European primary active; Comstock gains; Spectrum drops; funds see $2.49 billion outflow

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 26 – While the calendar of dollar-denominated issuance cleared for the week, the European primary market remained active with three deals pricing on Thursday.

La Financiere Atalian SAS priced a €610 million equivalent issue of seven-year senior notes (B2/B+) in two tranches.

Fedrigoni priced a €455 million issue of three-month Euribor plus 412.5 basis points senior secured floating-rate notes due Nov. 30, 2024 (B2/B+) at par.

Refresco Group NV priced a €445 million issue of eight-year senior notes (Caa1/B-) at par to yield 6½%.

The dollar-denominated primary market is in the throes of an earnings season blackout which is set to linger into the April-May crossover week ahead.

While no new dollar-denominated paper entered the secondary space on Thursday, recent deals remained in focus with new paper from WeWork Cos. Inc., Netflix, Inc. and Jagged Peak Energy Inc. the major volume movers of the session.

WeWork’s new 7 7/8% notes due 2025 (S&P: B+/Fitch: BB-) were seen weaker while Netflix’s 5 7/8% senior notes due 2028 (Ba3/B+), Jagged Peak’s 5 7/8% senior notes due 2026 (B3/B) and Flora Food Group’s 7 7/8% senior notes due 2026 (B3/expected B-/expected B-) improved slightly.

Away from the new and recent deals, Comstock Resources Inc.’s 10% senior secured toggle notes due 2020 gained 2.5 points on Thursday after the independent energy company withdrew its tender offer for the notes and announced a new investment in the company.

Spectrum Brands Inc.’s 5¾% senior notes due 2025 were down 2 points after the diversified company reported disappointing second quarter earnings prior to the market open.

While the market was seen as firmer on Thursday, the dedicated high yield bond funds sustained $2.489 billion of net outflows for the week ending Wednesday, April 25.

Atalian in euros, sterling

La Financiere Atalian priced a €610 million equivalent of seven-year senior notes (B2/B+) in two tranches on Thursday.

The deal included €350 million of notes that priced at par to yield 5 1/8% and £225 million of notes that priced at par to yield 6 5/8%.

Joint global coordinator Credit Suisse will bill and deliver. BNP Paribas was also a joint global coordinator. Citigroup was a joint bookrunner.

The Paris-based facilities management services provider plans to use the proceeds to fund the acquisition of Servest UK, as well as to refinance substantially all of Servest UK’s debt and for general corporate purposes, including acquisitions.

Fedrigoni prices tight

Specialty paper manufacturer Fedrigoni priced a €455 million issue of three-month Euribor plus 412.5 basis points senior secured floating-rate notes due Nov. 30, 2024 (B2/B+) at par.

The spread came at the tight end of spread talk in the Euribor plus 425 bps area and inside of earlier talk of Euribor plus 425 to 450 bps.

Along with spread talk there were covenant changes.

Joint bookrunner BNP Paribas will bill and deliver. HSBC, KKR and UBI Banca were also joint bookrunners.

Proceeds will be used to repay the bridge loan used to fund the buyout of the Verona, Italy-based company by Bain Capital Private Equity.

Refresco prices 6½% notes

Rotterdam, Netherlands-based Refresco Group priced a €445 million issue of eight-year senior notes (Caa1/B-) at par to yield 6½%.

The yield printed in the middle of yield talk in the 6 ½% area.

Credit Suisse was the lead left global coordinator. BNP Paribas and JPMorgan were joint global coordinators. ABN Amro, Deutsche Bank, Mizuho and Rabo were joint bookrunners.

The deal was priced via Sunshine Mid BV.

Proceeds will be used to repay a bridge facility borrowed in connection with the acquisition of 99.4% of Refresco’s shares by PAI Partners SAS and British Columbia Investment Management Corp., an investor consortium known as Sunshine Investments BV.

Roadshow concludes

Meanwhile, Germany-based cable operator Tele Columbus AG was scheduled to conclude a roadshow for a €500 million offering of seven-year senior secured notes (B2).

As the market awaited official price talk and timing late Thursday, London time, further details were pending, said a debt capital markets banker based there.

Reverse inquiries

Wednesday’s debut junk issue from WeWork continued to generate market chatter on Thursday.

The company’s 7 7/8% senior bullet notes due May 2025 (Caa1/B+/BB-) priced at par in a $702 million issue on Wednesday that was upsized from $500 million.

Although Wednesday’s deal marked WeWork’s debut, it was said to have ridden into market on a significant amount of reverse inquiry generated on a non-deal roadshow conducted by JP Morgan, according to a bond trader.

Such a process may enable an issuer and its bookrunner to gauge demand and calculate rates, the trader said.

By these means, FourPoint Energy, LLC lately did a non-deal roadshow, also via JP Morgan, putting feelers into the market, gauging whether bonds might be placed and at what price, said the trader, who is focused on the energy sector.

WeWork below par

While reverse inquiry brought WeWork’s debut junk bond into the market, the 7 7/8% notes were seen below their issue price in high volume trading on Thursday.

The notes were at 99¾ bid, par offered early in Thursday’s session but dropped to 99½ bid, 99¾ offered in the afternoon.

The notes briefly popped above par early in the session but were soon trading below with most trades between 99½ and 99¾, market sources said.

The new notes dominated trading activity in the secondary space on Thursday with more than $77.45 million of bonds in play.

The notes were seen at par ¼ bid, par ½ offered with trades seen at par ¼ soon after breaking for trading on Wednesday.

The New York-based provider of shared workspaces has a global portfolio of 14 million square feet.

Recent deals improved

While new paper from WeWork dominated trading activity, several recent deals were also active on the tape and making slight improvements.

“New issues were the theme of the day,” a market source said.

Jagged Peak’s 5 7/8% senior notes due 2026 were up early Thursday at par ½ bid, 101 offered. The notes were at par ¼ bid late Wednesday after breaking for trade.

The notes were seen trading on Thursday between par ¼ and par ¾ with about $53 million of bonds in play.

Jagged Peak priced the upsized $500 million issue at par on Wednesday at the tight end of the 5 7/8% to 6% yield talk and tight to early guidance that was set in the 6% to 6¼% area.

In the run-up to the close of books, the deal was heard to be playing to $1.5 billion of orders, market sources said.

Netflix’s 5 7/8% senior notes due 2028 remained a major volume mover in the secondary space with the notes making slight gains.

The 5 7/8% notes were at par bid, par ¼ offered on Thursday with trades seen at par 1/8, sources said.

The notes slipped to 99 3/8 bid, 99 7/8 offered Wednesday afternoon, a decrease of about 3/8 point.

Netflix priced an upsized $1.9 billion issue of the 5 7/8% notes at par on Monday.

While not as active, Flora Food Group’s 7 7/8% senior notes due 2026 (B3/expected B-/expected B-) were also improved with the notes seen trading above par.

The notes were seen at par ¼ bid, par ½ offered on Thursday, a market source said. The notes were stuck at par after breaking for trade on Wednesday.

Flora Food Group priced an upsized €1.1 billion equivalent two-part offering of eight-year senior notes to be issued by Sigma Holdco BV on Wednesday. The issuances included $525 million of the 7 7/8% notes that priced at par.

Comstock gains

Comstock Resources’ 10% senior secured toggle notes due 2020 were up 2.5 points in decent volume trading on Thursday, a market source said. The notes were seen trading at 104¾ with more than $22.75 million of bonds in play.

Comstock withdrew its tender offer for the senior notes on Thursday after conditions to the offer went unmet. The conditions included new stock, bank loan and note financings and the sale of some assets.

Comstock also announced on Thursday that Dallas Cowboys Football Club Ltd. and Arkoma Drilling LP owner Jerry Jones may make a substantial investment in the company.

Comstock signed a letter of intent with Arkoma Drilling LP and Williston Drilling LP under which Comstock will acquire oil and gas properties in North Dakota from Arkoma in exchange for 88.6 million newly issued shares of the company at $7.00 a share.

Upon completion of the transaction, Arkoma will own 84% of Comstock’s outstanding shares.

Comstock plans to retire the senior notes following the completion of the acquisition of the North Dakota properties.

Spectrum drops

Spectrum’s 5¾% senior notes due 2025 were down 2 points after an earnings miss, a market source said. The notes were seen trading at 99¾ with more than $37 million of bonds in play on Thursday.

Spectrum reported second quarter earnings prior to the market open Thursday. The diversified consumer goods company reported adjusted earnings per share of 56 cents for the second quarter versus analyst expectations for $1.01.

Spectrum also announced Thursday that chief executive officer Andreas Rouve had resigned and was replaced with executive chairman David Maura.

In addition, the company launched a new three-year $1 billion share repurchase program and lowered its guidance for the fiscal year.

$2.49 billion outflows

The dedicated high yield bond funds sustained $2.489 billion of net outflows in the week ending Wednesday, April 25, according to the Lipper US Fund Flows.

The substantial outflow follows the previous week’s even more substantial $2.971 billion of inflows.

With the latest outflow, the funds have now seen seven losses and three gains in the past 10 weeks, according to a Prospect News analysis of the data.

The outflow reported Thursday extends the year-to-date cumulative cash loss to $14.61 billion.

However, a slight but unmistakable ray of light pierces this dark fund flows picture, a trader said on Thursday.

Noting that Wednesday’s daily cash flows were mixed, and essentially flat, and that the most recent daily flows have been flat to slightly positive, the trader said that the most recent weekly outflow was front-loaded, hinging on substantial redemptions that surfaced during market volatility one week ago on Thursday, April 19 and Friday, April 20.

Since that time the market has improved and the cash outflows have moderated and, to a certain extent, turned, the source remarked.

Indexes mixed

Indexes were mixed on Thursday with some continuing to see losses while others saw gains.

The KDP High Yield index was down 8 basis points on Thursday to 70.46 with the yield now 5.85%.

The index has posted losses since April 19 after seeing 10 consecutive trading days of gains.

The Merrill Lynch High Yield index showed signs of improvement on Thursday, while still in negative territory for 2018 so far. The index was up 23.1 bps on Thursday shaving the negative year-to-date return to 0.331%.

The index was down 30.1 bps on Wednesday.

The index returned to negative territory on Monday after posting positive year-to-date returns since April 12.

The CDX high yield 30 index was up on Thursday, breaking a losing streak that has existed since April 17. The index was up about 37.6 basis points to close the day at 106.93.

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