Morning Commentary: EG Group, CDK tee up deals; Tesla gains on convertibles, stock news

By Paul A. Harris

Portland, Ore., May 2 – An active session in the new issue market got underway amid last-minute information on the big dual-currency deal from EG Group.

The U.K.-based filling station operator finalized tranche sizes and set coupons in its upsized and restructured €1.64 billion offering of senior secured notes (B2/B/B+).

The deal, which is upsized from €1,355,000,000, comes in three tranches, with a tranche of shorter maturity euro-denominated notes added late in marketing to what had previously been a two-part deal in dollars and euros.

The shorter maturity tranche shapes up as €300 million of 3 5/8% notes due 2024. Price talk was 3¾% to 4%.

The deal also includes €670 million of 4 3/8% notes due February 2025. Price talk was in the 4½% area after initial price talk was in the 4¾% area and early guidance in the 5% area.

The sole dollar-denominated tranche comes as $750 million of 6¾% notes due February 2025. Price talk was 6¾% to 7% following initial price talk was in the 7% area and early guidance in the low 7% area.

Final terms are due later on Thursday.

CDK plans drive-by

CDK Global, Inc. plans to price a $500 million offering of 10.5-year senior notes (expected ratings Ba1/BB+) in a quick-to-market Thursday trade via left bookrunner Wells Fargo Securities LLC.

The Hoffman Estates, Ill.-based company plans to use the proceeds to repay debt under its revolving credit facility and for general corporate purposes.

Elsewhere in the primary Teekay Corp. could price its downsized $250 million (from $300 million) offering of senior secured notes (B2/B+) on Thursday, sources say.

The maturity of the notes decreased to three years from five years.

Official price talk remained pending early Thursday; however, pricing indications have the revamped deal coming with a yield in the low 9% area.

Pricing on the previous five-year structure was 10% to 10¼%, sources say.

Tesla rallies

News that the capital markets remain open to Tesla, Inc. pushed the price of its 5.3% senior notes due August 2025 up a point to 87, a trader said.

Tesla said it will sell up to $1.35 billion of convertible senior notes, in addition to issuing additional common stock.

Tesla's stock price was also better in the early going on Thursday, even though the planned capital markets transactions are ostensibly dilutive to the share price, the trader remarked.

That is probably because with Thursday's announcements stock investors have some reassurance that the company won't burn cash faster than it can raise it, the source remarked.

Meanwhile in the oil patch, where the price of crude continues to slide, the Whiting Petroleum Corp. 6 5/8% senior notes due January 2026 were down a point, at 97.

The barrel price of West Texas Intermediate crude for June 2019 delivery was off a hefty 3.43%, or $2.18, at $61.42.

Junk was softer by 1/8 point at the Thursday open, the trader remarked.

Among recent issues, the Netflix, Inc. 5 3/8% non-callable senior notes due November 2029 (Ba3/BB-) were 1/8 point lower at 101½ bid, 101¾ offered.

They came at par in a $900 million tranche on April 24.

Mixed Wednesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, a trader said.

High-yield ETFs sustained $237 million of outflows on the day.

However, actively managed funds saw a hefty $420 million of inflows on Wednesday, the source added.

As the market awaits a weekly report on the flows of the combined funds for the week to Wednesday's close, expected late Thursday afternoon from Lipper US Fund Flows, the funds are tracking $600 million of inflows on the week, the trader said.

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