TerrraForm drives by, WPX deal slates, Charter junk seen ahead; RKI, Micron up on M&A talk

By Paul Deckelman and Paul A. Harris

New York, July 14 – The high-yield primary – which on Monday finally broke out of its long pricing drought and brought its first new deal to market since late June – made it two in a row on Tuesday, pricing its second deal in as many sessions.

Clean-energy producer TerraForm Power Operating LLC’s quickly shopped $300 million of 10-year notes surfaced too late in the session for any kind of real aftermarket, traders said.

But there was ample trading in Monday’s breakthrough issue, from insurance claim software provider Audatex North America, Inc. That add-on to its 2023 notes traded right around its issue price of slightly below par – bur well down from the levels that the existing notes had occupied before the drive-by add-on offering had come to market.

Apart from the issues which have actually priced syndicate sources said that the forward calendar was once again building.

They saw WPX Energy, Inc. starting a roadshow for a planned $1.2 billion two-part offering, likely to price at the end of the week.

They also heard that Charter Communications Inc. – last seen bringing a giant-sized multi-tranche, split-rated offering that was mostly of interest to high-grade investors rather than to traditional junk bond accounts – will soon show up with a $3.5 billion pure junk offering, as part of the financing for its acquisition of Time Warner Cable Inc.

Proceeds from WPX’s new issue are slated to be used to help fund the acquisition of fellow Oklahoma-based oil and natural gas producer RKI Exploration & Production LLC. That company’s bonds meantime jumped more than a dozen points in busy trading on the news the company will be bought.

Merger and acquisition activity was also seen helping the bonds of computer chip maker Micron Technology, the reported buyout target of Tsinghua Unigroup Ltd., although that Chinese company has not officially declared its intentions yet.

Statistical market performance measures were unchanged to higher Tuesday, their fourth straight stronger session.

TerraForm prices tight

Primary market news volume picked up on Tuesday as deals were announced and priced.

In drive-by action, TerraForm Power priced a $300 million issue of “green”-eligible senior notes due June 15, 2025 (B1/BB-) at par to yield 6 1/8%.

The yield printed at the tight end of yield talk that had been set in the 6¼% area.

The book was said to be three-times to four-times oversubscribed, according to a trader who added that allocations were notably cut back relative to order sizes.

The deal appeared to be trading well in the secondary market, with the notes changing hands at 101½ bid, 102 offered, the trader said.

However sources were chalking up that strong performance, in part, to a higher than anticipated market concession on the part of TerraForm.

Citigroup, Morgan Stanley, Barclays, BofA Merrill Lynch, Goldman Sachs and Macquarie were the joint bookrunners.

The Bethesda, Md.-based clean power company plans to use the proceeds to fund a portion of the acquisition of Invenergy Wind, LLC, a Chicago-based developer of large-scale renewable and other clean energy generation facilities.

TerraForm Power also plans to use some proceeds to finance other eligible green projects.

WPX starts roadshow

By Tuesday’s close the primary market was seeing at least a modicum of an active calendar: four tranches from three prospective issuers totaling $1.98 billion.

WPX Energy began a roadshow on Tuesday for a $1.2 billion two-part senior bullet offer (existing ratings Ba1/BB).

The deal, to fund an acquisition and to refinance related debt, includes tranches of five-year notes which are being guided in the high 6s to 7% and eight-year notes guided in the low-to-mid 7s.

Tranche sizes remain to be determined.

Bookrunner Barclays will bill and deliver. Other syndicate names are expected to be announced.

The roadshow wraps up on Thursday and the deal is set to price subsequently.

The calendar

Elsewhere the new deal calendar hosts another pair of announced dollar-denominated deals expected to clear before Friday’s close.

Exterran Holdings Inc. is marketing $400 million of seven-year notes (B1/BB-) which are coming with early guidance of 8% to 8¼%, a trader said.

And Eldorado Resorts, Inc. is marketing $375 million of eight-year senior notes (Caa1/B-).

That deal is in the market with initial guidance of 7% to 7¼%, according to a trader, who added that it appears to be facing some headwinds at those levels.

A lot of investors seem more interested in Eldorado at 7¾% to 8%, the source added.

Apart from those, there could be a couple of drive-by deals before the end of the week, pending market conditions, sources say.

An earnings blackout looms, but a couple of issuers might try to get in before the gate closes, market conditions permitting, a debt capital markets banker said on Tuesday.

Issuers and dealers continue to size up those conditions, a trader said, noting that, as mentioned above, TerraForm, which appeared to come in a solid execution, made a higher-than-expected concession to market conditions.

Also the Audatex/Solera $850 million add-on to the 6 1/8% senior notes due Nov. 1, 2023 (B1/BB-), which priced Monday, struggled to get done, sources said.

The deal was restructured, with a proposed 10-year tranche withdrawn, and the notes, which priced at 99.5, came cheap to talk of par to par and a half.

Nor did the deal go anywhere in particular in Tuesday secondary market trading, sources said, marking the add-on notes at 99 5/8 bid at the close.

Charter’s junk piece

Trailing last week’s $15.5 billion split-rated secured notes execution in the investment-grade market, Charter Communications is expected to show up in the junk bond new issue market with a $3.5 billion offering of senior unsecured notes in the week ahead, according to market sources.

Early price whisper has the deal shaping up with a yield in the low 6% context.

Credit Suisse is expected to lead.

As with last week’s investment-grade offer, the Stamford, Conn.-based provider of cable, internet and phone service plans to use the proceeds from the upcoming junk bond deal to help fund acquisition of Time Warner Cable Inc.

SoftBank sets roadshows

The euro-denominated market also appeared to flicker to life on Tuesday.

Tokyo-based telecommunications company SoftBank Group Corp. (Ba1/BB+) mandated Deutsche Bank and Goldman Sachs International to arrange meetings with fixed-income investors in Asia and Europe beginning on Wednesday, according to a market source.

A Regulation S offering of dollar- and euro-denominated notes will possibly follow, pending market conditions.

ETFs see big inflows

Cash flows for dedicated high-yield funds were mixed on Monday, the most recent session for which data was available at press time, sources said.

However high-yield ETFs saw big inflows.

The ETFs took in $730 million on Monday.

Actively managed funds, meanwhile, saw $5 million of outflows.

The funds are tracking $581 million of aggregate inflows for the reporting period spanning last Thursday’s open to Monday’s close, a trader said.

TerraForm comes to market

In the secondary arena, a trader said that he didn’t see much of the new TerrraForm 6 1/8% notes due 2025, citing the relative lateness of the hour at which the clean-energy company’s new deal had priced.

At another desk, though, a trader said some of the bonds were trading around. He saw them going home around 101¾ bid, well up from their par issue price

Audatex active around issue

Audatex North America’s 6 1/8% notes due 2023 “were trading around 99½,” a market source said – the same level at which the company had priced its $850 million add-on to its existing notes on Monday.

“They haven’t moved too much throughout the day,” he said.

At another shop, the bonds were quoted up perhaps 1/8 point at 99 5/8 bid.

Another trader also saw the bonds at 99½, on heavy volume of over $36 million, making the credit the most actively traded pure junk bond of the day.

But he noted that while it was unchanged from where the add-on deal had priced on Monday, those levels were down more than 2½ points from the 102ish levels at which the notes had traded last week and on Monday before they priced.

Audatex – a wholly owned indirect subsidiary of Solera Holdings, Inc., a Westlake, Texas-based provider of software and services to the automobile insurance claims processing industry – priced its quick-to-market deal at 99.5 to yield 6.201% on Monday after the transaction was restructured. An originally planned tranche of new 10-year senior unsecured notes was abandoned, leaving just the $850 million add-on to the existing 6 1/8% notes.

The new notes will be immediately fungible with the existing notes and will carry the same indenture terms.

Audatex originally sold $340 million of the 6 1/8% notes in 2013, pricing them at par in a quick-to-market transaction on Oct. 27 of that year, along with a $510 million add-on to its existing 6% senior notes due June 15, 2021.

It priced another $225 million of the 6 1/8% notes, along with another $175 million of the 6% 2021 notes, in a second quick-to-market transaction on Nov. 12, 2014, with those 2023 add-on notes pricing at 104.5 to yield 5.48%.

RKI rallies on sale

The news that WXP Energy is doing a big new deal hurt the Tulsa, Okla.-based oil and natural gas exploration and production company’s existing paper.

Its 6% notes due 2022 lost 1¾ points to end at 95¾ bid, a market source said.

However, he saw the bonds of RKI Exploration & Production – the Oklahoma City-based oil and gas company that WXP is acquiring using the bond deal proceeds plus the proceeds from offerings of common equity and convertible mandatory preferred shares – jumping more than 12 points to 111½ bid, on volume of over $16 million.

M&A moves Micron

Away from the new issues, M&A was also the key driver behind a rise in Micron Technology’s bonds.

A trader said that “Micron got a little pop on rumors there was an offer out for the company.”

China’s Tsinghua Unigroup Ltd. was reported to be readying a bid for the Boise, Idaho-based computer chip manufacturer, although nothing is official yet.

Micron’s 5½% notes due 2025 pushed up to a 95½ to 96 bid context, a gain of 1½ to 2 points on “decent volume,” the trader said, adding that “we’ll see it that [advance] sticks.”

A second trader pegged those bonds at 95¾, up 1¾ points on volume of over $30 million.

He also saw the company’s 5 5/8% notes due 2026 having firmed to 95¼ bid, with over $16 million having changed hands.

Its 5¼% notes due 2023 rose by more than 1 1/8 points to just under 96½ bid, on over $11 million of volume

News reports say Tsinghua Univision’s planned offer values Micron at $23 billion – although analysts say that’s probably too low.

The deal may also raise eyebrows on Capitol Hill and at the Pentagon, which will examine the national security implications of a Chinese state-owned company buying an American computer chip maker and gaining access to its patents and other intellectual property

Micron sector peer Advanced Micro Devices’ 7¾% notes due 2020 were up 1 3/8 points at 77 1/8 bid.

Oil up but bonds little moved

Elsewhere, the news that the United States and other western powers had reached a deal with Iran regarding its nuclear power program initially sent crude oil prices skidding more than 2% in morning trading, with commodities investors fearful that the deal would mean that economic sanctions against Tehran would soon be lifted, leading to a flood of Iranian oil onto an already glutted market.

But by later on in the day, a trader said, prices had recovered.

“Maybe the supply concerns are already priced in – and also, the timing is a little further off. It’s not going to be tomorrow.”

By the end of the day, benchmark West Texas Intermediate crude for August delivery had more than made up for its early weakness on the New York Mercantile Exchange, going home at $53.04 per barrel, up 84 cents on the day.

“But the E&P space [in the junk bond market] was not moving in sync with it [the rise in oil prices],”the trader said.

He saw California Resources’ paper “not really moving around too much.”

The Los Angeles-based energy E&P name’s bellwether 6% notes due 2024 were in an 83 to 84 context, about where they had finished on Monday.

A trader saw Linn Energy’s debt, such as its 6¼% notes due 2019, holding in the low 70s, with that issue having traded over $15 million.

“Most of their issues were between 68 and 73 bid.”

He saw the company’s 7¾% notes due 2021 going out at 71½ bid, “down about a point from where they were yesterday [Monday],” he said.

Indicators unchanged to higher

Statistical market performance measures were unchanged to higher Tuesday, their fourth straight somewhat stronger session.

The KDP High Yield Daily Index was off by 1 basis point on Tuesday at 69.94, after having risen by 9 bps on Monday.

Its yield meanwhile was unchanged on Tuesday, after having come in by 5 bps on Monday.

The Markit Series 24 CDX North American High Yield Index was also unchanged on the day, at 106 23/32 bid, 106¾ offered. On Monday, it had firmed for a third straight session, rising by 5/16 point.

The Merrill Lynch North American Master II High Yield Index rose by 0.042%, its fourth straight session on the upside. It had risen by 0.149% on Monday.

Tuesday’s gain lifted its year-to-date return to 2.58% from 2.537% on Monday, although it remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so.

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