Equinix, LifePoint, ABC, Constellation lead $3 billion day; Sally softens; funds lose $1.36 billion

By Paul Deckelman and Paul A. Harris

New York, Nov. 19 – Activity in the high-yield primary arena ramped up on Thursday as six issuers brought a total of just under $3 billion of new U.S. dollar-denominated, fully junk-rated paper to market – four times the $750 million which got done in one tranche on Wednesday.

It was, in fact, the busiest new-issue session Junkbondland had seen since Nov. 3, when $7 billion of such new paper from domestic or industrialized-country issuers had priced.

Opportunistically timed and quickly shopped drive-by offerings were the dominant feature as issuers scrambled to get their deals done before the inevitable lull that will set in in the run-up to next Thursday’s Thanksgiving Day holiday in the United States.

The big deal of the day was interconnection and data center operator Equinix Inc.’s upsized $1.1 billion of 10-year notes.

There were also somewhat smaller quick-to-market transactions involving healthcare services provider LifePoint Health, Inc., alcoholic beverage supplier Constellation Brands, Inc. and building materials company ABC Supply Co., Inc.

Off the forward calendar, oil and natural gas operator American Energy-Permian Basin LLC finally priced its $530 million five-year secured notes, one full month after the deal first surfaced in the junk market.

Airline operator Virgin Australia Holdings Ltd. chimed in with a scheduled but upsized $100 million add-on to its existing 2019 notes.

In the aftermarket, traders saw solid gains in the new Equinix, ABC Supply and Constellation bonds, with more modest gains for LifePoint. All traded actively.

They also saw slightly lower levels, though also on busy volume, in Wednesday’s 10-year offering from Sally Beauty Holdings, Inc.

Away from the new deals, Chesapeake Energy Corp.’s bonds plunged in active trading on lower oil prices, leading the whole sector down.

Statistical measures of junk market performance turned lower across the board on Thursday after having been mixed on Monday and again on Wednesday and higher all around on Tuesday.

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed major net redemptions by investors for a second straight reporting week, as some $1.357 billion more left those weekly-only reporting funds in the latest week than came into them.

Equinix upsizes

The new issue market sprang awake on Thursday after sleep-walking through the first three sessions of the week.

Six issuers priced a tranche of junk apiece to raise a combined total of $2.98 billion.

Four of the six deals came as a.m.-to-p.m. drive-bys.

Three of the six were upsized while one was downsized.

Executions appeared solid, as four of the six issuers priced their offerings at the tight or rich ends of talk, while the other two deals came in the middle of talk.

And Thursday’s activity cleared the active calendar.

Equinix priced an upsized $1.1 billion issue of 10-year notes (B1/BB) at par to yield 5 7/8%.

The issue size was increased from $1 billion.

The yield printed in the middle of the 5¾% to 6% yield talk and on top of initial guidance in the high 5% yield context.

J.P. Morgan, BofA Merrill Lynch, Citigroup and RBC were the joint bookrunners for the acquisition deal.

American Energy gets done

American Energy – Permian Basin priced a downsized, restructured $530 million issue of five-year senior secured first-lien notes (B2/B) at par to yield 13%.

The deal was reduced from $560 million.

The yield printed on top of final yield talk.

Call protection was increased to three years from two years; the notes become callable after three years at par plus the full coupon.

The term of the equity clawback was extended to three years from two years.

The deal kicked off in mid-October and spent much of the intervening time on the sidelines of the high-yield primary market as price talk increased from initial guidance in the 9% area.

There were also covenant changes.

Goldman Sachs was the left bookrunner. Jefferies and BofA Merrill Lynch were the joint bookrunners.

The Oklahoma City-based independent oil and gas company plans to use the proceeds to repay all borrowings currently outstanding under its revolver, the amount of which was $201 million as of Sept. 30, 2015 but had risen to $305 million by Monday.

Proceeds will also possibly be used to fund the remaining portion of the pending acquisition of Enduring Resources LLC.

Any additional proceeds will be used to fund drilling and completion activities, for infrastructure development and for general corporate purposes.

LifePoint upsized and tight

LifePoint Health launched and priced an upsized $500 million issue of eight-year senior notes (Ba2/BB-/BB) at par to yield 5 7/8%.

The issue size was increased from $300 million.

The yield printed at the tight end of yield talk that was announced in the 6% area.

It seemed to be no problem for LifePoint to upsize its deal and price it tight on a day that saw its share price drop nearly 7%, a sellside source observed. LifePoint’s stock actually closed 6.88% lower on Thursday, at $69.06 per share, down $5.10 on the day.

Citigroup, Barclays, BofA Merrill Lynch, Goldman Sachs, J.P. Morgan and UBS were the joint bookrunners.

The Brentwood, Tenn.-based health care services provider plans to use the proceeds for general corporate purposes, including acquisitions, and for share repurchases from time to time.

Constellation Brands’ 4¾% print

Constellation Brands priced a $400 million issue of 10-year senior bullet notes (Ba1//BB+) at par to yield 4¾%.

The yield printed at the tight end of the 4¾% to 4 7/8% yield talk.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan, Rabo, Wells Fargo, SunTrust and MUFG were the joint bookrunners for the acquisition deal.

One sellsider kept a weather eye on the transaction as a gauge of how rich a deal from an on-the-run upper-tier credit could be.

As the dust settled Constellation’s 4¾% print was 12.5 basis points from this banker’s balk line of 4 5/8%.

It does not seem possible, at present, for a high-yield issuer to achieve a lower print than that, the banker remarked, adding that nine months ago it might have been possible for an issuer such as Constellation to print a deal as low as the 4 3/8% area.

The deal was trading above its issue price at Thursday’s close, according to a trader who had the new Constellation 4¾% notes at par 7/8 bid, 101 offered.

ABC Supply drives by

ABC Supply priced a $350 million issue of eight-year senior notes (B3/BB-) at par to yield 5 7/8%.

The yield printed at the tight end of talk for a yield in the 5 7/8% area.

Deutsche Bank, BofA Merrill Lynch and RBC were the joint bookrunners for the debt refinancing deal.

Virgin Australia upsized, rich

Virgin Australia Holdings priced an upsized $100 million add-on to its non-callable 8½% senior bullet notes due Nov. 15, 2019 (B3/B-) at 100.5 to yield 8.348%.

The issue size was increased from $50 million.

The reoffer price came at the rich end of the 100 to 100.5 price talk.

Goldman Sachs was the bookrunner.

The Brisbane, Australia-based airline plans to use the proceeds to build additional dollar-denominated liquidity and meet its dollar-denominated financing obligations.

GM Financial brings crossover

In the crossover market General Motors Financial Co., Inc. sold $1 billion of 3.7% five-year senior notes (Ba1/BBB-/BBB-) on Thursday with a spread of 205 basis points over Treasuries.

Pricing was at 99.928 to yield 3.716%.

The notes sold at the tight side of guidance set in the range of Treasuries plus 205 bps to 210 bps and tighter than initial talk set in the 215 bps to 220 bps range over Treasuries.

A floating-rate tranche was dropped prior to the deal’s launch.

Barclays, BNP, Citigroup, Credit Suisse, Deutsche Bank and RBC were the joint bookrunners.

LifePoint trades busily

In the secondary market, traders saw LifePoint Health’s new 5 7/8% notes due 2023 topping the high-yield market’s Most Actives list, with one market source seeing volume of more than $80 million of the new bonds. He pegged the paper just slightly above its par issue price at 100 1/8 bid.

A second trader located the notes in a 100 1/8 to 100¼ bid context.

But at another desk a trader was quoting the new paper around 100¾ bid, 101¼ offered.

Equinix improves

The day’s biggest transaction – Equinix’s 5 7/8% notes due 2025 – traded actively when it was freed for secondary dealings.

A trader saw the Redwood City, Calif.-based interconnections and data center operator’s new bonds at 101¼ bid right out of the gate after having priced at par, and the surge continued from there.

A second trader quoted the notes at 100 1/8 bid, saying some $68 million had changed hands.

One of the traders saw the notes trading between 101 and 102 bid although another had them a little later on in a 100¾ to 101 bid range.

Constellation climbs

Constellation Brands’ new 4¾% notes due 2025 “saw good movement” when they were freed for trading, one of the market participants said.

He quoted the Victor, N.Y.-based beer, wine and spirits producer, importer and distributor’s issue at 101 bid, 101½ offered, up from their par issue price.

Another trader saw the notes at 101¼ bid, on volume of over $38 million.

ABC Supply up in trading

ABC Supply’s 5¾% notes due 2023 were trading in a 101 to 101¼ bid context, a trader said, after the building materials supplier’s quickly shopped new issue had priced at par.

A second trader, though, saw the bonds bouncing around between 101 and 102 bid, with over $24 million of the notes having changed hands.

Yet another trader quoted the notes later on moving around in a 100¾ to 101 bid context.

The traders meantime did not see any initial dealings in the late-pricing American Energy-Permian Basin offering.

Sally Beauty softens

Traders meantime saw Sally Beauty Holdings’ new 5 5/8% notes due 2025 slightly off the levels they notched in initial aftermarket dealings after those bond priced at par on Wednesday.

One trader saw the notes around 101½ bid, noting that “it had been a little better [Wednesday], maybe around 101¾ to 102.”

More than $57 million of the Denton, Texas-based beauty supplies wholesaler and retail distributor’s $750 million drive-by issue was seen trading around on Thursday, with one market participant calling the notes down 1/8 point at 101 5/8 bid

Chesapeake leads oils lower

Away from the new deals, a trader said that Chesapeake Energy’s bonds “took it on the chin today. Some of the longer end of the structure was down 6 or 7 points,” pulled down as oil prices edged closer towards $40 a barrel.

He also cited “rumors that maybe a second-lien deal was coming.”

“Chesapeake was getting clobbered,” a second trader said, “particularly on the short end.”

The 7¼% notes due 2018 declined 7¾ points to 57¾, while the 6½% notes due 2017 dropped 8½ points to 74¼, he said.

Among the Oklahoma City-based oil and gas company’s other issues, the 5¾% notes due 2023 were deemed “very active,” trading down more than 3½ points to 44 3/8. The 6 5/8% notes due 2020 weakened 3 points to 49½, as the 4 7/8% notes due 2022 fell 3½ points to 44.

The 3.57% notes due 2019 closed down nearly 5 points at 46¼, he said.

Another market source pegged the 6 5/8% notes at 49¼ bid, down 5¼ points on the day.

At another shop, a trader said the name was “down a bunch depending on what maturity.” Losses totaled 5 to 10 points, he said, though “they did recover a bit from the lows of the day.”

Meanwhile, the rest of the oil and gas space was also under pressure.

Halcon Resources Corp.’s 8 5/8% notes due 2020 waned almost 3 points to 81¾, according to a trader.

Denbury Resources Inc.’s 6 3/8% notes due 2021 also took a hit, losing over 5 points to end at 63½.

In California Resources Corp. paper, the 5% notes due 2020 dropped 2½ points to end at 62¼, while the 6% notes due 2024 dove 4 points to 56¾.

The 5½% notes due 2021 fell 2¾ points to 58¼.

Indicators turn lower

Statistical measures of junk market performance turned lower across the board on Thursday, after having been mixed on Monday and again on Wednesday and higher all around on Tuesday.

It was the indicators’ third lower session in the past six trading days.

The KDP High Yield Daily Index plunged by 23 basis points to finish at 65.83, its second straight loss and its eight downside finish in the last nine sessions, including Wednesday, when it eased by 2 basis points.

Its yield moved up by 5 bps to close at 6.89, after having been unchanged on Wednesday and lower on Tuesday – its first narrowing after seven straight sessions during which it had widened.

The Markit Series 25 CDX North American High Yield Index saw its first loss after two straight gains, falling by 13/32 point to end at 101 11/16 bid, 101¾ offered. It was the index’s first loss after three straight gains, including Wednesday’s 11/32 rise.

The Merrill Lynch North American Master II High Yield index fell by 0.355%, after having retreated by 0.103% on Wednesday and having gained 0.354% on Tuesday, which had been its first such rise after three straight setbacks.

The index’s year-to-date loss widened to 1.919% from 1.569% on Wednesday. But those year-to-date losses still remain well above the index’s worst 2015 cumulative setback of 3.069%, recorded on Oct. 2.

Second straight outflow

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed major net redemptions by investors for a second straight reporting week, as some $1.357 billion more left those weekly-only reporting funds in the latest week than came into them (see related story elsewhere in this issue).

-Stephanie N. Rotondo contributed to this review

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