last nine sessions. It had also firmed by 10 bps on Tuesday.

Its yield came in by 8 bps to 5.3%, its second straight narrowing and fourth such tightening in the last five sessions, including Tuesday’s 3 bps yield decline.

The Markit Series 27 CDX index rose by 5/16 point on Wednesday to end at 106 7/8 bid, 106 15/16 offered, on top of Tuesday’s 13/32 point improvement. It was the fourth gain in the last five days.

The Merrill Lynch High Yield index meantime posted its 11th straight advance on Wednesday, moving up by 0.365%. It had also firmed by 0.268% on Tuesday, the first trading day of the new year.

That moved its year-to-date return up to 0.634% from Tuesday’s 0.268%.

The index closed out 2016 with a total return of 17.489%, its best showing since 2009’s record-setting 57.512% jump. In 2015, the index lost 4.643% on the year.

Sara Rosenberg provided information for this review

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