Upsized Telenet megadeal, PQ price, new PQ firms; Tuesday deals active; Guitar Center shrugs off downgrade

By Paul Deckelman and Paul A. Harris

New York, Nov. 29 – It was another busy session in the high-yield primary arena on Wednesday, as some $1.3 billion of new dollar-denominated and fully junk-rated paper was priced in two tranches – although that was down from the blistering pace seen on Tuesday, when $3.7 billion from four issuers gut done in six tranches.

European telecommunications company Telenet Group had the big deal of the day – an upsized $1 billion of 10.25-year notes, which priced off the forward calendar and were seen having firmed slightly from their issue price when they reached the aftermarket.

Domestic chemical manufacturer PQ Corp. brought a quickly shopped $300 million of seven-year notes to market.

That well-received offering firmed smartly in active trading when it was freed for secondary market dealings.

The day also saw a sizable split-rated offering, from Irish building products producer James Hardie Industries plc.

Traders meantime said that there was considerable activity in the deals that had come to market during Tuesday’s intense session, including the two-part offerings from Endeavor Energy Resources, LP – Wednesday’s volume leader – and TerraForm Power Operating, LLC, as well as the single-tranche transaction from Post Holdings, Inc. The recently priced offerings from Starwood Property Trust, Inc. and Bombardier, Inc. were also busy.

Away from the new or recently priced issues, there was active trading in Guitar Center Inc.’s 2019 notes – which moved up for a second consecutive session despite Moody’s Investors Service having downgraded the musical instrument and performance electronics store chain’s ratings.

Statistical market performance measures were mixed for a third consecutive session on Wednesday. Those market gauges had turned mixed on Monday and stayed that way, after four consecutive sessions before that in which they had been higher across the board.

Upsized Telenet

News volume in the high yield primary market continued to be heavy on Wednesday.

Telenet Group priced an upsized $1 billion issue of 10.25-year senior secured notes (Ba3/BB-) at par to yield 5½%.

The issue size was increased from $750 million.

The yield printed at the wide end of yield talk in the 5 3/8% area.

Deutsche Bank will bill and deliver.

The deal also includes €500 million of the 10.25 year notes that were talked in the 3½% area. No information on that euro-denominated tranche was available, the source said.

The Mechelen, Belgium-based provider of cable broadband services plans to use the proceeds to repay bank debt.

PQ prices tight

PQ Corp. priced a $300 million issue of eight-year senior notes (Caa1/B) at par to yield 5¾% in a quick-to-market Wednesday trade.

The yield printed at the tight end of the 5¾% to 6% yield talk.

Citigroup was the left bookrunner for the debt refinancing deal. Credit Suisse, Morgan Stanley, JP Morgan, Jefferies, Goldman Sachs, Deutsche Bank and KeyBanc were the joint bookrunners.

James Hardie upsized, through talk

James Hardie International Finance DAC priced an upsized $800 million amount of senior notes (Ba1/BB/BBB-) in two tranches.

The deal, which was led by BofA Merrill Lynch, and was upsized from $700 million, included $400 million of seven-year notes that priced at par to yield 4¾%, and $400 million of 10-year notes that priced at par to yield 5%.

Both tranches priced through price talk: 5% area for the seven-year notes and 5¼% area for the 10-year notes.

Oxford Finance roadshow

Oxford Finance started a roadshow on Wednesday for a $300 million offering of five-year senior notes.

JP Morgan and Barclays are the leads.

The Alexandria, Va.-based specialty finance company plans to use the proceeds to fund a dividend and repay bank debt.

Adler two-part deal

News volume was also heavy in the European primary market.

Berlin-based property management firm Adler Real Estate AG priced €800 million of senior notes (BB+) in two tranches.

The deal included €500 million of 1 ½% notes due 2021 which priced at 99.52 to yield 1 5/8%, and €300 million of 2 1/8% notes due 2024 which priced at 99.283 to yield 2¼%.

Goldman Sachs International was the global coordinator.

Pinewood Studios upsizes

Pinewood Studios priced an upsized £250 million issue of six-year senior secured notes (Ba2/BB/BB+) at par to yield 3¾%.

The issue size was increased from £240 million.

Credit Suisse, Goldman Sachs, Barclays, HSBC and Lloyds managed the sale.

The Buckinghamshire, England-based film and television studio plans to use the proceeds to refinance debt, to fund an equity release and for general corporate purposes.

Talking the deals

Dealers also set a Thursday batting order.

CeramTec talked its €406 million offering eight-year senior notes (Caa2/CCC+) to yield in the 5 3/8% area.

The deal is set to price on Thursday.

BofA Merrill Lynch, Morgan Stanley, Deutsche Bank, Nomura and UBS are managing the sale.

And Thomas Cook Group plc, circulated initial price talk of 4% to 4¼% on its €400 million offering of guaranteed senior notes due 2023.

Global coordinator UniCredit will bill and deliver. Barclays and DNB are also global coordinators.

Perstorp starts Thursday

Perstorp Holdings AB plans to start a roadshow on Thursday in London West End for a €485 million two-part offering of notes.

The deal includes Perstorp Holding €250 million floating-rate senior secured notes due September 2022 (expected ratings B3/CCC+). Proceeds will be used to refinance existing senior secured floating-rate notes and partially redeem existing senior secured fixed-rate notes.

In addition the deal includes Prague CE Sarl €235 million senior subordinated notes due December 2022. Proceeds will be used to acquire loans under the mezzanine facility agreement. Credit ratings on the senior subordinated notes remain to be determined.

The roadshow continues into the early part of the week ahead.

Goldman Sachs is the sole bookrunner.

PQ paper pops

In the secondary market, things were dominated by trading in the new and recently priced issues.

Wednesday’s offering from PQ Corp. “was pretty well-subscribed,” a trader said in noting that the Malvern, Pa.-based specialty chemicals producer’s new deal had shot as high as 102 bid in aftermarket trading after that drive-by offering had earlier priced at par.

“It was a small deal, $300 million, and there seemed to be a lot of interest in it.”

A second trader saw a more conservative upside move, pegging the notes at just over 101½ bid, while a third saw them at 101¾ bid, causing him to exclaim “wow!”

More than $20 million of those notes traded, putting the credit high up on the day’s Most Actives list.

New Endeavor is volume leader

But the clear volume leaders on Wednesday were the twin tranches that Endeavor Energy Resources, LP, and the Midland, Texas-based oil and natural gas exploration and production company’s EER Finance, Inc. subsidiary had priced during Tuesday’s session.

A market source said that more than $75 million of the company’s new 5½% notes due in January 2026 had traded and over $68 million of its 5¾% notes due in January 2028 had traded.

The company had priced a total of $1 billion of those notes in a quick-to-market transaction, up from an originally announced $800 million. The issue was split into $500 million of the eight-year notes and $500 million of the 10-years, with the latter tranche having been upsized from an originally planned $300 million.

Both tranches had priced at par, and then had moved up to around the 101 bid level, though in relatively light initial aftermarket trading, with only a handful of large-sized transactions.

Wednesday’s volume, as noted was heavy, with a trader seeing the eight-year paper having come down around 1/8 point to end at 100 7/8 bid, and the 10-years down ¼ point at 100¾ bid.

At another shop, a trader quoted the eight-year notes in a 100 7/8-to-101¼ bid context, while the 10-years were trading between 100¾ and 101 1/8.

TerraForm, Post trade around

Tuesday’s two-part offering from TerraForm Power Operating was also seen trading actively in Wednesday’s market.

A trader saw its 4¼% notes due in January 2023 finishing the day at 100 3/8 bid, calling that down 1/8 point on the session, while its 5% notes due in January 2028 were seen having gained 1/8 point, to 100½ bid.

A second trader saw both tranches trading in a 100 3/8-to-100¾ bid range.

More than $31 million of the 10-year notes had changed hands, and around $21 million of the five-year paper.

TerraForm, a Bethesda, Md.-based operator of renewable power generating facilities, such as solar and wind power, priced its $1.2 billion regularly scheduled forward calendar deal after upsizing that offering from an originally announced $1 billion.

It priced $500 million of the five-year notes and $700 million of the 10-year notes, both at par; both tranches had moved up to around a 100 3/8-to-100½ bid range in initial aftermarket dealings.

Tuesday’s offering of 5 5/8% notes due in January 2028 from Post Holdings was seen by a trader “about unchanged on the day – but heavily traded,” finishing at 100½ bid, on volume of more than $31 million.

The St. Louis-based producer of popular breakfast cereals as well as other packaged consumer food products and food products for the food-service industry, had priced its unscheduled $1 billion deal at par, with the bonds moving up to around the 100½ bid area in initial aftermarket activity and then staying there.

Tuesday’s other new deal – from London-based financial data and information company IHS Markit Ltd. – was seen by a trader to have moved up to a 100 7/8-to-101 1/8 bid context, though on considerably less volume than the Endeavor, TerraForm and Post deals generated.

The company priced its quickly shopped $500 million of 4% notes due in March 2026 at par after that 8.25-year deal was upsized from an originally announced $400 million.

Starwood, Bombardier busy

Going back a bit, one of the traders said that Starwood Property Trust’s 4¾% notes due in March 2025 was unchanged on the day, holding around the same par level to which the Greenwich, Conn.-based commercial mortgage real estate investment trust’s new bonds had risen over two sessions after pricing on Monday. Around $11 million traded.

That $500 million drive-by deal had priced at 99.249 on Monday to yield 4 7/8%.

The new bonds had firmed by around ½ point in initial aftermarket dealings and then moved up to the par level on Tuesday.

And Bombardier’s 7½% notes due 2024 firmed by around 1/8 point Wednesday, to 101¼ bid, also on $11 million of turnover.

The Montreal-based aircraft and railroad equipment manufacturer had priced its $1 billion fly-by deal at par on Nov. 20, after the issue had been upsized from $900 million originally.

New issues major focus

A trader opined that there was “not a ton” of activity in the market outside of trading in the new or recently priced issues.

“It seems very new-issue focused.”

A market source mentioned that overall activity was probably thinner than usual with many portfolio managers and other investment decision makers off at the annual Bank of America Merrill Lynch Leveraged Loan Conference going on this week in Boca Raton, Fla.

Guitar Center up despite downgrade

One non-new-deal name which was in focus on Wednesday was Guitar Center, whose 6½% notes due 2019 were seen up ¾ point on the day, ending at 94¾ bid, on volume of more than $30 million.

It was the second straight session of stronger performance by that issue, which had also risen some 2¼ points on Tuesday from its most recent previous round-lot levels last week, ending at 94 bid, with around $12 million changing hands.

The two-day rise was notable because it came in the wake of Moody’s Investors Service having actually downgraded the Westlake Village, Calif.-based musical instrument and performance electronics retail store chain.

Moody’s said in a research note on Tuesday that the company’s $375 million asset-based credit facility matures on April 2, 2019, while its $615 million of 6½% senior secured first-lien notes mature on April 15, 2019. Together, they constitute about 65% of the company’s debt. Its $325 million of 9 5/8% senior unsecured notes do not mature until 2020.

The ratings agency warned that “although GCI is currently in negotiations to refinance its outstanding debt, and still has time to refinance these debt obligations, Moody's believes the more compressed that time period becomes from this point on, the more challenging it will be for GCI to address its debt maturity profile particularly in light of the key challenges faced by the company. These challenges include the company's high leverage – debt/EBITDA on a Moody's adjusted basis is about 6.2 times – and limited revenue visibility regarding the retail environment for musical instruments.”

It downgraded Guitar Center’s Corporate Family Rating Caa1 from B3, and its Probability of Default Rating to Caa1-PD from B3-PD. At the same time, the company’s senior secured first-lien notes were downgraded to Caa1 from B3, while its unsecured notes were downgraded to Caa3 from Caa2. The rating outlook is negative.

Indicators stay mixed

Statistical market performance measures were mixed for a third consecutive session on Wednesday. Those market gauges had turned mixed on Monday and then stayed that way after four consecutive sessions before that in which they had been higher across the board.

The KDP High Yield Daily Index edged upward by 1 basis point to 71.83, after having been unchanged on Tuesday and having risen over the previous seven straight sessions, including Monday, when it was up by 6 basis points.

Its yield meantime came in by 1 bps to 5.31%, after having also been unchanged on the day Tuesday, following four successive trading days in which it had come in, including Monday’s 2 bps narrowing.

But the Markit CDX Series 29 index lost 3/16 point on Wednesday to finish at 107 25/32 bid, 107 13/16 offered. That mostly erased Tuesday’s nearly ¼ point gain, which in turn had essentially offset Monday’s ¼ point loss – its first downturn after four straight gains.

However, the Merrill Lynch North American High Yield Master II Index advanced by 0.052% Wednesday, in contrast to Tuesday’s 0.063% pullback – its first loss after eight gains in a row, which in turn had followed 10 consecutive losses before that.

Wednesday’s upturn raised the index’s year-to date return to 7.127% from Tuesday’s 7.072% close. The year-to-date return still remains down from the 7.636% posted on Oct. 24 – the peak cumulative return for 2017 so far.

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