Hovnanian prices, new notes busy, firm; new McLaren gains; Sprint up on talks report

By Paul Deckelman and Paul A. Harris

New York, July 14 – The high-yield primary market – back at work after a lengthy mid-year hiatus – closed out the first week of the year’s second half on Friday with a sizable two-part offering from homebuilder K. Hovnanian Enterprises, Inc.

Traders said that both tranches of that $840 million offering of five- and seven-year secured notes firmed smartly in active trading when they hit the aftermarket.

The traders also saw continued strength in the dollar-denominated portion of Thursday’s two-part secured five-year issue from British performance carmaker McLaren Automotive.

The Hovnanian and McLaren deals helped bring the week’s total of dollar-denominated and junk-rated new issuance up to $2.24 billion, according to data compiled by Prospect News – versus the complete lack of any such new paper the week before, ended July 7.

Away from new or recently priced issues, traders noted considerable activity on Friday in Sprint Corp. notes, which rose in tandem with the wireless provider’s shares on news reports indicating that its chairman has recently held meetings with financial heavyweights Warren Buffett of Berkshire Hathaway and cable and media tycoon John Malone, possibly concerning an investment in the underperforming telecom company.

There was upside activity among oil and natural gas credits such as Continental Resources Inc., Oasis Petroleum, Inc., California Resources Corp. and Halcon Resources Corp. in line with the continuing trend of firmer crude oil prices.

Statistical measures of junk market performance were higher for a third consecutive session on Friday.

The indicators were meantime higher across the board versus where they had finished out last Friday, July 7, when they had all been lower, after a mixed week before that.

Hovnanian prices secured deal

The July 10 week came to a somewhat ragged finish on Friday, as two issuers priced a total of four tranches, three of which crossed the finish line bearing unmistakable tread marks.

Hovnanian Enterprises, Inc. priced $840 million of senior secured notes (Caa2/CCC+) in two tranches via its K. Hovnanian unit.

The debt refinancing deal included $440 million of five-year notes which priced at par to yield 10%. The yield printed at the wide end of the 9¾% to 10% yield talk and well wide of early guidance in the 8% area.

In addition Hovnanian priced $400 million of seven-year notes at par to yield 10½%. The yield printed at the wide end of the 10¼% to 10½% yield talk and, again, well wide of initial guidance in the 9% area.

Citigroup, Credit Suisse and J.P. Morgan were the joint bookrunners for the transaction which was conducted on the investment-grade syndicate desk.

HEMA downsized, restructured

Amsterdam-based discount retailer HEMA BV priced a downsized €750 million of notes.

HEMA BondCo I BV priced a reduced, restructured €600 million issue of five-year senior secured floating-rate notes (B2/B-) at a 625 basis points spread to Euribor with no Euribor floor. The issue size was decreased from €610 million. The spread came 25 bps beyond the wide end of the 575 to 600 bps spread talk (talk also specified a 0% Euribor floor). Call protection was increased to two years from one year.

In addition HEMA BondCo II BV priced €150 million of 5.5-year senior unsecured fixed-rate notes (Caa2/CCC) with an 8 ½% coupon. Price talk was in the 8½% area.

Bookrunner Credit Suisse will bill and deliver. ABN Amro, ING, JPMorgan and RBS were also joint bookrunners.

The overall transaction size was decreased from €760 million.

DAE plans $1.9 billion

Looking to the July 17 week, DAE Funding LLC plans to start a roadshow on Monday for a $1.9 billion two-part offering of senior notes.

The structure of the notes and sizes of the tranches remain to be determined.

The acquisition financing deal, being managed by sole bookrunner Morgan Stanley, is expected to price late in the week.

DAE takes its place aboard a modest active forward calendar that also includes Jefferies Finance LLC, scheduled to begin a roadshow on Monday for a $400 million offering of seven-year senior notes (B).

Jefferies, Citigroup and HSBC are the bookrunners.

Lithia Motors, Inc. is expected to price a $300 million offering of eight-year senior notes (Ba2/BB) during the week ahead.

J.P. Morgan, U.S. Bancorp and BofA Merrill Lynch are the joint bookrunners.

And Topaz Marine SA crosses the weekend with a roadshow underway for its $375 million offering of five-year senior notes (B3/B-), a deal that has at least one foot firmly planted in the emerging markets.

Goldman Sachs, HSBC and Standard Chartered Bank are the global coordinators. First Abu Dhabi Bank and Pareto are the co-managers.

Topaz Marine, a provider of support vessels primarily for the oil and gas industry, is incorporated in Hamilton, Bermuda. The ultimate holding company is Renaissance Services SAOG, a joint stock company incorporated in Oman.

A busier week

Friday’s two-part issue from Red Bank, N.J.-based homebuilder Hovnanian brought the total of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers up to $2.24 billion on the week, pricing in seven tranches, according to data compiled by Prospect News.

As modest a number as that was, it still represented an upturn from last week, ended July 7, when no deals priced.

Last week – which had one fewer trading day than normal because debt markets in the United States were closed on Tuesday, July 4, in observance of Independence Day – was the first week this year during with zero new issue activity. The previous shutout was the week ended Dec. 30, 2016, during the traditional year-end market lull.

Last week’s lack of any new deals stood in stark contrast with the week before that, ended June 30, during which $7.26 billion priced in 14 tranches.

This week’s deals lifted year-to-date issuance for 2017 so far up to $148.43 billion in 278 tranches, running about 28.4% ahead of the $117.9 billion which had priced in 170 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Hovnanian heads higher

In the secondary market, the new Hovnanian secured notes “both traded up quite a bit,” a trader declared, seeing the 10½% notes due 2024 first trading with a 102¾ to 103 handle after pricing at par.

He later saw those notes get as good as a 103¼ to 103¾ bid context.

And he saw the 10% notes due 2022 “also doing pretty well,” trading between 102 3/8 and 102 5/8 bid.

He said that volume in the two new tranches “was also doing pretty good.”

At another desk, a trader estimated that $35 million of the 10% notes had changed hands. He saw them going out between 102 and 102¾ bid.

He reported that $36 million of the 10½% notes had traded in a range of 103 to 103¼ bid.

And yet another trader saw the five-year notes at 102½ bid, 103 offered, while the seven years were at 103¼ bid, 103½ offered.

Hovnanian plans to use the new-deal proceeds to fund its planned repurchase of several series of existing bonds – $75 million of 10% senior secured second-lien notes due 2018, $145 million of 9 1/8% senior secured second-lien notes due 2020 and $577 million of 7¼% senior secured first-lien notes due 2020.

However, a market source said that one Hovnanian issue not scheduled to be redeemed with the new-deal money – its 8% notes due 2019 – fell by 4 points on Friday, ending at just under 98 bid.

New McLarens add to gains

The new McLaren Automotive 5¾% senior secured notes due 2022 were seen continuing their upside ride on Friday, a day after the Woking, England-based performance automobile manufacturer did an upsized £564 million equivalent two-part, dual-currency offering of those notes.

A trader said that the new dollar notes had moved up by as much as 7/8 point on the session to end at 102¼ bid, versus a 101 3/8 bid level at which those bonds had gone home on Thursday after their initial aftermarket dealings.

Another trader estimated the improvement at ¾ point, pegging the bonds in a 102 to 103 bid context.

A third trader saw them circulating in a 102½ to 102¾ offered context, well up from the mid 101 levels seen in Thursday’s initial trading.

McLaren had priced $250 million of the notes at par to yield 5¾%, along with £370 million at par to yield 5%.

The overall deal size was increased from an originally announced £525 million equivalent.

The company plans to use the new-deal proceeds to fund the purchase of shares from its former chairman, Ron Dennis, and to refinance debt.

When the new dollar bonds first hit the aftermarket after pricing on Thursday, investors – starved for new paper after the prolonged new-issue drought – snapped them up. Over $44 million changed hands as the bonds settled into a 101¾ to 102 bid context.

A trader Friday that the new deals which had come from McLaren on Thursday and Hovnanian on Friday were “the first in a few days.”

Apart from two smallish add-on deals earlier in the week which really did not see much aftermarket activity, no dollar-denominated junk paper had priced since June 29, when five issuers did a total of $1.79 billion of new bonds.

While acknowledging that “we’ve had big outflows” – some $1.144 billion more left high-yield mutual funds and exchange-traded funds in the latest reporting week than came into them, according to market data reported Thursday by Thomson Reuters Corp.’s Lipper analytics division – the trader added “but you can’t find any paper around.

“Both today and yesterday [Thursday], the market has been strong.”

Sprint runs up

Away from the new-deal segment of the market, traders noted an upturn in active dealings in Sprint’s various issues.

A trader said the 8¾% bonds due 2032 were the busiest credit in the Overland Park, Kan.-based wireless carrier’s capital structure, gaining more than 1¾ points to end above 127 bid, with about $16 million traded.

Sprint’s 7 1/8% notes due 2024 gained a deuce on the day, moving up by 2 points to end at 112¼ bid on over $9 million of volume, while its 6 7/8% notes due 2028 firmed by 1¾ points to close at 111 ½ bid on volume of around $8 million.

The bonds rose in tandem with Sprint’s New York Stock Exchange-traded shares, which improved by 35 cents, or 4.27%, closing at $8.61, on volume of 42 million shares, nearly three times the usual daily handle.

The shares and bonds apparently got a boost after The Wall Street Journal reported that Sprint’s chairman, Masayoshi Son, met separately with Berkshire Hathaway chairman Warren Buffett as well as cable and media tycoon John Malone, possibly concerning an investment in the money-losing telecom company.

Details of the meetings have not been disclosed – but the Journal reported that there is a possibility that Berkshire could invest as much as $10 billion in a potential transaction concerning Sprint.

Crude boosts energy names

Elsewhere, a fifth consecutive session of surging world crude oil prices fueled continued gains in energy-sector credits.

A market source saw Continental Resources’ 5% notes due 2022 up 1 point at an even par, with over $16 million traded.

Oasis Petroleum’s 6 7/8% notes due 2022 gained 7/8 point, ending at 100 1/8 bid, while California Resources’ 8% notes due 2022 were seen 3/8 point better at 64¼ bid.

Halcon’s 6 7/8% notes due 2028 – already riding the momentum of an asset-sale announcement earlier in the week – ended up by 3/8 point at 103½ bid.

Indicators continue firming

Statistical market performance measures were higher across the board for a third straight session on Friday. After three mixed sessions, they had turned upwards on Wednesday and had continued improving on Thursday.

The indicators were meantime higher all around versus where they had finished out last Friday, July 7, when they had all been lower, after a mixed week before that.

The KDP High Yield Daily Index moved up by 9 basis points on Friday to end the day at 72.17, its third gain in a row. It had also jumped by 10 bps on Thursday and 9 bps on Wednesday, its first advance after five straight losses, including on Monday and Tuesday, when it was down by 1 bp in each of those sessions.

Its yield came in by 3 bps to finish at 5.02%, its third successive tightening. It had also narrowed by 4 bps on Thursday and by 2 bps on Wednesday, had been unchanged on Tuesday and had widened out over the four sessions before that.

Those levels compared favorably with last Friday’s 71.91 index reading and 5.05% yield.

The Markit CDX Series 28 High Yield Index also moved up for a third straight session on Friday, gaining more than 3/32 point to close at 107 7/16 bid, 107 15/32. The index had firmed by 7/32 point on Thursday and by 13/32 point on Wednesday after being unchanged on Tuesday. It had also posted gains over the two sessions before that, which in turn had followed three successive losses.

Friday’s levels were up from the previous Friday’s close at 106 21/32 bid, 106 23/32 offered.

And the Merrill Lynch North American High Yield Index saw its fifth improvement in a row on Friday, rising by 0.179% on top of Thursday’s 0.076% advance. Those five straight better sessions followed three sessions before that on the downside.

Friday’s upturn lifted the index’s year-to-date return to 5.254% from 5.066% on Thursday, establishing a new year to date peak level. It topped the old mark of 5.173%, which had been established on June 14.

For the week, the index rose by 6.09%, its first weekly gain after last week’s 0.28% loss.

With 28 weeks in the books so far this year, the index has shown improvement in 21 of them and has retreated in seven.

© 2015 Prospect News.
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