Downsized Western Data megadeal prices, bonds firm; new T-Mobile gains; Diebold shops deal

By Paul Deckelman and Paul A. Harris

New York, March 30 – Junkbondland saw its heaviest volume of new issuance so far this year on Wednesday – in fact, it was its biggest-volume session going back for months.

However, all of that new paper was attributable to just one deal. Computer disk-drive manufacturer Western Digital Corp. brought a giant-sized two-part offering to market off the forward calendar.

The $5.23 billion overall size of the deal – though downsized from originally announced levels – was still great enough to qualify as the biggest deal of the year so far. It included an upsized tranche of seven-year, split-rated senior secured notes paired with a downsized offering of purely junk-rated eight-year senior unsecured notes.

While the bonds came to market late in the session, traders did quote both tranches higher – particularly the secured piece.

The traders meantime saw solid gains in heavy trading in the new T-Mobile USA, Inc. bonds that priced on Tuesday.

And Monday’s new issue from HD Supply, Inc. was also heard to have continued to push up from its issue price, in active dealings.

Away from the deals that have actually priced, syndicate sources said that Diebold Inc. had started a roadshow on Wednesday for a $500 million offering of eight-year notes, which is expected to price early next week.

Statistical market performance measures broke out of their recent slump, turning higher across the board on Wednesday after having been lower for a fifth consecutive session on Tuesday. The gain marked the second stronger session in the last seven trading days.

Western Digital downsized

Western Digital priced Wednesday's sole deal, a downsized $5,225,000,000 amount of notes that came in two tranches.

The transaction included an upsized $1,875,000,000 tranche of split-rated seven-year senior secured notes (Ba1/BBB-/BBB-) that priced at par to yield 7 3/8%.

The tranche was upsized from $1.5 billion.

The yield printed at the tight end of the 7 3/8% to 7½% yield talk. Earlier talk was in the 7½% area. The secured notes kicked off with guidance in the low 6% context, according to market sources.

Western Digital also priced a downsized $3.35 billion tranche of straight speculative-grade eight-year senior unsecured notes (Ba2/BB+/BB+) at par to yield 10½%.

The unsecured notes tranche was downsized from $4.1 billion.

The yield printed at the tight end of the 10½% to 10¾% final yield talk. Earlier talk was in the 10½% area. The unsecured notes kicked off with guidance in the 9% area, sources said.

The overall amount of bonds was decreased from $5.6 billion, with $375 million of proceeds shifted to the term loan A.

In addition, $300 million was shifted to the secured notes tranche from the unsecured notes.

Dealers labored to fill the order books for the bonds, sources said.

However, with the dramatic widening of yields, accounts ultimately piled into the deal, according to a trader who added that demand was $9 billion and counting, across both tranches, three hours before the final close of books.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, RBC Capital Markets, Mizuho Securities, MUFG, HSBC Securities and SMBC Nikko were the joint bookrunners.

Proceeds will be used to help fund the acquisition of SanDisk Corp. and to refinance existing debt at both companies.

Diebold starts roadshow

Diebold started a roadshow on Wednesday for a $500 million offering of eight-year senior notes.

Initial guidance has the deal coming with a yield in the high 7% to low 8% context.

The offer is expected to price on Tuesday.

JPMorgan and Credit Suisse are the joint bookrunners for the acquisition-related financing.

Beyond Diebold the active forward calendar is empty.

The market is entering an earnings blackout period that could serve to impede primary market activity, a debt capital markets banker said on Wednesday.

However, there is a pipeline, the banker added.

Provided the market holds up, weekly issuance of $3 billion to $6 billion might be expected over the course of the coming two weeks, the source said.

Mixed flows

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

High-yield exchange-traded funds sustained $81 million of outflows on the day.

However, actively managed funds saw $75 million of inflows on Tuesday.

New Western Digital rises

In the secondary arena, traders saw both parts of the new Western Digital megadeal having moved up from their respective par issue price.

A trader saw the 7 3/8% senior secured notes due 2023 having hit the aftermarket at 101 3/8 bid, 102 3/8 offered.

A second trader pegged the bonds in a 101¾-to-102½ bid context.

The 10½% senior notes due 2024 were meantime quoted trading between 100¼ and 101¼ bid.

The $5.23 billion deal was the biggest seen in the junk precincts this year and the largest seen in many months overall.

Even omitting the upsized $1.88 billion split-rated seven-year issue, the remaining $3.35 billion purely junk-rated eight-year issue is easily the largest junk deal seen so far this year, according to data compiled by Prospect News, topping the $2.4 billion two-part offering that St. Louis-based managed care provider Centene Corp. did on Jan. 28, consisting of $1.4 billion of 5 5/8% notes due 2021 and $1 billion of 6 1/8% notes due 2024.

It also topped the $2.69 billion in three single-tranche offerings that got done on Feb. 4, the previous largest-volume session seen so far this year.

Going back further, the junk portion of the Western Digital deal was the biggest junk deal seen since the $4.8 billion three-part offering that European cable operator Altice SA brought to market last Sept. 25 as part of the funding for its acquisition of U.S. sector peer Cablevision Systems Corp.

Wednesday’s session was meanwhile the heaviest-volume session the junk market had seen since last Nov. 5, when a total of $7 billion of new junk paper got done in five tranches.

T-Mobile trades up

The new T-Mobile USA 6% notes due 2024 that priced on Tuesday were the junk market’s volume leader on Wednesday, with a market source seeing more than $75 million of those bonds having changed hands and finishing at 101¼ bid. He called that up 5/16 point on the day.

Another trader said that the bonds initially were trading between 100¾ and 101½ bid but later firmed to a 101-to-101½ context.

The Bellevue, Wash.-based wireless carrier priced $1 billion of the notes at par in a quick-to-market offering.

HD Supply remains active

Meanwhile, Monday’s offering from HD Supply remained active on Wednesday, with over $14 million of the notes traded. A market source located the notes at 102 bid, calling that a 7/8-point gain on the day.

A second trader said that the notes had moved up to 101¾ bid, 102 offered, a gain of ½ point.

The bonds had been the most actively traded junk issue on Tuesday, with over $59 million of the new notes seen having changed hands by the end of the day, ending at 101 3/8 bid, a gain of 3/8 point on the day.

HD Supply, an Atlanta-based distributor of building and maintenance tools and supplies, had priced $1 billion of notes at par in a quick-to-market deal on Monday.

Indicators turn better

Statistical market performance measures broke out of their recent slump on Wednesday, turning higher across the board after having been lower for a fifth consecutive session on Tuesday. The gain marked the second stronger session in the last seven trading days.

The KDP High Yield Daily index jumped by 22 basis points on Monday to end at 65.45 – exactly offsetting its 22-bps loss on Tuesday, which had been its fifth consecutive setback. Coupled with four straight gains before that, Wednesday was the index’s fifth upturn in the last 10 trading days.

The index’s yield came in by 7 bps on Wednesday to 6.69%, its first such narrowing after four straight sessions in which the yield had risen, including Tuesday’s 8 bps gain. With five consecutive sessions before that in which the yield had tightened, that market measure has now narrowed in six out of the last 10 sessions.

The Merrill Lynch North American High Yield Master II index finally turned better on Wednesday after having suffered five consecutive losses before that. That marked the index’s fourth gain in the last nine sessions.

It rose by 0.489% on Wednesday, versus Tuesday’s 0.305% loss.

That gain pushed the index’s year-to-date return up to 2.986% from 2.485% on Tuesday.

The Markit Series 26 CDX North American High Yield index rose by slightly over ½ point on Wednesday to finish at 102 17/32 bid, 102 9/16 offering.

It was the index’s first gain since it “rolled” into the new series on Tuesday. Each spring and fall, Markit switches over to a new series with a somewhat different composition of bond issues being tracked. The new index is thus not directly comparable to the series 25 index, which last traded on Monday, losing 7/32 point for its fourth consecutive loss and fifth retreat in the prior six sessions.

Monday’s loss had been its fourth straight setback after one gain and its fifth in the previous six trading sessions.

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