Downsized Builders FirstSource caps $3.8 billion week, new bonds firmer; Thompson Creek gyrates

By Paul Deckelman and Paul A. Harris

New York, July 24 – The high-yield primary sphere closed out the week on Friday with a downsized eight-year deal, syndicate sources said, as Builders FirstSource, Inc., a supplier of building materials, priced a $700 million regularly scheduled forward calendar offering.

The new bonds were seen having firmed modestly when they hit the aftermarket.

Including the week’s biggest junk offering – telecom operator SoftBank Group Corp.’s $2 billion of dollar notes, split into two tranches – the Builders FirstSource transaction brought the week’s tally of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers to $3.83 billion in six tranches.

That was a little off from the $4.17 billion that had priced in eight tranches last week.

The week’s new issuance brought the year-to-date Junkbondland pricing figure to $192.16 billion in 312 tranches, running about 2.1% behind the $196.31 billion that had come to market in 368 tranches by this time on the calendar last year, according to data compiled by Prospect News.

Among existing issues, traders said that energy names such as California Resources Corp. seemed to have stabilized around the lower end of the range that such credits had traded down to in volatile dealings earlier in the week, holding steady in that area.

There were some gyrations in Thompson Creek Metals Co. Inc.’s bonds, with its secured issue sliding but its unsecured paper posting solid gains. There was no fresh news immediately seen about the mining company that might explain the bonds’ activity.

Statistical measures of junk market performance were lower all around for a sixth consecutive session on Friday.

They were also lower across the board versus where they had finished out last week, after having been mixed on a Friday-to-Friday basis the week before. It was the indicators’ third losing week in the last four.

Builders FirstSource downsizes

The Friday session saw a single dollar-denominated deal clear the high-yield primary market.

Builders FirstSource priced a downsized $700 million issue of eight-year senior notes (Caa2/B-) at par to yield 10¾%.

The deal was decreased by $50 million, with the proceeds shifted to the concurrent term loan, raising it to $600 million from $550 million.

The reoffer price and yield came on top of final price talk. However final talk blew out by 175 basis points from the wide end of earlier 9¾% to 10% official price talk.

Citigroup, Deutsche Bank, Credit Suisse, KeyBanc and SunTrust were the joint bookrunners.

Proceeds will be used to help finance the acquisition of ProBuild Holdings LLC, as well as to repay certain Builders FirstSource debt and ProBuild’s existing debt.

Prime Healthcare Services, Inc. had been expected to price its $700 million offering of eight-year senior notes (B3/B+) on Friday.

However the deal has been pushed into the week ahead, according to an informed source.

Price talk in the 7½% area surfaced on Thursday.

And Exterran Holdings, Inc. announced in a Friday press release that it has withdrawn its $400 million offering of seven-year senior notes (B1/BB-) due to adverse market conditions.

The deal, which was marketed in early July and whispered to yield 8% to 8¼%, had been sidelined for nearly two weeks, market sources said.

The week ahead

The final week of July could be notably quiet in the primary market, as risk-aversion appears to be taking hold among investors, a sellside source said late Friday afternoon.

In addition to Prime Healthcare, there are two announced deals on the calendar for the July 27 week.

TerraForm Global, Inc. is marketing $800 million of seven-year notes (B2/B+) on a roadshow set to wrap up on Thursday.

And Euramax Holdings, Inc. is on the road with a $385 million offering of five-year senior secured notes (Caa2/B-) set to price Friday.

Verallia downsizes

In the European market Verallia launched and priced a downsized €525 million two-part offering of high yield notes on Friday.

Horizon Holdings III SAS priced a downsized €300 million tranche of seven-year senior secured notes (B1/B+) at par to yield 5 1/8%. The tranche was decreased from €560 million. Earlier in the week a proposed dollar-denominated tranche of seven-year secured notes was withdrawn.

Horizon Holdings I SAS priced a €225 million tranche of eight-year senior unsecured notes (B3/B-) at par to yield 7¼%. The tranche was decreased from €300 million.

The overall deal was downsized from €860 million. As a result of the downsizing of the bond portion of the financing, €335 million of proceeds were shifted to the concurrent term loan, increasing it to €1,337,000,000 from €1,002,000,000.

Global coordinator Credit Suisse will bill and deliver. Deutsche Bank is also a global coordinator.

Barclays, BNP Paribas, Nomura and SG CIB are joint bookrunners.

Proceeds will be used to fund the buyout of the France-based glass packaging manufacturer by Apollo and to repay debt.

Record week in Europe

The European high-yield market put up new records in terms of dollar-equivalent amount of issuance and deal volume during the past week.

European issuance came to $7.65 billion equivalent in 17 tranches, according to Prospect News data.

That eclipses the previous records for weekly issuance, in terms of both dollar-equivalent amount of issuance and deal volume, set in the April 29, 2013 week, which saw $7.38 billion equivalent in 14 tranches.

Two big motivating forces conspired to drive last week’s record European issuance, sources say.

Investors, particularly those in France and Germany, are expected to leave for vacation at the beginning of August.

And a sizable portion of the past week’s business came to market to clear committed bridge financings with funding deadlines in sight.

Unlike the United States, where a significant amount of bridge financing has been syndicated by the dealers, European bridges primarily stay on the books of the banks, sources say.

Hence the exodus of the buyside for holidays threatened to bring the European dealers up against funding deadlines, with risk that needed to be moved.

Thursday outflows

Dedicated high-yield funds sustained outflows on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $96 million of outflows on the day.

Asset managers saw $155 million of outflows.

Builders FirstSource firmer

Back in the secondary realm, traders said that the new 10¾% notes due 2033 from Builders FirstSource were going home at firmer levels after having priced at par.

One trader said that initially, the Dallas-based building supplies company’s notes had traded in a 99½ to 100½ bid context.

A little later, though, the notes had moved back to, and above, their par pricing level.

One trader saw them in a 100¼ to 100¾ context, while a second pegged them between 100¼ and 100½ bid.

At another desk, a market source said that the bonds had pushed up to around 100½ bid by the close, with over $10 million changing hands.

Kenan bonds climb

A trader said that Kenan Advantage Group Inc.’s 7 7/8% notes due 2023 had firmed to around the 100¾ bid range.

The North Canton, Ohio-based provider of liquid bulk transportation services priced a regularly scheduled $405 million offering of those notes at par on Thursday, when no initial aftermarket dealings were seen.

The bonds were brought to market via OPE KAG Finance Sub Inc., a special-purpose vehicle formed in connection with the pending buyout of Kenan by Omers Private Equity from Goldman Sachs Capital Partners and Centerbridge Partners.

Caleres stays firm

Caleres Inc.’s 6¼% notes due 2023 were seen by a trader on Friday moving around between 100¾ and 101 bid.

On Thursday, he had seen those notes in a 101 to 101¼ bid context.

The St. Louis-based footwear company – long-known as Brown Shoe Co. before a name change earlier this year – priced $200 million of the notes at par on Tuesday in a regularly scheduled forward calendar transaction.

Market seen weaker

Away from the new deals, a trader said that the junk market, generally, “followed the stock market. It started out okay but then as stocks sold off the overall [junk] market got weaker.”

Stocks ended well down on the day, with the bellwether Dow Jones Industrial Average plunging by 163.39 points, or 0.92%, to end at 17,568. 53, with other equity indexes following suit.

The trader said that downward pressure pushed junk prices down “¼ point generically, maybe a little more.”

He said that energy names remained “under pressure,” especially with West Texas Intermediate crude for August delivery continuing to struggle, closing at $48.13 per barrel on the New York Mercantile Exchange,

Another trader said that after volatile dealings earlier in the week, energy names in particular “kind of settled down a little bit”

He said those credits were “range-bound at or near the lows for the week.”

He called California Resources’ 6% notes due 2024 about unchanged on the session.

Another trader saw the Los Angeles-based oil and gas exploration and production company’s notes at 80¼ bid, up more than 1 point on the session, with over $45 million having changed hands, topping the junk Most Actives list.

A trader said that Chesapeake Energy Corp.’s 5¾% notes due 2023 were “slightly weaker on the day,” going out at 82½ bid, 83 offered. The Oklahoma City-based E&P company had finished on Thursday around 83 bid.

Thompson Creek gyrates

One of the most volatile names on Friday was Thompson Creek Metals, although traders did not see any fresh news out on the Littleton, Colo.-based gold, copper and molybdenum mining company that might explain the bonds’ activity.

A trader said that its 9¾% secured notes due 2017 plummeted over 8 points to end at 92¼ bid, while its unsecured 7 3/8% notes due 2018 shot up by 3 points on the day to close at 63¼ bid. Volume for each was over $11 million.

Indicators down on day, week

A trader said that “overall, the market is softer – but with really light flows, typical for a summer Friday.”

Statistical measures of junk market performance were lower across the board for a sixth consecutive session on Friday.

They were also down all around from where they had finished out the previous week on Friday, July 17.

The KDP High Yield Daily Index fell by 9 basis points Friday to end at 69.03 – just barely above the index’s 52-week low point of 69.01, reached on Dec. 16, 2014. It was the index’s sixth loss in a row and its seventh downturn in the last nine sessions. The index had lost 7 bps on Thursday.

Its yield, meanwhile, was up by 5 basis points to 6.01%, its first time above the psychologically significant 6.00% mark this year. It was the sixth successive rise in the yield, including Thursday’s 1 bps rise.

Those numbers compare unfavorably to the 69.77 index reading and 5.79% yield seen last Friday.

The Markit Series 24 CDX North American High Yield Index lost 11/32 point on Friday to end at 105 25/32 bid, 105 13/16 offered, its sixth straight loss and its seventh downturn in the last eight sessions. The index had been off by 3/32 on Thursday.

For the week, the index was down from last Friday’s 106 29/32 bid, 106 15/16 offered.

The Merrill Lynch North American Master II High Yield Index backtracked for a sixth session in a row, falling by 0.131%, on top of Thursday’s 0.07% easing and Wednesday’s 0.403% plunge, which had been its biggest one-day loss so far this year.

Friday’s retreat brought its year-to-date return down to 1.418%, down from 1.551% on Thursday. It was the index’s lowest closing level since Feb. 5, when it had ended at 1.381%.

The year-to-date figure meantime remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

One of the index’s components, its yield, rose to 6.946% on Friday – its highest level of the year so far, surpassing the previous high point, the 6.86% yield recorded on Jan. 6.

For the week, the index nosedived by 1.01% – its biggest one-week loss of the year.

It was the index’s first weekly loss after one gain – the 0.66% rise last week, which had brought the year-to-date return up to 2.452%.

It was also the index’s fourth weekly loss in the last five weeks. The Merrill Lynch index has now seen 18 weeks of gains so far this year against 11 weeks on the losing side.

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