Starwood prices; MidCap flat; HCA ‘buying frenzy’ continues; Michaels active

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 29 – While only one deal cleared the primary market on Tuesday, four deals remain on the forward calendar.

Starwood Property Trust, Inc. priced a $400 million issue of green-eligible five-year senior bullet notes in a Tuesday drive-by.

Everi Holdings Inc., Elastic NV, Vivint Smart Home, and Victoria's Secret remain on the forward calendar.

Details are also beginning to surface on SoftBank Group Corp.’s megadeal, which is expected to come after the holiday weekend.

Meanwhile, it was another sideways day in the secondary space with new and recent issues continuing to dominate the tape.

MidCap Financial Issuer Trust’s 5 5/8% senior notes due 2030 (B1/B+/BB) were in focus although the notes were largely trading around their issue price.

While new paper remained the focus of the space, there was some activity outside of new deals as accounts engaged in end-of-quarter cleanup and topical news pushed some outstanding issues into the spotlight.

HCA Healthcare, Inc.’s capital structure continued to rise with the company’s unsecured tranches seeing a “buying frenzy,” after Moody’s Investors Service lifted the health care company’s unsecured ratings to investment grade.

Michaels Cos., Inc.’s 7 7/8% senior notes due 2029 (B3/CCC+) saw a burst of activity on Tuesday with the notes posting minor gains.

Tuesday’s session

Only one deal priced in the Tuesday new issue market, as dealers set the stage for what could be a big Wednesday.

Starwood Property Trust priced a $400 million issue of 3 5/8% green-eligible five-year senior bullet notes (Ba3/B+/BB+) at par, on the tight end of yield talk.

The order book was heard to be 1.5-times deal size, and the bonds traded in line with that kind of demand, according to a trader who spotted them going out Tuesday at par ¾ bid, 101 offered.

Although the Wednesday session is not expected to clear the active calendar, it might well do so anyway, sources say.

Official talk and timing surfaced on only one of four remaining dollar-denominated deals on the active calendar as business for the pre-Independence Day week.

Everi Holdings is expected to price a $400 million offering of eight-year senior notes (B3/B) talked in the 5¼% area, tight to initial guidance of 5¼% to 5½%.

In what is heard to be a “clubby” deal, already oversubscribed, Elastic is expected to price a $500 million offering of eight-year senior notes, initial guidance high-4% to 5% area.

Vivint Smart Home is marketing a $900 million offering of eight-year senior notes with initial guidance in the low 6% area. Although scheduled to price Thursday, the order book was heard to already be at deal-size on Tuesday afternoon, and may get accelerated, a trader said.

Likewise, Victoria's Secret's $500 million offering of eight-year senior notes (B2/B+) is being whispered in the 5% area.

The deal, initially heard to be Thursday business, is heard to be mostly done in reverse inquiry, and will possibly be moved ahead to Wednesday, the trader said.

And looking beyond the extended holiday weekend, details began to surface Tuesday on a SoftBank megadeal, with the market expecting an overall $4.5 billion of senior notes in as many as eight tranches...four apiece in dollar and euro denominations (see related stories in this issue).

MidCap flat

MidCap’s 5 5/8% senior notes due 2030 fell flat in the aftermarket with the notes largely stuck at their issue price.

The 5 5/8% notes were changing hands in a range of 99 7/8 to par 3/8 during Tuesday’s session, a source said.

There was more than $72 million in reported volume.

MidCap priced a $400 million issue of the 5 5/8% notes at par on Monday.

The yield printed at the tight end of yield talk in the 5¾% area.

HCA gains

HCA’s capital structure continued to benefit on Tuesday from a Moody’s upgrade the previous week.

The capital structure has risen 2 to 5 points since the upgrade, a source said.

HCA’s 3½% senior notes due 2030 remained the most active in the capital structure.

The notes continued to trade on a 106-handle.

They were changing hands in the 106 3/8 to 106½ context throughout Tuesday’s session.

There was more than $21 million in reported volume.

The notes closed the previous week on a 103-handle.

HCA’s 5 7/8% senior notes due 2026 continued to trade on a 116-handle and were changing hands in the 116 1/8 to 116¼ context heading into Tuesday’s close.

The notes closed the previous week on a 114-handle.

There was a “buying frenzy,” a source said.

There is a feeling in the market that HCA could be a rising star and an upgrade from the other two rating agencies would soon follow.

If HCA’s unsecured notes are upgraded to investment grade by another rating agency, the secured and unsecured notes would become pari passu and spread compression is expected, sources said.

Moody’s boosted HCA Inc.’s senior unsecured ratings to Baa3 from Ba2 last week and withdrew its Ba1 corporate family credit rating on HCA Healthcare Inc. due to the resiliency of the company’s business model, Prospect News reported.

The rating upgrade came after HCA Inc.’s $2.35 billion two-tranche offering of senior secured notes (Baa3/BBB-/BBB-) on June 21.

Michaels active

Michaels’ 7 7/8% senior notes due 2029 saw a burst of activity on Tuesday.

The notes rose about 3/8 point to close the day at 103 1/8. There was about $26 million of the bonds on the tape.

There did not appear to be any news to spark the trading activity, which may have been the result of end-of-quarter rebalancing.

The 7 7/8% notes offered a decent 7% yield, a source said.

Michaels priced a $1.3 billion tranche of the 7 7/8% notes at par in early April to fund Apollo Global Management’s buyout of the arts and crafts store.

$44 million Monday inflows

The dedicated high-yield bond funds saw $44 million of net inflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds saw $70 million of inflows on the day.

However high-yield ETFs were negative on Monday, sustaining $26 million of outflows on the day, the source said.

The combined funds are tracking $1.27 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes mixed

Indexes were again mixed on Tuesday with some posting nominal gains and others nominal losses.

The KDP High Yield Daily index rose 5 points to close the day at 70.09 with the yield now 3.74%.

The index gained 4 points on Monday.

The ICE BofAML US High Yield index rose 8.9 bps with the year-to-date return now 3.581%.

The index gained 9 bps on Monday.

The CDX High Yield 30 index shaved off 3 bps to close Tuesday at 110.20.

The index dropped 17 bps on Monday.

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