JW Aluminum prices; Carriage Services, Tervita on tap; Mattel off on add-on; PetSmart in focus

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 22 – The domestic and European primary market each saw one deal price during Tuesday’s session. While new issue volume has been low, the domestic primary market stands poised for a busy mid to end of the week, market sources said.

JW Aluminum Continuous Cast Co. priced a $285 million issue of eight-year senior secured notes (B3/B-) at par to yield 10¼% late Tuesday.

Chemours Co. priced a €450 million issue of eight-year senior notes (Ba3/BB-) at par to yield 4%.

Mattel, Inc. set price talk for its $500 million add-on to its 6¾% senior notes due Dec. 31, 2025 (B1/BB-/BB) and Carriage Services, Inc. set price talk for its $325 million offering of eight-year senior notes with both expected to price on Wednesday.

Mattel’s 6¾% senior notes due 2025 have been under pressure since the company announced the add-on, market sources said.

Offerings from Tervita Corp., Graham Holdings Co., TMX Finance LLC and Atotech BV may also price before the week comes to a recommended early close for Memorial Day weekend.

However, there will be no pricing of Ithaca Energy (North Sea) plc’s $350 million offering, which had been expected on May 17. Ithaca Energy has postponed the deal citing market conditions.

Meanwhile, the secondary market was mixed with no generalities to the movements in the market. Some junk bonds saw gains, others losses and others were unchanged with the movements largely name specific, a market source said.

New notes from Valeant Pharmaceuticals International, Inc. and EP Energy Corp. remained active in the secondary space but were largely unchanged.

PetSmart Inc.’s junk bonds were major volume movers on Tuesday with the notes off another 1 to 1½ point after a new CEO announcement.

Altice US Finance SA’s 7¾% senior notes due 2022 (B3/B-) and SFR Group SA’s 7 3/8% senior notes due 2026 (B1/B+) were up 1 to 1¼ point on Tuesday.

Shareholders recently approved a spin-off of the US branch of the Netherlands-based telecommunications company as French regulators signaled a change in tone about a potential buyout of Altice NV’s French subsidiary SFR Group.

JW Aluminum prices

On its second try in 2018, JW Aluminum placed high-yield bonds in order to raise capital for debt refinancing and capital expenditures.

The Goose Creek, S.C.-based flat rolled aluminum manufacturer priced a $285 million issue of eight-year senior secured notes (B3/B-) at par to yield 10¼%.

The yield printed at the wide end of the 10% to 10¼% yield talk, which had widened from early guidance in the mid-to-high 9% area.

The deal underwent covenant changes bearing primarily upon how the company may disburse cash and incur additional debt.

Goldman Sachs was the sole bookrunner.

JW Aluminum postponed a $300 million offering of eight-year senior secured notes in February 2018, citing adverse market conditions.

On deck for Wednesday

The run-up to the extended Memorial Day weekend, which gets underway with a recommended early close on Friday, promises to be a relatively busy period in the primary market, sources say.

Dealers set the stage for an active midweek session.

Mattel talked a $500 million add-on to its 6¾% senior notes due Dec. 31, 2025 (B1/BB-/BB) in the 96.5 area, rich to earlier guidance in the 96.25 area.

Books close at 11 a.m. ET Wednesday and the debt refinancing deal is set to price thereafter.

Elsewhere, Carriage Services talked its $325 million offering of eight-year senior notes (B2/B) to yield 6½% to 6¾%.

Official talk comes wide to initial price talk in the mid-6% area.

Books close at noon ET Wednesday and the deal is set to price thereafter.

Tervita tap

Tervita Corp. plans to price a $250 million add-on to its 7 5/8% senior secured notes due Dec. 1, 2021 (B2) on Thursday or Friday.

Deutsche Bank is leading the offer that comes in relation to the merger of Tervita and Newalta.

Graham Holdings’ $400 million offering of eight-year notes (expected ratings B1/BB+) is also slated to price later in the week with initial guidance in the high 5% to 6% area.

TMX Finance is scheduled to wrap up a roadshow on Wednesday for its $450 million offering of five-year senior secured notes, via Jefferies.

The May 21 week may also see Germany-based Atotech BV price its $300 million five-year senior PIK toggle holdco notes backing a dividend. Early guidance is in the 8½% area.

Buyside's got the wheel

The Tuesday session saw one prospective issuer pull out of the market.

Ithaca Energy postponed its $350 million offering of five-year senior notes (Caa1/CCC+) due to market conditions, according to a company press release.

With benchmark rates moving higher – the 10-year Treasury yielding higher than 3% and the five-year pushing at the 3% mark – the high yield new issue market is not the cheap, easy place it was a year ago, sell-side sources said.

After a long, only intermittently disrupted spell in the passenger seat, the buyside at last has the wheel.

Issuers are having to come to grips with the fact that the easy rates available in the middle part of the present decade have gone away and are unlikely to return any time soon, a debt capital markets banker noted.

That said, some of the higher quality issuers searching for a window of opportunity to get a good execution would like a little more stability in interest rates before they come forward, syndicate sources said Tuesday.

There is a decent post-Memorial Day pipeline, sources say.

Some of the conspicuous merger and acquisition deals on the horizon are likely to be June business, a syndicate banker said.

Chemours at the wide end

Even in the European high-yield market, which had become something of a last bastion of ultra-low rates and razor-sharp executions, the buyside is calling the shots, a London-based debt capital markets banker observed.

During the session, Chemours priced a €450 million issue of eight-year senior notes (Ba3/BB-) at par to yield 4%.

The yield printed at the wide end of yield talk in the 3 7/8% area and at the wide end of early guidance in the high 3% area to 4%.

Citigroup was the left bookrunner.

The Wilmington, Del.-based provider of performance chemicals plans to use the proceeds to refinance its existing euro-denominated 6 1/8% senior notes due 2023 and partially redeem its dollar-denominated 6 5/8% senior notes due 2023.

Chemours followed close on the heels of another American issuer raising euros to pay dollar-denominated debt.

Last week, Kraton Corp. priced a €290 million issue of senior notes due May 2026 (B3/B) at par to yield 5¼%.

The Houston-based polymers producer was in the market to fund a tender for its dollar-denominated 10½% senior notes due 2023.

The somewhat novel passes that Chemours and Kraton made at the euro-denominated market are seen mainly as “cost-of-capital” plays, the London-based banker said.

European rates are lately lower and tamer than those in the United States, the banker said.

Away from the Chemours deal, the European new issue market has been quiet.

There is a modest late-May, early-June pipeline.

Prospective issuers would prefer a bit more stability in the capital markets and some clarity on Italy's future status with the European Union, the banker said.

The leaders of the Italian Five Star Movement and League are perceived to be on a collision course with the EU with challenges to Brussels’ budget guidelines and rules on immigration.

Mattel under pressure

As the primary market prepares a $500 million add-on to Mattel’s 6¾% senior notes due 2025, the outstanding 6¾% notes have been under pressure, a market source said.

The notes were down 1 point on Monday and down another 1½ point on Tuesday to 96¾, a market source said.

With price talk for the add-on 96½, holders of the outstanding notes may be selling them off to participate in the lower issue price, a market source said.

The debt heavy Mattel is also taking on another $500 million in debt, the source said.

Triple C

Several of the recent deals that have to come to market have been triple C credits, such as Hearthside Food Solutions LLC’s new 8½% senior notes due 2026 (Caa2/CCC+) and SRS Distribution’s 8¼% senior notes due 2026 (Caa2/CCC+).

Atotech BV is also in the market with a $300 million offering of five-year senior PIK toggle notes (CCC+).

“These are not the strongest of credits coming to the market right now,” a market source said.

There has been an appetite for the paper and triple C names are outperforming single B and double B indexes, a market source said.

However, the demand could be “just a yield play,” the source said. “We’ll see how long it holds.”

The new notes from Hearthside and SRS have struggled since they priced on May 17. Hearthside’s 8½% notes were down about 3/8 point in scattered trading activity on Tuesday to close at 99 1/8.

SRS Distribution’s 8¼% senior notes were largely unchanged at 99¾.

Unchanged

Valeant Pharmaceuticals’ recently priced 8½% senior notes due 2027 (Caa1/B-/B-) and EP Energy’s recently priced 7¾% senior notes due 2026 (B1/B) saw another day of active trading in the secondary space.

While the notes remained major volume movers on Tuesday, they were largely unchanged, a market source said. Valeant’s 8½% notes were seen trading at 101 1/8 with about $30 million of the bonds on the tape by late afternoon.

“They didn’t go anywhere,” a market source said.

EP Energy’s 7¾% notes were seen unchanged at 101¾ with about $21.5 million of the bonds traded by late afternoon.

PetSmart’s decline continues

PetSmart’s junk bonds were major volume movers on Tuesday with the notes dropping 1 to 1.5 point after the announcement of a new CEO.

PetSmart’s 8 7/8% notes due 2025 were down 1¼ point to 49½ in high-volume trading on Tuesday. More than $32 million of the bonds had traded by late afternoon.

PetSmart’s 5 7/8% senior notes due 2025 were down 1 point to 67¾. More than $23 million of the bonds traded during Tuesday’s session.

PetSmart notes have been on the decline since Monday when the company announced it would be hiring J.K. Symancyk, president and CEO of Academy Sports + Outdoors, as its new chief executive officer.

The notes have taken a hit in the past month.

“They just never found their feet after the Amazon announcement,” a market source said.

The 8 7/8% and 5 7/8% notes dropped 2 to 3 points in early May after Amazon announced the launch of its own dog food line. The notes have moved downward since.

Altice up

Altice USA’s 7¾% senior notes due 2022 were making gains in high-volume trading on Tuesday.

The notes were up 1¼ point to 97 5/8. They were a major volume mover during Tuesday’s session with more than $28 million of the bonds on the tape, a market source said.

SFR Group’s 7 3/8% senior notes due 2026 were up about 1 point to trade at 98 5/8.

Altice shareholders approved on Monday long-held plans to spin off Altice USA from Altice NV.

French regulators also signaled on Tuesday that they would be open to the potential consolidation of the telecommunications sector in France.

Altice’s and SFR Group’s junk bonds were active and making gains in mid-April amid rumors Paris-based Bouygues was considering a bid for Altice’s subsidiary the SFR Group to consolidate France’s telecommunications sector.

Indexes see gains

Three benchmarks for the high-yield secondary market saw gains on Tuesday.

The KDP High Yield index was up 5 basis points on Tuesday to 70.54 with the yield now 5.87%. Tuesday’s gains made up for Monday’s loss when the index was down 4 basis points.

The Merrill Lynch High Yield index was saw another day of slight gains on Tuesday. The index was up 4.7 bps with the negative year-to-date return now 0.184 after a 2.1 bps rise on Monday.

The index has been in negative territory since May 15.

The CDX High Yield 30 index was up 6 bps to close Tuesday at 106.9.

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