DAE megadeal prices, moves up; new Jefferies firmer; energy off, Rite Aid streak ends

By Paul Deckelman and Paul A. Harris

New York, July 21 – The high-yield primary market saw its biggest deal of the week – in fact, its largest deal since early June, as DAE Funding LLC did an upsized $2.3 billion three-part offering, consisting of three-year, five-year and seven-year notes.

Traders said that all three tranches of the scheduled forward calendar offering moved up when they went into the aftermarket.

Also among newly priced offerings, the traders saw Thursday’s seven-year deal from Jefferies Finance LLC firmer in Friday trading.

Other recent issues, such as AMC Networks, Inc. and Extraction Oil & Gas, Inc., were something of a mixed bag.

Away from the new issues, the traders said that oil and gas credits such as California Resources Corp., MEG Energy Corp. and EP Energy Corp. were all lower, in line with a sharp fall in crude oil prices.

And Rite Aid Corp.’s three-session winning streak – spurred by the release of pro forma financial data related to the company’s upcoming sale of almost half of its drugstores – fizzled out on Friday.

Statistical market performance measures turned mixed on Friday after being firmer across the board for the previous two sessions.

However, the indicators were stronger all around versus where they had finished out last Friday, July 14, their second consecutive week-over-week gain, following a lower week ended July 7.

DAE prices $2.3 billion

DAE Funding priced Friday’s sole deal, an upsized $2.3 billion three-part offering of senior notes (Ba3/BB).

The deal, via sole bookrunner Morgan Stanley, included $500 million of three-year notes which priced at par to yield 4%. The three-year notes, which were added to the deal when it was upsized from $1.9 billion, priced on top of yield talk in the 4% area.

In addition, $800 million of five-year notes were priced at par to yield 4½%, at the tight end of the 4½% to 4¾% yield talk. Early guidance on the five-year notes was 4¾% to 5%.

The long tranche came as $1 billion of seven-year notes which priced at par to yield 5%, the tight end of the 5% to 5¼% yield talk. Early guidance was 5 1/8% to 5 3/8%.

The bonds all looked cheap to one bond trader who saw freshly minted DAE paper trading at 101 1/8 bid, 101 5/8 offered in the secondary market not long after terms were out.

And it will trade even better on Monday as London accounts step in, the trader forecast.

The DAE transaction played to a diversified following including high-yield, investment-grade and emerging markets investors, the source added.

Proceeds from the Friday megadeal will go to help fund Dubai Aerospace Enterprise’s acquisition of Dublin-based aircraft lessor AWAS.

The week ahead

Only one deal crosses the weekend on the active forward calendar.

Diversey Care is on the road with a €545 million offering of eight-year senior notes (expected ratings Caa2/B).

The deal is in the market to help fund the buyout of Diversey Care, the cleaning and hygiene solutions business of Charlotte, N.C.-based Sealed Air Corp., by Bain Capital.

Goldman Sachs will bill and deliver for the deal which is set to conclude its roadshow on Tuesday.

Forecasts for the final full week of July in the primary market varied widely, with one investor saying that 10 deals will launch before the end of the month and that Goldman Sachs will have at least a hand in all of them.

Polling syndicate officials on Friday turned up much more modest forecasts, however.

Thursday outflows

The high-yield market continues to grind tighter and tighter, sources say.

There is a big technical bid, with accounts needing to put cash to work, circumstances which customarily generate a calendar.

The most recent weekly funds flow news concerned a big $2.221 billion inflow to dedicated high-yield funds for the week to last Wednesday’s close, according to Lipper US Fund Flows.

However Thursday’s daily flows were negative, a trader said.

High-yield ETFs sustained $92 million of outflows on the day.

Actively managed funds saw $50 million of outflows.

Flows for dedicated bank loan funds were flat to slightly positive on Thursday, with $8 million of inflows, $5 million of which went into bank loan ETFS.

Big deal leads a busier week

Friday’s $2.3 billion offering from DAE Funding was the largest bond offering seen in Junkbondland since June 5, according to data compiled by Prospect News.

That was when Dallas-based hospital operator Tenet Healthcare Corp. and its THC Escrow Corp. III financing subsidiary priced a four-part offering totaling $3.78 billion – the largest deal the junk market has seen so far this year.

However, because its parent is based in Dubai, the DAE Funding deal will not contribute to the junk bond issuance totals.

As a result, the week’s total of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers came to $2.53 billion in six tranches, according to the Prospect News data.

That was a little above the $2.24 billion of such paper which had priced in seven tranches the week before, ended July 14.

This week’s deals lifted year-to-date issuance for 2017 so far up to $150.97 billion in 284 tranches, running 23% ahead of the $122.87 billion which had priced in 180 tranches by this point on the 2016 calendar, the Prospect News data indicated.

DAE Funding firms

When DAE Funding’s three-part bond behemoth hit the aftermarket following its pricing, traders saw the tranches moving up in initial dealings.

A trader said that the 4% notes due 2020 were trading at 101¼ bid, 101 5/8 offered.

He saw the new 4½% notes due 2022 at 101¼ bid, 101½ offered, while the 5% notes due 2024 ended at 100½ bid, 101 offered.

At another desk, a trader pegged all three issues generically in a 101 1/8 to 101 5/8 bid range.

Jefferies issue firms up

A trader said that Thursday’s new issue from Jefferies Finance “was better on the day, though not very much traded,”

He saw those 7¼% notes due 2024 up by about ½ point on the day at 100½ bid, 101 offered.

Jefferies, a New York-based commercial lending company and investment banking firm, and its JFIN Co-Issuer Corp. funding subsidiary, priced $400 million of the notes at par Thursday in a forward calendar offering.

Market sources had seen those new bonds trading on Thursday afternoon around a par to 100½ bid range.

Recent issues turn mixed

Among some of the names which have recently come to market, traders said that some were up and some were lower “with no rhyme or reason,” as one of them put it.

Wednesday’s new deal from AMC Networks, for instance, was seen by a trader to have eased in morning dealings to around the 100¾ bid area versus levels seen on Thursday around 101 bid.

However, by the afternoon, another trader quoted the 4¾% notes due 2025 in a 100 7/8 to 101¼ bid context, which he called up 1/8 on the day.

AMC, a New York-based cable network operator and content provider, priced $800 million of the notes at par on Wednesday in a quick-to-market transaction that was upsized from $500 million.

A trader saw the new Extraction Oil & Gas 7 3/8% notes due 2024 down ¼ point on the session in a 102 to 102 1/8 bid context.

The Denver-based oil and gas producer priced that $400 million issue at par on Tuesday after the quickly shopped deal was upsized from $350 million.

Energy issues on the slide

Away from the new offerings, traders saw energy names generally lower on the session, in line with a big drop in world crude oil prices.

The benchmark U.S. crude grade, West Texas Intermediate for September delivery – the new front month – plunged by $1.15 per barrel in Friday dealings on the New York Mercantile Exchange, settling at $45.77. It was the second straight fall in crude, which was also off by 33 cents on Thursday.

The key European grade, September contract North Sea Brent, followed a similar trajectory, losing $1.24 per barrel on Friday on the London ICE Futures exchange to settle at $48.06, also a second loss in a row for the crude grade.

“Not surprisingly,” a trader said, most energy credits turned weaker on the session, with Houston-based EP EP Energy’s 9 3/8% notes due 2020 off by 1 full point at 85 bid.

Calgary, Alta.-based MEG Energy’s 6 3/8% notes due 2023 fell by 1½ points on the day, finishing at 79¼ bid, while Los Angeles-based California Resources’ 8% notes due 2022, a bellwether for the whole energy sector, were quoted down by ¾ point at 64¼ bid, 65¼ offered, but on only a handful of round-lot trades.

Rite Aid win streak snapped

Rite Aid’s bonds were seen lower on Friday, snapping a three-session winning streak.

A trader saw its 6 1/8% notes due 2023, the recent standout performer in the company’s capital structure, down by about ¼ point on Friday at 100¼ bid on $6 million of volume.

Those notes had risen in each of the last three sessions on the news that the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator had released pro forma financial expectations resulting from its pending sale of 2,186 of its 4,600 stores to Walgreens for $5.175 billion in cash.

Rite Aid projects spending some $4.92 billion of the anticipated net proceeds from the store sale for repayment of most of its more than $7 billion of net debt, dropping its leverage ratio of 6.8 times EBITDA down to the low 3 times range.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday after being firmer across the board for the previous two sessions. They had improved on Wednesday and remained strong on Thursday, following a mixed performance on Tuesday.

However, the indicators were stronger all around versus where they had finished out last Friday, July 14, their second consecutive week-over-week gain, following a lower week ended July 7.

The KDP High Yield Daily Index was up by 1 basis point Friday, ending at 72.59, its eighth straight gain. On Thursday it had jumped by 9 bps.

The index was up from last Friday’s 72.17 close.

The Markit CDX Series 28 High Yield Index was down 5/32 point Friday, ending at 107½ bid, 107 9/16 offered, its first loss after two straight gains, including Thursday’s 1/32 point rise.

But it was up on the week from last Friday’s 107 7/16 bid, 107 15/32 offered.

The Merrill Lynch North American High Yield Index lost 0.023% Friday, its first downturn after nine straight advances, including 0.124% on Thursday.

The loss dropped the index’s year-to-date return to 5.88% from Thursday’s 5.905%, which had been its fifth consecutive new year-to-date peak level.

But for the week, it rose by 0.595%, its second straight week-over-week gain.

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