Grinding Media/Moly-Cop price add-on; Hovnanian, McLaren on tap; NRG up on revamp plan, Halcon stays busy

By Paul Deckelman and Paul A. Harris

New York, July 12 – The high-yield market saw its second new dollar-denominated deal of July on Wednesday, and like the first such deal, the transaction was a smallish add-on to existing bonds, brought by metals producer Grinding Media Inc./Moly-Cop AltaSteel Ltd. Traders did not see any immediate aftermarket dealings in the name, nor in IHS Markit Ltd., which did an add-on pricing on Monday.

New-deal sources were meantime anticipating two pricings for Thursday’s session – neither of them an add-on – from homebuilder K. Hovnanian Enterprises, Inc., which is doing $840 million of secured five-year and seven-year notes, as well as British car manufacturer McLaren Automotive, which has been shopping a dollar-denominated tranche of five-year secured notes, along with a similar tranche of sterling-denominated securities.

In the secondary market, traders saw some activity in such recently priced new issues as Exela Technologies, SiriusXM Radio Inc., Intelsat Jackson Holdings SA, PetSmart, Inc. and NOVA Chemicals Corp.

But the day’s real action was in the bonds of NRG Energy, Inc., which firmed smartly after the power generation company outlined a sweeping business transformation plan that anticipates cutting its debt by two-thirds and sharply bringing its leverage ratio down.

Halcon Resources Corp. bonds were busy for a second consecutive session, hanging onto the big gains notched on Tuesday when the oil and gas producer announced a major asset sale and a plan to buy back half of its outstanding main series of bonds.

Statistical market performance measures turned higher across the board on Wednesday, after having been mixed for three consecutive sessions. They had turned mixed last Friday and then stayed that way Monday and Tuesday, after having been lower across the board for two sessions in a row before that.

Moly-Cop comes rich

The Wednesday primary market session produced a steady news volume.

Grinding Media Inc., in conjunction with Moly-Cop AltaSteel Ltd., completed the session's sole dollar-denominated deal, a $100 million add-on to their 7 3/8% senior secured notes due Dec. 15, 2023 (B2/B) that priced at 107.75.

The price came at the rich end of the 107.25 to 107.75 price talk.

The pricing renders a 5.356% yield to worst.

Morgan Stanley and Jefferies were the joint bookrunners.

Proceeds will be used for general corporate purposes which may include potential near-term acquisitions, capital expenditures and working capital.

McLaren for Thursday

McLaren Automotive set price talk in its £525 million two-part offering of five-year senior secured notes.

The sterling-denominated notes are talked to yield 5% to 5¼%.

The dollar notes are talked to yield 5¾% to 6%.

Tranche sizes remain to be determined, but dealers have been aiming at a dollar tranche sized at $300 million, sources say.

The buzz in the market has the deal playing to a book twice that size, a trader said on Wednesday, but added that the book-size notwithstanding, exuberance over the dollar tranche of the British performance automaker's debut high yield deal is in short supply.

Books close at 9:30 a.m. ET on Thursday, and the deal is set to price thereafter.

Meanwhile K. Hovnanian Enterprises, Inc. might price its $840 million two-part offering of senior secured notes (Caa2/CCC+), on Thursday.

Those ratings notwithstanding, the deal is coming off the investment grade syndicate desk.

It includes five-year notes and seven-year notes.

As the market awaited official talk, early guidance on the five-year notes was in the 8% area, while initial guidance on the seven-year notes was in the 9% area.

A calendar

Heading into mid-July the dollar-denominated active forward calendar has been as empty as the fireworks stand in the Piggly Wiggly parking lot.

That changed on Wednesday.

Topaz Marine SA began a roadshow for a $375 million offering of five-year senior notes (expected ratings B3/B-).

The debt refinancing deal – which has at least one foot planted squarely in the emerging markets, sources say – is being helmed by global coordinators Goldman Sachs, HSBC and Standard Chartered Bank.

Topaz Marine, a provider of support vessels primarily for the oil and gas industry, is incorporated in Hamilton, Bermuda. The ultimate holding company is Renaissance Services SAOG, a joint stock company incorporated in Oman.

Back in the realm of straight-up U.S. junk, Lithia Motors, Inc. began marketing a $300 million offering of eight-year senior notes (Ba2/BB).

JP Morgan, US Bancorp and BofA Merrill Lynch are the joint bookrunners.

Both Topaz and Lithia are set to price in the July 17 week, sources say.

Demire prints at 2 7/8%

In the busy European primary market Demire Deutsche Mittelstand Real Estate AG priced a €270 million issue of five-year senior secured notes (Ba2/BB+) at par to yield 2 7/8%, via Deutsche Bank.

The Frankfurt-based real estate company plans to use the proceeds to address its debt maturing in 2019.

Meanwhile AnaCap Financial Europe SA SICAV-RAIF talked its €315 million offering of seven-year senior secured floating-rate notes (BB-) with a 500 to 525 basis points spread to Euribor at 99.5.

The deal is set to price Thursday.

Finally, Amsterdam-based United Group BV was expected to wrap up the roadshow for its €1.35 billion three-part offering of senior secured notes on Wednesday.

Although the market awaits price talk the deal could price on Thursday, an investor said.

United Group's offer features five-year fixed-rate notes, seven-year fixed-rate notes and six-year floating-rate notes, tranche sizes to be determined.

NRG gains on transformation plan

In the secondary arena, traders said the big name of the day was NRG Energy, whose bonds climbed after the Princeton, N.J.-based merchant power producer announced a sweeping business transformation plan that aims to reduce the company’s overall size, streamline and simplify its corporate structure and balance sheet, and most importantly, wipe some $12 billion of consolidated net debt off that balance sheet, cutting its leverage ratio of net debt as a multiple of trailing adjusted EBITDA by more than half (see related story elsewhere in this issue).

A trader said that NRG’s 6 5/8% notes due 2027 “were the clear leaders,” up more than3 ½ points to around the 104 level.

A second trader saw them up by 4 full points, at 104¼ bid, topping the Most Actives list with over $35 million having changed hands.

The company’s 7¼% notes due 2026 were likewise improved at 107 bid, on volume of over $26 million, while its 6¼% notes due 2024 were up by a deuce on the day at 104 bid; turnover was more than $10 million.

NRG executives said that a special Business Review Committee had thoroughly examined every aspect of NRG’s far-flung power-generating operations, looking for ways to cut expenses and achieve more efficient performance and optimize its asset portfolio, seeking to shed non-core operations.

It came up with a three-year, three part plan that includes cutting the company’s net debt from current levels at just under $18 billion, as reported at the end of this year’s first quarter, to slightly under $6 billion, or a two-thirds reduction. That would bring the leverage ratio down to 3 times on a pro forma basis by the end of 2018, versus a first –quarter leverage measure of 6.4 times.

Once the 3.0 times leverage measure is reached, the company expects to be generating up to $6.3 billion of cumulative excess cash for allocation through 2020, with as much as $4 billion of that available by the end of 2018.

Halcon holds gains

Halcon Resources – whose bonds had jumped on Tuesday on news of a planned big asset sale – were seen trading around the higher levels at which those notes had ended Tuesday.

Volume in those 6¾% notes due 2025 was a brisk $35 million, tied with NRG’s aforementioned 10-year notes for honors as the day’s busiest credit in Junkbondland.

A trader saw the bonds going home at 102¾ bid, calling them unchanged on the day, although a second trader said he had seen the notes get as good as 103 bid.

Houston-based Halcon’s bonds had rocketed up by some 14 points on Tuesday, when over $100 million had traded, after the company announced that it had agreed to sell to sell its operated assets in the Williston Basin area of the Bakken Shale geological formation in North Dakota to an affiliate of Bruin E&P Partners for $1.4 billion in cash.

Halcon said that it had lined up the legally required support of more than half of the bondholders, and over half its stockholders for the sale.

Halcon plans to use a portion of the asset-sale proceeds to make an offer to purchase up to 50% of its $850 million of the outstanding 6¾% notes at a price of 103 upon the closing of the asset sale, and will also redeem all of its $113 million of outstanding 12% second lien senior secured notes due 2022, including related prepayment premiums.

New add-ons not seen

Elsewhere, traders did not immediately report any aftermarket activity in the smallish add-on that Moly-Cop had brought to market.

Nor did they really see any trading in the IHS Markit add-on to its 4¾% notes due Feb. 15, 2025.

The London-based financial information provider priced that quick-top-market $300 million tap at 105.5 to yield 3.882%, after upsizing it from an originally planned $250 million.

It had sold its existing $500 million of the notes back in February.

Some recent issues busy

However, the traders did note some activity Wednesday among other recently priced new issues.

Exela Technologies’ 10% first priority senior secured notes due 2023 were seen by a market source gaining ¼ point to finish at 98 5/8 bid, with about $18 million traded.

The company – a new entity being created through the merger of Quinpario Acquisition Corp. 2, a St. Louis-based special purpose acquisition company, SourceHOV LLC, an Irving, Texas-based provider of transaction processing solutions and enterprise information management solutions, and Novitex Holdings Inc., a West Stamford, Conn.-based provider of technology-driven managed services – priced its $1 billion regularly scheduled forward calendar offering at par on June 28 via funding subsidiaries Exela Intermediate LLC and Exela Finance Inc., after the deal was sharply upsized from an originally announced $525 million.

Sirius XM’s 5% notes due 2027 gained 3/8 point on the session to end at 100 3/8 bid, on volume of over $13 million.

The New York-based satellite radio broadcaster priced $1.25 billion of those notes at par on June 26, as part of a quickly shopped $2 billion two-part offering, upsized from $1.5 billion originally. Besides the 10-year piece, which was enlarged from an originally planned $1 billion, the offering included $750 million of 3 7/8% notes due 2022, which priced at par after that tranche was increased from $500 million originally.

The source said that Intelsat Jackson’s 9¾% notes due 2025 were little changed on the day, at just a shade over par, with over $21 million having traded.

The wholly-owned subsidiary of Luxembourg-based communications satellite company Intelsat SA priced its $1.5 billion quick-to-market issue of those notes at par on June 19.

Going back a little further, PetSmart’s 5 7/8% senior secured first-lien notes due 2025 were seen ½ point better, at 97 bid, with over $10 million traded.

The San Diego-based specialty retailer of pet foods and supplies priced $1.35 billion of those notes at par on May 25, as part of a $2 billion regularly scheduled two-part transaction that also included $650 million of 8% senior unsecured notes due 2025, which also priced at par.

And NOVA Chemicals’5¼% notes due 2027 were seen by a trader to have firmed by 7/16 point, ending at 98 and 15/16 bid, as around $8 million of that issue moved around.

The Calgary, Alta.-based chemical producer priced $1.05 billion of those notes at par, also on May 25.

Those notes were part of a $2.1 billion two-part forward calendar deal that also included $1.05 billion of 4 7/8% notes due 2024, which also priced at par.

Indicators turn upward

Statistical market performance measures turned higher across the board on Wednesday, after having been mixed for three consecutive sessions. They had turned mixed last Friday and then stayed that way Monday and Tuesday, after having been lower across the board for two sessions in a row before that.

The KDP High Yield Daily Index rose by 9 basis points on Wednesday to end at 71.98, after five straight losses before that, including on Monday and Tuesday, when it was down by 1 bp in each of those sessions.

Its yield came in by 2 bps to finish at 5.09%, after having been unchanged on Tuesday and having widened out over the four sessions before that, including Monday, when the yield had risen by 6 bps.

The Markit CDX Series 28 High Yield Index moved up by 13/32 point, closing at 107 bid, 107 ¼ bid, after having been unchanged on Tuesday. It had also posted gains over the two sessions before that, including Monday, when it had edged up by 1/32 point. Those gains had followed three successive losses before that.

The Merrill Lynch North American High Yield Index saw its third consecutive improvement on Wednesday, rising by 0.263%, on top of Tuesday’s 0.027% advance. Those three better sessions follow three straight sessions before that on the downside.

Wednesday’s upturn lifted the index’s year-to-date return to 4.986% from 4.711% on Tuesday, although the cumulative return remained below its high point for the year to date of 5.173%, recorded on June 14.

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