European primary active; WeWork deal ‘leaves a sour taste’; Sprint up on merger talk

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 27 – While no new dollar-denominated deals have priced since Wednesday with the market in the heart of an earnings season blackout, several are expected for the coming week.

Neptune Energy has been roadshowing a $500 million offering for which marketing is expected to wrap up on May 1.

The European primary market remained active on Friday with Tele Columbus AG and Perform Group Ltd. pricing deals.

The secondary market closed the week on a firm footing after a couple of volatile days, a source said.

However, WeWork Cos. Inc.’s newly priced 7 7/8% senior notes due 2025 (Caa1/B+/BB-) continued to sink lower with the notes seen more than 2 points below their issue price in high volume trading.

The deal “leaves a sour taste,” a market source said.

While WeWork dominated secondary market activity on Friday, Sprint Corp.’s 7 5/8% senior notes due 2026 (B3/B) were also major volume movers with the notes up 3 points on reports that a merger agreement with T-Mobile was imminent.

Of the deals that priced over the past week, Jagged Peak Energy Inc.’s new notes continued to see improvements while new notes from Netflix and Flora Food Group were slightly weaker.

Tele Columbus upsizes

German cable operator Tele Columbus priced an upsized €650 million issue of 3 7/8% seven-year senior secured notes (B2/BB-) at 99.243 to yield 4%.

The deal was increased from €500 million.

The coupon and yield came on top of talk.

Sole global coordinator and physical bookrunner BofA Merrill Lynch will bill and deliver.

Perform taps 8½% notes

Perform Group priced a £40 million add-on to its 8½% senior secured notes due Nov. 15, 2020 at 102.125 to yield 7.555% in a quick-to-market trade on Friday.

Deutsche Bank was the sole bookrunner for the debt refinancing deal.

Week ahead

In the April-May crossover week ahead, the European new issue market is expected to continue the steady stream of deal volume it has generated since mid-April, sources say.

A save-the-date memo from JP Morgan went out Friday, a London-based sell-side source said, adding that a deal from the construction sector is expected to materialize during JP Morgan’s Monday call with investors.

Hibu below par

In one of the past week’s most talked about euro deals, Yell Bondco plc’s 8½% senior secured notes due 2023 (B3/B-) were lagging their new issue price on Friday, according to a debt capital markets banker in London.

The £225 million issue from directories company Hibu Group, formerly Yell, priced at par on Wednesday.

That execution provided a measure of just how strong the demand for junk bonds among European investors is at present, the banker said.

The Reading, England-based company operates in a sector which has seen its business coopted by a host of services on the internet.

Investors also appeared willing to overlook the fact that they have had to write down Yell debt in the past, the banker said.

Dollar market to resume

The earnings season issuance blackout that has kept some potential dollar-denominated issuers on the sidelines may continue into the early part of the April-May crossover week ahead, sources say.

However, by mid-week watch for the dollar-denominated new issue market to reactivate, they say.

There is visibility on a fairly decent amount of early May business, including executions that should get done ahead of the Friday, May 4 close, said syndicate bankers who were polled on Friday.

No one volunteered issuer names.

However, look for one $500 million transaction from the energy sector to show up in the week ahead, a banker said.

Neptune Energy has been on a roadshow for a $500 million offering of seven-year senior notes (B2/BB-) throughout the week, which is expected to wrap up on May 1.

As the market awaits official talk, initial guidance is in the high 6% to 7% area.

WeWork a ‘disaster’

The new issuance from WeWork has left a bad taste in the mouth of buyers with sources questioning whether there was the demand that claimed to have existed during the bookbuilding process.

WeWork’s new 7 7/8% senior notes due 2025 opened the day at 99¼ bid, 99½ offered but sank down to 97¾ bid, 98 offered by late afternoon, a market source said.

The notes were seen trading below 98.

“It’s a disaster,” the source said.

With more than $84 million of bonds traded by late afternoon, the 7 7/8% notes eclipsed all other trading activity in the secondary market.

“They upsized it but a bunch of people don’t want to own it,” a market source said. The majority of trading activity around new issuance is based on flippers who have a short window of time to make money or get out of their position.

The settlement date when payment is due for the WeWork bonds is quickly approaching, the source said.

WeWork priced the 7 7/8% senior bullet notes at par on Wednesday. The deal was upsized to $702 million from $500 million.

The deal was said to be as much as five-times oversubscribed. Given the demand during bookbuilding, the notes’ lackluster performance in the secondary space “is strange,” a source said. “It makes you wonder if it’s true or not.”

Other sources also called into question the demand for the new paper.

Sprint gains

While WeWork’s 7 7/8% notes dominated trading in the secondary market on Friday, Sprint’s 7 5/8% senior notes were the second most active in the space with more than $20 million of bonds traded by late afternoon, a market source said.

The notes climbed 3 points to close Friday at 106¾ after closing Thursday at 103¾.

Sprint and T-Mobile announced Friday they were in the final stages of a merger agreement, which could be announced as soon as Sunday.

Sprint’s junk bonds have been active and making gains since April 10 when Sprint and T-Mobile announced they were again sitting at the table to hammer out a merger agreement.

T-Mobile and Sprint, the third and fourth largest wireless carriers in the telecommunications industry, have previously tried to negotiate a merger with the most recent attempt failing in November due to disagreement over who would control the combined business.

This week’s deals

Trading activity surrounding many of the deals that priced over the past week tempered on Friday.

However, some continued to see slight improvements while others were seen weaker.

Jagged Peak’s newly priced 5 7/8% senior notes due 2026 (B3/B) continued to see slight improvements on Friday.

The notes were at par 3/8 bid, par 7/8 offered Friday after closing Thursday at par ¼ bid, par ¾ offered, a market source said.

Most trades were between par ½ and par 5/8 on Friday.

Jagged Peak priced the upsized $500 million issue at par on Wednesday.

After gaining some ground on Thursday, Netflix’s 5 7/8% senior notes due 2028 (Ba3/B+) gave it back on Friday with the notes once again weakening in active trading.

The notes were at 99 7/8 bid, 100 1/8 offered on Friday.

They were at par bid, par ¼ offered on Thursday. While the notes slipped slightly on Friday they are still improved from their levels on Wednesday when they slipped to 99 3/8 bid, 99 7/8 offered.

Netflix priced the upsized $1.9 billion issue at par on Monday.

Flora Food Group’s 7 7/8% senior notes due 2026 (B3/expected B-/expected B-) returned to par on Friday after a slight pop on Thursday. The notes were wrapped around par in trading, a market source said.

The notes were stuck at par after breaking for trade on Wednesday but improved to par ¼ bid, par ½ offered on Thursday, a market source said.

Mixed Thursday flows

Daily cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a buyside source.

High-yield ETFs saw a substantial $297 million of inflows on the day.

However, actively managed funds were negative on Thursday, sustaining $125 million of outflows, the source said.

Thursday’s daily numbers trail a report that the dedicated high yield funds sustained a whopping $2.489 billion of net outflows in the week ending at the Wednesday, April 25 close, according to the Lipper US Fund Flows.

With the latest outflow, the funds have now seen seven losses and three gains in the past 10 weeks, according to a Prospect News analysis of the data.

Although it makes a strong play for the market’s attention, the most recent week’s $2.489 billion outflow hinged on very big redemptions in the earliest part of the reporting period, Thursday, April 19 and Friday, April 20, sources say.

In the wake of those big redemptions, the cash flows of the dedicated junk funds have moderated and have tended to be flat to slightly positive, as was the case with the daily flows seen on Thursday: $297 million of inflows to the ETFs minus $125 million outflows from asset managers, leaving Thursday’s cash flow picture squarely in the green at $172 million of net inflows on the day.

Indexes positive

Indexes ended the week on a positive note with each benchmark for the high-yield market seeing gains.

The KDP High Yield index broke its losing streak on Friday and was up 5 basis points to 70.51 with the yield down to 5.83%.

Before Friday, the index had posted losses since April 19 after seeing 10 consecutive trading days of gains.

The Merrill Lynch High Yield index saw another day of gains while still in negative territory. The index was up 5.9 bps on Friday with the negative year-to-date return now 0.272%.

The index was up 23.1 bps on Thursday shaving the negative year-to-date return to 0.331%.

The index returned to negative territory on Monday after posting positive year-to-date returns since April 12.

The CDX high yield 30 index also saw another day of gains of Friday after breaking a losing streak on Thursday that has existed since April 17. The index was up 5 bps to close Friday at 106.98.

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