Hovnanian shops two-part secured deal; Halcon bonds jump on asset sale, note buyback plan; Frontier off

By Paul Deckelman and Paul A. Harris

New York, July 11 – Fresh off its first pricing in 10 days, the high-yield primary arena was once again quiet on Tuesday, with no additional dollar-denominated junk deals seen having gotten done during the session.

But the new-deal world was abuzz with the news that homebuilder K. Hovnanian Enterprises Inc. will do a two-part $840 million secured deal, consisting of five- and seven-year notes. Pricing is expected Thursday.

Although the proceeds from that transaction will be used to fund the repurchase of several series of the company’s existing notes, there was little trading seen in that paper.

There was also little trading seen in Monday’s lone junk new deal, the add-on to financial information provider IHS Markit Ltd.’s existing 2025 notes.

But there was plenty of trading going on, at sharply higher levels, in Halcon Resources Corp.’s 2025 paper, which zoomed on the news that the oil and natural gas company will sell a big chunk of its assets and use much of the expected $1.4 billion of proceeds from that sale to buy back half of those notes and all of another series of its outstanding bonds.

Another gainer was Rent-A-Center Inc.’s notes and shares, given a boost after the furniture rental company rejected what it called an inadequate unsolicited takeover offer.

On the downside, Frontier Communications Corp.’s paper was lower in active trading across its capital structure, in line with a slide in the telecommunications company’s shares following a 1-for-15 reverse stock split transaction.

Statistical market performance measures were mixed for a third consecutive session on Tuesday. They had turned mixed on Friday and then stayed that way Monday and Tuesday, after having been lower across the board last Wednesday and Thursday.

Hovnanian marketing $840 million

During a low volume news day in the primary market K. Hovnanian Enterprises, Inc. rolled out an $840 million two-part offering of senior secured notes (Caa2/CCC+).

The deal, which includes five-year notes with initial guidance in the 8% area, and seven-year notes with initial guidance in the 9% area, is expected to price before the end of the July 10 week.

Citigroup, Credit Suisse and JP Morgan are the joint bookrunners for the deal, which is being conducted on the investment-grade syndicate desk.

The Red Bank, N.J.-based homebuilder plans to use the proceeds to fund the purchase of $75 million 10% senior secured second lien notes due 2018, $145 million 9 1/8% senior secured second lien notes due 2020 and $577 million 7¼% senior secured first lien notes due 2020, all issued by K. Hovnanian.

The only other deal in the dollar-denominated primary market is the dollar tranche from British performance automobile manufacturer McLaren Automotive, which is making its high-yield debut with a £525 million equivalent two-part (dollars and pounds) offering of five-year senior secured notes.

The dollar tranche appears to be shaping up with a size around $300 million and with yield guidance of 5¾% to 6%, a trader said, adding that the deal is expected to price later this week.

Meanwhile the euro-denominated new issue market has a substantial calendar set to clear ahead of the coming weekend.

Amsterdam-based United Group BV is on the road with a €1.35 billion three-part offering of senior secured notes (B), including five-year fixed-rate notes and six-year floating-rate notes.

London-based private equity firm AnaCap Financial Europe SA SICAV-RAIF is in the market with a €315 million offering of seven-year senior secured floating-rate notes (BB-).

Amsterdam-based discount retailer HEMA BV plans to price €760 million of high yield notes on Thursday. The deal includes €610 million of five-year senior secured floating-rate notes (B2/B-) and €150 million of 5.5-year senior unsecured notes (Caa2/CCC).

And Maxeda DIY Holding BV, also an Amsterdam-based retailer, plans to price a €475 million offering of senior secured notes due 2022 (B2/B-) in fixed-rate and floating-rate tranches on Thursday.

Monday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Monday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs sustained $55 million of outflows on the day.

Outflows from the actively managed funds were much more substantial on Monday: negative-$265 million.

Dedicated bank loan funds were positive on the day, with $35 million of inflows.

IHS Markit add-on little seen

In the secondary realm, a trader said that he had not seen any dealings in the $300 million add-on tranche of 4¾% notes due Feb. 15, 2025 that IHS Markit Ltd. had priced on Monday, adding “I don’t think it traded a heck of a lot.”

The London-based financial information provider priced that upsized addition to its existing $500 million of the notes sold back in February at 105.5 to yield 3.882%, after the quick-to-market tap was upsized from an originally planned $250 million.

Hertz climb continues

Elsewhere among the relatively recently priced new issues, a market source saw Hertz Corp.’s 7 5/8% senior secured notes due 2022 up ¼ point on active trading of more than $10 million – enough to place it among the day’s volume leaders – closing at 100¼ bid.

The Estero, Fla.-based car-rental giant had priced $1.25 billion of those notes at par on May 31, after the regularly scheduled forward calendar offering had been upsized from an originally announced $1 billion.

Halcon heads higher

Away from those new or relatively recently priced credits, a trader said that Halcon Resources’ 6¾% notes due 2025 was the clear leader among the topical names, with over $102 million seen having changed hands, putting the Houston-based oil and gas exploration and production company’s issue right at the top of the day’s Most Actives list.

Halcon was also the biggest mover of the session, jumping some 14 points on the day to end at 102 11/16 bid, versus its previous levels trading in the upper 80s.

Halcon announced that it had agreed to sell its operated assets in the Williston Basin areas of the Bakken Shale geological formation in North Dakota to an affiliate of Bruin E&P Partners, a portfolio company of Arclight Capital Partners, for $1.4 billion in cash. The sale, effective June 1, is expected to close within 30 days.

Halcon will retain its non-operated assets in the Willison Basin as well as its other assets in the Delaware Basin formation in West Texas.

The sale is conditioned upon Halcon receiving consents from more than 50% of the holders of the 6¾% notes to amend certain provisions of the indenture governing those notes to exempt the Williston sale from provisions in the indenture triggered by such an asset sale. The company said it had reached that threshold of noteholder approval on Monday.

The sale also requires the consent of more than 50% pf the company’s common shareholders, which it said it got on Tuesday.

Halcon will use a portion of the asset sale proceeds to make an offer to purchase up to 50% of its $850 million of outstanding 6¾% notes at a price of 103 upon the closing of the asset sale and will also use a portion of the asset sale proceeds to redeem all if its $113 million of outstanding 12% second lien senior secured notes due 2022, including related prepayment premiums.

Rent-A-Center rises

Elsewhere, Rent-A-Center’s 4¾% notes due 2021 soared to end at 93 3/8 bid on Tuesday, while its 6 5/8% notes due 2020 gained 2 points, ending at just below 96 bid.

The latter bonds saw no large round-lot transactions as the former bonds did, but were boosted on numerous smallish odd-lot transactions.

The notes rose, in line with the company’s New York Stock Exchange-traded shares – up 99 cents, or 8.02% to end at $12.09, on more than four times normal volume – after the Plano, Texas-based furniture and appliance rental company rejected an unsolicited takeover offer, which it said was clearly inadequate.

Frontier issues falter

On the downside, Stamford, Conn.-based wireline telecom provider Frontier Communications’ various issues were all seen lower, with its 10½% notes due 2022 down 1 point at 92¾ bid, with over $48 million traded. Its 8½% notes due 2020 lost 1¼ point, ending at 103¼ bid, with over $20 million of volume, while its 11% notes due 2025 were down 7/8 point, at 89½ bid, with over 415 million having moved around.

The notes retreated in line with a loss of more than $1 per share, or 7%, in its common stock following the completion of a 1-for-15 reverse stock split on Monday.

Indicators stay mixed

Statistical market performance measures were mixed for a third consecutive session on Tuesday. They had turned mixed on Friday and then stayed that way Monday and Tuesday, after having been lower across the board last Wednesday and Thursday.

For a second straight day, the KDP High Yield Daily Index eased by 1 basis point on Tuesday, matching Monday’s decline, as it finished at 71.89, its fifth successive downturn. The index had also plunged by 10 bps on both last Wednesday and again on Friday, with a 5 bps loss on Thursday sandwiched in.

Its yield was unchanged on Tuesday, holding steady at 5.11%; the yield had risen by 6 bps on Monday, its s fourth consecutive widening out.

The Markit CDX Series 28 High Yield Index was also unchanged during Tuesday’s session, staying at 106 11/16 bid, 106 ¾ offered. On Monday, it had edged up by 1/32 point, its second straight firming, on top of Friday’s 7/32 point upturn. Those gains had followed three successive losses before that.

The Merrill Lynch North American High Yield Index saw its second consecutive improvement on Tuesday, rising by 0.027%, on top of Monday’s 0.063% advance, which had followed three straight session on the downside, including Friday’s 0.201% retreat.

Tuesday’s upturn lifted the index’s year-to-date return to 4.711% from Monday’s 4.683% close, although it remained below its high point for the year to date of 5.173%, recorded on June 14.

© 2015 Prospect News.
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