Kaiser drives by, BlueScope, McGraw-Hill also price; new bonds up; funds gain $296 million

By Paul Deckelman and Paul A. Harris

New York, April 28 – The high-yield primary market resumed pricing activity on Thursday after having taking a break on Wednesday for a session in which no new dollar-denominated and fully junk-rated issues came to market.

Syndicate sources put Thursday’s tally of new junk paper at $1.28 billion.

Australian metal products producer BlueScope Steel Co. did an upsized $500 million offering of five-year notes as a regularly scheduled forward calendar transaction via a pair of financing subsidiaries, the largest deal of the session.

Educational materials provider McGraw-Hill Global Education Holdings LLC had been slated to have the day’s biggest offering, but slimmed its eight-year forward calendar deal down to $400 million before pricing.

Metal products manufacturer Kaiser Aluminum Corp. meanwhile brought an upsized, quickly shopped tranche of eight-year notes to market to round out the day’s pricing activity.

In the secondary realm, traders reported that all three of those new issues had moved up solidly in very active aftermarket activity.

Both halves of the recently priced Western Digital Corp. deal were also among the most active credits on the day.

Away from the new deals, traders said that Intelsat SA’s bonds were solidly better across the communications satellite company’s capital structure, on better-than-expected quarterly numbers.

Statistical market performance measures turned mixed on Thursday, after having been higher across the board on Wednesday; it was the second mixed session in the last three trading days.

Another numerical indicator – flows of cash into or out of high yield mutual funds and exchange-traded funds, considered a reliable barometer of overall market liquidity trends – was positive during the latest reporting week, its fourth week on the upside. The funds added $296 million of cash.

BlueScope sees strong demand

Three issuers raised a combined total of $1.28 billion in Thursday’s primary market.

One of the three deals came as a drive-by. Two were upsized, while one was downsized.

All three came at the tight end of talk.

BlueScope Steel priced an upsized $500 million issue five-year senior notes (Ba2/BB) at par to yield 6½%.

The issue size was increased from $300 million.

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

The deal was a blowout, a trader said, adding that it was more than 2.5-times oversubscribed at the $500 million amount.

Credit Suisse and HSBC were the bookrunners.

The Melbourne, Australia-based manufacturer of flat steel products and building product solutions plans to use the proceeds to refinance short-term acquisition facilities previously drawn when BlueScope acquired Cargill Inc.’s stake in their U.S. joint venture, North Star.

The additional proceeds resulting from the $200 million upsizing of the deal will be used to make a partial call on the company’s 7 1/8% senior notes due 2018.

McGraw-Hill downsized, tight

McGraw-Hill Global Education priced a downsized $400 million issue of eight-year senior notes (B3/CCC+/B-) at par to yield 7 7/8%.

The deal was reduced from $670 million, as $270 million of proceeds were shifted to the concurrent six-year first-lien covenant-light term loan.

The yield printed at the tight end of yield talk that had been set in the 8% area.

Credit Suisse, Morgan Stanley, BMO, Jefferies, Barclays, Goldman Sachs, RBC and Wells Fargo were the joint bookrunners.

With the shift of proceeds to the bank loan from the bonds, the loan size grows to $1,575,000,000 from $1,305,000,000

The New York-based provider of education materials plans to use the proceeds for debt refinancing in order to extend its maturity profile, as well as to merge McGraw-Hill School Education into the McGraw-Hill Global Education credit group, and to fund a dividend.

Kaiser drives by

Kaiser Aluminum priced an upsized $375 million issue of eight-year senior notes (Ba3/BB) at par to yield 5 7/8%.

The issue size was increased from $325 million.

The yield printed at the tight end of yield talk in the 6% area, and inside of the 6¼% initial guidance.

Timing was accelerated, as the deal had been expected to be in the market overnight.

J.P. Morgan, Wells Fargo, BofA Merrill Lynch and Deutsche Bank were the joint bookrunners.

The Foothill Ranch, Calif.-based aluminum products manufacturer plans to use the proceeds to redeem all of its outstanding 8¼% senior notes due 2020, and for general corporate purposes which may include, among other things, capital spending, acquisitions and repurchases of its common stock.

Ardagh massively upsizes

Late in Thursday’s session Ardagh Group massively upsized its multi-tranche offering of high-yield notes to $4.5 billion equivalent from $2.85 billion equivalent, adding a $500 million secured tranche of floating-rate notes, and setting price talk and final timing.

The upsized deal now includes $500 million of five-year floating-rate notes which come with one year of call protection, talked at Libor plus 325 basis points and a price of 99 to 99.5.

Sizes and talk also surfaced on the two previously announced tranches of fixed-rate seven-year secured notes (Ba3/B+) which are callable after three years at par plus 50% of the coupons.

They include $1 billion of notes talked to yield in the 4¾% area and $500 million equivalent of euro-denominated notes talked to yield in the 4¼% area.

The dollar-denominated secured notes were originally whispered in the low 5% context, and the euro-denominated secured notes were originally whispered in the mid 4% context, sources said.

Meanwhile the combined amount of eight year unsecured notes (B3/CCC+), callable after three years at par plus 75% of the coupons, was increased to $2.5 billion equivalent from $850 million equivalent.

Included are $1.65 billion of notes which are talked in the 7½% area and $850 million equivalent of euro-denominated notes which are talked in the 7% area.

The dollar-denominated unsecured notes were whispered in the low 8% context, while the euro-denominated notes were whispered to yield 2½% higher than the euro-denominated secured notes.

Timing on the deal, now set to price Friday, was accelerated earlier in the week.

Citigroup is the bookrunner.

Proceeds will be used to help finance the acquisition of assets from Ball Corp. and Rexam plc. When Ball’s proposed acquisition of Rexam becomes complete, Ardagh will take over certain metal beverage can manufacturing assets and support locations in Europe, the United States and Brazil.

The additional proceeds from the $1.65 billion upsizing of the deal are expected to be used to repay Ardagh’s two tranches of dollar-denominated unsecured 9 1/8% notes due 2020 and its euro-denominated 9¼% notes due 2020.

BlueScope leads actives

In the secondary arena, traders noted that BlueScope Steel’s sale of 6½% notes due 2021, brought to market via its BlueScope Steel (Finance) Ltd. and BlueScope (Finance)Americas LLC funding subsidiaries, was the first of the day’s three deals to price and thus to begin trading around.

Accordingly, it was the most active of the trio in the aftermarket, with over $72 million changing hands by the close.

Right out of the gate, a trader saw the bonds active between 101½ and 102½ bid, up from their par issue price.

A second trader pegged those new bonds in a 102 to 102½ bid context. He said that the notes “did trade a little higher than that on the break, but then they pulled back a little.”

Another had seen the bonds trading between 102½ and 103 bid, though later in the session, “they were closer to 102.”

McGraw-Hill moves up

McGraw-Hill Global Education’s 7 7/8% notes due 2024 initially traded between 100¾ and 101¾ bid, a trader said.

Later in the session, another market source had the bonds going home at 102 1/8 bid, well up from their par issue price.

More than $62 million of those bonds had traded, the source said.

Kaiser climbs in aftermarket

While the Kaiser Aluminum offering of 5 7.8% notes due 2024 was the last of the day’s three deals to hit the tape, that didn’t keep the issue from moving up on brisk volume.

A market participant said the bonds were finishing at 102¼ bid, versus their par issue price.

He said that more than $44 million of the new paper had traded.

Western Digital gains more

A trader said that “those WDC bonds did much better,” referring to Western Digital’s big two-part note offering. Although it priced about a month ago, it has been among the most actively traded issues most sessions since then.

On Thursday, the trader said, its 10½% senior unsecured notes due 2024 were up around 1 to 1½ points, ending at 99¾ bid, with over $52 million traded.

Its 7 3/8%senior secured notes due 2023 gained ½ point to end at 103 bid, on volume of over $60 million.

The Irvine, Calif.-based computer disk-drive manufacturer priced the two tranches of bonds, totaling $5.26 billion, down from an original $5.6 billion, back on March 30.

The quick-to-market deal consisted of $1,875,000,000 of the split-rated (Ba1/BBB-/BBB-) secured 7 3/8s, upsized from an original $1.5 billion, and $3.35 billion of the fully junk-rated (Ba2/BB+/BB+) unsecured 10½s, downsized from $4.1 billion originally.

Both tranches had priced at par.

Intelsat gains altitude

Away from new or recently priced offerings, Luxembourg-based communications satellite company Intelsat reported a narrower profit for the period ending March 31, but affirmed its 2016 guidance.

A trader said the company’s bonds were mostly higher in response.

The 6 5/8% notes due 2022 experienced “very heavy volume,” adding nearly 5 points to close at 63½. The 7¾% notes due 2021 improved 5 points to 32¾, while the 7¼% notes due 2019 pushed up 2½ points to 81. The 7½% notes due 2021 meantime increased 1½ points to 71¾.

However, the 5½% notes due 2023 fell over a point to 63, as the 8% notes due 2024 – a $1.25 billion issue that priced March 29 – dipped half a point to 103½.

Another trader said the bonds firmed on “better-than-expected results.” He saw the “Luxco” issues trading “up a bunch, 5 points roughly” to 32 from 27. The 6 5/8% notes were deemed 4 to 5 points higher as well, trading in a 63 to 64 ZIP code.

Net income for the first quarter was $15.3 million, or 13 cents per share. That compared to income of $54.7 million, or 47 cents per share, the year before.

Adjusted net income came to 31 cents per share, versus 69 cents per share the previous year. Analysts polled by Thomson Reuters had forecast EPS of 21 cents per share.

EBITDA declined to $407.5 million from $460.5 million. Adjusted EBITDA was $417.7 million, or 76% of revenue. That compared to $470.5 million, or 78% of revenue, in the first quarter of 2015.

Total revenue was $552.6 million, above analysts’ estimates of $543.5 million.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday, after having been higher across the board on Wednesday; it was the second mixed session in the last three trading days.

The KDP High Yield Daily Index notched its second consecutive gain on Thursday, rising by 28 basis points to close at 67.68. It had broken out of a three-session rut on Wednesday, gaining 16 bps on the day. Thursday marked the index’s 5th gain in the last eight sessions.

Its yield came in by 6 bps, tightening to 6.14%, its second straight narrowing. On Wednesday it had tightened by 5 bps after having risen by 4 bps on Tuesday.

However, the Markit Series 26 CDX North American High Yield Index fell by 11/32 point on the day, versus Wednesday’s ¼ point gain on the day. It closed on Thursday at 103 3/32bid, 103 1/8 offered.

But the Merrill Lynch North American High Yield Master II Index put up a third consecutive advance on Thursday after two losses in a row before that, rising by 0.44%, on top of Wednesday’s 0.291% upturn.

The latest upside move lifted the index’s year-to-date return to 7.391%, its third consecutive new peak level for the year so far.

That topped the previous high point of 6.92%, which had been set on Wednesday.

It also marked the first time the index had finished above the psychologically significant 7% mark this year, and its first time overt that barrier since Dec.31, 2013, when it had closed out that year at 7.419%.

Funds gain $296 million

Meanwhile sources familiar with another numerical indicator – flows of cash into or out of high yield mutual funds and exchange-traded funds – said that some $296.3 million more came into those funds than left them during the week ended Wednesday.

That raised the year-to-date net inflow total to $9.664 billion, its fourth consecutive new weekly peak level (see related story elsewhere in this issue).

-Stephanie N. Rotondo contributed to this review

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