HC2 add-on prices; Trinidad, Jacobs, WildHorse on tap; new Hexion surges; funds lose $532 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 26 – The high-yield primary sphere saw just one new deal price on Thursday as diversified holding company HC2 Holdings, Inc. brought a quickly shopped and upsized $55 million add-on to its existing 2019 secured notes to market.

That light deal flow contrasted sharply with the $1.64 billion of new U.S. dollar-denominated and fully junk-rated paper that domestic and industrialized-country borrowers had gotten done during Wednesday’s session.

However, syndicate sources saw a busy Friday ahead with possible pricings from as many as three new deals – from Canadian oilfield services provider Trinidad Drilling Ltd. and a pair of U.S.-based issuers – oil and natural gas operator WildHorse Resource Development Corp. and, away from the energy patch, gaming company Jacobs Entertainment, Inc.

Among the deals which have already come to market, secondary traders saw both halves of Wednesday’s two–part offering from specialty chemicals maker Hexion Inc. trading at handsome premiums to their respective par issue prices. German chemicals and plating equipment company Atotech BV’s new deal had also firmed smartly, while the bonds from TV ratings and performance measurement company Nielsen Holdings plc were little moved.

Statistical market performance measures turned mixed on Thursday after being higher across the board for two straight sessions; they had turned better on Tuesday and stayed that way on Wednesday after being lower all around on Monday and mixed on Friday. It was the indicators’ second mixed session in the last five trading days.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – stayed on the downside in the latest reporting week, according to data released on Thursday, as $532 million more left those weekly reporting domestic funds in the form of investor redemptions than came into them during the week ended Wednesday.

That downturn came on top of the $887 million outflow seen for the seven-day period ended Jan. 18 (see related story elsewhere in this issue).

Before the weekly fund-flow numbers were released, a trader said that the weekly figure “might be a more moderate [outflow] number, if not a small positive.”

As it turned out, this week did see a smaller net outflow than last week – $532 million versus $887 million previously.

He opined that “the market definitely felt like it gained some traction later in the week – but we’ll see.”

HC2 prices small add on

HC2 Holdings priced Thursday’s sole dollar-denominated deal, an upsized $55 million add-on to its 11% senior secured notes due Dec. 1, 2019 (Caa1/B-) that came at par to yield 10.986%.

The issue size was increased from $45 million.

The price came at the rich end of the 99.5 to par price talk.

Timing was accelerated; the deal had been scheduled to be in the market until early in the week ahead and then price Tuesday.

Jefferies was the sole bookrunner.

The New York-based diversified holding company plans to use the proceeds to refinance HC2 Holdings 2, Inc.’s 11% senior secured bridge note due 2019, as well as for working capital for the company and its subsidiaries and for general corporate purposes including the financing of potential future acquisitions and investments.

Trinidad talked at 6¾% area

The primary market will be active on Friday, with three dollar-denominated deals – all of which have been on roadshows – set to price before the weekend.

All three are going well, sources say.

On Thursday Trinidad Drilling talked its $350 million offering of seven-year senior notes (Caa1/BB-) to yield in the 6¾% area.

The debt refinancing deal is three-times oversubscribed and could come at 6 5/8%, a portfolio manager said on Thursday.

Timing has been accelerated. The books will close at 1 p.m. ET Friday except for Boston accounts with meetings and the deal is set to price subsequently. It was previously expected to remain in the market into the week ahead.

Joint bookrunner RBC will bill and deliver. Wells Fargo is also a joint bookrunner.

Jacobs talk set at 8% area

Jacobs Entertainment talked its $340 million offering of seven-year second-lien senior secured notes (B2) to yield in the 8% area on Thursday.

There is $2 billion in the order book, according to the portfolio manager.

The deal is set to price on Friday morning.

Credit Suisse, Capital One and Wells Fargo are the joint bookrunners.

Wildhorse talk of 6¾% to 7%

WildHorse Resource Development talked its $300 million offering of eight-year senior notes (Caa1/B) to yield 6¾% to 7% on Thursday.

That deal is also said to be three-times oversubscribed, the portfolio manager said.

Wells Fargo is the left bookrunner. BMO, Barclays, BofA Merrill Lynch, Citigroup and J.P. Morgan are the joint bookrunners.

B&M Retail inside talk

In the lately vigorous sterling-denominated primary market, B&M European Value Retail SA priced at £250 million issue of five-year senior secured notes (Ba3/BB-) at par to yield 4 1/8% on Thursday.

The yield printed inside the 4¼% to 4½% yield talk.

BofA Merrill Lynch and HSBC were the joint global coordinators. Barclays, BNP Paribas, Goldman Sachs and Lloyds were the joint bookrunners.

Proceeds, together with a new term loan A and cash on hand, will be used to refinance all of the Liverpool-based company’s existing senior facilities and for general corporate purposes.

Big start for sterling deals

Considering that January 2016 didn’t see a single sterling-denominated issue price, the month of January 2017, which still has three market sessions left to run, has seen land office business in sterling issuance, sources say.

With B&M Retail in the count, the sterling-denominated market has generated £1.9 billion in five tranches thus far in the new year.

Reasons are various.

“When people don’t have anything else to look at they look at sterling deals,” a London-based syndicate official quipped.

The loan market is more difficult for sterling-denominated issuers, the banker added.

Another London-based debt capital markets banker on a different high-yield bond desk also said that the bank loan market, the majority of which is CLOs, is euro-fundedand the cost for swapping pounds to euros is presently quite high.

However if you look at the companies that have come with sterling deals thus far in 2017, most are a more natural fit for the bond market, the banker said.

Looking ahead, there will be deals, including euro-denominated deals, in the weeks ahead, sources say.

There is no big pipeline, an official said.

Partly that’s because the big M&A deals just aren’t there right now.

Mixed flows on Wednesday

The daily cash flows for dedicated high-yield bond funds were mixed on Wednesday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $149 million of inflows on the day.

However asset managers sustained $5 million of outflows.

And the fund flow data continues to point to the big appetite for floating-rate debt that has been present in the leveraged markets since last fall.

Dedicated bank loan funds saw $305 million of daily inflows on Wednesday.

Hexion adds to gains

In the secondary market, a market source said that both tranches of Hexion’s new bonds “were trading at a pretty decent premium.”

He saw the Columbus, Ohio-based specialty chemicals company’s new 10 3/8% first priority senior secured notes due 2022 in a 103½ to 104 bid context, as did a second trader.

At another desk, a trader pegged those bonds at 103 5/8 bid, 104 1/8 offered.

That was up from the levels around 102¾ bid to which those bonds had soared in initial aftermarket dealings on Wednesday after they had priced at par.

One of the traders meantime saw Hexion’s 13¾% 1.5-lien secured notes due 2022 in a 102¾ to 103¾ bid range.

Another located them at 102½ bid, 103 offered.

However, he said that was around where those junior secured notes had traded in initial aftermarket action Wednesday following their par pricing.

Hexion priced its new deal several days after it had initially been expected to do so, after restructuring the issue to include the tranche of 1.5-lien bonds and resizing the tranches several times.

Atotech holds gains

The traders saw Atotech’s 6¼% notes due 2025 continuing to trade well above Wednesday’s issue price.

One trader said they were moving around in a 100¾ to 100¼ bid context, while two others quoted them between 101¼ and 101¾.

That was about where the Berlin-based specialty chemicals and plating equipment maker’s bonds had ended up on Wednesday after that regularly scheduled forward calendar offering had priced at par.

Nielsen not much changed

In contrast, Wednesday’s third new deal, from Nielsen Holdings, was seen little changed from its issue price.

“They were right at par,” one of the traders said.

A second declared that “they didn’t really do much of anything,” quoting the notes in a tight 100 to 100 1/8 bid range.

New York-based performance management company Nielsen, probably best known for its TV ratings, priced its quick-to-market $500 million of 5% notes due 2025 at par.

‘Grinding away’

Overall, a trader characterized Thursday’s market as having “a good tone.”

Another trader said the market “continues to grind away. The market feels pretty firm – you’ve had kind of a move in Treasuries a little bit and the 10-year note is now behind 2.50% [yield].”

He said that didn’t exactly have people in Junkbondland “nervous” – but did caution that “certainly, anything in high-dollar, low-coupon type names are on the sell list.”

He said the forward calendar “was big but now it’s kind of pared off a little bit.”

He said that “there was a tremendous amount of new issuance in the last part of last year and it’s started out pretty good so far this year.”

While he said that “people are kind of concerned about [interest] rates,” he predicted that nonetheless, “you might see another wave of deals.”

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday, after having been higher across the board for two straight sessions; they had turned better on Tuesday and had stayed that way on Wednesday after having been lower all around on Monday and mixed on Friday. It was the indicators’ second mixed session in the last five trading days.

The KDP High Yield Index rose by 8 basis points on Thursday to close at 71.99, its second straight gain and its third advance in the last nine sessions. On Wednesday, it had improved by 10 bps – its first gain after having been unchanged on Tuesday and having recorded losses in each of the four sessions before that, including Monday’s 9 bps retreat.

For a second consecutive session, its yield came in by 3 bps on Thursday, matching Wednesday’s tightening, to end at 5.14%. It was the yield’s third successive narrowing overall after four sessions in a row of having widened out.

But the Markit Series 27 CDX Index retreated by nearly 3/32 point on Thursday, ending at 106 21/32 bid, 106 11/16 offered, versus Wednesday’s 5/16 point gain, which had been its second upturn in a row. It was the index’s second loss in the last four sessions.

The Merrill Lynch High Yield Index rose for a third straight session on Thursday, after having snapped a five-session losing streak. It was up by 0.086% on top of Wednesday’s 0.225% improvement. Thursday was the index’s fifth gain in the last 10 sessions.

That raised its year-to-date return to 1.346%, a second consecutive new 2017 peak level. That was up from the previous zenith for the year of 1.26%, set on Wednesday.

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