CSC Holdings prices; Western Digital gains; Endo drops; Coty down on restructuring

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 1 – While the general sentiment was risk-on on Monday, the domestic high-yield primary market was subdued with just one deal pricing.

CSC Holdings, LLC, a subsidiary of Altice USA, Inc., priced an upsized $1 billion issue of 10.5-year senior notes (B3/B) at par to yield 5¾% in a Monday drive-by.

After one of the highest volume weeks for new deals year-to-date last week, the primary market is expected to remain quiet in the coming days with only one deal on the forward calendar.

Meanwhile, the secondary space was off to a strong start with exuberance over the thawing of trade relations between the United States and China lifting markets.

However, optimism faded as the day progressed.

The market, in general, was up about ½ point in intraday trading with high beta names gaining as much as ¾ point.

While the space softened towards the market’s close, it still ended the day up about ¼ point, a market source said.

Western Digital Corp.’s split-rated 4¾% senior notes due 2026 (Baa3/BB+) were in focus with the notes posting gains as the broader semiconductor sector rallied in the wake of the G-20 summit.

Endo International plc’s junk bonds were trading off on Monday after a ratings downgrade due to the company’s draw from its revolving credit facility.

Coty Inc.’s 6½% senior notes due 2026 were also trading off on Monday after the company announced its restructuring plan which included a $3 billion write-down.

CSC upsized and tight

The appetite for risk came roaring back as July got underway with the market perceiving a conciliatory vibe emanating from the G-20 trade summit with respect to the ongoing trade dispute between China and the United States, according to an investor whose portfolio includes dollar- and euro-denominated junk bonds.

The perception of a neutral-to-dovish Fed is also helping to vitalize the buyside's appetite for junk, the investor added.

However, the new issue market nearly sleepwalked through the Monday session, a stark contrast to the final Monday in June, just one week ago, when seven drive-by issuers priced a face amount of $4.01 billion.

The first Monday in July did see CSC Holdings, a subsidiary of Altice USA, price an upsized $1 billion issue of 10.5-year senior notes (B3/B) at par to yield 5¾%, in a drive-by.

The issue size increased from $750 million.

The yield printed at the tight end of the 5¾% to 5 7/8% yield talk and low to initial guidance in the 6% area.

Citigroup Global Markets Inc. was the lead bookrunner.

The New York-based telecom plans to use the proceeds to pay off its revolving credit facility and for general corporate purposes.

The additional proceeds resulting from the $250 million upsizing of the deal will be used to put cash on the balance sheet.

While market players were still awaiting allocations by the late afternoon, the new notes were seen at par ¼ bid, par ½ offered in the gray market, a source said.

Independence Day week

The pending Independence Day market close is apt to disproportionately slow new issue activity in the days surrounding the July 4 holiday, market sources say.

With a lot of market participants set to stack vacation days on either side of the Thursday holiday – combining it with the following weekend for an extended break, for example – it will be increasingly difficult to scare up a crowd as the Fourth of July approaches, an investment banker said.

And with the Friday, July 5 session a foreordained yawner in the dollar-denominated bond market, a pre-Independence Day roadshow announcement engenders just about as much headline risk as an extended weekend, said the banker who will be surprised if roadshow announcements surface as the holiday nears.

One deal, a holdover from mid-June, remains in the market, sources say.

Although it has been radio silence for over a week, Canada's Alpha Auto Group remains in the market, an investor said on Monday, characterizing the deal as a work in progress.

The company conducted a roadshow for the $225 million five-year notes during the June 17 week.

Initial talk had that offer coming at 8% to 8¼%.

Late in the June 24 week a trader reported hearing word of a revived Alpha Auto deal at 11%.

Western Digital gains

Western Digital’s split-rated 4¾% senior notes due 2026 were in focus on Monday with the notes making gains alongside the broader market.

The 4¾% notes were up about 5/8 point and stood poised to close the day at 98 7/8, according to a market source.

More than $25 million of the bonds were on the tape by the late afternoon.

The hard disk drive manufacturer and data storage company was one of the benefactors of the improved tone of trade relations between China and the United States, alongside the broader semiconductor sector.

Western Digital is also a high beta name, a market source said.

Endo down

Endo International’s junk bonds were trading down on Monday after Moody’s Investors Service downgraded the company following a draw from its revolving credit facility.

Endo’s 6% senior notes due 2023 shaved off ½ point in active trading. The notes stood poised to close the day at 71½, according to a market source.

The bonds saw more than $18 million in reported volume during Monday’s session.

Endo subsidiary Par Pharmaceutical Cos., Inc.’s 7½% senior notes due 2027 were off 1 point to close Monday around 97½. The bonds also saw about $18 million in reported volume.

Par Pharmaceutical priced a $1.5 billion issue of the 7½% senior secured notes at par in mid-March.

Endo’s capital structure was taking a hit on Monday after Moody’s downgraded its senior secured ratings to B1 from Ba3 and its unsecured rating to Caa2 from Caa1.

The downgrade was prompted by a recent draw on Endo’s revolving credit facility and was due to Moody’s expectation that Endo’s leverage would remain above 6x earnings through 2020 (see related article in this issue).

Endo announced on Friday a $300 million drawdown from its $1 billion revolving credit facility through subsidiary Endo Luxembourg Finance Co. I Sarl.

Coty drops

Coty’s 6½% senior notes due 2026 were also trading down on a relatively strong day for the market after the company announced a restructuring plan which included a $3 billion writedown.

The 6½% senior notes dropped 1 3/8 points to 96¼ in active trading on Monday, according to a market source. The bonds saw more than $11 million in reported volume.

Coty, a cosmetics maker, announced its turnaround plan on Monday which involved relocating its headquarters, doing away with some of its non-profitable cosmetics brands while increasing focus on others, and taking a $3 billion writedown.

Mixed Friday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Friday, the most recent session for which data was available at press time, an investor said.

High-yield ETFs sustained $168 million of outflows on the day.

Actively managed high-yield funds saw $30 million of inflows on Friday, the investor said.

The month of June saw solid gains in the junk index, the source said, citing the JP Morgan High Yield Index.

Junk returned 2.29% in June, its strongest monthly performance since January.

The high-yield index returned a robust 9.88% for the first half of 2019, the source added.

Indexes gain

Indexes saw strong gains at the start of the week after all closed out the previous week with minor losses.

The KDP High Yield Daily index gained 8 basis points to close Monday at 70.87 with the yield now 5.44%.

The index posted a cumulative loss of 6 basis points on the week.

The ICE BofAML US High Yield index rose 23.5 bps with the year-to-date return now 10.353%.

After a mixed week last week, the index saw a cumulative loss of 1.9 bps.

The index popped back above 10% last Friday after sinking below it on June 26.

The index initially shot past 10% returns on June 20.

The CDX High Yield 30 index gained 10 bps to close Monday at 107.69.

The index saw a cumulative loss of 5 bps on the week last week.

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