United Natural, Shift4 price; Ligado on deck; Rolls-Royce in demand; funds add $2.2 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 15 – The domestic high-yield primary market slowed its pace on Thursday with two issuers pricing a cumulative $950 million.

United Natural Foods Inc. priced an upsized $500 million issue of eight-year senior notes (B3/CCC+) and Shift4 Payments, LLC priced a $450 million issue of six-year senior notes (B2/B).

However, the domestic primary market may see an active end to the week with Ligado Networks LLC expected to price its $3.85 billion two-part offering of secured PIK notes.

The terms on the deal have widened substantially since it was first announced.

Meanwhile, the secondary space was soft on Thursday as hope for a pre-election stimulus package dissipated and unemployment numbers continued to come in above expectations.

However, general trading volume was light amid the weakness in the market with new paper dominating the tape.

Rolls-Royce plc’s newly priced 5¾% senior notes due 2027 (Ba3/BB-/BB+) were active, though.

While the notes were trading off their highs, they maintained a large premium in high-volume activity.

However, Freedom Mortgage Corp.’s 7 5/8% senior notes due 2026 (B2/B-/B+) fell flat in the aftermarket.

Restaurant Brands International, Inc.’s 4% senior secured second-lien notes due 2030 (B2/B+) were active following Wednesday’s $1.5 billion add-on.

The notes were trading largely in line with their reoffer price, a source said.

Meanwhile, dedicated bond funds continued to see money enter the space.

Mutual and exchange-traded funds had $2.204 billion of inflows in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flow report.

It was the second consecutive week of substantial inflows, which pared losses from the previous two consecutive weeks of outflows.

Thursday’s primary

Two issuers priced single dollar-denominated tranches, as the pace of the primary market slowed a bit on Thursday.

The day's take: $950 million.

Both deals had run brief roadshows.

United Natural Foods priced an upsized $500 million (from $400 million) issue of 6¾% eight-year senior notes (B3/CCC+) at the tight end of talk.

Half the deal was spoken for in reverse inquiry, a trader said.

And Shift4 Payments priced a $450 million issue of 4 5/8% six-year unsecured notes (B2/B) also at the tight end of talk.

A calendar is in place for Friday (see related stories in this issue).

Ligado eyed

Ligado Networks is expected to price $3.85 billion of secured PIK notes in two bullet tranches before the weekend.

The revised deal features $2.85 billion of three-year non-callable first-lien PIK notes (Caa1) being marketed with a 15½% all-PIK coupon at par. The deal was announced earlier with guidance of 13%, envisioning a coupon that would be 9% PIK and 4% cash, at OID 96.

The revised deal also includes $1 billion of 3.5-year (from four-year) non-callable second-lien PIK notes being marketed with a 17½% all-PIK coupon at OID 75. The second-lien deal was earlier announced with a tenor of four years, and initial guidance that would have set the coupon 300 basis points behind the first-lien notes, at OID 96.

The Ligado deal has a following among large distressed funds that have maintained an outlook that the company will ultimately be positioned to put in place a low-power terrestrial nationwide network in the L-Band to support 5G, a trader said.

However, the Federal Communications Commission's April approval clearing the way for Ligado's acquisition of the spectrum is being contested by the Department of Defense which asserts that the network might interfere with critical GPS signals.

Investors believe that Ligado will ultimately prevail, and acquire the spectrum, and expect that the company will subsequently flip it, the trader said.

“It would fold nicely into Verizon,” the source asserted.

That being said, there is an element of “look-out-below” in the deal, the trader noted, explaining that a number of present first-lien creditors, also PIK debt holders, are heard to be trying to roll into the new deal on the possibility that if strong demand for the new notes ensues they'll be able to sell into a rally and possibly get out of the name, altogether.

It's not a solid book to begin with, the trader said.

“This deal could be nasty on the break.”

Rolls-Royce in focus

Rolls-Royce’s 5¾% senior notes due 2027 were the top traded issue of Thursday’s session.

While the notes were coming in from their highs, they were still trading with a healthy premium.

The 5¾% notes were changing hands in the 101½ to 101 7/8 context heading into Thursday’s close, a market source said.

There were more than $103 million of the bonds on the tape during the session.

The notes hit the aftermarket strong after breaking for trade, closing out the previous session at 102 1/8 bid.

While the notes priced tight to talk, the no-call structure helped drive demand for the notes, a source said.

Rolls-Royce priced a £1.99 billion equivalent of senior bullet notes (Ba3/BB-/BB+) in three tranches on Wednesday.

The deal included a $1 billion tranche of the 5¾% notes, which priced at par.

Pricing came tight to talk in the 6% area. Initial talk was in the 6¼% area.

The offering also included a €750 million tranche of long five-year notes that priced at par to yield 4 5/8% and a £545 million tranche of seven-year notes, which priced at par to yield 5¾%.

Freedom Mortgage flat

Freedom Mortgage’s new 7 5/8% senior notes due 2026 fell flat in the aftermarket.

The notes were changing hands in the par to par 3/8 context heading into Thursday’s close.

While the 7 5/8% notes had a strong break on Wednesday and immediately traded up to par ¾ bid, 101 offered, they quickly came in, a source said.

They closed out Wednesday’s session at par bid, par ¼ offered.

The Mount Laurel, N.J.-based non-bank mortgage company, “has always been the unloved child of its peer group,” a source said.

Freedom Mortgage priced an upsized $600 million, from $500 million, issue of the 7 5/8% notes at par on Wednesday.

Pricing came at the tight end of the 7 5/8% to 7¾% yield talk. Early guidance was in the high 7% area.

Restaurant Brands active

Restaurant Brands’ 4% senior secured second-lien notes due 2030 (B2/B+) were active on Thursday after the company priced a $1.5 billion add-on.

While down from their previous levels, the notes were trading largely in line with their reoffer price, a source said.

The 4% notes were trading in the par to par ¼ context throughout Thursday’s session.

There was $36 million on the tape.

Restaurant Brands priced an upsized $1.5 billion, from $1 billion, add-on to the 4% notes at par in a Wednesday drive-by.

Pricing came on top of talk for a reoffer price of par.

The 4% notes were previously trading on a 101-handle.

Indexes down

Indexes were down on Thursday after a mixed week.

The KDP High Yield Daily index fell 13 basis points to close Thursday at 66.72 with the yield now 5.42%.

The index was up another 6 bps on Wednesday and 7 bps on Tuesday.

The ICE BofAML US High Yield index dropped 34.4 bps with the year-to-date return now 0.909%.

The index was down 4.2 bps on Wednesday after gaining 23.3 bps on Tuesday.

The CDX High Yield 30 index dropped another 16 bps to close Thursday at 105.84.

The index was down 16 bps on Wednesday and 13 bps on Tuesday.

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