Upsized Big River Steel, Trinseo, downsized Club Corp. price; new Staples struggles; Tesla also troubled

By Paul Deckelman and Paul A. Harris

New York, Aug. 15 – Junkbondland’s primary market continued its busy pace on Tuesday, churning out three new deals totaling $1.53 billion of new U.S. dollar-denominated paper from domestic issuers, slightly exceeding Monday’s dollar-volume output of $1.5 billion in two tranches, according to data compiled by Prospect News.

Metals processor Big River Steel LLC had the big deal of the day, pricing an upsized $600 million of eight-year notes, while Trinseo Materials Operating SCA, a plastics and rubber manufacturer, brought a likewise upsized $500 million of eight-year paper to market.

Both of those regularly scheduled forward calendar offerings firmed by better than a point in active aftermarket dealings.

ClubCorp Holdings Inc., an operator of golf, country and business clubs, did a downsized $425 million eight-year issue, which priced off the calendar late in the day and did not see much secondary activity.

The busiest junk issue of the day was Staples Inc.’s downsized $1 billion offering, which had priced on Monday, although terms did not surface in the market until Tuesday. The office supplies retailer’s eight-year deal was seen trading well under its par issue price.

That was also the case for another big deal – last Friday’s upsized megadeal from electric car manufacturer Tesla, Inc. Like Staples, it was a regularly scheduled eight-year issue that slipped below its par issue price and has not come up since.

Statistical market performance measures turned mixed on Tuesday for the second time in the past three sessions; they had been higher across the board on Monday for the first time since Aug. 2, after having also been mixed on Friday following three losing sessions before that.

Big River Steel upsizes

The Tuesday primary market saw three issuers price single-tranche deals to raise a combined total of $1.53 billion.

All three issues came at the conclusions of roadshows.

Two of the three upsized, while the third downsized.

Two came on top of- or in the middle of talk. One came wide of talk.

Big River Steel LLC priced an upsized $600 million issue of eight-year senior notes (B3/B) at par to yield 7¼%.

The deal size was increased from $500 million.

The yield printed on top of yield talk in the 7¼% area.

Goldman Sachs was the bookrunner.

The Osceola, Ark.-based owner and operator of a flat-rolled steel mini-mill plans to use the proceeds, along with a $500 million term loan, an equity contribution and certain other funds, to refinance the substantial majority of its outstanding debt, as well as for general corporate purposes and working capital.

Trinseo upsizes

Trinseo priced an upsized $500 million issue of eight-year senior notes (B3/BB-) at par to yield 5 3/8%.

The issue size was increased from $450 million.

The yield printed in the middle of the 5¼% to 5½% yield talk.

Earlier talk was 5½% to 5¾%, according to a market source.

The debt refinancing deal played to a decent but not heavily oversubscribed order book, a trader said.

Deutsche Bank managed the sale.

ClubCorp downsizes

ClubCorp Holdings Inc. priced a downsized $425 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8½%.

The issue size was decreased from $475 million, with proceeds shifted to the concurrent term loan.

The yield printed 25 basis points beyond the wide end of the 8% to 8¼% yield talk.

Initial conversations on yield started at 7¼%, according to a trader who added that there were also covenant changes.

Triple C ratings and guarded sentiment with respect to sponsor Apollo Global Management, LLC, on the part of some high-yield accounts, may have created headwinds for the buyout deal, the trader added.

Joint bookrunner RBC will bill and deliver. Citigroup, Barclays, Credit Suisse, Deutsche Bank and Goldman Sachs were also joint bookrunners.

The $50 million of proceeds from the bonds that were shifted to the term loan increased the loan size to $1,175,000,000 from $1,125,000,000.

Tuesday's action in the primary market left a very thin active forward calendar in its wake.

The only deal presently in the market is the Enova International Inc. $250 million offering of seven-year senior notes (Caa1/B-) on a roadshow set to continue into Thursday.

Jefferies is the active bookrunner for the debt refinancing and general corporate purposes deal.

Monday outflows

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

High-yield ETFs sustained $152 million of outflows on the day.

Actively managed funds sustained $185 million of outflows on Monday.

Dedicated bank loan funds were modestly positive on the day, seeing $45 million of inflows, $38 million of which went into the bank loan ETFs.

Big River, Trinseo deals move up

In the aftermarket, a trader saw Big River Steel’s new 7¼% notes due 2025 having moved up to a 101¼-to-101¾ bid context, after that upsized forward calendar issue had priced at par earlier.

At another desk, a trader pegged those notes at just over 100½ bid, with more than $27 million having changed hands.

The traders also saw a considerable amount of activity in Trinseo’s new 5 3/8% notes due 2025.

More than 26 million of the Berwyn, Pa.-based plastics and synthetic rubber manufacturer’s new deal were traded, pushing up to 101¼ bid from their par issue price.

Staples struggles in the secondary

Monday’s $1 billion offering of 8½% notes due 2025 from Framingham, Mass.-based office supply retailer Staples, Inc. saw the busiest volume of any junk issue, old or new, with more than $140 million of turnover.

A market source said that those bonds had fallen to a closing level around 98½ bid.

That was well down from the par level at which that regularly scheduled forward calendar deal had priced on Monday after having been downsized – first from $1.6 billion originally, then to $1.3 billion, and finally to $1 billion.

While the deal actually priced late in the day on Monday, terms did not surface until Tuesday morning.

In Tuesday morning dealings, a trader said that the notes traded as low as 98 bid, 98½ offered, although he saw them subsequently improve to 99 3/8% bid, 99 5/8 offered, adding that it felt “as though the shorts had quit the trade.”

Another trader had them at 99 bid, 99¼ offered at mid-morning.

By the afternoon, a third trader said, the bonds had settled round 99¼ bid, 99½ offered – up from a 98-to-98¼ area at the opening, “but still below par.”

Tesla trades terribly

Traders also noted that the new Tesla, Inc. 5.30% notes due 2025 continued to struggle on Tuesday, with one market source calling the bonds losers by 13/16 point on the day, going home at 98 11/16 bid, with over $100 million traded.

A second trader said that Tesla opened around 99¼-to-99¾, which he called down around 1 point on the day.

He said the notes got as good as par during the day, “but now they’re back below 99,” ending in a 98¾-to-99¼ bid context.

The trader said that the Palo Alto, Calif.-based megadeal “was one that a lot of high-yield money managers basically avoided.

“We heard that a lot of equity guys played it overseas – guys played it, but among your regular on-the-run high-yield guys, we couldn’t find anybody that played in it.”

He further suggested that the deal – which played to an order book reportedly in the $3 billion to $4 billion area, including investment-grade accounts as well as junkbonders and other investors – “was hyped.”

He said that “someone had suggested, tongue-in-cheek, that [Tesla founder and chairman] Elon Musk had bought a bunch himself – but I think this deal was away from the normal high-yield universe that you would expect for a deal like that.”

He noted that the bonds are eight-years, with three years of call protection, with a kind of 103ish kind of a call price [when they are callable] – so over the next three years, you have 3 points of upside – and unlimited downside.”

And he further noted that the company “still doesn’t make any money.”

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday for the second time in the past three sessions; they had been higher across the board on Monday for the first time since Aug. 2, after having also been mixed on Friday following three losing sessions before that.

The KDP High Yield Daily Index rose by 3 basis points on Tuesday to finish at 71.99 – its first advance after having been unchanged on Monday and having moved downward over seven consecutive sessions before that, including plunges of 17 bps on Friday and 15 bps on Monday.

Its yield came in by 1 bp on Tuesday, to 5.26% – its first such tightening after six consecutive days in which the yield had risen, including by 1 bp on Monday and a 6 bps widening out on Friday.

The Markit CDX Series 28 High Yield Index posted its third straight upturn after breaking out of a six- session slump before that, edging up by around 1/16 point, to 106 15/16 bid, 107 offered; the index had firmed by 11/32 point on Monday and by a little more than 1/16 point Friday.

The Merrill Lynch North American High Yield Index, though, eased by 0.03%, after having finally posted a gain on Monday after four straight losses before that, ending up Monday by 0.214%, versus Friday’s 0.09% loss.

Tuesday’s retreat lowered the index’s year-to-date return to 5.512% from 5.543% on Monday and from the Aug. 2 close at 6.233%, its 2017 year-to-date peak level.

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