Eldorado/Caesars megadeal prices, heaviest volume week for new issuance in junk history

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 19 – A megadeal from the gaming-entertainment-lodging sector, on Friday, capped the biggest week in the history of the junk bond market.

Colt Merger Sub, Inc. priced $6.2 billion of junk in three tranches backing the acquisition of Caesars Entertainment Corp. by Eldorado Resorts, Inc.

When the dust settled Friday afternoon, $23.38 billion of bonds in 31 junk-rated, dollar-denominated tranches had cleared the market since Monday's open, marking the biggest weekly issuance in dollar amount in the history of the market.

The week ahead also promises to be active with United Airlines, Inc. thought to be making another pass at the market after postponing a prospective offering in April.

Meanwhile, the secondary space closed out a volatile week with a volatile session on Friday.

While the market was up early in the session, it was soft heading into the afternoon, a source said.

Despite the weakness in the secondary space, new issues were putting in strong performances.

PG&E Corp.’s two tranches of senior notes (B1/BB-/BB) continued to improve in high-volume activity on Friday.

New paper from Gartner, Inc., Brink's Co., and Abercrombie & Fitch Management Co. was also active and trading up.

After lagging on Thursday, Iron Mountain Inc.’s three tranches of senior notes (Ba3/BB) improved on Friday with two out of the three tranches closing the day above par.

Biggest week ever!

A megadeal from the gaming-entertainment-lodging sector, on Friday, capped the biggest week in the history of the junk bond market.

Colt Merger Sub, Inc. priced $6.2 billion of junk in three tranches backing the acquisition of Caesars Entertainment Corp. by Eldorado Resorts, Inc.

The Caesars Entertainment portion of the deal came as a $1 billion tranche of five-year secured notes (B1/B+) which priced at par to yield 5¾%, at the tight end of the 5¾% to 6% yield talk. Initial guidance was in the high 5% area to 6%.

The Eldorado portion featured a $3.4 billion tranche of five-year secured notes (B1/B) that priced at par to yield 6¼%,at the tight end of the 6¼% to 6½% yield talk which came in line with early guidance in the low-to-mid 6% area.

The Eldorado portion also included a $1.8 billion tranche of seven-year unsecured notes (Caa1/CCC+) which priced at par to yield 8 1/8%, at the tight end of the revised 8 1/8% to 8¼% yield talk. Earlier official talk was 8¼% to 8½%, tight to initial guidance in the mid-to-high 8% area. (see related story in this issue).

The secured tranches were heard to play to $8.1 billion of demand across 211 accounts, according to a trader who added that the unsecured tranche played to $6.4 billion of demand across 195 accounts.

The 5¾% secured notes due 2025 were par 7/8% bid, 101 offered late Friday afternoon, a trader said, and added that the 6¼% secured notes due 2025 were par ¾ bid, 101¼ offered, and the 8 1/8% unsecured notes due 2027 were also par ¾ bid, 101¼ offered.

$23.38 billion record

When the dust settled Friday afternoon $23.38 billion of bonds in 31 junk-rated, dollar-denominated tranches had cleared the market since last Monday's open.

Far and away that's the biggest weekly issuance total in the history of the market, in terms of dollar amount priced. It easily tops the distant second, the week of March 5, 2017 which saw $17.53 billion of issuance, according to Prospect News data.

In terms of deal volume, the past week's 31 tranches is second by a nose. The record weekly deal volume remains 32 tranches seen in the week of May 12, 2013.

The week ahead

Issuance in the week ahead promises to be robust, sources say.

However, it won't hold a patch to the record-breaking week of June 14, 2020, they add.

One reason is that issuers who had planned to come later in June moved timing forward, a syndicate banker said.

“Get it while you can” has long been one of the unwritten bylaws of the high-yield primary market, sources say.

However, with a global pandemic at hand, and the world in the throes of its catastrophic economic fallout against a backdrop of extreme political turbulence, the focus on that bylaw may never have been more acute than it is now.

Look for around $10 billion in the week ahead, sources said on Friday.

Of that amount, watch for United Airlines to make another approach at the high-yield primary market, with $2 billion of junk.

This time Citigroup Global Markets Inc. will take the captain's chair, a trader said (see related story in this issue).

J.P. Morgan Securities LLC led a failed attempt in the early part of May when the Chicago-based air carrier became the first issuer to postpone a deal ($2.25 billion in two tranches) since an April 9 announcement by the Federal Reserve Bank that due to the economic fallout of Covid-19 it had created a special purpose vehicle which can be used to own corporate bonds rated as low as Ba3/BB-.

PG&E gains

After a strong break on Thursday, PG&E’s two tranches of senior notes continued to improve in high-volume activity on Friday.

The 5¼% senior notes due 2030 gained about ½ point.

They were changing hands in the 101 7/8 to 102 1/8 context heading into the market close.

The bonds had more than $80 million in reported volume.

PG&E’s 5% senior notes due 2028 gained about ¼ point to trade in the 101¼ to 101½ context in the late afternoon.

PG&E priced a $1 billion tranche of the 5% notes and a $1 billion tranche of the 5¼% notes at par on Thursday to help finance the company’s exit from bankruptcy.

The 5% notes priced at the tight end of the 5% to 5¼% yield talk and deep inside initial guidance of 5¾% to 6%.

The 5¼% notes priced at the tight end of the 5¼% to 5½% yield talk and deep inside of initial guidance of 6% to 6¼%.

Gartner trades up

Gartner’s 4½% senior notes due 2028 (Ba3/BB) were trading with a large premium in the secondary space.

The 4½% notes were trading between 101 and 102 throughout Friday’s session.

They were changing hands at 101¾ in the late afternoon with more than $33 million in reported volume.

While the coupon was low, the IT service management company is a strong credit, and higher rated credits have been sought after, a market source said.

The notes played to heavy demand during bookbuilding, which followed them into the secondary space.

Gartner priced an upsized $800 million issue of the 4½% notes at par on Thursday.

The issue size increased from $500 million.

The yield printed at the tight end of the 4½% to 4¾% yield talk. Initial was in the 4¾% area.

Brink’s gains

Brink’s 5½% senior notes due 2025 (Ba3/BB-/BB+) were also putting in a strong performance in the secondary space.

The notes were changing hands on a 101-handle in active trading on Friday.

They were trading in the 101 3/8 to 101½ context in the late afternoon, a source said.

There was more than $23 million in reported volume during Friday’s session.

Brink's priced a $400 million issue of the 5½% notes at par in a Thursday drive-by.

The yield printed at the tight end of yield talk in the 5 5/8% area. Initial talk was in the high 5% area.

Abercrombie in focus

Abercrombie’s 8¾% senior notes due 2025 (Ba2/BB-) were also trading with a healthy premium in the aftermarket.

After a strong break, the notes continued to trade on a 101-handle on Friday and were changing hands around 101 5/8 in the late afternoon, sources said.

While the issue was small, the notes were active on Friday with more than $23 million of the bonds on the tape.

The secured notes offered a large yield and were a relatively safe play.

The clothing retailer “has never liked debt,” and has negative net leverage with $700 million on the balance sheet.

The notes offered a nice coupon clipping opportunity with the likelihood they would burn through the cash on their balance sheet low, a source said.

Abercrombie priced an upsized $350 million issue of the 8¾% notes at par on Thursday.

The issue size increased from $300 million.

The yield printed at the tight end of the 8¾% to 9% yield talk. Initial guidance was in the 9% area.

Iron Mountain improves

Iron Mountain’s three tranches of senior notes improved on Friday after lagging their issue price the previous session.

The information management services company’s 5¼% senior notes due 2030 started the day strong. However, they ended Friday’s session largely unchanged.

The notes traded up alongside the broader market and were wrapped around par early in the session.

They dropped back to a 99-handle as the session progressed and were wrapped around 99½ heading into the market close, a source said.

The 5¼% notes remained active with about $64 million on the tape.

Iron Mountain’s 5% senior notes due 2028 gained about ½ point to close Friday at par ¼ with $25 million on the tape.

The 5 5/8% notes due 2032 rose about 7/8 point to close Friday at par ¾ with more than $20 million in reported volume.

Iron Mountain priced a $500 million tranche of the 5% notes, a $1.3 billion tranche of the 5¼% notes and a $600 million tranche of the 5 5/8% notes at par on Wednesday.

$47 million Thursday outflows

The dedicated high-yield bond funds sustained $47 million of net outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds had $165 million of inflows on the day.

However high-yield ETFs sustained $212 million of outflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds had $1.239 billion of net inflows in the week to the Wednesday, June 17 close, according to Lipper US Fund Flows.

It represents the seventh consecutive time weekly flows have topped the plus-$1 billion mark, the source said.

Indexes down

Indexes closed Friday with losses although they were mixed on the week with some posting cumulative gains and others losses.

The KDP High Yield Daily index was down 12 points to close Friday at 66.09 with the yield now 6.14%.

The index was down 20 bps on Thursday, was up 3 bps on Wednesday and 56 bps on Tuesday after dropping 7 bps on Monday.

The index saw a cumulative gain of 20 bps on the week.

The ICE BofAML US High Yield index shaved off 1.4 bps with the year-to-date return now negative 3.216%.

The index dropped 37.2 bps on Thursday, was down 2.2 bps on Wednesday, jumped 133.6 bps on Tuesday and dropped 10.1 bps on Monday.

The index saw a cumulative gain of 82.7 bps on the week.

The CDX High Yield 30 index dropped 80 bps to close Friday at 99.98. The index was down 55 bps on Thursday, 30 bps on Wednesday and 9 bps on Tuesday after a 115 bps gain on Monday.

The index posted a cumulative loss of 59 bps on the week.

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