Consolidated Energy, GFL, Avation, HC2 price; PetSmart, Tesla drop; funds add $526 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 3 – The domestic primary market saw a busy session Thursday with three new deals and one add-on pricing. The European market also remained active with one add-on pricing and two more expected to price on Friday.

Consolidated Energy Finance SA priced a resized, restructured $525 million two-part offering of senior notes (B2/BB). Singapore’s Avation plc priced a $300 million issue of three-year senior notes (B/BB-) at par to yield 6½%.

Both deals were seen above their issue price after breaking for trade.

GFL Environmental Inc. priced $400 million of eight-year senior notes (Caa1/B-) at par to yield 7% in a quick-to-market trade.

HC2 Holdings, Inc. priced an upsized $110 million add-on to its 11% senior secured notes due Dec. 1 2019 (Caa1/B-) at 102 to yield 9.584% in a drive-by.

The deals trended towards the wide end of talk on Thursday, which was not a surprise given the tone of the market, sources said.

The secondary market continued to feel heavy on Thursday, market sources said. However, the market firmed as the afternoon progressed and was seen down in general only about ¼ point.

The new deals have been keeping the secondary market busy, a market source said.

New paper from TransDigm Group Inc., Merlin Entertainment plc and Fair Isaac Corp. remained active and continued to perform well in the secondary space.

After a little boost on Wednesday, WeWork Cos. Inc.’s recently priced 7 7/8% senior notes due 2025 (Caa1/B+/BB-) lost their gains and returned to the 95 range during Thursday’s session.

Tesla Inc.’s 5.3% senior notes due 2025 (Caa1/B-) dropped about 1 point after CEO Elon Musk made waves by sparring with analysts on the electric car manufacturer’s first quarter earnings conference call.

The junk bonds of PetSmart Inc. “took a hit” on Thursday and were off 2 to 3 points after Amazon.com, Inc. announced it would enter into the pet food business.

After a week which saw $2.489 billion in outflows, dedicated high-yield bond funds saw $526 million of net inflows in the week ending at market close Wednesday.

Consolidated Energy prices

Consolidated Energy price a resized, restructured $525 million two-part offering of senior notes (B2/BB) on Thursday.

The deal included a downsized $400 million of eight-year notes that priced at par to yield 6½%. The amount was decreased from $425 million after previously downsizing from $525 million.

The yield printed at the wide end of the 6¼% to 6½% talk.

The deal also included an upsized $125 million add-on to the company’s floating-rate notes due June 15, 2022 with a Libor plus 375 basis points coupon and a 0% Libor floor. The add on came at par.

The tranche was increased from $100 million, on top of talk.

Consolidated Energy first came to market with a single $525 million tranche of eight-year notes. The floating-rate notes were introduced into the deal subsequently.

Morgan Stanley and J.P. Morgan were the joint global coordinators and joint bookrunners for the debt refinancing.

The new 6½% notes due 2026 were seen trading at par 5/8 after hitting the secondary market, a market source said.

Avation’s deal

Singapore’s Avation priced a $300 million issue of three-year senior notes (B/BB-) at par to yield 6½%.

The yield printed at the wide end of the 6¼% to 6½% talk and in the middle of initial talk in the 6½% area.

Wells Fargo was the left bookrunner for the debt refinancing deal. BOC and Goldman Sachs were the joint bookrunners.

The new 6½% notes performed well out of the gate and were seen trading up to 101 after breaking.

GFL drives-by

GFL Environmental priced $400 million of eight-year senior notes (Caa1/B-) at par to yield 7% in a quick-to-market trade.

The yield printed at the wide end of both yield talk, in the 6 7/8% area, and initial price talk in the high 6% area.

Citigroup was the left bookrunner. Barclays, BMO and RBC were the joint bookrunners for the debt refinancing.

HC2 upsizes tap

HC2 Holdings priced an upsized $110 million add-on to its 11% senior secured notes due Dec. 1 2019 (Caa1/B-) at 102 to yield 9.584% in a Thursday drive-by.

The deal was increased from $105 million.

The reoffer price came on top of official price talk as well as early guidance, a trader said.

Jefferies ran the books.

The New York-based diversified holding company plans to use the proceeds to refinance its bridge loans and for general corporate purposes.

A wider market

Three of Thursday's five fixed-rate dollar-denominated tranches came at the wide end of talk.

That was no surprise to one sell-side source, who said that both junk and equities were softer on Thursday.

And rates have backed up considerably, the sell-sider said, adding that BB high yield names were 50 bps wider than at the beginning of 2018.

Deals priced “on the screws,” i.e. with ultra-low coupons, earlier in the year tend not to be performing very well in the secondary market, the source notes.

Hologic, Inc. brought such a deal in mid-January when it priced $1 billion of senior notes (Ba3/BB-) in two tranches: $600 million of 4 3/8% eight-year notes and $400 million of 4 5/8% 10-year notes.

Both are now trading around 96, the source said.

The market has backed up but should continue to operate at a $3 billion to $5 billion per-week pace, the sell-sider said, adding that the $10 billion to $12 billion weeks seen a year ago are unlikely to reappear any time soon.

Picard taps floaters

In the European market, Picard Groupe SAS priced a €60 million add-on to its Euribor plus 300 basis points senior secured floating-rate notes due Nov. 30, 2023 (B2/B) at 99 on Thursday.

The quick-to-market tap priced at the rich end of the 98.75 to 99 price talk.

Joint bookrunner Credit Suisse will bill and deliver. JPMorgan was also a joint bookrunner.

The Fontainebleau, France-based frozen food company plans to use the proceeds to fund a dividend to its shareholders.

Nexi talks €2.2 billion

Meanwhile dealers in Europe set the stage for a big finish to the April-May crossover week.

Nexi Capital SpA set price talk in its €2.2 billion two-part offering of five-year senior secured notes (B1/B+).

The deal is coming in tranches of fixed-rate notes talked to yield in the 4¼% area, and floating-rate notes with a coupon in the Euribor plus 375 basis points area.

Tranche sizes remain to be determined.

BofA Merrill Lynch is leading the deal.

Aldesa talk 8¾% to 9%

Spain's Aldesa Agrupacion Empresarial, SAU talked its €300 million offering of seven-year senior secured notes (B2//B) to yield 8¾% to 9%.

The deal is set to price on Friday.

JPMorgan is the lead.

Should Aldesa come at the wide end of that talk, it would become part of some very exclusive company among euro high-yield issuers.

That's because only three of 296 euro-denominated issues have printed at 9% or higher since the beginning of 2017, according to Prospect News data.

Recent deals active

While the overall tone of the market was heavy “there are so many new deals. It’s keeping people busy,” a market source said.

TransDigm Group’s newly priced 67/8% notes due 2026 (B3/B-) were active in the secondary space. The notes were seen off a little bit at par 3/8, a market source said.

However, the notes were still trading more than 1 point above their issue price of 99.24.

TransDigm priced the $500 million issue of eight-year senior subordinated notes (B3/B-) via subsidiary TransDigm UK Holdings plc at 99.24 to yield 7% on Wednesday.

The yield printed at the wide end of the 6¾% to 7% yield talk.

The notes were quoted at par ½ bid, par 5/8 offered with most trades around par ½ after breaking for trade on Wednesday.

Merlin Entertainment’s 5¾% senior notes due 2026 (Ba2/BB) continued to gain strength in the secondary market. The notes were seen up about ¼ point to trade at 102 1/8.

Merlin’s offering was reportedly heavily oversubscribed during the bookbuilding process. Merlin priced the $400 million issue of eight-year senior bullet notes at par on Wednesday.

The yield printed in the middle of yield talk in the 5¾% area.

When the books closed, the $400 million deal was heard to be playing to $900 million of orders, a trader said.

Fair Isaac’s 5¼% senior notes due 2026 (Ba2/BB+) also continued to perform strongly in the secondary space. “They’re doing well,” a market source said.

The 5¼% notes were seen up about ¼ point on Thursday to trade at 101¼. The notes rose to 101 on Wednesday. Fair Isaac priced the $400 million issue of 5 ¼% notes at par on Tuesday.

WeWork soft

After a slight rebound on Wednesday, WeWork’s newly priced 7 7/8% senior notes due 2025 softened again on Thursday.

The notes were quoted at 95 bid, 95½ offered on Thursday and were seen trading around 95½, about a 1 point drop from Wednesday, a market source said.

WeWork’s notes have steadily traded down since the upsized $702 million issue priced at par on April 25. The notes have changed hands in the 95 to 96 range for most of this week.

Tesla down

After a well-publicized earnings conference call on Wednesday, Tesla’s 5.3% senior notes due 2025 dropped 1 point in high volume trading, a market source said.

The notes traded as low as 87¾ on Thursday after trading as high as 89 on Wednesday, according to Trace data.

Tesla announced earnings and CEO Elon Musk hosted a conference call post-close on Wednesday.

While Tesla’s first-quarter earnings report beat analysts’ expectations, Elon Musk’s conduct during the conference call sparked a sell off in the company’s stock.

Tesla reported a loss per share of $3.35 for the first quarter, which beat analyst expectations of a loss of $3.54 per share.

Musk reasserted Tesla would not need another capital raise on the conference call but dodged analysts’ questions about capital requirements and Model 3 reservation numbers.

PetSmart drops

PetSmart’s junk bonds “took a hit” on Thursday with the notes dropping 2 to 3 points in high volume trading after Amazon launched its own dog food brand.

PetSmart’s 8 7/8% notes due 2025 fell about 3 points to close at 54¼. The 5 7/8% notes due 2025 dropped about 2 points to close at 70.

Retail names have tended to take a hit when Amazon announces it is moving into a particular sector, a phenomenon that was seen before with prescription drugs and now with pet food, a market source said.

Amazon’s dog food line Wag launched this week and is available exclusively to Amazon Prime members.

The new product line is expected to intensify price competition in the pet food industry, which captured $32 billion in consumer dollars last year, CNN reported.

$525 million inflows

Dedicated high-yield bond funds saw $526 million of net inflows in the week to Wednesday’s close, according to Lipper US Fund Flows.

That inflow follows the previous week’s $2.489 billion of outflows.

With the latest outflow, the funds have now seen six losses and four gains in the past 10 weeks, according to a Prospect News analysis of the data.

Indexes see losses

The KDP High Yield index was down slightly on Thursday after remaining flat on Wednesday. The index was down 3 basis points to 70.43 with the yield now 5.87%. The index was at 70.46 on Tuesday and Wednesday.

The Merrill Lynch High Yield index was down on Thursday losing much of Wednesday’s gain. The index was down 9.4 bps with the year-to-date return now negative 0.378%. The index gained 10.3 basis points on Wednesday.

The CDX High Yield 30 index also took a slight dip on Thursday. The index slid 1.6 bps to close the day at 106.64 after a 1.3 bps slide on Wednesday.

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