Upsized Sunoco drives by, struggles in secondary; WDC, T-Mobile busy, Southwestern off

By Paul Deckelman and Paul A. Harris

New York, April 4 – The high yield primary started the first full trading week in April off on Monday with an upsized $800 million offering of five-year notes from gasoline wholesaler and retailer Sunoco LP.

Traders saw those quick-to-market notes initially firm a little but then fall back from those peaks to slightly under their par issue price.

They also saw heavy, though mixed trading in the recent giant-sized two-part deal from computer hard-disk drive manufacturer Western Digital Corp.

Last week’s new deal from wireless provider T-Mobile USA Inc. was also busy, if slightly lower.

The new deal from broadband infrastructure provider Zayo Group LLC continued to firm, but on only modest volume.

Split-rated oil and natural gas operator Southwestern Energy Co.’s notes retreated on the news that the company had borrowed $1.55 billion from its revolving credit facility.

Statistical market performance measures were mixed for a second straight session on Monday; they had turned mixed on Friday after having been higher across the board for two sessions in a row on Wednesday and Thursday; and having been lower all around for five straight sessions before that.

Sunoco LP and Sunoco Finance Corp. priced Monday's sole deal, an upsized $800 million issue of five-year senior notes (Ba3/BB-), at par to yield 6¼%.

The issue size was increased from $500 million.

The yield printed at the wide end of the 6% to 6¼% yield talk.

The new Sunoco 6¼% notes were trading at 99½ bid, par offered, according to a trader who added that demand for the deal may have been less than massive.

Credit Suisse was the left lead.

The Houston-based limited partnership plans to use the proceeds to repay a portion of the borrowings outstanding under its term loan facility.

MGM Growth Properties roadshow

MGM Growth Properties Operating Partnership LP started a roadshow for a $1.05 billion offering of non-callable eight-year senior notes on Monday.

Early guidance has the deal yielding 6% to 6¼%.

Pricing is expected on Friday.

J.P. Morgan is leading.

Proceeds, together with the proceeds from a $600 million revolver, a $300 million term loan A, a $1.85 billion term loan B and $800 million of equity will be used to repay approximately $4 billion of MGM Resorts debt to be assumed by the operating partnership (an MGM Growth Properties subsidiary) being formed in connection with the spinoff of MGM Resorts International's gaming properties into a real estate investment trust.

LKQ starts Tuesday

LKQ Corp. plans to start a roadshow on Tuesday for a €500 million offering of non-callable eight-year senior notes.

The roadshow wraps up on Thursday.

Global coordinator BofA Merrill Lynch will bill and deliver. HSBC Bank is also a global coordinator.

The Chicago-based supplier of aftermarket automotive components plans to use the proceeds to repay debt, including borrowings under its revolver, and to repay bond debt of Rhiag-Inter Auto Parts Italia SpA, which it acquired in late March of this year.

In an offer already on the road Diebold Inc. is expected to price $500 million of eight-year senior notes (B2/B+) by midweek.

The deal is half done, according to a trader who added that guidance is in the 8% area; earlier whispers had it coming in the high 7% to low 8% context.

Elsewhere Quorum Health Corp. was scheduled to start a roadshow on Monday for a $400 million offering of seven-year senior notes (Caa1/CCC+).

The spinoff-related deal, which is being led by Credit Suisse, is set to price late this week.

Early guidance is in the 11% area, a market source said.

Friday inflows

The dedicated high yield funds saw cash inflows on Friday, the most recent session for which data was available at press time, a trader said.

High yield ETFs saw $405 million of inflows on the day.

Actively managed funds saw $260 million of inflows on Friday.

Dedicated bank loan funds, meanwhile, saw $65 million of inflows on Friday.

New Sunoco struggles

In the secondary market, traders saw the new 6¼% notes due 2021 initially firm a little – only to then fall back from those peaks to closing levels around to slightly under their par issue price.

One trader said that the bonds opened at 10¼ bid to 100 ¾ offered – but then fell back to around a 99¾ to 100¼ bid context.

A second trader saw the notes initially trading around 100½ bid, 101 offered – but then, “the bid got hit a couple of times,” sending the bonds back down to around par bid, 100¼ offered.

He last saw the notes going out wrapped around their par issue price, at 99 7/8 bid, 100 1/8 offered.

However, at another shop, a trader who had initially seen the notes trading in a par to 100¼ bid context later quoted them around 100¼ bid, 100¾ offered.

Western Digital stays busy

Elsewhere, last Wednesday’s big deal from Western Digital Corp. continued to dominate the Most Actives charts on Monday.

A market source said that its split-rated (Ba1/BBB-/BBB-) 7 3/8% senior secured notes due 2023 saw more than $55 million of volume on Monday. He saw the bonds up 1/8 point at 102¼ bid.

Another trader said WDC was “a little better,” quoting the secured issue at 102¼ bid.

However, at another shop, a trader pegged them off ¼ point, at 102 1/8 bid, 102 3/8 offered.

The company’s new fully junk-rated (Ba2/BB+BB+) 10½% senior unsecured notes due 2024 were also active, with over $40 million traded. A market source saw those bonds off by 1/8, at 100¼ bid.

At another desk, a trader saw them off 3/8 point, at par bid, 100 3/8 offered.

The Irvine. Calif.-based computer disk-drive manufacturer priced a total of $5.255 billion in two tranches in a regularly scheduled forward calendar deal on Wednesday, consisting of $1.875 billion of the 7 3/8% notes and $3.35 billion of the 10½% notes, with both tranches pricing at par.

The overall size of the offering was reduced from an originally planned $5.6 billion, with the $375 million difference going instead to the company’s concurrent term loan borrowing.

The size of the split-rated secured offering was upped by $375 million, from an originally planned $1.5 billion.

The difference was made up by downsizing the purely junk unsecured tranche by $750 million from $4.1 billion originally – $375 million shifted to the secured notes and $375 million shifted out of the junk offering to the term loans.

On Thursday, a trader saw more than $330 million of the 10½% unsecured bonds having changed hands and estimated that over $200 million of the 7 3/8% secured bonds traded.

Activity remained brisk on Friday, with over $89 million of the 10½% notes and over $30 million of the 7 3/8% notes having traded around.

Zayo Group firms

There was considerably less activity on Monday in the new Zayo Group 6 3/8% notes due 2025, with a trader seeing the bonds having moved up to 101 bid – but on “not a lot of volume.”

Zayo, a Boulder, Colo.-based-telecommunications company specializing in broadband network infrastructure, had priced the quick-to-market $550 million add-on to its existing bonds on Thursday

Those notes were priced at 97.76 to yield 6.707% after the issue was upsized from $350 million originally.

About $12 million of the notes traded on Friday, getting as good as 99 ½ bid, before they came off those highs to finish the day at 98 5/8, setting the stage for Monday’s further gains, though on lesser volume.

T-Mobile trades off

Elsewhere among the recently priced offerings, a trader saw T-Mobile USA’s new 6% notes due 2024 off by around ¼ point on the day Monday, closing at 102 bid, though on robust volume of more than $15 million.

The Bellevue, Wash.-based wireless carrier had priced $1 billion of the notes at par in a quick-to-market offering on Tuesday. When they hit the aftermarket on Wednesday, T-Mobile was easily the junk market’s volume leader, with more than $75 million of those bonds having changed hands and finishing at 101¼ bid.

The bonds continued to move up on Thursday to a 101¼ to 101 3/8 bid context, with over $26 million having traded, and strengthened further on Friday, topping to 102 bid level.

Southwestern on the slide

Away from the new issues, Southwestern Energy’s split-rated (B1/BBB-/B+) paper “was active, down anywhere from 1 to 2 points or so,” a trader said, citing the company’s “having boosted their access to borrowing, which took the credit down.”

A trader at another desk saw its 4.95% notes due 2025 down 2¼ points, at 67¼ bid, with over $21 million traded.

He said that its 4.05% notes due 2020 lost 1 3/8 points, ending at 71 1/8 bid, with over $8 million traded.

The Houston-based oil and natural gas company borrowed about $1.55 billion under its existing credit agreement dated Dec. 16, 2013, according to an 8-K filing with the Securities and Exchange Commission.

The company borrowed the funds on March 30 and repaid the full amount on April 1.

The $1.55 billion borrowing was in addition to other borrowings in the ordinary course of business, the filing noted.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Monday; they had turned mixed on Friday after having been higher across the board for two sessions in a row on Wednesday and Thursday and having been lower all around for five straight sessions before that.

The KDP High Yield Daily index posted its fourth straight gain on Monday and its eighth such advance in the last 13 sessions, gaining four basis points to finish at 65.78, on top of the 11 bps improvement seen on Friday.

The index’s yield came in by 1 bp to 6.65%, versus its 3 bps rise on Friday, an unusual move given that the index reading had also risen on Friday, as indicated. Generally speaking, the yield moves inversely to the index reading, falling when the index rises and vice versa.

The Markit Series 26 CDX North American High Yield index was off by 5/16 point on Monday, going home at 102 11/32 bid, 102 13 offered. It had been unchanged on Friday, finishing the day at 102 11/16 bid, 102 23/32 offered. That had been the level to which it had risen by gaining 5/32 point on Thursday, its second straight rise since Markit had “rolled” its index, or had begun a new series with a different roster of credit default swaps contracts than previously.

The Merrill Lynch North American High Yield Master II index gained 0.178% on Monday, rebounding from its 0.013% loss on Friday, its first setback loss after two straight gains on Wednesday and Thursday.

Monday’s advance pulled the index’s year-to-date return up to 3.417% from 3.234% at the close Friday.

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