Giant Dell high-grade deal overshadows junk market, draws HY accounts attention; new Aramark bonds busy

By Paul Deckelman and Paul A. Harris

New York, May 17 – The high yield primary market was largely quiet on Tuesday, syndicate sources said, with no new dollar-denominated and fully junk-rated deals seen having priced during the session.

But it didn’t much matter, because everyone’s eyes seemed to looking over on the investment-grade side of the fence, where Round Rock, Texas-based computer technology giant Dell, Inc. priced a Texas-sized $20 billion six-part secured bond deal – believed to be the fourth-biggest corporate debt offering ever seen.

As big as that upsized transaction was, it was dwarfed by the more than $80 billion of orders from investors, including at least $20 billion from nominally high yield accounts that wanted a piece of the action.

Almost as an afterthought, Dell also plans to do a junk-rated unsecured bond issue as part of the massive debt financing for its pending $67 billion acquisition of enterprise software and storage company EMC Corp. – but that high yield piece did not come to market on Tuesday and there’s no real word out when it may happen.

Junk players did note that with the huge upsizing of the investment-grade portion of the financing, the speculative grade component will be sharply downsized from the $9 billion originally shopped around.

Away from the Dell deal, Irish aircraft leasing company AerCap Holdings NV parachuted in with a split-rated $1 billion offering of 5.75-year notes, which also attracted some attention in the junk precincts.

Back among the purely junk-rated names, both halves of Monday’s $1 billion two-part deal from foodservice, facilities management and uniform supply company Aramark Services Inc. saw active trading on Tuesday.

There was also robust trading in some of the new issues from last week, including Cheniere Corpus Christi Holdings LLC and NRG Energy Inc.

Away from the new deals, Intelsat SA’s paper was seen under pressure.

Statistical market performance measures turned mixed on Tuesday, after having been higher across the board on Monday and lower all around on Friday. Tuesday was the second mixed session in the last five trading days.

Junk accounts large in Dell

Dell, Inc. launched and priced an upsized $20 billion of senior secured notes (Baa3/BBB-/BBB-) in six tranches on Tuesday.

The deal, which was increased from $16 billion, played to massive demand from high yield accounts, sources said.

All tranches were talked, launched and priced at spreads to Treasuries.

The deal included $3.75 billion of three-year notes that priced at 250 basis points, tight to talk of 262.5 bps.

$4.5 billion of five-year notes priced at 312.5 bps, tight to 325 bps spread talk.

$3.75 billion of seven-year notes priced at 387.5 bps, tight to spread talk in the 400 bps area.

$4.5 billion of 10-year notes priced at 425 bps, tight to spread talk in the 437.5 bps area.

$1.5 billion of 20-year notes priced at 550 bps, tight to spread talk in the 562.5 bps area.

And $2 billion of 30-year notes priced at 575 bps, tight to spread talk in the 587.5 bps area.

Dealers are expected to release the bonds for trading on Wednesday.

The deal was trading in the gray late Tuesday, sources said.

All six tranches were tighter.

The three-year notes were 228 bps bid, 223 bps offered (printed at 250 bps).

The five-year notes were 290 bps bid, 285 bps offered (printed at 312.5 bps).

The seven-year notes were 375 bps bid, 370 bps offered (printed at 387.5 bps).

The 10-year notes were 418 bps bid, 413 bps offered (printed at 425 bps).

The 20-year notes were 544 bps bid, 539 bps offered (printed at 550 bps).

The 30-year notes were 565 bps bid, 560 bps offered (printed at 575 bps).

Early plans to do the shorter-dated paper in tranches of floating-rate notes were scrapped.

Dealers were telling the market that the overall $20 billion offering was playing to $80 billion of demand, according to a high yield portfolio manager who was involved and who conceded that the overall book size might indeed have been that big.

Of that $80 billion of demand $20 billion came from high yield accounts, the source added.

BofA Merrill Lynch, Barclays, Citigroup, Credit Suisse, Goldman Sachs and J.P. Morgan were joint bookrunners for the secured bond offering.

A much diminished $3.25 billion amount of speculative grade senior unsecured notes is expected to follow the secured notes transaction.

The unsecured bond portion of the debt financing for Dell's acquisition of EMC Corp. had previously been expected to be sized at $9 billion.

No further word on the structure and timing of the unsecured portion was available at press time, Tuesday, sources said

Other excursions

In Tuesday's crossover market AerCap sold $1 billion of 3.95% senior notes due Feb. 1, 2022 (Ba1/BBB-/BB+) at a 270 bps spread to Treasuries.

The deal was priced on the investment grade desk.

Meanwhile junk accounts from the United States also took part in Tuesday's Petrobras $6.75 billion two-part deal, which played to $20 billion of orders, a high yield portfolio manager said.

The deal included $5 billion notes due in 2021 that priced to yield 8 5/8%, following talk in the 9% area, and $1.75 billion notes due in 2026 that priced to yield 9%, following talk in the 9¼% area.

US Concrete starts roadshow

The forward calendar also grew on Tuesday.

U.S. Concrete, Inc. started a roadshow on Tuesday for a $350 million offering of eight-year senior notes (expected ratings B3/BB-), according to a market source.

The deal is expected to price on May 24.

JP Morgan the lead bookrunner for the debt refinancing deal.

Vivint sets investor call

Vivint, Inc., plans to participate in a conference call with investors on Wednesday, as it seeks to sell $350 million of senior secured notes due Dec. 1, 2022.

The notes have the same maturity as the existing 8 7/8% senior secured notes, which came in a $300 million private placement late last year.

The offer is set to price later this week.

Credit Suisse, HSBC, Macquarie and Mizuho are joint bookrunners.

Proceeds will be used for general corporate purposes and for refinancing existing secured debt.

US Concrete and Vivint join several other offers presently on the active forward calendar.

Among them, Vereit, Inc.'s $500 million offering of 10-year senior bullet notes is shaping up to be a blowout, a market source said on Tuesday.

Pricing on the deal has tightened to 5% from 5 1/8%, and it is heard to be playing to $2 billion of orders, the source added.

The deal was scheduled to price Thursday, but could come Wednesday, the source said.

Barry Callebaut upsizes

In the European primary market Barry Callebaut AG priced an upsized €450 million issue of 2 3/8% eight-year senior notes (Ba1/BB+) at 99.104 to yield 2½%.

The deal size was increased from €350 million.

The yield came 12.5 basis point inside of price talk in the 2¾% area.

Joint lead manager and active bookrunner ING will bill and deliver. Credit Suisse, Rabobank and SG were also joint lead managers and active bookrunners.

The Zurich-based chocolate-maker plans to use the proceeds to repay debt and for general corporate purposes.

Hanesbrands brings euro deal

Two weeks after pricing a $1.8 billion two-part bullet deal Hanesbrands Inc. is returning with a €450 million offering of non-callable eight-year senior notes (Ba1/expected BB).

A roadshow is expected to start Wednesday.

The deal comes with initial price talk in the mid-to-high 3% yield context.

Active bookrunner Barclays will bill and deliver. BofA Merrill Lynch, HSBC and JP Morgan are the joint bookrunners.

The Winston Salem, N.C.-based marketer of everyday basic apparel plans to use the proceeds to finance the acquisitions of Champion Europe and Pacific Brands Ltd.

Mixed flows

The cash flows of the dedicated high yield bond funds were mixed on Monday, the most recent session for which data was available at press time, according to a high yield portfolio manager.

High yield ETFs saw $176 million of inflows on the day.

However asset managers were essentially flat, sustaining $10 million of outflows on Monday, the manager added.

Looking for the Dell deal

In the secondary market, a trader said that “there’s a lot of focus on the Dell deal,” which priced late in the day.

He expressed some mild surprise that the planned junk bond component of that financing didn’t get done at the same time the $20 billion of secured high-grade notes got done.

“I heard there was going to be around $3 billion in unsecured paper that was going to be high yield.

“I thought it was going to all be coming at the same time – but clearly that’s not the case.”

AerCap gains altitude

A trader said that the new AerCap 3.95% notes due in February of 2022 were trading around 100 1/8 bid.

That was up modestly from the 99.813 level – equivalent to 270 basis points over Treasuries – at which the Dublin-based aircraft leasing company’s split-rated mega-deal had priced to yield 3.988%.

The quickly shopped offering was brought to market via its AerCap Ireland Capital Ltd. and AerCap Global Aviation Trust financing subsidiaries.

The trader said that more than $27 million of those notes had changed hands, although he allowed that most of that was probably attributable to high-grade accounts playing in the crossover market.

Aramark seen active

Both halves of Monday’s new offering from Aramark Services were seen among the most active issues of the day in Junkbondland on Tuesday.

A market source said that its 4¾% notes due 2026 was probably the most heavily traded purely junk-rated credit of the session, with over $34 million of volume.

He saw the notes finishing at 100 1/16 bid, calling that down 5/16 from the levels at which the notes had finished in initial post-pricing aftermarket dealings on Monday.

He also saw Aramark’s add-on to its 5 1/8% notes due in January of 2024 trading at 104 bid, with over $19 million traded.

At another shop, a trader pegged the add-on bonds in a 103¾ to 104 bid context and saw the stand-alone 10-years hovering just above issue at par to 100¼ bid.

Aramark, a Philadelphia-based provider of foodservice, facilities management and uniform supply services, priced $1 billion of new paper in a quick-to-market deal on Monday, evenly split into two $500 million tranches.

The add-on to its existing $400 million of 5 1/8% notes priced at 103.75 to yield 4.364% and was quoted having moved up to 104.

The 4¾% 10-year notes priced at par and were seen having gotten as good as 100 5/8 bid when they hit the aftermarket Monday.

Cheniere notes trade up

Among the deals that priced last week, a trader saw the new Cheniere Corpus Christi 7% senior secured notes due 2024 having pushed up to around the 102 bid mark Tuesday, calling that a gain of 5/8 point.

Activity in the credit also picked up, with over $27 million traded, more than double the volume seen on Monday, when the bonds had held steady at about 101 3/8 bid, on volume of about $11 million – well down from the intense activity in those bonds seen after they priced on Thursday, when over $24 million changed hands, and especially on Friday, when volume swelled to more than $116 million.

The company, a unit of Houston-based liquefied natural gas transportation, storage and marketing services company Cheniere Energy, Inc., priced $1.25 billion of those notes at par after the regularly scheduled forward calendar offering was upsized from an originally announced $1 billion.

The bonds were seen having jumped to around 101 ½ bid in initial aftermarket dealings.

NRG posts gain

Another busy name from among last week’s deals was NRG Energy’s 7¼% notes due 2026.

A trader saw the notes at 99½ bid, calling them up ½ point, on volume of over $17 million.

That paper has struggled since the Princeton, N.J.-based wholesale power producer priced its quick-to-market $1 billion issue at par last Monday, following an upsizing from the originally announced $700 million.

While the notes initially got as good as 100 5/8 bid when they hit the aftermarket after pricing, they started to come down after that, dipped below par last Wednesday and were seen ending last week trading between 97 15/16 and 99 7/8 bid.

Intelsat weakens

Away from the new deals, a trader said that Intesat’s notes “have been under pressure,” seeing the Luxembourg-based communications satellite company’s Intelsat Luxembourg SA 6¾ % notes due 2018 down 1½ points, continuing the weakness seen at the end of last week.

More than $19 million traded as the paper fell to 72¼ bid.

A second trader agreed that “Intelsat was a little weaker in the luxco paper.”

He said that “the downward price action is probably attributable to the default notice that a hedge fund sent them regarding a dividend that was paid to the parent that they claim shouldn’t have been allowed,” the trader said.

He said the 6¾% notes “traded down a little over a point” to 72, while the 7¾% Luxembourg notes due 2021 “traded around 30.”

Last week, Intelsat announced that it would pay up to $625 million in cash to redeem $3.97 billion of notes issued by its Intelsat Jackson Holdings SA unit.

Under the terms of the tender, Intelsat Jackson unit will exchange up to $815.25 million of the 6 5/8% notes for $740 per each $1,000 of notes; up to $2 billion of the 5½% notes at $730 per each $1,000; and up to $1.15 billion of the 7½% notes due 2021 for $775 per each $1,000.

There is a $20 early tender premium for each $1,000 tendered by 5 p.m. ET on May 25.

The tender will expire at 11:59 p.m. ET on June 9.

News of the tender came after the Jackson unit said in a regulatory filing that it had repurchased approximately $460 million of its 6 5/8% notes since April 28. The notes were acquired via the open market as well as from privately negotiated purchases, all at a discount to par.

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday, after having been higher across the board on Monday and lower all around on Friday. Tuesday was the second mixed session in the last five trading days.

The KDP High Yield Daily index firmed by 4 basis points on Tuesday to end at 67.43, its second straight gain and fifth advance in the last six sessions, On Monday it rose by 11 bps.

Tuesday’s yield correspondingly came in by 2 bps, to 6.23%, its second straight narrowing and fifth in the last six sessions. On Monday, the yield had declined by 4 bps.

The Markit Series 26 CDX North American High Yield index continued its recently choppy pattern of alternating up-and-down days; it lost ¼ point, finishing .at 102 1/32 bid, 102 3/32 offered, in contrast to Monday’s nearly 5/16 point gain.

Tuesday was the index’s second loss in the last three sessions.

But the Merrill Lynch North American High Yield Master II index posted its second straight gain on Tuesday and fifth in the last six sessions.

It rose by 0.133%, on top of Monday’s 0.23% firming.

Tuesday’s improvement raised the index’s year-to-date return to 7.296% from Monday’s 7.153%, which had been its first time back over 7% in nearly two weeks, since May 3, when it had closed at 7.019%.

The cumulative return remained well down from the peak level for the year so far of 7.398%, reached on May 2.

Stephanie N. Rotondo contributed to this review.

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