Tesoro, Hub price to cap over $5 billion week; new deals mostly up by 2 points

By Paul Deckelman and Paul A. Harris

New York, Sept. 7 - The newly-revived high-yield primary market finished out the first trading week of September in smart style on Friday, pricing two deals - from Hub International Ltd. and Tesoro Logistics LP/Tesoro Logistics Finance.

That more than $1 billion of new paper - an upsized $740 million of six-year notes from insurance broker Hub and an upsized $350 million from the energy industry's Tesoro Logistics - brought the week's new-deal total to $5.575 billion in 11 tranches, according to data compiled by Prospect News. That was a far cry from last week, ended Aug. 31, which saw exactly zero dollar-denominated and fully junk-rated deals price - the first such complete weekly shutout this year.

This week was the busiest the junk market has seen since the week ended Aug. 17, when $9.1 billion of new paper, in 17 tranches, came clattering down the chute.

Traders saw both of the day's new deals having firmed by about 2 points after they hit the aftermarket - and in fact, almost all of this week's new issues were also up by at least that amount since pricing, causing one trader to quip "pick a name, and it's up by 2."

Among the names which were in that category was American Axle & Manufacturing Inc.'s issue of 10-year bonds which priced Tuesday, the first deal to price in Junkbondland after a nearly two-week late-August layoff.

They were seen holding onto the gains notched earlier in the week, though on considerably reduced volume from the busy dealings seen on Wednesday and again on Thursday, when the automotive drive-train manufacturer's issue had been the most actively traded junk credit.

Friday's busiest credit was not a new deal, but ATP Oil & Gas Corp., whose bonds have gyrated, around in the 20s, often on heavy volume, over the last few weeks since the energy operator's Chapter 11 filing.

The established bonds, though, otherwise took a backseat to trading in the new issues in the secondary market.

Statistical indicators of junk market performance were both higher on the day on Friday and versus week-earlier levels.

Hub comes at the tight end

Primary market news continued to come at a brisk pace on Friday.

In the dollar-denominated market, two issuers, each bringing a single tranche, raised $1.1 billion.

HUB International priced an upsized $740 million issue of six-year senior notes (Caa2/CCC+) at par to yield 8 1/8%, at the tight end of yield talk set in the 8¼% area. The size was increased by $10 million.

Morgan Stanley, Bank of America Merrill Lynch and RBC were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Tesoro Logistics upsizes

Tesoro Logistics LP and Tesoro Logistics Finance Corp. priced an upsized $350 million issue of eight-year senior notes (B1/BB-) at par to yield 5 7/8%.

The yield printed on top of yield talk that had been downwardly revised from earlier talk of 6% to 6¼%. The amount was raised from the original $310 million.

The deal was a blowout, according to an investor who played, and who added that the order book was already three-times oversubscribed on Thursday.

The par-pricing 5 7/8% notes due 2020 traded at 1013/4, the investor said, and added that "All the deals have traded up...All the deals!"

Wells Fargo was the left bookrunner. Barclays and Citigroup were joint bookrunners.

Proceeds will be used to fund the acquisition of Tesoro Refining and Marketing Co.'s Long Beach marine terminal and Los Angeles short-haul pipelines and to repay all of its outstanding revolver debt. Proceeds from the upsizing will be used for working capital and general partnership purposes.

France's Wendel drives by

Capping off a big week in Europe - a week which saw the European primary market operate at a deal-a-day clip - France's Wendel SA priced an upsized €400 million issue of senior notes due Sept. 17, 2019 (/BB) at par to yield 5 7/8% on Friday.

The yield printed at the tight end of price talk set in the 6% area. The amount was increased from €300 million.

Joint bookrunners Credit Agricole CIB and CM-CIC were the global coordinators. Deutsche Bank, Natixis and SG CIB were also joint bookrunners.

The Paris-based investment company will use the proceeds to refinance debt and for general corporate purposes.

Wendel capped off the biggest week in the euro-denomionated junk market since February. Four issuers - Cental European Media Enterprises, Smurfit Kappa and Unitymedia and Wendel - raised €1.4 billion, while Orange Switzerland raised CHF 180 million.

That kind of volume is possible for the week ahead, a London-based debt capital markets banker advised, and added that a euro-denominated deal from the retail or consumer space is expected to be rolled out on Monday via Barclays.

The reason, the banker said, is the reinvigoration of the risk trade sparked by the European Central Bank's assurances that it will utilize a strategy of sovereign bond buying to help contain the costs of capital for the credit-challenged peripheral states.

NCR roadshow starts Monday

Meanwhile in the United States, the Sept. 10 week also figures to be a busy one.

NCR Corp. took its place on a $3.3 billion active calendar for the week ahead, announcing that it plans to start a roadshow on Monday for a $500 million offering of 10-year senior notes (Ba2/BB).

The deal is expected to price on Wednesday.

J.P. Morgan, Bank of America Merrill Lynch, Morgan Stanley, RBC and SunTrust.

Proceeds will be used for general corporate purposes including funding a contribution to the company's U.S. pension plan and repayment of bank debt.

In addition to the announce deals, look for Par Pharmaceutical Cos. Inc. to launch a $490 million offering of senior notes (/B-/) on Thursday, according to a buyside source who added that Goldman Sachs & Co. is expected to be the lead bookrunner.

The company launched its $980 million term loan, part of an overall $1.13 billion credit facility, at a bank meeting on Thursday.

Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, RBC and Citigroup are leading the credit facility.

Proceeds will be used to finance the LBO of the company by TPG.

And start looking for dividend-funding deals to begin appearing in the torrid high-yield market, a portfolio manager advised, and added that it would not be surprising to see such a transaction materialize from one of the market's old familiar names, HCA Inc.

Day's deals shoot up

When Hub International's 8 1/8% senior notes due 2018 were freed for secondary dealings, a trader saw the Chicago-based insurance brokerage company's new bonds at 102 bid, 102½ offered.

A second trader also saw those bonds there, while at another desk a trader a little later on pegged the deal at 102½ bid, 102¾ offered.

That $740 million deal - upsized slightly from an originally announced $730 million - had priced at par.

The day's other new issue - from San Antonio, Texas-based Tesoro Logistics, an owner, operator, developer and acquirer of petroleum industry infrastructure assets - was also seen having firmed smartly once it made the transition to the aftermarket.

A trader located the $350 million of new 5 7/8% notes due 2020 at 102 bid, while a second - saying he had not seen any right side - had them "at least" at 102¼ bid.

Yet another trader did see a two-sided market, with the bonds having gotten as good as 102¾ bid, 103¼ offered.

The $350 million deal had priced at par after having been upsized from an originally announced $310 million.

Axle calms down

Among the deals which priced earlier in the week, a trader said that American Axle's 6 5/8% notes due 2022 were trading at 102 1/8 bid, 102 3/8 offered.

That was around the levels to which the Detroit-based drive train components manufacturer's $550 million deal had risen on Thursday, after having priced at par on Tuesday and traded a little bit above that point later Tuesday and on Wednesday.

However, he said that unlike Wednesday's dealings - which saw over $54 million of the bonds trading - and on Thursday, when an additional $44 million-plus had changed hands, with Axle far and away the most-active junk credit both sessions, Friday action in the deal seemed subdued, or even sedated.

"The calmed down today," he said, with only a couple of million having traded."

A second trader who saw the bonds above 102 agreed that activity had lessened considerably.

"They're still up there," he said.

"They really popped up," he continued. "They were hovering around 100½ to 100¾ - but then late yesterday [Thursday], they were up with everything else," at 102 to 1021/4.

Yet another trader had the issue trading in a 102 to 103 range.

Two points the norm

Noting that the American Axle bonds were trading around 2 points above their par pricing level, as were the Tesoro Logistics and Hub International deals, one of the traders quipped "pick a name - and it's up 2 points [from issue].

"When in doubt - use the number '2'."

Among other deals he saw also up a deuce from their pricing levels was HealthSouth Corp.'s 5¾% notes due 2024, which had priced at par on Thursday after the quick-to-market offering was upsized to $275 million from an originally announced $250 million.

The Birmingham, Ala.-based rehabilitation hospital operator's new bonds had not been seen trading around on Thursday, but on Friday, he said, "they bounced around."

At his own shop, they had traded the bonds in a 101 5/8 to 101 7/8 context, but he said by the end of the day, they were up around 102¼ bid. A second trader saw them at 102 bid, 102½ offered.

Also conforming to the "Rule of 2", the first trader said, was Starz LLC/Starz Finance Corp.'s 5% notes due 2019, which closed at 102 bid, 102½ offered, about where they had finished on Thursday. That was when the Englewood, Colo.-based cable TV movie channel operator had brought its $500 million offering to market, pricing them at par.

And the trader saw Claire's Stores Inc.'s 9% senior secured first-lien notes due 2019 up by around 2 points from their pricing level, at 104¼ to 104¾ bid.

The Hoffman Estates, Ill.-based apparel retailer had priced its $625 million add-on to its existing bonds on Thursday at 102½ to yield 8.49%, and they had moved up from there.

At another shop, a trader saw Digicel Group Ltd.'s 8¼% notes due 2020 trading Friday at 102¾ bid, 103¼ offered.

The Kingston, Jamaica-based provider of wireless service to the Caribbean, Central America and several Pacific island nations had priced its $1.5 billion drive-by offering on Wednesday at par - the first mega-deal-sized offering seen in the junk market in several weeks.

The trader also saw Carrizo Oil & Gas Inc.'s 7½% notes due 2020 trading Friday between 101½ and 102 bid.

The Houston-based energy exploration and production company's quick-to-market $300 million deal had priced on Wednesday, after having been upsized from an originally announced $250 million.

'A new deal bonanza'

A trader described the holiday-shortened week as "a new deal bonanza," as issuers with a pent-up need to do financing transactions came to market on a seemingly non-stop basis once everyone got back to work after the Labor Day break and the preceding two-week seasonal lull.

And he predicted that "you're gonna have a flood next week [i.e. the upcoming week] too," he added.

"If you have the opportunity to refinance" at a presumably lower interest rate, "and you don't - then your CFO should be fired," he opined.

Noting the rash of recent deals which have come to market carrying coupons that just a few months ago would have been unthinkably low for a junk bond - including the new deals this week alone from HealthSouth, Starz, Tesoro Logistics, Smurfit Kappa Acquisitions, Sally Holdings LLC/Sally Capital Inc., and QEP Resources, Inc., all of which carried coupons with a 5%-area handle or below, the trader mused that "I never thought I would see 5% junk."

New deals dominate

As was the case throughout the week, particularly on Wednesday and Thursday, Friday's activity in the secondary market was largely dominated by trading in the new issues, with the more established secondary names pretty much "dying on the vine," a trader said.

A second trader observed that "the accounts can only get size in the new issues."

ATP still busy

About the only name to buck that trend of relative inactivity among the established credits was ATP Oil & Gas' 11 7/8% senior secured second-lien notes due 2015; a market source saw over $66 million of the recently-bankrupt Houston-based offshore energy exploration and production company's bonds changing hands.

He pegged the bonds at 26 3/8 - up from levels as low as the 23-24 range which the bonds fell to earlier in the week on the news that an Israeli court had seized the company's licenses to explore for and drill for natural gas in two large deposits in the Mediterranean Sea off the Israeli coast on account of ATP's Aug. 17 Chapter 11 filing.

The bonds were seen to have come back on a combination of factors, including the fact that the license interest is mostly held by a specially created ATP entity that was not included in the bankruptcy filing, with the bankrupt parent directly holding only a relatively small interest in the project, as well as the general upturn in the junk market the past two sessions, in line with better stocks.

Labor number a non-story

A trader said that there was little real junk market reaction Friday to the much-awaited but ultimately disappointing August jobs-creation number released Friday morning by the Labor Department. Only 96,000 new non-farm jobs were created in August - well under the estimated 150,000 to 200,000 jobs the economy needs just to keep pace with population growth. While the overall jobless rate fell to 8.1% from 8.3%, economists noted that this was almost totally driven by a technical glitch - several hundred thousand former job-seekers having stopped looking for jobs due to the soft economy - rather than any great number of people finding new jobs.

"The labor number was obviously a disappointment to the market and people tried to bid lower, but then, the offerings didn't follow the bids, and the bids went right back up.

"So it was really negligible."

Indicators keep strengthening

Away from the new-deal arena, statistical indicators of junk market performance were solidly higher across the board for a second consecutive session on Friday, after having been mildly higher on Wednesday. They were also improved versus week-ago levels.

The Markit Group CDX North American Series 18 High Yield Index gained 15/32 point on Friday to close at 99 7/8 bid, 100¼ offered, after having jumped by 1 1/8 points Thursday.

The index was also up from the 98 1/8 bid, 98 3/8 level at which it had finished the previous Friday, Aug. 31.

The KDP High Yield Daily Index zoomed by 21 basis points Friday to end at 74.31, after having climbed by 19 bps on Thursday.

Its yield came in by 5 bps to 6.04%, after having tightened by 6 bps on Thursday. Friday's yield was a new low for the year, bypassing the former low of 6.08% set on Aug. 8.

Friday's index and yield levels compared favorably with the week-earlier reading of 73.91 and 6.17% yield.

And the widely followed Merrill Lynch U.S. High Yield Master II Index meanwhile recorded its 16th consecutive gain on Friday, rising by 0.342%, on top of the 0.207% advance Thursday.

That lifted its year-to-date return to 11.264% - a new 2012 peak, eclipsing the old mark of 10.884% that had been set just the day before. The index is now at its highest level since the last session of 2010, when it closed out that year with a 15.19% return.

Its yield to worst meanwhile stood at 6.568%, down from Thursday's 6.651% reading. Friday's yield was also the new low yield for the year, versus the previous session's yield.

For the week, the index rose by 0.742%, its third consecutive weekly gain. The year-to-date return a week earlier was 10.444% and the yield was 6.759%.

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