Dollar market quiets down; BevMo! shops deal; new Yum!, HCA, PetSmart, Hertz issues gain

By Paul Deckelman and Paul A. Harris

New York, June 13 – Amid continued soaring temperatures in the Northeast and other parts of the United States, even though the official start of summer is still a week away, the high-yield dollar-denominated market seemed to slip into a sunny, “dog days”-like torpor on Tuesday, with nothing heard to have priced.

The day’s sole pricing came from the split-rated crossover issuer American Equity Investment Life Holding Co., which did a $500 million 10-year issue.

Otherwise, the only news generated on the primaryside came from beer, wine and spirits seller BevMo!, which was heard to be getting ready to hit the road to market a $190 million five-year secured deal.

In the secondary arena, traders did see brisk activity in the recently priced issues of such companies as Yum! Brands, Inc., which priced on Monday, and going back a little further, HCA Inc., PetSmart, Inc. and Hertz Corp., all of which were on the upside.

Even the existing notes of PetSmart and Hertz – under pressure along with their new-issue counterparts – were seen on the rebound Tuesday.

Statistical market performance measures were higher all around for a second consecutive session on Tuesday; they had turned northward on Monday after having been mixed on Friday and lower across the board for the three straight sessions before that.

Ocado talk 4½% area

Most of Tuesday's thin stream of primary market news came out of Europe.

British online grocer Ocado talked its £200 million offering of seven-year senior secured notes (Moody's: Ba2/Fitch: BB) to yield in the 4½% area.

The debt refinancing deal is expected to price on Wednesday.

Barclays, HSBC, Goldman Sachs, Royal Bank of Scotland and RABO are managing the offering.

Lagardere to sell €300 million

Paris-based media company Lagardere Group was scheduled to participate in a conference call with fixed income investors on Tuesday.

The company is seeking to place €300 million of non-rated seven-year senior notes.

The deal is set to come in an investment grade-style execution.

Credit Agricole CIB and Natixis are joint global coordinators. Commerz and ING are joint bookrunners.

American Equity prices 5% notes

In the dollar-denominated crossover market American Equity Investment Life Holding Co. priced a $500 million issue of split-rated 5% 10-year senior notes (S&P: BBB-/Fitch: BB+/AM Best: bbb-) at a 280 basis points spread to Treasuries.

The spread came in line with initial spread talk of Treasuries plus the high 200 bps to 300 bps area, according to market sources who added that the deal was transacted on the investment grade desk.

J.P. Morgan and RBC were the joint lead bookrunners for the debt refinancing deal. Citigroup and SunTrust were joint bookrunners.

In the realm of straight speculative grade deals, Beverages & More, Inc. (BevMo!) was scheduled to begin a roadshow on Tuesday for its $190 million offering of five-year senior secured notes (B-), a debt refinancing deal via Jefferies.

Early guidance has the deal coming together at 10½% with two points of OID, sources said.

A number of holders of BevMo's existing 10% notes are rolling into the new issue, according to a trader who added that the company has been talking about a cost containment program, which investors appear willing to see through.

The company's existing 10% notes due November 2018 are callable now at 102.5 and traded on Monday at 102.25, below the call price (the call drops away on Nov. 15, 2017).

At 102.25 the notes are up five points, the trader said, adding that some distressed accounts were happy to sell there.

Monday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Monday, the most recent session for which data was available at press time, an investor said.

High-yield ETFs saw $394 million of inflows on the day.

Actively managed funds saw $20 million of inflows on Monday.

Dedicated bank loan funds were also positive on the day, seeing $35 million of inflows on Monday.

Waiting for the Fed

A trader suggested that with the Federal Reserve’s policy-setting Federal Open Market Committee scheduled to wrap up its two-day June meeting on Wednesday and likely to bump interest rates upward by another notch, “everything seemed to be on hold a little bit.”

Recent issues take center stage

With no fresh new deals to chew on, secondary market attention turned to recently priced issues.

A trader said that Yum! Brands’ new 4¾% notes due 2027 “certainly were busy,” seeing those bonds move up to 101¼ bid from the 100 5/8 bid level they had held in initial aftermarket dealings after the Louisville, Ky.-based operator of the KFC, Pizza Hut and Taco Bell fast-food chains had priced its quickly shopped and upsized $750 million issue at par on Monday.

At another desk, a market source pegged the bonds a full 1 point higher at 102¼ bid, with over $34 million of the new notes having changed hands.

Yum!’s existing 5% notes due 2024 firmed to 1105 1/8 bid, with around $9 million having traded.

Elsewhere, Nashville-based hospital operator HCA Inc.’s new 5½% senior secured bonds due 2047 gained nearly 1 full point on the day, a trader said, adding to its already impressive aftermarket gains to close at 103 11/16 bid, with over $83 million of the split-rated bonds having traded, including around $30 million in big round-lot trades and the rest in smaller odd-lot transactions.

Recent laggards on the rebound

Besides those new issues that have been strong right from the get-go, traders said that even the new issues that have been under pressure after pricing seemed to find some footing in Tuesday’s overall stronger secondary market.

For instance, a trader said that “PetSmart’s whole [capital] structure was up by ¾ point,” including both its two-part new issue and its existing paper.

The San Diego-based pet food and supplies retailer’s new 5 7/8% senior secured notes due 2025 gained ½ point to end at 98 bid, with over $19 million traded, while its 8 7/8% unsecured notes due 2025 jumped by a full 1¼ points, to 96½ bid, with about $10 million having traded.

The company’s existing 7 1/8% notes due 2023 were even busier, with over $27 million traded on Tuesday, moving up by 5/8 point on the day to end just above 91 bid.

And Estero, Fla.-based car-rental giant Hertz Corp.’s new 7 5/8% senior secured second-lien notes due 2022 were seen by a trader to be up a deuce on the day at 98¼; he suggested that the issue, which has been pretty much skidding lower ever since that upsized priced at par on May 31, had just been “oversold.”

Another trader called the bonds up 1¾ points on the day, also at 98 bid, with over $27 million of volume.

Hertz’s existing 5 7/8 % note due 2020 gained more than ½ point on the day to close at 93 5/8 bid, with over $12 million traded.

Indicators stay strong

Statistical market performance measures were higher all around for a second consecutive session on Tuesday; they had turned northward on Monday after having been mixed on Friday and lower across the board for the three straight sessions before that.

The KDP High Yield Daily index edged upward by 1 basis point Tuesday to end at 72.55, its second straight gain; the index had jumped by 10 bps on Monday, its first gain after four consecutive setbacks, including Friday’s 4 bps retreat.

For a second day in a row, its yield came in by 1 bp, to 4.91%, matching Monday’s improvement, after having risen over the previous three sessions, including Friday’s 1 bps widening.

The Markit CDX Series 28 High Yield index firmed by around 1/8 point on Tuesday, closing at 107¾ bid, 107 7/8 offered, its third straight upturn; on Monday, it had risen by 5/8 point, on top of last Friday’s 3/32 point advance. Before that, the index had been unchanged on Thursday, after having been lower for three straight sessions.

The Merrill Lynch North American High Yield index posted its third straight gain on Tuesday, moving up by 0.116%, after having firmed by 0.079% on Monday and by 0.065% on Friday, coming off of three consecutive losses before that.

The gain raised the index’s year-to-date return to 5.132% from Monday’s 5.011% close. That also established a new 2017 peak cumulative return, surpassing the old mark of 5.074% which had been set last Monday.

© 2015 Prospect News.
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