Beacon Roofing, Simmons Foods lead $2.25 billion primary day, new Simmons bonds busy; Rite Aid, Toys tumble

By Paul Deckelman and Paul A. Harris

New York, Oct 11 – The high-yield primary scene saw yet another busy day on Wednesday as some $2.25 billion of new U.S. dollar-denominated and fully junk-rated paper priced in four tranches, syndicate sources said.

That matched the total of new-deal paper generated in two tranches on Tuesday, according to data compiled by Prospect News.

More than half of Wednesday’s new issuance came from just one deal, as Beacon Roofing Supply Inc., a maker of roofing materials, priced $1.3 billion of eight-year notes. Traders saw those notes firm modestly when they hit the aftermarket after pricing.

Simmons Foods, Inc., a poultry processor and producer of pet foods, brought a $550 million seven-year secured deal to market, like Beacon as a regularly scheduled forward calendar offering. Also like Beacon, the new Simmons notes moved up a bit when they were cleared for secondary trading, on what some market sources called heavy volume.

The day’s dealings also saw a pair of opportunistically timed quick-to-market offerings, as private corrections facilities operator Core Civic Inc. did a $250 million 10-year issue, while home builder MDC Holdings, LLC priced a $150 million add-on to its existing $350 million of January 2043 bonds.

In the secondary market, traders saw brisk activity in Tuesday’s new deals from Charter Communications, Inc. and Targa Resources Partners LP.

Away from the new deals, Rite Aid Corp. bonds were on the slide for a second consecutive session, with traders noting drugstore industry jitters over whether retailing giant Amazon.com plans to move into the prescription pharmacy business the way it recently muscled its way into the grocery world with its purchase of the upscale Whole Foods supermarket chain.

Toys ‘R’ Us Inc. bonds fell, as auctions set the final settlement prices for credit default swaps linked to the bankrupt specialty retailer’s bonds and bank loan debt.

Statistical market performance measures turned mixed on Wednesday, after having been higher across the board on Tuesday and lower all around on Friday, with Monday’s Columbus Day holiday in the United States in between.

Beacon, a blowout

In Wednesday's primary market Beacon Roofing Supply Inc. and Beacon Supply Escrow Corp. priced a $1.3 billion issue of eight-year senior notes (B3/B+) at par to yield 4 7/8% on Wednesday, according to a syndicate source.

The yield printed at the tight end of yield talk in the 5% area.

Word in the market held that the deal was a blowout, a trader said.

Wells Fargo Securities LLC was the left bookrunner. Citigroup Global Markets Inc., BofA Merrill Lynch, J.P. Morgan Securities LLC and SunTrust Robinson Humphrey Inc. were the joint bookrunners.

The Herndon, Va.-based distributor of residential and commercial roofing materials and complementary building products plans to use the proceeds to help fund its acquisition of East Rutherford, N.J.-based building products distributor Allied Building Products Corp. and refinance an existing debt.

Simmons $550 million secured

Simmons Foods, Inc. priced a $550 million issue of seven-year second-lien senior secured notes (B3/B) at par to yield 5¾% on Wednesday, according to an informed source.

The yield printed on top of yield talk in the 5¾% area.

Wells Fargo Securities LLC was the sole bookrunner.

The Siloam Springs, Ark.-based poultry processor and pet food producer plans to use the proceeds to tender or redeem its 2021 notes, to pay down its senior secured credit facility and for general corporate purposes.

CoreCivic drive-by

CoreCivic, Inc. priced $250 million issue of non-callable 10-year senior notes (Ba1/BB/BB+) at par to yield 4¾% on Wednesday, according to a syndicate source.

Initial guidance had the deal coming to yield in the 4¾% area.

BofA Merrill Lynch, JP Morgan Securities LLC, SunTrust Robinson Humphrey, PNC Capital Markets LLC and Regions Securities LLC were the joint bookrunners.

The Nashville, Tenn.-based operator of privatized correctional and detention facilities, formerly the Corrections Corp. of America, plans to use the proceeds to pay down its revolving credit facility, for working capital and other general corporate purposes.

MDC taps 2043 notes

MDC Holdings, Inc. priced a $150 million add-on to its 6% senior notes due Jan. 15, 2043 (Ba2/BB+) at 97.00 to yield 6.237% in a quick-to-market Wednesday trade, according to market sources.

Citigroup Global Markets Inc. managed the public offer which was transacted on the investment grade syndicate desk.

The Denver-based home building and financial services company plans to use the proceeds for general corporate purposes, which may include repayment of debt.

Dufry upsizes

In the European session Switzerland-based travel retailer Dufry priced an upsized €800 million issue of seven-year senior notes (Ba2/BB) at par to yield 2½% on Wednesday, according to market sources.

The issue size was increased from €500 million.

BBVA, BNP Paribas, Deutsche Bank, ING, Santander, UniCredit, BLKB, BofA Merrill Lynch, Credit Agricole, Credit Suisse, Goldman Sachs, HSBC, LBBW, NatWest and RBI are managing the Regulation S only transaction.

The company, which is based in Basel, plans to use the proceeds to refinance €500 million of senior notes due 2022.

Vallourec upsized

Vallourec SA announced in a Wednesday press release that it priced and upsized €400 million issue of five-year senior notes (S&P: B).

The deal was upsized from €300 million.

Morgan Stanley & Co. International plc is the stabilizing manager.

Proceeds will be used to repay borrowings on the company’s committed bank lines, which will then be available for other uses.

Vallourec is a Boulogne-Billancourt, France-based provider of industrial products and services.

Mixed Tuesday 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, according to a market source.

High-yield ETFs saw $101 million of inflows on the day.

Actively managed funds sustained $15 million of outflow on Tuesday.

Bank loan funds were positive, with $30 million of inflows on Tuesday, the source added.

Simmons, Beacon bonds better

In the secondary realm, a trader said that “the main volume was in the new issues,” with investors eager to digest the $4.5 billion of new paper that has come to market over the past two trading days, on top of the more than $10 million that priced last week, getting October off to a flying start.

He said that the new Simmons Foods 5¾% senior secured second-lien notes due 2024 “appeared pretty active,” seeing those bonds up around 100 ¾ bid, up from their par issue price.

A second trader also pegged the paper around that 100¾ bid mark, while a third saw them in a 100 5/8-to-100¾ bid context.

He said that Simmons “was very active on the break,” with almost $100 million of the notes having changed hands.

At another shop, a trader said that the new Beacon Roofing Supply 4 7/8% notes due 2025 were going home in a 100 1/8-to-100 5/8 bid context, after that $1.3 billion megadeal had priced at par.

Recent bonds trade busily

Among recently priced notes, traders said that Charter Communications’ 5% notes due in February of 2028 were actively trading for a second consecutive session, with one trader seeing those bonds around the 99 bid level.

A second trader called them “pretty active” within a 99-to-99¼ bid range.

Charter, a Stamford, Conn.-based cable-TV, internet and phone service provider, priced $1 billion of those notes as an add-on tranche to its existing $1.5 billion of that paper when it sold in August. The add-on priced on Tuesday at 98.5-to-yield 5.189%.

The other half of the company’s $1.5 billion two-part drive by deal, its $500 million of 4% notes due in March of 2023, had firmed to 101 bid on Wednesday after having priced at par a day earlier.

A trader located Targa Resources Partners’ 5% notes due in January 2028 at 100 1/8 bid on Wednesday, up only slightly from the par level at which the Houston-based midstream energy company’s quick-to-market $750 million issue had priced.

At another desk, a market source saw those bonds remaining right around par.

A trader said that PlastiPak Holdings Inc.’s new 6¼% notes due 2025 “were active, but they weren’t really going anywhere,” seeing the bonds anchored around 101 7/8 bid, same as their Tuesday close.

A second trader saw those bonds in a 101 5/8-to-102 1/8 bid range, which he called up 1/8 point on the day.

The Plymouth, Mich.-based maker of rigid plastic packaging containers priced $500 million of the notes at par on Friday in a regularly scheduled forward calendar offering.

Parsley Energy LLC’s 5 5/8% notes due 2027 were seen up 1/8 point on Wednesday around 102 bid.

The Houston-based oil and natural gas exploration and production company priced $700 million of those notes at par in a quickly shopped offering last Thursday, after upsizing that deal from an originally announced $$600 million.

Rite Aid retreats

Away from the new deals, traders said that Rite Aid’s bonds – some of which were down by as much as two points on Tuesday, – continued to get clobbered on Wednesday, with one trader seeing its 6 1/8% notes due 2023 down another deuce, at 93¾ bid.

A second trader also saw the bonds continuing active and down again today,” ending just below the 94 bid level, as “Amazon competitive pressure is taking its toll.”

He was referring to news reports speculating that giant online retailer Amazon is eyeing a possible entry into the $560 billion per year U.S. prescription drug business. CNBC recently reported that Amazon has been recruiting veteran drugstore industry executives in an effort to develop a pharmacy unit – a report which caused the shares of Rite Aid and larger competitors CVS and Walgreens Boots Alliance Inc. to all slide last week.

A trader Wednesday said that Camp Hill, Pa.-based No. 3 U.S. drugstore operator Rite Aid’s 7.70% notes due 2027 fell some 4¾ points on Wednesday to 81½ bid.

Toys ‘R’ Us tumble continues

Another retailer whose bonds were down on Tuesday – bankrupt Wayne, N.J.-based toy, game and children’s products seller Toys ‘R’ Us – was again down on Wednesday, quoting its 7 3/8% notes due 2018 “in a 26-to-30 zip code, and around 28 bid late in the day.”

He noted that the auctions setting the settlement prices for credit default swaps protecting the holders of the company’s bonds and loan paper were being completed on Wednesday.

Parent Toys “R” Us, Inc.’s credit default swaps will be settled at a price of 26, and its Toys “R” Us Delaware, Inc. unit’s loan CDS will be settled at 30.625.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday, after having been higher across the board on Tuesday and lower all around on Friday, with Monday’s Columbus Day holiday in the United States in between.

The KDP High Yield Daily Index lost 4 basis points on Wednesday to close at 72.39, after having gained 1 bp on Tuesday.

Its yield rose by 1 bp to 5.15%, its third consecutive widening. The yield had also gone up by 3 bps on Tuesday – unusually, since the yield usually declines when the index reading rises, as it did on Tuesday, or vice versa.

The Markit CDX Series 29 High Yield Index eased marginally on Wednesday, closing at 108 3/32 bid, 108 1/8 offered. On Tuesday, the index had firmed by around 1/16 point.

But the Merrill Lynch North American High Yield Index advanced for a third consecutive session, gaining 0.019% on Wednesday, on top of gains of 0.027% on Tuesday and 0.052% on Monday, when the index was published despite the Columbus Day holiday market close. On Friday, it had lost 0.021%, its first downturn after six straight advances.

The latest gain lifted its year-to-date return to 7.298% from 7.278% on Tuesday, establishing a third consecutive new 2017 peak level.

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