Wesco PattonAir downsizes; Albertsons improves; LPL up; Teva active; Wildhorse rebounds

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 8 – The primary market was quiet on Friday, but the coming weeks promise to be busy with some large offerings on deck.

Wesco PattonAir downsized its junk bond offering to $2.1 billion and widened pricing on Friday with the books expected to close on Tuesday.

In the European market, Grifols SA priced an upsized $1.85 billion equivalent amount of senior secured notes (expected ratings Ba2/BB+) in two euro-denominated tranches.

The two offerings reflect a growing trend among issuers of concurrent bond and loan offerings that has seen loans downsized and proceeds shifted to bonds.

While the domestic primary market broke its run on Friday of more than $1 billion of deals per day in November, some large offerings are on the forward calendar.

Teva Pharmaceutical Industries Ltd. (Ba2/BB/BB) announced plans on Friday for a roadshow for a $1.5 billion equivalent two-tranche offering that will run through the Nov. 18 week.

Maxar Technologies Inc. is also continuing to market its $1.5 billion equivalent two-tranche offering.

Meanwhile, the secondary space was largely flat at the week’s close as it has been for much of the week.

However, single B credits were the outperformers of the week as losses continued to mount for CCC credits.

Trading volume was light heading into the long weekend with new issues continuing to dominate trading activity.

Albertsons’ recently priced 4 5/8% senior notes due 2027 were slightly improved with the majority of trades during Friday’s session at par.

LPL Financial Holdings Inc.’s 4 5/8% senior notes due 2027 (B1/BB) were active and trading at a premium to their issue price.

Teva Pharmaceutical Industries Ltd.’s junk bonds were active and slightly improved after the company announced its new offering.

The carnage continued for Party City Holdings Inc.’s junk bonds with the company’s longer duration notes again sinking double digits.

However, WildHorse Resource Development Corp.’s 6 7/8% senior notes due 2025 were on the mend on Friday after selling off earlier in the week in tandem with Chesapeake Energy Corp.’s junk bonds.

Friday primary

In a generally quiet Friday session, Grifols priced an upsized $1.85 billion equivalent amount of senior secured notes in two euro-denominated tranches.

The shorter duration tranche came as €905 million of 5.25-year notes that priced at par to yield 1 5/8%. The yield printed at the tight end of yield talk in the 1¾% area.

The long tranche came as €770 million of eight-year notes that priced at par to yield 2¼%. The yield printed at the tight end of yield talk in the 2 3/8% area.

The overall bond sale increased from $1.25 billion equivalent. At the same time the term loan size decreased to $2.5 billion from $3 billion.

Elsewhere, Wesco PattonAir downsized the struggling three-part junk bond deal backing its acquisition/merger financing to $2.1 billion from $2.175 billion and launched all three tranches with wider pricing and further revisions on Friday (see related story in this issue).

The revised deal features a downsized $1.55 billion amount of senior secured notes (B3/B) in two tranches.

The secured portion of the deal was first announced to the market as a single $1 billion tranche of seven-year notes, then increased to $1.6 billion when the borrower withdrew a proposed $600 million term loan, shifting proceeds to the secured notes.

Bonds and loans

The Grifols and Wesco deals point to a trend that has taken hold, in earnest, as 2019 has unfolded: there has been a tendency among issuers coming to the market with financings that include concurrent bond and loan tranches to upsize the bonds while downsizing the loans, and occasionally abandoning the loan altogether, as in the case of Wesco.

It is by no means difficult to generate a list of such financings that have come in recent months.

An altogether cursory look turned up the following:

• BidFair/Sotheby’s priced an upsized $600 million of 7 3/8% secured notes which saw $50 million of proceeds shifted from the concurrent loan;

• Clarivate Analytics plc priced an upsized $700 million of 4½% secured notes which saw $200 million shifted from the concurrent loan;

• CommScope Inc. priced an upsized $3.75 billion deal in three tranches – 5½% secured notes, 6% secured notes and 8¼% unsecured notes – which had $670 million shifted from the concurrent loan;

• Inmarsat plc priced an upsized $2,075,000,000 issue of 6¾% secured notes in a transaction that saw $950 million shifted from the concurrent loan in two stages;

• Shutterfly Inc. priced an upsized $785 million issue of 8½% secured notes in a transaction that saw $285 million shifted from the concurrent loan;

• Staples, Inc.’s $2 billion of 7½% secured notes came in a transaction that saw $900 million shifted from the concurrent loan;

• Twin River Worldwide Holdings, Inc. priced an upsized $400 million issue of 6¾% unsecured notes in a transaction that saw $50 million shifted from the concurrent term loan; and

• Prior to pulling its bond and bank refinancing deal from the market altogether, Peabody Energy Corp. withdrew its $900 million term loan.

Cash favoring bonds over loans

The leveraged loan market remains vigorous and issuers with high credit quality continue to enjoy crisp executions there.

The executions frequently enable issuers to reprice loans to lower spreads and more favorable terms when soft call periods expire.

However, the same has not been true of issuers with more challenging credit quality.

One reason is that CLOs, the dynamo of the bank loan market, are seeing their baskets for weaker credit quality paper becoming maxed out, according to an investor who plays both loans and junk bonds.

That impairs the latitude that the CLOs have to participate in weaker quality loan deals.

Also, retail cash flows for 2019 dramatically favors bonds over loans, a market source said.

Whereas high-yield bond funds saw over $17 billion of inflows in 2019 to the end of October, dedicated bank loan funds saw nearly $33 billion of outflows during that period, the source said.

That is a striking reversal of fortunes.

In 2018 to the end of October, the high-yield funds had seen $31 billion of outflows, whereas the loan funds had seen nearly $17 billion of inflows, according to the source.

The week ahead

Aside from the above-mentioned Wesco deal, the holiday foreshortened post-Veterans Day week, which gets underway Tuesday following the extended holiday weekend, should be active, although perhaps not quite as active as it has been during the past week, sources say.

Maxar Technologies has been running a full roadshow for a $1.25 billion offer of senior secured notes due 2023. That roadshow is set to run through the week ahead. Initial price talk is in the 9% area.

Meanwhile, on Friday dealers announced that Teva will start an international roadshow on Monday in London for a $1.5 billion two-part offer of notes due January 2025 in dollar- and euro-denominated tranches. That roadshow is set to run into the Nov. 18 week.

Away from those, on Friday an investment banker professed visibility on other deals set to come in the week ahead.

Returns

The high-yield secondary market closed out the week little changed.

While the overall cash market was little changed on the week, single-B credits were the outperformers.

Single-B credits saw a 36 basis points gain through Wednesday’s close, according to a BofA Merrill Lynch research note.

However, losses continue to mount for CCC credits which saw another 18 bps in losses on the week after a 56-bps loss the previous week, according to the note.

Albertsons at par

Albertsons’ recently priced 4 5/8% senior notes due 2027 were slightly improved on Friday, although the new paper’s reception in the secondary space remained tepid.

The 4 5/8% notes traded in a range of 99½ to par ¼ on Friday, according to a market source.

However, the majority of trades were with a par handle.

The notes were the most active in the secondary space on Friday with more than $40 million in reported volume in the midafternoon.

The notes were trading in a range of 99 3/8 to par ¾ after breaking for trade on Thursday with most trades on a 99 handle.

Sources pointed to the low coupon as the reason for the notes’ lackluster performance in the secondary space.

Albertsons priced an upsized $750 million issue of the 4 5/8% senior guaranteed notes at par in a quick-to-market Thursday trade.

The issue size increased from $500 million.

The yield printed in the middle of yield talk in the 4 5/8% area.

Initial guidance had the notes coming to yield in the high 4% area.

LPL Financial trades up

LPL Financial’s recently priced 4 5/8% senior notes due 2027 were also among the top traded issues in the secondary space.

The notes were seen at a premium to their issue price and were changing hands in a range of par ¼ to par 7/8, according to a market source.

There were more than $37 million on the tape by the midafternoon.

LPL Financial priced a $400 million issue of the 4 5/8% notes at par in a Thursday drive-by.

The yield printed at the tight end of yield talk in the 4¾% area. Initial guidance had the notes coming to yield in the high 4% to 5% area.

Teva active

Teva’s junk bonds were active and slightly improved on Friday following news of the pharmaceutical company’s new offering.

While all notes were lifted, the shorter duration notes were the major benefactors of news of the new debt offering, with proceeds to be used to repay debt maturing in 2021.

Teva’s 2.2% notes due 2021 were up more than 1 point on the news to 97½, according to a market source.

While the largest gainer in the capital structure, the 2.2% notes saw the lightest volume with about $10 million on the tape by the midafternoon.

The 2.8% notes due 2023 were up ½ point to 89¼ with about $11 million in reported volume.

The 3.15% senior notes due 2026 traded up ¼ point to 78 1/8 with $12 million in reported volume.

Teva’s 6¾% senior notes due 2028 were up ¼ point to 92½. The notes were the most active with $14 million in reported volume by the midafternoon.

The 6¾% notes dropped more than 2 points earlier in the week after Teva reported earnings.

Party City down again

The carnage in Party City’s capital structure continued on Friday with the party supply retailer’s longer duration notes again dropping double digits in active trading.

The 6 5/8% senior notes due 2026 were down more than 11 points to a 70 handle by the midafternoon, according to a market source.

The notes saw more than $21 million in reported volume.

The 6 5/8% notes dropped more than 12 points on Thursday.

The notes were trading around 98 in the run up to the company’s earnings report.

However, a dismal earnings report and a reduced forward guidance sparked a sell-off in the company’s stocks and bonds.

Wildhorse rebounds

Wildhorse Development Corp.’s 6 7/8% senior notes due 2025 were on the rebound on Friday after the notes sold off in tandem with Chesapeake Energy earlier in the week.

The 6 7/8% notes were up more than 4 points to 78 in active trading on Friday.

They were trading on an 80 handle on Monday but dipped as low as 69 on Wednesday at the height of the sell-off in Chesapeake Energy’s junk bonds, a market source said.

Wildhorse was acquired by Chesapeake Energy in February.

However, Brazos Valley Longhorn LLC assumed the obligation of issuer of Wildhorse’s 6 7/8% notes in the merger and is the entity responsible for the notes’ repayment, according to a company press release at the time of the merger.

Mixed Thursday flows

The daily cash flows of the dedicated high-yield funds were mixed on Thursday, the most recent session for which data was available at press time, a market source said.

High-yield ETFs sustained $111 million of outflows on the day.

Actively managed high yield funds saw a modest $10 million of inflows on Thursday, the source added.

News of Thursday's daily flows follows a late Thursday afternoon report that the combined funds sustained $574 million of outflows in the week to Wednesday's close.

And in keeping with the draconian cash flows situation of the dedicated high-yield funds described above, the bank loan funds sustained $366 million of outflows in the week to Wednesday's close, the market source said, adding that the weekly cash flows of the dedicated bank loan funds have been negative in 50 of the past 51 weeks.

Indexes

Indexes were mixed on Friday although all closed the week relatively flat.

The KDP High Yield Daily index gained 3 bps to close Friday at 71.25 with the yield 5.37%.

The index was up 1 bp on Thursday, down 10 bps on Wednesday, slid 1 bp on Tuesday, and gained 14 bps on Monday for a cumulative gain of 7 bps on the week.

The ICE BofAML US High Yield index dipped below the 12% return threshold on Friday.

The index was down 7 bps on Friday with year-to-date returns now 11.942%.

The index dipped 0.3 bps on Thursday, was down 10.2 bps on Wednesday and 6.4 bps on Tuesday after a 5.8 bps gain on Monday.

The index posted a cumulative loss of 18.1 bps on the week.

The CDX High Yield 30 index dropped 11 bps to close Friday at 107.64.

The index rose 10 bps on Thursday, dropped 5 bps on Wednesday, slid 1 bp on Tuesday and gained 37 bps on Monday for a cumulative gain of 30 bps on the week.

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