Post-holiday market resumes as USG, Oshkosh drive by; new USG bonds jump; Walter gets whacked

By Paul A. Harris and Paul Deckelman

New York, Feb. 17 – It was back to work on Tuesday for the high-yield market following the long Presidents’ Day holiday weekend.

Junkbondland saw its first dollar-denominated, fully high-yield-rated issues price since last Wednesday, as two quickly shopped, single-tranche offerings totaling $600 million came to market.

USG Corp., a Chicago-based manufacturer of drywall plasterboard and other building materials, priced $350 million of 10-year notes.

Oshkosh Corp., a maker of military vehicles, fire engines and ambulances and specialty trucks based in the eponymous Wisconsin city, brought in a $250 million 10-year issue.

Elsewhere in the primary arena, price talk and timing came out on the $1.9 billion eight-year notes deal that will help fund the leveraged buyout of pet food and supplies retailer PetSmart, Inc.

Food and beverage company Dean Foods Co. was heard to be hitting the road to market a $700 million issue of eight-year notes.

Traders said that the new USG bonds firmed smartly in busy dealings when they moved into the aftermarket. The new Oshkosh paper, which priced later in the session, was slightly higher.

There was also active trading in last week’s split-rated 10-year issue from casino operator Wynn Las Vegas LLC.

Away from trading in new and recently priced deals, traders saw Walter Energy, Inc.’s bonds sharply lower after the coal producer reported a wider-than-expected fourth-quarter loss.

Statistical indicators of junk market performance were mixed for a second straight day on Tuesday.

Big demand for USG

The primary market saw a pair of drive-by deals surface on Tuesday.

Two issuers, each bringing a single tranche of bonds, raised a total of $600 million.

Both deals came at the tight ends of talk.

USG priced a $350 million issue of 10-year senior notes (B1/BB/BB) at par to yield 5½%.

The debt refinancing deal played to big demand, according to a trader who followed it.

The yield printed at the tight end of yield talk in the 5 5/8% area.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan, Wells Fargo and Goldman Sachs were the joint bookrunners.

Oshkosh drives by

Oshkosh priced a $250 million issue of 10-year senior notes (Ba3/BB+) at par to yield 5 3/8%.

The yield printed at the tight end of yield talk in the 5½% area.

BofA Merrill Lynch, JPMorgan, RBS and Wells Fargo were the joint bookrunners for the debt refinancing deal.

PetSmart talk, timing

PetSmart talked its $1.9 billion offering of eight-year senior notes (B3/B-) to yield in the 7¼% area on Tuesday.

As forecast late last week, the official talk came below earlier 7½% guidance, a market source said.

That guidance, itself, represented a dramatic tightening from initial discussions that had the deal coming in the mid-to-low 8s, sources said.

The LBO deal is playing to about $8 billion of demand, according to a trader who is following it, and who added that it promises to be a “Dollar Tree-style” blowout. To recount, Dollar Tree, Inc. priced $3.25 billion of senior notes in two tranches (Ba3/B+) on Feb. 6 in a deal that was said to have played to $21 billion of overall demand from bond investors.

Books for the PetSmart bond deal close 11 a.m. ET Wednesday, except for Boston accounts. A Boston lunch is set to get underway at 12:30 p.m. ET on Wednesday, and the deal is expected to price thereafter, a trader said.

The Wednesday close of books technically pushes the deal timing ahead; when announced last week, timing had the roadshow carrying into the Thursday session, although no specific stops had been scheduled for that day.

Joint bookrunner Barclays will bill and deliver.

Citigroup, Deutsche Bank, Nomura, Jefferies, RBC and Natixis are also joint bookrunners.

Dean Foods starts Wednesday

There was one roadshow announcement on Tuesday.

Dean Foods has planned an investor conference on Wednesday to roll out a $700 million offering of eight-year senior notes.

The debt refinancing deal is expected to price on Friday.

Morgan Stanley, BofA Merrill Lynch, JPMorgan, Credit Agricole and SunTrust are the joint bookrunners for the debt refinancing deal.

Busy back-to-work session

In the secondary market, even with the usual lassitude associated with post-holiday trading as people straggle back into work after a three-day weekend, compounded by continued harsh weather conditions in the northeastern United States, a trader opined that “it was an active day today. A decent amount traded for a Tuesday after a long weekend” – although his particular shop didn’t really see too much activity.

Volume, according to the Finra-Bloomberg High Yield index, grew to $2.956 billion from Friday’s $2.288 billion.

New USG moves up

The new 5½% notes due 2025 from USG “were doing pretty well,” a trader declared, seeing the bonds having gotten as good as the 102 region after pricing earlier at par.

At another desk, a trader quoted the new notes at 101¾ bid, with brisk volume of over $22 million putting them high up on the day’s Most Actives list.

The new Oshkosh 5 3/8% notes due 2025 priced later in the session and thus did not see that kind of a warm welcome. One of the traders pegged those bonds at 100¼, up from par.

He said that much of the day was spent waiting for, and then trading in, “just those two issues, really. Neither one of them was all that big, but USG did really well, and the other one is doing OK.”

Wynn sees action

Also among the recently priced issues, a market source saw the new Wynn Las Vegas 5½% notes due 2025 among the day’s more active issues, with over $17 million changing hands.

He saw those notes down 1 full point from their levels of late last week, going out at 100¼ bid.

At another desk, a trader located those bonds at 99 7/8 bid, 100 1/8 offered, but he said that was only down about ¼ point.

Wynn Las Vegas, a unit of casino giant Wynn Resorts Ltd., priced $1.8 billion of those notes at par last Wednesday after the scheduled forward calendar offering was slightly upsized from $1.75 billion.

Although the issue was officially split-rated (Ba2/BBB-/BB), traders said that it attracted some junk investor interest.

Italian gaming technology provider Gtech SpA’s recently priced 6¼% senior secured notes were seen unchanged at par on busy volume of over $22 million.

Rome-based Gtech priced $1.5 billion of the 2022 notes last Monday via its Georgia Worldwide plc unit as part of the financing for its acquisition of International Game Technology along with $600 million of 5 5/8% senior secured notes due 2020 and $1.1 billion of 6½% senior secured notes due 2025, all at par. It also priced two sizable tranches of euro-denominated secured paper.

Walter worries batter bonds

Away from the new deals, Walter Energy reported earnings on Tuesday, showing a wider-than-expected loss for the fourth quarter. The numbers then weighed on the Birmingham, Ala.-based coal producer’s debt.

One trader said the name was “lower after numbers,” placing the 9½% notes due 2019 at 62½.

That compared to levels around 66 previously, he said.

A second trader had the bonds finishing at 62¾ – a drop of more than 3¼ points – on volume of over $12 million.

Another market source saw the 8½% notes due 2021 falling to 13 bid, 13¾ offered from 13½ bid, 14 offered.

However, a trader at another desk said that issue was a quarter-point higher at 13.

For the fourth quarter, Walter reported a net loss of $1.83 per share, versus $2.79 per share the year before.

Excluding certain one-time items, the loss was $1.97 per share, still wider than the $1.65-per-share forecast by analysts polled by Bloomberg.

Revenues also missed the mark, coming in at $285.6 million.

Analysts were expecting revenue of $324.9 million.

The poor quarter was once again attributed to weak metallurgical coal prices as well as declining demand – specifically from China and Europe.

The company also provided some guidance for 2015. For the year, Walter anticipates production will be 8.5 million to 9 million tons.

The company mined 9.3 million tons in all of 2014.

A positive tone – for now

A trader said that overall “the market had a good tone, traded pretty well all day long. I think continued [mutual] fund and ETF inflows.”

However, he said that “it will be interesting to see what happens on that,” noting that “there was a pretty good back-up in Treasuries,” with the 10-year notes back to a 2.14% yield versus an even 2% at the end of last week, and the 30-year long bond at 2.72%, up from 2.58% previously, “so that may put the brakes on a little bit – but we’ll see.”

Indicators turn mixed

Statistical indicators of junk market performance were mixed for a second straight day on Tuesday. On Friday, they had been higher for a second consecutive session and for the third time in four sessions. Although the junk market was officially closed on Monday for Presidents’ Day, several indexes did publish, with mixed results.

The KDP High Yield Daily index rose by 6 basis points on Tuesday to end at 71.69 – its third consecutive gain, its fourth gain in the last five sessions and ninth advance in the last 10. On Friday, it had risen by 3 bps. The KDP index was not published on Monday.

Its yield, meanwhile, came in by 3 bps to 5.25%, its first narrowing after one widening. On Friday, the yield had, atypically, risen by 1 bp, even though the yield customarily declines as the index reading rises.

The Markit Series 23 CDX North American High Yield index saw its second successive loss on Tuesday, retreating by 1/8 point to 106 7/16 bid, 106 9/16 offered. On Friday, it had been up by 1/32 point, its second consecutive gain and its third in four sessions. However, the index did publish on Monday, when it was marginally lower.

The Merrill Lynch U.S. High Yield Master II index continued to roll along, posting its 22nd consecutive gain on Tuesday, advancing by 0.075%. It had risen by 0.085% on Friday and by 0.056% on Monday, when it published despite the market close.

The latest improvement lifted its year-to-date return to 2.045%, its 18th straight new peak level for 2015 so far and the first time it has been above the psychologically important 2% mark this year. That was up from 1.906% on Friday and from 1.963% on Monday.

Stephanie N. Rotondo contributed to this review.

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