Primary market resumes with three dollar deals, new Downstream paper jumps; energy credits climb

By Paul Deckelman and Paul A. Harris

New York, Jan. 24 – After a one-day hiatus, new-deal pricing resumed on Wednesday in the high-yield primary market.

Syndicate sources saw three single-tranche deals totaling just over $1 billion get done during the session, in contrast to Tuesday’s complete shutout.

Commercial mortgage real estate investment firm Starwood Property Trust, Inc. had the big deal of the day, an upsized and quickly shopped $500 million issue of three-year notes.

Also driving by with an enlarged quick-to-market transaction was oil and natural gas exploration and production company Diamondback Energy Inc., which priced a $300 million add-on to its existing 2025 bonds that it had sold in late 2016.

The day’s sole regularly scheduled deal coming off the forward calendar came from tribal gaming operator Downstream Development Authority, which priced $270 million of five-year secured notes.

When they hit the aftermarket, traders said the new Downstream Development notes firmed smartly in active dealings.

Looking at recently priced deals, traders saw fairly busy volume – but precious little price movement – in the two halves of wireless service provider T-Mobile USA, Inc.’s $2.5 billion behemoth of a bond deal.

Mattel, Inc.’s eight-year notes sold at the end of last year notched handsome gains for a second straight session, even though its stocks were in retreat; both the toy manufacturer’s stock and bonds had shot up on Tuesday, buoyed on renewed market speculation that rival toymaker Hasbro Inc. might make another offer to buy Mattel, which turned a buyout bid from Hasbro away last year.

Apart from the new or recent deals, traders said that oil and gas names like EP Energy Corp. and California Resources Corp. gained on active volume, helped by what are interpreted as bullish comments from Saudi Arabian officials, as well as firmer world crude oil prices.

Statistical market performance measures turned mixed on Wednesday after having strengthened for the first time in nearly two weeks on Tuesday. The indicators had also been mixed over the previous two sessions, and have now been mixed in five out of the last eight trading days.

Starwood upsizes

In Wednesday's primary market Starwood Property Trust, Inc. priced an upsized $500 million issue of non-callable three-year senior notes (Ba3/BB-) at par to yield 3 5/8%.

The issue size was increased from $400 million.

The yield printed at the tight end of the 3 5/8% to 3¾% yield talk.

JP Morgan Securities LLC and Credit Suisse Securities (USA) LLC were the bookrunners for the debt refinancing deal.

Diamondback upsized and rich

Diamondback Energy Inc. priced an upsized $300 million add-on to its 5 3/8% senior notes due May 31, 2025 (B1/BB) at 104.00 to yield 4.522%.

The issue size was increased from $250 million.

The reoffer price came at the rich end of the 103.75 to 104 price talk.

Wells Fargo Securities LLC is the sole active bookrunner.

The Midland, Texas-based independent oil and gas company plans to use the proceeds, including the additional proceeds resulting from the $50 million upsize in the deal, to repay debt under its senior secured revolver.

Downstream at a discount

Downstream Development Authority priced a $270 million issue of 10½% five-year senior secured notes (B2/B) at 99.00 to yield 10.759%.

The coupon printed on top of coupon talk. The reoffer price came at the rich end of the 98 to 99 price talk.

The issue size was increased from $265 million.

Credit Suisse Securities (USA) LLC was the bookrunner.

Proceeds will be used to refinance the tribal gaming authority’s entire capital structure.

Waste Pro talk 5 5/8% area

Waste Pro USA Inc. talked its $450 million offering of eight-year senior notes (B3/B+) to yield in the 5 5/8% area.

The deal is set to price Thursday morning.

Lead left active bookrunner Wells Fargo will bill and deliver.

Casino Guichard-Perrachon upsizes

In the European market Casino Guichard-Perrachon SA priced an upsized €200 million add-on to its 1 7/8% notes due June 13, 2022 (Ba1/BB+) at a 120 basis points spread to mid-swaps.

The issue size was increased from €100 million.

The deal, which priced in an investment grade-style transaction, was initially talked at mid-swaps plus 125 to 130 bps.

Global coordinator and bookrunner SG CIB will bill and deliver. Natixis was also a global coordinator and bookrunner. HSBC, JP Morgan, and Santander were also bookrunners.

Mixed Tuesday flows

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

High-yield ETFs saw $54 million of inflows on the day.

However asset managers sustained $35 million of outflows on Thursday, the trader said.

Downstream deal dominates

In the secondary market, traders saw the new Downstream Development Authority 10½% senior secured notes due 2023 having jumped by several points, in very busy trading.

One quoted the new notes in a 102-to-102 5/8 bid context, while a second had them between 102¼ and 102½ bid.

At another desk, a market source pegged the Quapaw, Okla.-based tribal casino resort operator’s new deal going home at 102 ¼ bid – well up from the 99 level at which it had priced.

He said that more than $51 million of those bonds had changed hands.

One of the traders simply said “it’s secured – and with a 10½% coupon” in explaining the strong aftermarket performance.

Less action in other deals

The traders saw less activity in the day’s two other issues, which came to market considerably later in the session than the Downstream deal did.

One saw Diamondback Energy’s add-on to its existing $500 million of 5 3/8% notes due May 31, 2025, trading between 104 – its pricing level – and 104½ bid.

Another saw the bonds in a 104 1/8-to-104¼ bid context.

As for the new Starwood Property Trust 3 5/8% notes due 2021, a trader said all he saw was “a wide market” at 100 1/8-100 7/8, versus their par issue price.

A second trader expressed bemusement that a deal for a Ba3/BB- credit like the Greenwich, Conn.-based REIT’S offering could even get done yielding 3 5/8%.

“I’ll be damned,” he said. “This is just too tight.”

T-Mobile little changed

Among other recently priced issues, a trader pronounced both halves of the T-Mobile deal that priced on Monday “basically unchanged” in a 100½-to-100¾ bid range.

A second saw the 4½% notes due 2026 in a 100½-to-100 5/8 bid range, while also seeing the 4¾% notes due 2028 between 100 5/8 and 100¾ bid.

He said that around $30 million of each had traded.

That was a comedown from Tuesday, when around $160 million of each had traded, pushing the issues up slightly from Monday’s pricing level.

Bellevue, Wash.-based wireless provider T-Mobile priced $1 billion of the eight-year notes and $1.5 billion of the 10-year paper both at par on Monday in a quick-to-market offering.

T-Mobile plans to use the proceeds from its new deal to redeem up to $1.75 billion of its existing 6 5/8% senior notes due 2023 and up to $600 million of its 6.836% senior notes due 2023, with the balance to be used for general corporate purposes, including a partial paydown of the T-Mobile USA revolving credit facilities.

Mattel moves up again

For a second straight session, traders saw notable gains in Mattel, Inc.’s recently priced 6¾% notes due 2025.

A trader saw the bonds “up another 1½-to-2 points,” on top of the big gains notched on Tuesday, heading home at around 103¾bid.

And another trader saw them between 103¾ and 104.

He noted that the paper had jumped up to nearly 104 from prior levels around 99 bid “in just a couple of days.”

He said that more than $43 million of the notes had traded, locating the credit high up on the day’s Most Actives list.

On Tuesday, those bonds were seen having climbed by nearly 3 points on the session to end at 102 bid, on turnover of more than $40 million.

That followed Monday’s more than $20 million traded, when the notes had firmed by 1/8 point.

The surge in the El Segundo, Calif.-based toy manufacturer’s bonds came in tandem with an equally impressive climb in the company’s Nasdaq-traded shares – at least on Tuesday, when the stock had soared more than 10%, while volume of more than 18 million shares was nearly twice the norm.

On Wednesday, however, Mattel’s stock gave back some of Tuesday’s big gains, retreating by 49 cents, or 2.76%, to close at $17.27, on volume of around 9.5 million shares, or slightly less than usual.

There was no fresh concrete news out on the company that might explain the two-day bond bounce.

News reports Tuesday had indicated the shares rose smartly that session on market scuttlebutt that rival toymaker Hasbro Inc. may make another offer to acquire Mattel, which spurned a previous takeover bid in November.

Mattel sold $1 billion of the 6 ¾% paper in one of the last deals of 2017, pricing them at par in a regularly scheduled transaction on Dec. 15.

The bonds have mostly languished at or below their issue price for most of the time since then.

Energy names up on Saudi comments

Away from the new or recently priced deals, traders said that oil and natural gas names such as EP Energy, were actively traded on Wednesday, after Saudi Arabian representatives at the World Economic Forum in Davos, Switzerland made what traders described as positive comments about Saudi oil giant Saudi Aramco and shale production.

“They are going to IPO Saudi Aramco when the time is right,” a trader said. “They are not looking to increase production soon. They want to keep a balance and push crude oil higher. It seemed like a disciplined response from the Saudis.”

The Houston-based oil and gas exploration and production company’s 9 3/8% notes due 2024 closed at 87¼ bid, rising a point from the previous day. More than 56 million traded – the most active credit of the day.

Other energy names also picked up steam throughout the day, such as Plano, Texas-based Denbury Resources Inc., whose 6 3/8% notes due 2021 shot up by 2 points to end the day at an even 84 bid, according to a market source.

He also saw the company’s 5½% notes due 2022 fall ¼ point to close at 79½ bid.

California Resources was another actively traded energy name.

The Los Angeles-based oil and gas production company’s 8% notes due 2022 climbed ¾ point to finish at 87¼ bid, racking up over $28 million of trades on Wednesday, while is 6% notes due 2024 remained steady at 76½ bid.

The spike in energy credits came against a backdrop of sharply higher world crude oil prices.

Benchmark domestic grade West Texas Intermediate crude for March delivery surged by $1.14 per barrel in New York Mercantile Exchange dealings, settling at $65.61, while the March contract for the key international grade, North Sea Brent crude, gained 57 cents per barrel in London futures dealings, to $70.53.

It was the third consecutive day of higher crude futures prices for both grades, which had each also risen by 90 cents and 93 cents per barrel, respectively, on Tuesday.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday after having strengthened for the first time in nearly two weeks on Tuesday. The indicators had also been mixed over the previous two sessions and have now been mixed in five out of the last eight trading days.

The KDP High Yield Daily index rose by 5 basis points on Wednesday to close at 71.96, after having ended unchanged on Tuesday and having suffered four consecutive losses before that, including Monday’s 3-bps easing. The index had also plunged by 10 bps last Thursday and another 8 bps on Friday.

Its yield came in by 3 bps, to 5.24% on Wednesday, after having also been unchanged Tuesday. Before that, it had widened out over four straight sessions, including Monday’s 1 bps rise.

But the Markit CDX Series 29 index dropped by almost 5/32 point on Wednesday, ending at 108 19/32 bid, 108 21/32 offered, after having advanced over the previous three consecutive sessions, including 1/8 point gains on both Monday and Tuesday.

The Merrill Lynch High Yield index put up its third gain in as many days on Wednesday, improving by 0.044%, on top of Tuesday’s 0.162% rise. It was also up by 0.063% on Monday. Those gains follow three straight sessions before that on the downside, including Friday’s 0.06% easing.

Wednesday’s advance raised the index’s year-to-date return to 0.885% from 0.841% on Tuesday.

That also established a new peak YTD level for the year so far, surpassing the old mark of 0.862%, set back on Jan. 8.

James McCandless contributed to this review

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