EP Energy, BWX prices; Valeant trades up; Hearthside, SRS struggle; Sprint tanks

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 18 – The domestic high-yield primary market rounded out the week with $1.4 billion pricing in two deals.

EP Energy Corp. sold $1 billion of eight-year 1.125-lien senior secured notes (B1/B) at par to yield 7¾%.

BWX Technologies, Inc. priced a $400 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5 3/8%. The notes were trading at a premium to their issue price after hitting the secondary market.

Ithaca Energy (North Sea) plc and JW Aluminum Continuous Cast Co. had been expected to price on Friday but the deals were not seen priced by late afternoon.

In the European primary market, Premier Foods Finance plc priced a £300 million issue and DNO ASA priced a $400 million offering.

While the primary market saw a busy end to the week, new issuance in the week ahead is forecast to be muted with a recommended early close next Friday ahead of the Memorial Day weekend.

Meanwhile, the secondary performance of Thursday’s deals was mixed on Friday with new notes from Valeant Pharmaceuticals International, Inc. trading up and new notes from Hearthside Food Solutions LLC and SRS Distribution, Inc. trading down.

Largo Resources Ltd.’s small offering of 9¼% senior notes due 2021, which priced at a discount, saw little to no secondary market activity.

While some of Thursday’s deals struggled, Sprint Corp.’s 8¾% senior notes due 2032 and 6 7/8% senior notes due 2028 tanked after the company secured the needed consents to amend the indentures.

The notes had been on the rise during the consent solicitation process with bondholders organizing to increase the payout, which Sprint did do, market sources said.

EP Energy oversubscribed

EP Energy priced a $1 billion issue of eight-year 1.125-lien senior secured notes (B1/B) at par to yield 7¾% late Friday.

The yield printed at the wide end of the upwardly revised 7½% to 7¾% yield talk. Earlier yield talk was 7¼% to 7½%.

In addition to the widening of the talk, there were also covenant changes bearing primarily upon how the company may disburse cash and incur additional debt.

With those changes and the fatter yield, investors stepped forward, according to market sources.

At the revised talk, the deal was heard to be playing to $1.5 billion of orders, an investor said.

Credit Suisse was the lead left bookrunner.

BWX prices tight

Turning from single B rated credits to double B names, BWX Technologies priced a $400 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5 3/8%.

The yield printed at the tight end of yield talk in the 5½% area and inside the 5½% to 5¾% initial guidance.

Morgan Stanley, Wells Fargo, J.P. Morgan, TD, U.S. Bancorp and PNC were the joint bookrunners.

The notes were active in the secondary market with more than $64 million of the bonds traded by late afternoon.

The notes were seen trading between par 1/8 and 101 with most prints between par ½ and par 5/8, market sources said.

Radio silence

While two additional deals were expected to price before the week came to a close, they had not priced by late Friday, market sources said.

Ithaca Energy has been marketing $350 million of five-year senior notes (Caal/CCC+).

Initial price talk came in the low 9% area.

JW Aluminum is in the market with a $285 million offering of eight-year senior secured notes (B3/B-) with early guidance in the mid-to-high 9% area.

JW Aluminum is returning to the new issue market after it postponed a $300 million offering of eight-year senior secured notes in February, citing adverse market conditions.

Smaller deals with weak credit ratings appear to be playing to a special class of investors that include hedge funds, sources say.

Such was the case with Hearthside Food Solutions and SRS Distribution’s deals, which both saw price talk widen significantly and which traded poorly in the secondary market.

The high-yield market may have backed up a little, especially on a yield basis, an investor said.

However, credits the market already knows are having no trouble raising a crowd and appear to be getting good executions, the source added.

Premier prices £300 million

Premier Foods priced a £300 million issue of senior secured notes due October 2023 (B2/B/B) at par to yield 6¼% on Friday.

The yield printed in the middle of talk set in the 6¼% area.

Physical bookrunner HSBC will bill and deliver for the debt refinancing deal. Barclays, BNP Paribas and Lloyds were also physical bookrunners. Credit Suisse was a bookrunner.

In the Nordic market, Norwegian oil and gas operator DNO ASA priced a $400 million issue of five-year senior bonds at par to yield 8¾%.

The deal, which was marketed by means of an accelerated book-building process, received strong investor demand across international markets and was oversubscribed, according to a company news release.

Pareto Securities AS acted as lead manager and bookrunner with Danske Bank and SpareBank 1 Markets AS co-managers and bookrunners.

The week ahead

Activity in the dollar-denominated primary market may be muted in the week ahead, which concludes with a recommended early close on Friday, ahead of the Memorial Day holiday weekend in the United States.

There is visibility on a couple of deals, a syndicate banker said, adding that neither was especially big.

In addition to the above-mentioned offerings from Ithaca Energy and JW Aluminum, Carriage Services, Inc. is roadshowing $350 million of eight-year senior notes (B2/B) into the May 21 week.

TMX Finance LLC (TitleMax) is in the market with a $450 million offering of five-year senior secured notes.

In the European market, Italian shipbuilder Fincantieri SpA mandated Banca IMI, BNP Paribas, Deutsche Bank, Goldman Sachs International, HSBC and UniCredit to arrange meetings with fixed-income investors beginning Monday.

A €300 million minimum Regulation S offering of fixed-rate senior notes with a five-year to seven-year maturity is expected to follow, depending on market conditions.

However, the European primary market, like the dollar market, is not expected to generate a lot of business during the May 21 week, a London-based debt capital markets banker said.

Weeks sees $4.83 billion

Friday’s deals brought the week’s total new issuance in the U.S. market to $4.83 billion in 10 deals, a significant uptick from the $3.29 billion in five deals seen the previous week but in line with the $4.28 billion the week before and the $4.26 billion the week before that, starting April 22.

Year-to-date volume is now $92.99 billion in 172 tranches, continuing to lag the 2017 pace of $114.42 billion in 211 deals. The shortfall is currently at 18.7%.

Valeant trades up

Valeant new 8½% senior notes due Jan. 31, 2027 (Caa1/B-/B-) were seen trading well above their issue price in the secondary market.

The notes opened on Friday at 101¼. They traded as low as par ¾ but were set to close the day at par 7/8 bid, 101 1/8 offered, a source said.

“They held up,” the source commented.

The notes have a high coupon and were part of a refinancing package that will take out some of the company’s shorter duration notes, which contributed to the new paper’s strong performance in the secondary market, sources said.

Valeant priced $750 million of the 8.6-year senior notes (Caa1/B-/B-) at par to yield 8½% in a drive-by on Thursday.

The yield printed at the tight end of yield talk that was set in the 8 5/8% area and inside initial price talk in the 8¾% area.

The deal was said to have played to $6 billion of demand during bookbuilding, a market source said.

Proceeds from the offering, together with a new five-year revolver and term loan, will be used to redeem Valeant’s 5 3/8% senior notes due 2020, 6 3/8% senior notes due 2020, 6¾% senior notes due 2021 and 7¼% senior notes due 2022.

“There could be a turnaround,” for the company, a market source said.

Hearthside stabilized

While Valeant’s new notes saw a strong secondary market performance, other deals that priced on Thursday did not.

Hearthside Food Solutions’ new 8½% senior notes due 2026 were volatile during Friday’s session and were seen trading between 97 and par, sources said.

“They’re doing awful,” a market source said. While the notes were seen trading on a 98 handle for much of the day, they rebounded towards the day’s end and were seen at 99½ bid, par offered.

It appeared that underwriters had stepped in to stabilize the notes, a market source said. About $18 million of the bonds had traded by late afternoon.

Hearthside also appeared to have struggled during the bookbuilding process. The company priced a downsized $350 million issue of 8½% eight-year senior notes (Caa2/CCC+) at par to yield 8.499% on Thursday.

The offering was decreased from $375 million and the yield came at the wide end of the 8¼% to 8½% talk.

There were also covenant changes.

SRS melts down

SRS Distribution’s new 8¼% senior notes due 2026 (Caa2/CCC+) opened the day strong but “melted down,” in early trading, a market source said.

The notes opened Friday at par ¼ bid, par ¾ offered but were quickly seen down to 98 bid, 99 offered. The notes also rebounded towards the end of the day and were seen at 99¾ bid, par offered.

The notes saw heavy trading volume on Friday with $37 million of the bonds changing hands by late afternoon.

SRS Distribution also seemed to have struggled during bookbuilding. SRS Distribution priced a downsized $350 million issue of the 8¼% notes (Caa2/CCC+) at par to yield 8.246% on Thursday.

The deal was cut from $380 million and the yield printed near the wide end of the 8% to 8¼% yield talk and well wide of the 7¾% to 8% initial guidance.

Largo quiet

While Hearthside and SRS Distribution struggled, new paper from Largo Resources saw little secondary action. Largo Resources’ 9¼% senior notes due 2021 were seen trading above their discounted issue price at 98.5 to 99.

However, only about $2 million of the bonds were seen on the tape, according to a market source.

Largo priced a $150 million add on to its 9¼% three-year senior secured notes at 98 to yield 10.031% in a drive-by on Thursday.

Sprint tanks

With the consent solicitations solidified, Sprint’s 8¾% senior notes due 2032 and 6 7/8% senior notes due 2028 tanked on Friday.

The 6 7/8% notes were seen trading as low as 96 on Friday and were poised to end the day at 97½ bid, 98½ offered. The notes were at 103 bid, 104 offered prior to the consent solicitation announcement.

The 8¾% notes traded as low as 109 but were poised to finish the day at 110 bid, 111 offered, a market source said. The 8¾% notes were previously at 115½.

The sell-off in the longer duration notes caused discomfort in the whole structure and most Sprint notes came in about 1 point, a market source said.

Sprint’s 6 7/8% notes and 8¾% notes have been active and making gains throughout the week after Sprint announced consent solicitations to amend the terms of the note indentures to enable its merger with T-Mobile.

Bondholders organized to ask for more money for the consent, which drove up the price of the bonds, a market source said.

The consent payment for each $1,000 principal amount will be $41.98 for the 6 7/8% notes and $40.54 for the 8¾% notes, or an aggregate payment of $99 million for the 6 7/8% notes and $80 million for the 8¾% notes. (see related story)

Sprint amended the consent bid on May 16 to increase the aggregate consent payment from a pro rata share of $49.5 million for the 6 7/8% notes and $40 million for the 8¾% notes.

Holders had given consents for 95.2942% of the 6 7/8% notes and 98.6656% of the 8¾% notes, Sprint announced on Friday.

“I was surprised they got that big of an acceptance,” a market source said. “They didn’t seem to have any problem getting it done.”

Thursday cash flows flat

Daily cash flows for dedicated high-yield bond funds were flat on Thursday, the most recent session for which data was available at press time, a buyside source said.

High yield ETFs saw $15 million of inflows on the day.

Asset managers sustained $10 million of outflows on Friday.

The news follows a Thursday report from Lipper US Fund Flows that the dedicated high yield bond funds sustained $540 million of outflows in the week to the Wednesday, May 16 close.

It was the second consecutive weekly outflow, and extends year-to-date loss to $15.38 billion, according to a Prospect News analysis of the data.

In total this year has seen six inflows and 14 outflows in the 20 weeks so far.

Indexes see losses

Three benchmarks for the high-yield secondary market closed with week with losses.

The KDP High Yield index was down 4 basis points to close Friday at 70.53 with the yield now 5.87%. The index saw its first day of gains all week on Thursday with the index up 3 bps to 70.57.

The index was down both Wednesday and Tuesday and was flat on Monday.

The Merrill Lynch High Yield index sank further into negative territory on Friday. The index was down 4 bps with the negative year-to-date return now 0.252%.

The index returned to negative territory on Tuesday after a brief foray into positive territory on Monday.

The CDX High Yield 30 index was down 7 bps to close Friday at 106.75 after a slight dip on Thursday with the index closing at 106.82.

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