Fair Isaac prices; Lithia Motors up, Norwegian Cruise flat; AK Steel jumps, Cleveland-Cliffs drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 3 – The domestic high-yield primary market slowed its pace on Tuesday with one deal pricing and only one more on the active forward calendar.

Fair Isaac Corp. priced an upsized $350 million issue of 8.5-year senior notes (Ba2/BB+) at par to yield 4% in a quick-to-market trade.

Twitter, Inc.’s $600 million offering of eight-year senior bullet notes (Ba2/BB+) is the only deal currently on the active forward calendar with pricing expected on Thursday.

Meanwhile, the secondary space was soft on Tuesday with renewed pessimism over the United States and China reaching a trade agreement sparking a sell-off in equities.

While soft, the sell-off in equities did not spill over into the high-yield market as much as expected, a market source said.

Focus remained on recent issues although their performance was mixed.

Charter Communications’ 4¾% senior notes due March 1, 2030 (B1/BB/BB+) were the most active issue in the secondary space following Monday’s add-on.

Lithia Motors, Inc.’s 4 5/8% senior notes due 2027 (Ba2/BB) were putting in a strong performance in the secondary space while Norwegian Cruise Line Holdings Ltd.’s 3 5/8% senior notes due 2024 (Ba2/BB+) were stuck at their issue price.

Outside of recent issues, news that Cleveland-Cliffs Inc. was acquiring AK Steel Corp. in an all-stock transaction sparked activity in both companies’ capital structure.

While AK Steel’s junk bonds jumped on the news, Cleveland-Cliffs junk bonds dropped.

Fair Isaac upsized and tight

New issue market news-flow slowed to a trickle on Tuesday.

Fair Isaac Corp. priced an upsized $350 million issue of 8.5-year senior notes (Ba2/BB+) at par to yield 4% in a quick-to-market trade.

The issue size increased from $300 million.

The yield printed at the tight end of the 4% to 4¼% yield talk. That talk had come on top of the initial guidance.

The order book was heard to be three-times oversubscribed at noon Tuesday, a trader said.

In the wake of Fair Isaac, only one deal is on the active forward calendar.

Twitter, making its debut appearance in the high-yield bond market, plans to price a $600 million offering of eight-year senior bullet notes (Ba2/BB+) on Thursday, at the conclusion of a brief roadshow.

With official price talk pending, early guidance has the deal coming to yield in the mid-4% area.

The new issue market is expected to remain active during the first two weeks of December, sources say.

However, one investment banker played the role of Cassandra, in the run-up to Thanksgiving, noting that some high-yield investors have realized 13%-plus returns in 2019, and may not care to push their luck too much during the run-up to year-end.

Enthusiasm for a vigorous December calendar may turn out to be on the thin side, the banker warned.

Charter active

Charter Communications’ 4¾% senior notes due 2030 were the most actively traded issue in the secondary space following Monday’s $1.2 billion add-on.

While the notes were trading at a premium to their reoffer price, they were still below their level prior to the add-on.

The 4¾% notes were marked at 101 5/8 bid, 101 7/8 offered, according to a market source.

Prior to the add-on, the notes were trading on a 102 handle.

Charter priced the $1.2 billion add-on at 101.125 in a Monday drive-by.

The reoffer price came at the rich end of price talk in the 101 area.

Lithia at a premium

Lithia Motors’ 4 5/8% senior notes were putting in a strong performance in the secondary space with the notes trading at a large premium to their issue price.

The 4 5/8% notes were seen at par 5/8 bid, 101 5/8 offered early in the session. They were trading in the par ¾, 101 context in the late afternoon, another source said.

With $54 million on the tape in the late afternoon, the notes were second only to Charter’s 4¾% notes in terms of trading volume.

Lithia priced a $400 million issue of 4 5/8% at par in a Monday drive-by.

The deal was talked in the 4¾% area.

Norwegian Cruise Line flat

Norwegian Cruise Line’s 3 5/8% senior notes due 2024 were wrapped around their issue price in active trading in the secondary space.

While the notes dipped below par early in the session with the market in general weak, they were largely stuck at par, a market source said.

The tight pricing left the notes nowhere to go, the source said.

The notes saw $41 million in reported volume by the late afternoon.

Norwegian Cruise Line priced a $565 million issue of the 3 5/8% notes at par in a Monday drive-by.

The yield printed 12.5 basis points inside of price talk in the 3 7/8% area. Initial talk was in the 4% area.

The buyout

Outside of recent issues, Cleveland-Cliffs’ and AK Steel’s junk bonds were in focus on Tuesday following news Cleveland-Cliffs would acquire AK Steel in an all-stock transaction.

However, the capital structures of the two companies were moving in separate directions.

AK Steel’s junk bonds “were up pretty significantly,” on the news, a market source said.

The 7½% senior notes due 2023 were changing hands in the 103¼ bid, 104 offered context with more than $44 million in reported volume.

They were previously changing hands between 99 and par.

The 2023 notes will be refinanced as part of the buyout, according to a company news release.

Cleveland-Cliffs has obtained a $2 billion financing commitment from Credit Suisse in connection with the refinancing of AK Steel’s 7½% senior notes due 2023, the release said.

AK Steel’s 7% senior notes due 2027 were changing hands between 93½ and 94½ on Tuesday. They were trading on an 86 handle on Monday, a market source said.

While AK Steel’s junk bonds jumped on the news, Cleveland-Cliffs junk bonds sold off.

Cleveland-Cliffs 5 7/8% senior notes due 2027 dropped 4 points to 92 bid, 93 offered on Tuesday.

They closed out Monday at 96 bid, 97 offered, a source said.

AK Steel shareholders will receive 0.40 of a share of Cleveland-Cliffs common stock in the buyout for each share of AK Steel stock, an amount which values AK Steel stock at $3.36 a share, a premium of 16% from AK Steel’s closing stock price on Monday, according to a company news release.

The buyout is valued at $1.1 billion.

$22 million Monday inflows

The dedicated high-yield bond funds saw $22 million of daily net inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High yield ETFs saw $67 million of inflows on the day.

However, actively managed high-yield funds sustained $45 million of outflows on Monday, the source said.

Indexes

Indexes extended their losses on Tuesday.

The KDP High Yield Daily index slid 5 bps to close Tuesday at 70.78 with the yield now 5.23%. The index was down 7 bps on Monday.

The ICE BofAML US High Yield index slid further away from the 12% return threshold.

The index was down another 8.8 bps on Tuesday with year-to-date returns now 11.894%. The index was down 8.7 bps on Monday.

The CDX High Yield 30 index dropped 10 bps to close Tuesday at 107.36.

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