Mercer International prices, moves up; EP Energy on tap; forward calendar builds

By Paul Deckelman and Paul A. Harris

New York, Jan. 31 – Pricing activity resumed in the high yield market on Tuesday, which saw one transaction worth $225 million get done, a regularly scheduled seven-year deal from pulp producer Mercer International Inc.

Modest as it was, that deal – closing out a busy first month of the year – was a step up from Monday, when no U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country-borrowers came to market.

Traders said the new Mercer bonds were solidly higher in brisk trading when they hit the aftermarket.

Primaryside syndicate sources meantime reported that oil and natural gas producer EP Energy LLC plans to price a $600 million offering of secured notes, possibly as early as Wednesday.

The news of that debt refinancing deal gave a boost to the company’s existing paper.

The forward calendar also saw a pair of other additions, with Harland Clarke Holdings Corp., a provider of media delivery, payment solutions and marketing services, and CURO Financial Technologies Corp., which provides financial services to unbanked customers, each beginning roadshows for new secured-paper deals.

Away from the new deals, there was continued erosion in Tempur Sealy International, Inc.’s notes, which had also fallen on Monday, after the mattress maker ended its contract with its largest distributor.

Statistical market performance measures moved lower across the board on Tuesday, after having been mixed over three straight sessions before that. It was the indicators’ second lower session in the last seven trading days.

Mercer prices tight

Although the news flow was steady throughout the day, just one deal priced during the final primary market session of January.

Mercer International Inc. priced a $225 million issue of seven-year senior notes (B1/BB-) at par to yield 6½%.

The yield printed at the tight end of the 6½% to 6¾% yield talk.

Credit Suisse, Barclays and RBC were the joint bookrunners for the debt refinancing.

EP Energy for Wednesday

Apart from the Mercer, there was a substantial buildup to the well-populated active new deal calendar.

EP Energy LLC disclosed plans to price $600 million of eight-year 1.5-lien senior secured notes on Wednesday.

The debt refinancing deal, via sole bookrunner Credit Suisse, was scheduled to be shopped on a Tuesday afternoon conference call with investors.

CURO Financial secured deal

CURO Financial Technologies Corp. plans to present a $460 million offering of five-year senior secured notes to investors on Wednesday.

An investor call is set to get underway at 11 a.m. ET on Wednesday.

Jefferies is the sole bookrunner for the debt refinancing deal.

Harland Clarke starts Wednesday

In yet another debt refinancing deal, Harland Clarke Holdings Corp. plans to start a roadshow on Wednesday for a $300 million offering of 5.5-year senior secured notes.

The deal is set to price late in the present week.

Credit Suisse, BofA Merrill Lynch, JP Morgan, Citigroup, Deutsche Bank, Jefferies, Macquarie and Eagle Hill are the joint bookrunners.

The calendar

EP Energy, CURO Financial and Harland Clarke take places aboard an already populated active new issue calendar.

It includes Change Healthcare Holdings, LLC's $1,235,000,000 offering of eight-year senior notes (B3/B-) presently on a roadshow scheduled to conclude on Thursday in Los Angeles.

Early guidance on the deal is 6¼% to 6½%, a trader said.

There is a buzz in the market that the deal's proposed equity clawback provision would allow the issuer to redeem 100% of the bonds, as opposed to the typical 35% or 40%, the trader said.

Characterizing this novel equity clawback as an attack on bondholder rights, Covenant Review, in a report that appeared Tuesday, said that “investors should object to this radical change.”

Nor does novelty in the present new issue market begin and end with Change Healthcare.

Vertiv Intermediate Holding Corp. is in the market with a $600 million offering of five-year PIK toggle notes.

The deal, proceeds from which will be used to pay a cash dividend to the company's owner and repay $100 million of outstanding term loan debt, is expected to price later this week.

Noting that Vertiv is a “PIK toggle holdco dividend deal,” a trader noted that the appearance of such transactions is a traditional sign of a red hot primary market nearing the pinnacle of its climb.

Vertiv has early guidance of 10¼% to 10½% and is expected to price Friday, the trader said.

Marcolin floater

In the European primary market, Milan-based eyewear designer Marcolin is conducting an investor roadshow for a €250 million offering of six-year senior secured floating-rate notes.

The roadshow will continue into the early part of the week ahead, the source added.

Credit Suisse, Deutsche Bank and UniCredit are the joint bookrunners for the debt refinancing.

Inflows on Monday

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

High yield ETFs saw $327 million of inflows on the day.

Active managed funds saw $70 million of inflows on Monday.

Dedicated bank loan funds were also positive on Monday; the loan funds saw $175 million of inflows on the day.

A busy month concludes

The Mercer International deal closed out a very busy month, which saw $22.78 billion of new bonds priced in 40 tranches in the dollar-denominated junk market – more than triple the $7.19 billion that got done in 12 tranches in January 2016, according to data compiled by Prospect News.

However, the data seemed to indicate that last January was an outlier, with considerably heavier volume to start the new year more the norm in the years before that – January 2015 had $19.18 billion of new issuance, January 2014 had $22.25 billion and January 2013 was significantly busier than all of the subsequent years, at $30.49 billion.

In 2012 – which saw record-setting full-year junk bond issuance of $324.71 billion in 672 tranches, – January had produced $21.36 billion of new paper, the data indicated.

This month also was sequentially better than December 2016’s $19.81 billion in 36 tranches, and in fact, was the busiest new-issuance month since last September, when $28.76 billion had priced in 45 tranches, according to the Prospect News data.

Europe also experienced a strong market in January, as $6.1 billion got done, versus January 2016’s $1.28 billion.

JPMorgan, meanwhile, was the top underwriter of high-yield bonds for January, carrying its eight successive annual wins into another year, according to the data (see related story elsewhere in this issue).

Mercer bonds move up

Seattle-based Mercer International’s new deal – which first hit the radar screens on Monday and priced after a short roadshow – came to market fairly early in the session Tuesday, and thus enjoyed considerable aftermarket action.

Traders saw the new bonds up about a point on the day after they were freed for secondary market activity.

One quoted them going out at 101¼ bid, on volume of more than $48 million, which he said was tops among the purely junk-rated credits, although several issues of split-rated liquefied natural gas company Sabine Pass Liquefaction LLC’s bonds generated heavier volume on the day.

Another trader said the new Mercer paper moved around between 100½ and 102 after pricing at par, but he said that the day’s final prints came in a 101 to 101¼ bid context.

Mercer’s existing 7¾% notes due 2022 were seen by a market source up ¼ point, at 107¼ bid, with over $12 million traded.

But there was no activity on Tuesday in the company’s 7% notes due 2019, which the company is redeeming, using the proceeds from the new bond deal.

Mercer on Monday issued a conditional redemption notice for the $227 million of outstanding 7% notes, at a purchase price of $1,035 per $1,000 principal amount plus accrued interest up to but excluding the redemption date of March 1.

EP existing notes better

A trader said that on the heels of EP Energy’s new-deal announcement, the Houston-based oil and natural gas exploration and production operator’s existing bonds were better.

He saw its 9 3/8% notes due 2020 up a deuce on the day at 101¾ bid, with around 414 million of the bonds traded.

Friday deals lose interest

Traders said that there seemed to be little trading going on during Tuesday’s session in the three new issues which came to market on Friday – Houston-based oil and gas E&P company WildHorse Resource Development Corp.’s upsized $350 million of 6 7/8% notes due 2025, which had priced at 99.244 to yield 7%, Calgary, Alta.-based oilfield services company Trinidad Drilling Ltd.’s $350 million of 6 5/8% notes due 2025, which had priced at par, and the day’s lone non-energy related deal, Golden, Colo.-based gaming company Jacobs Entertainment Inc.’s upsized $350 million of 7 7/8% senior secured second-lien notes due 2024, which had also priced at par.

Although all of those regularly scheduled deals off the forward calendar had generated brisk volume on Friday – about $56 million, $26 million and $68 million, respectively – and had continued to trade around on Monday, a trader said that by Tuesday, “they had petered out a little bit and were kind of spotty.”

A second trader concurred, noting that he had only seen about $4 million of the Trinidad drilling notes changing hands during the session.

At another desk, a market source said the three deals stayed more or less where they had finished on Monday, to perhaps ¼ point higher, on little additional volume – WildHorse around a 99¼ to 99¾ bid level, Trinidad around 102¼ – to 103¼ and Jacobs between 102¾ and 103¾.

Tempur Sealy notes continue easing

Away from new or recently priced deals, traders saw continued losses in Tempur Sealy’s notes, on the heels of the Lexington, Ky.-based mattress company’s announcement Monday that it had terminated its contracts with Mattress Firm Holdings Corp, its biggest customer, after disagreements over proposed changes that required “significant economic concessions.”

That news had caused the company’s stock to fall and its bonds to also retreat by several points on Monday.

On Tuesday, a trader saw its 5½% notes due 2026 off another ¼ point, at 98¼ bid, with more than $11 million of the notes having changed hands.

Indicators turn lower

Statistical market performance measures moved lower across the board on Tuesday, after having been mixed over three straight sessions before that. It was the indicators’ second lower session in the last seven trading days.

The KDP High Yield index eased by 1 basis point Tuesday to end at 72.01 versus Monday’s 7 bps rise. It was the index’s second loss in the last three sessions.

Its yield rose by 1 bp to 5.15%, after having tightened on Monday by 2 bps. Tuesday was its second widening in the past three trading days,

The Markit Series 27 CDX index lost 1/8 point on Tuesday, ending at 106 9/32 bid, 106 11/32 offered, its second consecutive setback and third in the last four days. It was also down ¼ point on Monday, after having edged up by around 1/32 point Friday.

And the Merrill Lynch High Yield index also lost ground, retreating by 0.032%, its second straight loss and seventh setback in the last 11 sessions. On Monday, it was down by 0.054%, its first loss after four straight advances before that, including Friday’s 0.083% upturn.

That cut its year-to-date return to 1.343% from Monday’s 1.375%. Those levels were down from Friday’s 1.43%, which had been its third consecutive new 2017 peak level.

© 2015 Prospect News.
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