Ardagh brings $4.5 billion to strong demand; Western Digital off post-earnings; Valeant pressured

By Paul A. Harris and Stephanie N. Rotondo

Seattle, April 29 – A giant offering from Ireland’s Ardagh Group led high-yield market activity on Friday.

The packaging company priced an upsized $4.5 billion equivalent five-part issue which included two euro-denominated tranches and met with huge demand.

A second deal, from United Rentals (North America), Inc. brought the day’s dollar-denominated total to four tranches raising an overall amount of $3.9 billion.

In the secondary, April’s month-end session was driven in large part by another round of earnings that resulted in lower pricing levels for the high-yield bond market.

For instance, Western Digital Corp. came out with numbers that were deemed “kind of sloppy” by one trader. In response, the company’s 7 3/8% notes due 2023 and the 10½% notes due 2024 – both of which priced March 31 and have been trading fairly well ever since – traded off.

Valeant Pharmaceuticals International Inc. also released its long-awaited annual report on Friday. The report showed that more restatements of previous earnings from 2014 and 2015 needed to be done.

Those bonds were also trading down for the day.

In other earnings news, First Quantum Minerals Ltd. reported a loss for its first quarter. However, the mining company also said that revenue improved year over year. The revenue gain beat estimates.

Away from earnings news, AK Steel Holdings Corp. bonds were losing ground on Friday in the wake of a sale of 52 million shares.

The $228.8 million equity offering priced early in the day. Proceeds will be used to repay borrowings.

Ardagh sees $25 billion demand

Ardagh Group’s $4.5 billion equivalent five-part issue included three dollar- and two euro-denominated tranches.

The deal played to orders approaching $25 billion among 500 accounts, a portfolio manager said.

It included $500 million of Libor plus 325 basis points five-year floating-rate notes (Ba3/B+) which priced at 99.5. The spread came on top of spread talk. The reoffer price came at the rich end of the Libor 99 to 99.5 price talk. The floating-rate tranche was added subsequent to the announcement of the deal, which began roadshowing early in the past week.

The $2 billion equivalent of secured paper also included $1 billion of seven-year fixed-rate notes (Ba3/B+) that priced at par to yield 4 5/8%. The yield printed at the tight end of yield talk that had been set in the 4¾% area.

In addition, €440 million of seven-year secured paper (Ba3/B+) priced at par to yield 4 1/8%. The yield printed at the tight end of yield talk that was fixed in the 4¼% area.

Citigroup was the sole bookrunner for the secured tranches.

The transaction also included an upsized $2.5 billion equivalent of eight-year senior unsecured notes (B3/CCC+).

The unsecured tranches included $1.65 billion which priced at par to yield 7¼%, 12.5 bps inside of talk for a yield in the 7½% area, and €750 million which priced at par to yield 6¾%, also 12.5 bps inside of yield talk, for this tranche announced in the 7% area.

Citigroup was the left bookrunner for the unsecured tranches. Barclays, Goldman Sachs and Deutsche Bank were the joint bookrunners.

The unsecured portion of the issuance was upsized from $850 million equivalent.

The overall amount of issuance was increased to $4.5 billion equivalent from $2.85 billion equivalent.

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.

The dollar-denominated unsecured notes were whispered in the low 8% context, while the euro-denominated notes were whispered to yield 250 bps higher than the euro-denominated secured notes.

Proceeds will be used to help finance the acquisition of assets from Ball Corp. and Rexam plc. The acquisitions include certain metal beverage can manufacturing assets and support locations in Europe, the United States and Brazil. They will be purchased by Ardagh when Ball’s proposed acquisition of Rexam becomes complete.

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

United Rentals drives by

United Rentals priced a $750 million issue of 10.5-year senior notes at par to yield 5 7/8%.

The yield printed on top of yield talk, and came in line with early guidance in the high 5% range.

BofA Merrill Lynch, Barclays, Citigroup Global Markets, Deutsche Bank Securities, J.P. Morgan Securities LLC, MUFG, Morgan Stanley & Co., Scotia Capital and Wells Fargo Securities LLC were the joint bookrunners.

Proceeds, along with $144 million of additional borrowings under the company’s ABL facility, will be used to redeem all $300 million of the company’s 8¼% senior notes due 2021 and $550 million of its $750 million of 7 3/8% senior notes due 2020.

Travelodge upsizes

In the European market Travelodge priced £390 million of seven year senior secured notes (expected ratings B3/B-) in a two-part deal that was increased from £360 million.

It included £290 million of fixed-rate notes that priced at par to yield 8½%, and £100 million of floating-rate notes which came with a 750 basis points spread to Libor at 98.50.

The notes in both tranches priced in line with guidance.

Joint bookrunner Goldman Sachs will bill and deliver. Barclays was also a joint bookrunner. Mizuho was the lead manager.

The United Kingdom-based independent hotel brand plans to use the proceeds, along with cash on hand, to refinance £381 million of first- and second-lien bank debt. Of the additional proceeds resulting from the £30 million upsizing, £20 million will be used to repay a portion of the shareholder loans and £10 million will be kept as cash on balance sheet for general corporate purposes.

Elsewhere in the euro market Corral Petroleum Holdings AB priced €570 million of 11¾% / 13¼% senior PIK toggle notes due May 15, 2021 and SEK 500 million of 12¼% / 13¾% senior PIK toggle notes, also due May 15, 2021 (/B/B).

The euro notes priced at 98.578 while the krona notes priced at 99.043.

The euro-denominated notes had been talked to yield 12%. The SEK-denominated notes were talked to yield 12 ½%.

The deal was announced at a $700 million equivalent overall size, sources say. However the proposed dollar-denominated tranche, which was being guided at 11¾% to 12%, was withdrawn.

Earlier talk on the euro-denominated notes was 11½% to 11¾%.

Full details were not available at press time.

Thursday inflows

Cash flows for dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time.

High-yield ETFs saw $109 million of inflows on the day.

Actively managed funds saw $90 million of inflows on Thursday.

The news follows Thursday’s news that the dedicated high yield funds saw $296.3 million of inflows for the week to Wednesday’s close.

McGraw, Kaiser deals trade well

In secondary trading, a trader said deals priced by McGraw-Hill Global Education Holdings LLC and Kaiser Aluminum Corp. “traded fairly well” in Friday’s session.

He said McGraw-Hill’s $400 million of 7 7/8% senior notes due 2024 traded in a 102½ to 102¾ context, up smartly from the par level at which they priced. Kaiser’s $375 million of 5 7/8% senior notes due 2024 closed around 102½, also sharply better from their par pricing level.

The McGraw issue came downsized 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.

The Kaiser issue meantime came upsized from $325 million. The yield printed at the tight end of yield talk in the 6% area, and inside of the 6¼% initial guidance.

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

Western Digital disappoints

Western Digital’s debt traded off Friday as the company reported disappointing earnings.

A trader said the name was “pretty active today,” seeing the 7 3/8% notes falling 2 points to par ¾. The 10½% notes declined to 97¼ from “99-ish or so” previously, the trader said.

The bonds “had run up ahead of earnings,” another trader said, but came in after the results were released.

He saw “pretty good volume” in both issues, placing the 7 3/8% notes at par ½ and the 10½% notes at 97¼.

He said the debt was down 1½ and 2 points, respectively.

For its third quarter, Western Digital posted a profit of $283 million, or $1.21 per share. That compared to a profit of $441 million, or $1.87 per share, the year before.

Analysts polled by Thomson Reuters had forecast earnings per share of $1.28.

Revenue for quarter declined 20.6% to $2.82 billion.

The results were pressured by a growing decline in PC demand, as well as a struggle to keep up with changing technology.

In its conference call, the company said it was looking at options to reduce its current cost structure.

Valeant takes a hit

After months of waiting, investors finally got to see Valeant Pharmaceuticals’ 10-K for 2015.

In filing the annual report, the company was able to remedy a default on its $30 billion of debt.

However, the results included more restatements for 2014 and 2015.

The news was not received well by bondholders.

A trader said the 5 7/8% notes due 2023 dropped 2 points to 84 and the 7 3/8% notes due 2023 dipped a point to par 7/8.

The 6¾% notes due 2018 weakened by a point to 96¾, the trader said.

Another trader said the 5 7/8% notes were “pretty active,” trading around “84-ish.” The issue of 6 1/8% notes due 2025 “definitely looked like it was down,” he added, pegging it in an 83½ to 84 context.

The restatement for 2014 reduced fiscal 2014 revenue by approximately $58 million. Net income was cut by about $33 million and EPS by about 9 cents.

The restatement for the first quarter of 2015 resulted in $21 million less in revenue. But net income for the period increased by $24 million, or 7 cents per share.

In addition to announcing the filing of the report, Valeant also disclosed more investigations from state and federal agencies in both the United States. and Canada.

Gimme Credit LLC analyst Vicki Bryan said in an afternoon comment that the report was “chock full of troubling insights.

“While the changes to reported figures seemed comparatively modest, we are concerned about serious and still developing future risks revealed in the report that could plague Valeant for year, including significantly higher risk than previously indicated for ‘material negative impact’ from substantial impairment charges to write off asset value which, as we long have warned, is now likely overstated as the acquisitions for which Valeant paid so dearly using mountains of debt fail to meet similarly overzealous revenue and profit hurdles going forward,” she wrote.

Bryan also noted the slew of probes the company is facing, including newly announced investigations from North Carolina and the Department of Justice in regards to sales, pricing, distribution and patient assistance programs.

First Quantum beats

First Quantum Minerals’ first-quarter results beat expectations, which helped push the bonds up in Friday trading.

A trader said the 6¾% notes due 2020 added “almost 5 points” to close at 83¼. Another trader said the debt was up as much as 7 to 8 points, trading into the low-80s.

The Vancouver, B.C.-based metals and mining company reported a net loss of $217 million, or 32 cents per share. On an adjusted basis, earnings per share were 7 cents.

Revenue improved year over year to $720 million from $602 million.

Analysts polled by Thomson Reuters had predicted adjusted earnings of 5 cents per share on revenue of $691.5 million.

AK down on stock sale

AK Steel Holdings priced a $229 million stock offering on Friday, the proceeds of which will be used to pay down the $520 million outstanding under its $1.5 billion asset-based revolving credit facility.

A trader said that while the name had been “on a nice little run,” the bonds came off of the highs.

He called the 7 5/8% notes due 2020 down 3½ points at 85.

“They did give back a little of the gains,” another trader said. He said the 2020 paper had gotten as high as 88 in late trading on Thursday, but went out Friday in an 85 to 86 ZIP code.

The West Chester, Ohio-based steel producer sold 52 million shares of common stock at $4.40 a share, a 12% discount to Thursday’s closing share price of $4.99 (NYSE: AKS).

The stock finished Friday at $4.68, down 31 cents, or 6.21%.

Market trades mixed

Market indicators were mixed as April trading wrapped up on Friday.

The Markit CDX North America Series 23 index traded down almost a quarter-point to 102.8 bid, 102.92 offered, according to a market source.

The KDP High Yield Index, however, traded up to 67.74 from 67.68 on Thursday. Yields tightened to 6.13% from 6.14%.

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