IHO (Schaeffler) lags; IAA, Builders FirstSource weaken; Exela drops; funds add $4 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 23 – The volatility roiling capital markets sidelined the domestic high-yield primary market’s new issue activity on Thursday, which has seen a steady stream of activity throughout the week.

Of the three deals that remain on the forward calendar, only one was expected to price during the current week – Neiman Marcus Group Ltd. LLC’s $550 million offering of five-year second lien notes.

However, the prospect of the deal pricing during Friday’s shortened session is unlikely, sources say.

Q'Max Solutions Inc.’s $225 million of five-year secured notes (Caa2/B-) and Obsidian Energy Ltd.’s $100 million offering of five-year senior notes also remain on the forward calendar.

In the European market, Germany-based Novem Group GmbH set price talk on its €375 million offering of five-year senior secured floating-rate notes (Ba3/B+).

Meanwhile, the secondary space was soft on Thursday as equities got pummeled and investors fled to safer assets.

Several recent deals were lagging their issue prices or coming in from the heights reached after breaking for trade.

The dollar-denominated tranches of IHO Verwaltungs GmbH, the holding company whose interests include manufacturer Schaeffler AG, were lagging their issue prices in secondary trading.

While still well above their issue price, Builders FirstSource Inc.’s 6¾% senior notes due 2027 and IAA, Inc.’s (Insurance Auto Auctions, Inc.) 5½% senior notes due 2027 were weakening in high-volume activity in the secondary space.

Outside of the new paper, Power Solutions’ 8½% unsecured notes due 2027 returned to focus in the secondary space with the notes trading down in high-volume activity.

Power Solutions’ 6¼% senior notes due 2026 were also trending lower after a series of executive departures.

Exela Technologies Inc.’s 10% senior notes due 2023 dropped in high-volume activity following a ratings downgrade.

Meanwhile, high-yield mutual funds and exchange-traded funds saw their fund flows turn positive over the past week, albeit by a small amount.

Junk funds saw an inflow of $4 million for the week ended Wednesday, according to fund-flow statistics generated by AMG Data Services Inc.

The modest inflow follows the largest outflow of 2019 with $2.57 billion leaving the space for the week ended May 15.

Novem talk

A risk-off Thursday session in the primary market generated the slightest trickle of news.

Germany-based Novem Group set price talk on its €375 million offering of five-year senior secured floating-rate notes (Ba3/B+), its debut issue in the junk bond market.

The deal is talked with a 500 to 525 basis points spread to Euribor, a 0% Euribor floor, at par. Official talk comes inside of initial guidance in the mid-500 bps area.

Books closed Thursday morning and the deal was expected to price later Thursday.

No terms were available at press time.

Run-up to holiday weekend

The yield on the 10-year Treasury, which slid on Wednesday, continued to drop on Thursday, absolutely plummeting just ahead of the close, a sellside source recounted, adding that 10-year governments were headed out yielding 2.32% on Thursday, down 2.81% on the session.

Determining the precise source of the volatility is not easy, the sellside source said.

Certainly, drama in trade relations between China and the United States has ratcheted higher, the source remarked.

However, trade war rhetoric has provided the background music in the new issue market for a month, and there is a sense that people have become accustomed to it.

The active calendar features just one deal expected to clear ahead of Friday's recommended early close in the bond market.

Neiman Marcus has been marketing $550 million of five-year second lien notes.

Early guidance had the deal coming with a blended 14% coupon, comprised of an 8% cash payment and the remaining 6% to be taken out by means of an in-kind PIK payment.

Although some sources had been expecting the Neiman Marcus deal to clear ahead of the holiday weekend, the likelihood of that happening has dwindled, the sellsider said.

Friday, already a foreshortened session, will find a substantial number of market participants in the United States out of the office for most, if not all, of the session.

Nordic deals

Away from Novem and Neiman Marcus, there are two other offerings on the forward calendar.

Although both are dollar-denominated, some in the market allude to them as “Nordic” transactions due to the fact that they are executions undertaken by Scandinavian banks.

Houston-based oilfield services provider Q'Max Solutions is marketing $225 million of five-year secured notes (Caa2/B-), in a Rule 144A and Regulation S offer.

And Calgary-based oil and gas company Obsidian Energy is in the market with $100 million of five-year senior notes.

Roadshows for both deals are underway, an Oslo-based sellside source said on Thursday.

Both are being helmed by Pareto Securities.

Given the market's propensity for labeling deals run by Scandinavian banks as “Nordic” deals, Prospect News asked this source whether such a distinction is meaningful.

It's a misleading distinction, the source answered.

The Scandinavian market has grown in size quite a bit in the past 10 to 15 years.

And the deals involve investors from all over the world.

“Perhaps one distinction that is meaningful is that Nordic deals come with 'Nordic' documentation,” the sellsider added.

IHO (Schaeffler) lags

IHO’s dollar-denominated tranches of its PIK toggle notes were lagging their issue price in secondary trading on Thursday.

The 6%/6¾% toggle notes were seen at 99 3/8 bid, 99 7/8 offered early in the session.

They were changing hands between 99 5/8 and par ¼ throughout the session, sources said.

While lagging their issue price, trading volume was moderate on Thursday with about $8.5 million on the tape by the late afternoon.

IHO’s 6 3/8%/7 1/8% toggle notes due 2029 were seen at 99¼ bid, 99¾ offered early Thursday and were changing hands in a range of 99½ and par, sources said.

The 6 3/8% notes were slightly more active with $13 million of the bonds on the tape by the late afternoon.

IHO priced a $450 million tranche of the 6% cash coupon and a 6¾% PIK coupon at par on Wednesday.

The company also priced a $400 million issue of the 6 3/8% cash coupon and a 7 1/8% PIK coupon at par.

The tranches were part of a €2.05 billion equivalent PIK toggle notes deal that included two euro-denominated tranches.

Builders FirstSource comes in

Builders FirstSource’s 6¾% senior notes due 2027 were coming in from the heights reached after breaking for trade on Wednesday.

The 6¾% notes were seen down about ½ point to 101 5/8 in the late afternoon, according to a market source.

More than $47 million of the bonds were on the tape, making it one of the most actively traded issues during the session.

The 6¾% notes skyrocketed out of the gate on Wednesday, closing the day at 102 1/8, sources said.

The Dallas-based building products manufacturer priced an upsized $400 million issue of the 6¾% senior notes at par on Thursday.

The issue size increased from $300 million.

The yield printed in the middle of yield talk in the 6¾% area and low to initial guidance in the 7% area.

IAA weakens

IAA’s 5½% senior notes due 2027 were also slightly weaker on Thursday after skyrocketing upon breaking for trade.

The 5½% notes traded down to 101¼ late Thursday afternoon, according to a market source.

More than $26 million of the bonds were on the tape during Thursday’s session.

The notes traded as high as 101¾ after breaking for trade on Wednesday but closed the day at 101 3/8.

IAA priced an upsized $500 million issue of the 5½% notes at par on Wednesday.

The issue size increased from $400 million.

The notes priced at the tight end of the 5½% to 5 5/8% yield talk and lower than initial guidance in the 6% area.

Power Solutions trades down

Power Solutions’ secured and unsecured tranches used to fund the acquisition of Johnson Controls returned to focus in the secondary space with both tranches trading down following some executive departures.

Power Solutions’ 8½% unsecured senior notes due 2027 dropped 1 1/8 points to 101¼ on Thursday, according to a market source.

More than $34 million of the bonds were on the tape by the late afternoon.

While less active, Power Solutions’ 6¼% senior secured notes due 2026 were also down 1¼ points to 103 by the market close.

The notes were trading down after a series of executive departures from Clarios, formerly known as Johnson Controls Power Solutions.

The chief executive officer and chief financial officer both resigned from the organization.

Exela’s downgrade

Exela Technologies’ 10% senior notes due 2023 were trading down in high-volume activity on Thursday following a ratings downgrade.

They opened the day at 83 bid, 84 offered and closed the day at 80 7/8 bid, 81 ½ offered, according to a market source.

More than $33 million of the bonds were on the tape by the late afternoon.

It is the second day in a row the 10% notes have traded down, a market source said.

Exela was downgraded to Caa1 from B3 by Moody’s on Wednesday.

The ratings agency referenced its weak first quarter and a view the investments used to transition the business to automated services will further pressure earnings and liquidity.

Indexes drop

Indexes were down on Thursday after a mixed week.

The KDP High Yield Daily index fell 13 basis points to close Thursday at 69.85 with the yield now 5.88%.

The index was flat on Wednesday, rose 3 bps on Tuesday and fell 3 bps on Monday.

The ICE BofAML US High Yield index dropped 33.2 bps with the year-to-date return now 8.043%.

The index slid 6.4 bps on Wednesday, gained 20.5 bps on Tuesday and shaved off 1.3 bps on Monday.

The CDX High Yield 30 index sank 43 bps to close Thursday at 105.83.

The index dropped 18 bps on Wednesday, gained 29 bps on Tuesday and dropped 20 bps on Monday.

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