Upsized Lennar deal drives by; new Cumberland notes firm; Tempo on tap; Rite Aid slides on Walgreens news

By Paul Deckelman and Paul A. Harris

New York, April 19 – For a second straight session, the high-yield primary market saw a single U.S.-dollar-denominated and fully junk-rated offering price on Wednesday, as homebuilder Lennar Corp. did a quickly shopped $650 million of seven-year notes.

Traders saw the new bonds firm slightly on decently sized aftermarket volume.

They also saw considerable activity, at sharply higher levels, in the sole new deal to price on Tuesday, from regional convenience store chain operator Cumberland Farms, Inc.

Away from the new deals that have actually priced, primaryside sources said that Tempo Acquisition LLC, a financing vehicle for private equity firm the Blackstone Group LP’s pending acquisition of some technology assets of British insurer Aon plc, is expected to price a $730 million eight-year notes offering on Thursday.

Outside the new-deal realm, traders said a steep fall in world crude oil prices hammered bonds of energy issuers such as California Resources Corp.

And they saw Rite Aid Corp.’s bonds and shares swoon on news reports indicating that federal regulators might sue to block the drugstore chain's merger with larger rival Walgreens Boots Alliance.

Statistical market performance measures turned mixed on Wednesday after having been lower across the board on Tuesday. It was the third mixed session in the last four, after having also been mixed last Thursday, closed last Friday and mixed again on Monday of this week.

Lennar upsizes

In Wednesday's primary market Lennar Corp. priced an upsized $650 million issue of seven-year senior bullet notes (Ba1/BB/BB+) at par to yield 4½%, the day's sole dollar-denominated deal.

The issue size was increased from $500 million.

The yield printed on top of final yield talk. Initial guidance was 4½% to 4 5/8%.

Deutsche Bank, Citigroup, JP Morgan, BofA Merrill Lynch, Mizuho, RBC, Goldman Sachs and Wells Fargo were the joint bookrunners.

The Miami-based homebuilder plans to use the proceeds, including the additional proceeds resulting from the $250 million upsizing of the deal, for general corporate purposes including the repayment of debt, which may include its 12¼% senior notes due 2017 and/or its 6 7/8% senior notes due 2021.

In a prospectus Lennar stated that it expects to realize annualized interest savings of approximately $37 million if the proceeds, together with cash on hand, are used to repay $400 million of the 12¼% notes and $250 million of the 6 7/8% notes.

Tempo Acquisition talk 6¾% to 7%

Tempo Acquisition LLC talked its $730 million offering of eight-year senior notes (Caa1/CCC+) to yield 6 ¾% to 7%.

Books close at 10 a.m. ET on Thursday and the deal is set to price thereafter.

The book is healthy, according to a trader who added that the $730 million deal was playing to $1 billion of orders on Wednesday morning.

Proceeds are being used to finance Blackstone Group LP's acquisition of Aon plc's technology-enabled benefits and human resources platform, which is part of Aon Hewitt.

Barclays is the left bookrunner.

Headed for busy finish

As has become customary in recent weeks, the final two sessions of the present week look to be busy ones in the high-yield primary market.

Away from the Tempo deal, Trilogy International Partners Inc. is on the road with a $345 million offering of five-year senior secured notes (//B-).

The deal comes with initial guidance of 9% to 9½% and pricing is expected Friday.

Also teed up is Booz Allen Hamilton Inc. with $350 million of eight-year senior notes being whispered in the mid 5% area and expected to price Thursday.

In addition to those, Clearwater Seafoods Inc. is in the market with $250 million of eight-year notes via left bookrunner Wells Fargo and joint bookrunners BMO and BofA Merrill Lynch.

Laureate Education, Inc. is selling $800 million of eight-year senior notes, as it addresses both bond and bank debt.

And E.W. Scripps Co. is expected to price $400 million of eight-year notes via left bookrunner Wells Fargo.

Travelodge prices FRN

In the European primary market Travelodge priced £165 million of Euribor plus 487.5 bps senior secured floating-rate notes at par on Wednesday.

Goldman Sachs and Barclays managed the sale.

The United Kingdom-based independent hotel brand plans to use the proceeds, together with cash on hand, to take out the group’s existing senior secured floating-rate notes, to redeem 10% of the outstanding senior secured fixed-rate notes and to make certain payments to Travelodge’s shareholders in an amount not to exceed £35 million.

Unilabs roadshow

The latter two sessions of the present week are apt to be busy ones in the European high-yield primary market as well.

Among Wednesday's headlines, Switzerland-based Unilabs is roadshowing €250 million of eight-year senior notes (Caa2/CCC+) through Thursday.

Credit Suisse is leading the deal.

The Geneva-based medical diagnostics company plans to use the proceeds to finance the acquisition of Alpha Medical, a medical diagnostics company, which operates in Slovakia and the Czech Republic, and to refinance the Unilabs SubHolding AB 12% second-lien PIK toggle notes due 2019.

Tuesday outflows

The daily cash flows of the dedicated high-yield bond funds were flat to modestly negative on Tuesday, the most recent session for which data was available at press time, according to a trader.

High yield ETFs sustained $13 million of outflows on the day.

Actively managed funds saw $50 million of outflows on Tuesday.

Dedicated bank loan fund saw positive flows – $70 million of inflows – on the day.

New Lennar notes firmer

In the aftermarket, traders saw the new Lennar 4½% notes due 2024 marginally firmer from their par pricing level.

One quoted those notes at 100.125 bid.

Volume in the drive-by issue was a respectable more than $12 million.

Cumberland climbs in trading

Tuesday’s lone pricing – a regularly scheduled forward calendar offering from Cumberland Farms, a Westborough, Mass.-based regional chain of convenience stores – proved to be popular with investors.

“They were pretty active around the 103 [bid] level, where they settled in,” a trader said.

At another desk, those 6¾% notes due 2025 were seen ending at 102¾ bid, which a trader called up ½ point from the initial aftermarket gains notched on Tuesday, after the $300 million issue had priced at par.

Wednesday’s volume of more than $65 million topped the high yield Most Actives list.

Oil slips, energy slides

Overall, a trader said that “volumes were still pretty light” in line with the reduced activity levels seen over the previous several sessions.

He said that things “softened up” in the afternoon, especially as stocks retreated, a pullback fueled by a steep drop in crude oil prices of nearly $2 per barrel, or 4%, down to around the $50 per barrel level for May delivery West Texas Intermediate, the benchmark U.S. crude graded traded on the New York Mercantile Exchange.

That, in turn, “had a direct correlation” to lower bond prices for energy issues; sector bellwether California Resources Corp.’s 8% notes due 2022 plummeted by 1 ½ points on the day to end at 77½ bid.

Volume in the Los Angeles-based exploration and production company’s issue was more than $30 million.

Rite Aid rocked

Away from energy, Rite Aid Corp.’s paper was a big loser, with its most actively traded piece of paper, the 6 1/8% notes due 2023 seen down more than 3 points, at 98 ¾ bid, with over $25 million changing hands.

The bonds nosedived on a Bloomberg news report suggesting the Federal Trade Commission might sue to block the pending merger between Camp Hill, Pa.-based druggist Rite Aid and larger rival Walgreens on antitrust grounds.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday after having been lower across the board on Tuesday. It was the third mixed session in the last four, after having also been mixed last Thursday, holiday-closed last Friday and mixed again on Monday of this week.

The KDP High Yield Daily index fell by 4 basis points on Wednesday to end at 71.86, its sixth consecutive loss. It had also been down by 5 bps on Tuesday.

Its yield rose by 2 bps to 5.27%, its second straight widening out after two sessions in a row in which it was unchanged. On Tuesday, the yield had increased by 1 bp.

The Markit CDX Series 28 index saw its second straight loss on Wednesday after one unchanged session and one gain, dropping by 3/32 point to end at 106 9/16 bid, 106 19/32 offered. That followed Tuesday’s 7/32 point retreat.

But the Merrill Lynch North American High Yield index firmed by 0.12% on Wednesday, rebounding from Tuesday’s 0.04% setback.

That gain pushed the index’s year-to-date return up to 3.085% from Tuesday’s 2.962% close.

Those levels remain below the 2017 peak of 3.19%, set on March 1.

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