McDermott widens; Compass, Comstock start roadshows; energy sector trades down; recent deals trade up

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 2 – After a busy week which saw about $5 billion in new deals price, the post-holiday calendar is starting to fill up with $2.63 billion in new deals expected.

McDermott International Inc.’s pricing of $1.3 billion in senior notes due 2024 (B2/B-), which was expected last week, was again delayed until Tuesday with price talk widening.

American Greetings Corp. is also expected to price $325 million of eight-year senior notes (Caa1/CCC+) on Tuesday.

Compass Diversified Holdings, LLC has launched an offering of $400 million in eight-year notes, which is expected to price later in the week.

Comstock Resources, Inc. also started a roadshow on Monday for a $600 million offering of senior notes, as part of a comprehensive refinancing, according to market sources.

Trading volume in the secondary market was light with most traders on “watch and wait mode,” as equity markets launched a tumultuous start to the month, a market source said.

After a week with some names in the energy sector seeing large gains, bonds in the energy sector were down about ½ point on Monday while the rest of the market remained largely flat.

While the market was largely flat, recent deals from Ply Gem Holdings Inc., Wyndham Hotels & Resorts, Inc. and W/S Packaging Holdings Inc. continued to trade well above their issue prices.

However, Netflix Inc.’s senior notes were down slightly on Monday in high volume trading on an otherwise quiet day.

McDermott widens

McDermott’s downsized offering of senior notes saw price talk push wider on Monday.

Latest pricing information on the deal has it coming with a 10 5/8% coupon, in a price range of 95 to 96, with a yield in the low 11% area, according to a trader who focuses on the energy sector.

Pricing is expected on Tuesday.

The $1.3 billion offering of senior notes due 2024 (B2/B-) was downsized from $1.5 billion. It had been expected to price last week but was pushed into the April 2 week.

Talk widened dramatically. Initial guidance was 8 3/8% to 8½%. Official price talk in the 10½% area surfaced late last week.

Barclays is the lead on the bonds, which are coming in connection with the merger of McDermott and Chicago Bridge and Iron (CB&I). Proceeds will be used to repay debt at both entities and for general corporate purposes.

Along with McDermott, American Greetings is expected to price $325 million of eight-year senior notes (Caa1/CCC+) on Tuesday.

As the market awaits official talk, the deal is guided at 8¼% to 8½%, a trader said.

Roadshow starts

Compass Diversified Holdings initiated plans to price $400 million of eight-year senior notes late in the April 2 week.

Initial talk has the deal coming to yield 7¼% to 7½%.

BofA Merrill Lynch is the lead on the debt refinancing deal.

Comstock Resources started a roadshow on Monday for a $600 million offering of senior notes, according to market sources.

BMO Securities is the lead.

The deal is part of a comprehensive refinancing undertaken by the Frisco, Texas-based independent oil and gas exploration and development company, which was also announced on Monday.

Mixed Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed last Thursday, according to a bond trader.

High-yield ETFs saw $331 million of inflows on the day.

However, asset managers sustained $245 million of outflows on Thursday, the trader said.

Light trading volume

While the primary market prepares new paper, trading volume was light in Junkbondland with most traders in “watch and wait mode,” a market source said. The secondary market was trading largely flat on the low volume.

“With the equity markets blowing up, a lot of people are just sitting back and watching,” the source said. “I’m not seeing a tremendous amount of buying or selling.”

Equity markets marked a rough start to April with the Dow Jones Industrial Average closing Monday’s session down 459 points and the S&P 500 down 2.23%.

Recent deals trade up

While the overall market was largely flat, new paper that priced in the pre-holiday week was performing well in the secondary market.

Ply Gem’s 8% senior notes due 2026 (expected Caa1/confirmed CCC+) were seen at par ½ bid, 101¼ offered on Monday. They were largely wrapped around 101 in trading, a market source said.

Ply Gem priced $645 million of the 8% senior notes at par on March 29.

Wyndham Hotels & Resorts 5 3/8% senior notes due 2026 (Ba2/BB-) were seen at 101 1/8 bid, 101 5/8 offered on Monday, according to a market source. They were also wrapped around 101 in trading, a market source said.

Wyndham priced $500 million of the 5 3/8% senior notes at par on March 29.

W/S Packaging’s 9% first-lien senior notes due 2023 (B3/B) continued to perform well during Monday’s session. The notes were seen at 101 bid, 102 offered, according to a market source.

W/S Packaging also priced $260 million of the notes at par on March 29.

Energy sector down

After a week where some energy sector names saw large gains, the sector was down on Monday as the barrel price of West Texas Intermediate crude oil fell.

Bonds in the energy sector were down ½ point as the price of crude oil to be delivered in May fell to $63.09 a barrel, a decrease of $1.85, or 2.85%, a trader said.

While bonds were down, the drop in crude oil prices no longer has the impact it once had on energy names, the trader said. At $63 a barrel, energy companies are still in a range where they can make money.

With the drop in crude oil, California Resources Corp.’s 8% senior secured second-lien notes due 2022 were “unsurprisingly,” the most active name trading in junkbondland, the source said.

The notes were seen at 77¾ bid, 78¾ offered on Monday, a market source said. The notes were at 78 bid, 79 offer on Thursday.

While most of the sector was down, Exco Resources Inc.’s 7.5% senior notes due 2018 continued to see gains after rising 31% last week.

The soon-to-mature 7.5% notes were seen wrapped around 10.5 in scattered trading on Monday after rising to 7.375 last week.

Netflix active

Bonds from Netflix were also major volume movers in Junkbondland during Monday’s session. Netflix’s 4.375% senior notes due 2026 (B1/B+) were down about 1-point in active trading.

The notes were wrapped around 94¼ for much of Monday’s session with more than 10 million bonds in play, according to a market source.

Netflix’s 5.875% senior notes due 2025 (B1/B+) were relatively unchanged with trading prices of 104¼ in high volume trades on Monday. There were also about 10 million bonds in play during Monday’s session.

Netflix is among the tech companies that have taken a hit from news of the Facebook data breach in mid-March and President Donald Trump’s promised crackdown on Chinese investment in tech companies.

Indexes

The KDP High Yield index dropped 9 points to 70.11 on Monday with the yield gaining 3 bps to 5.93%. The index was at 70.20 with a yield of 5.90% on March 29.

The Merrill Lynch High Yield index dropped 8.3 bps on Monday with the negative year-to-date return dropping to 1.014 after improving to 0.931 on March 29.

The CDX high yield 30 index was down 53.7 bps on Monday, wiping out Thursday’s 43.8 bps gain.

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