Chesapeake, United Airlines, Griffon deals drive by; new Pilgrim’s Pride pops; Bombardier battered

By Paul Deckelman and Paul A. Harris

New York, Sept. 27 – High-yield primary sphere activity picked up on Wednesday as a trio of issuers brought quickly-shopped deals to market, generating nearly $1.53 billion of new U.S. dollar-denominated and fully junk-rated paper in four tranches.

That was nearly double the $850 million of such paper that had priced on Tuesday in a single two-tranche transaction.

Add-on deals to existing bonds dominated the day’s proceedings, led by oil and natural gas operator Chesapeake Energy Corp.’s upsized $850 million offering, consisting of additions to its outstanding 2025 and 2027 notes.

Griffon Corp., a diversified management and holding company, also did a tack-on deal, increasing the size of its currently outstanding 2022 notes by an upsized $250 million.

Airline operator United Continental Holdings, Inc. – the parent of giant carrier United Airlines – priced a brand-new $400 million issue of 2022 notes. It was the day’s sole deal that was not an add-on and that was not upsized from its originally announced amount.

Traders meantime saw active volume in both tranches of Tuesday’s offering from poultry producer Pilgrim’s Pride Corp., with both halves of that deal having firmed smartly from their respective par issue prices.

Away from the new deals, the bonds of Canadian aircraft manufacturer Bombardier Inc. were in a nosedive on the news that the U.S. Commerce Department will slap a hefty 220% tariff on the company’s passenger jet planes, siding with U.S.-based Bombardier rival Boeing Corp.’s claims that aid given to Bombardier by the Canadian provincial government of Quebec and by the British government gave Bombardier an unfair advantage.

Statistical market performance measures turned mixed on Wednesday, after having been higher across the board on both Monday and Tuesday, when those indicators had strengthened after having been mixed last Friday and lower all around last Thursday.

Chesapeake upsizes add-ons

In Wednesday's primary market Chesapeake Energy Corp. priced an upsized $850 million amount of senior notes (Caa2/CCC).

The drive-by deal, the overall size of which was increased from $750 million, came in two add-on tranches.

The Oklahoma City-based oil and gas producer priced an upsized $300 million add-on to its 8% notes due Jan. 15, 2025 at 101.25 to yield 7.768%. The tranche size was increased from $250 million. The reoffer price came on top of price talk.

Chesapeake Energy also priced an upsized $550 million add-on to its 8% notes due June 15, 2027 at 99.75 to yield 8.035%. The tranche size was increased from $500 million. The reoffer price came on top of price talk.

Morgan Stanley & Co., Wells Fargo Securities LLC, Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. were the joint bookrunners.

Chesapeake intends to use the proceeds, including those resulting from the $100 million upsizing of Wednesday's $850 million bond sale, to finance tender offers five series of outstanding notes.

United Airlines oversubscribed

United Airlines, Inc. priced a $400 million issue of five-year senior bullet notes (Ba3/BB-) at par to yield 4¼% in a drive-by.

The yield printed at the tight end of yield talk in the 4 3/8% area, which was also initial price talk.

The $400 million issue played to more than $1 billion of orders, an investor said.

Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and JP Morgan Securities LLC were the joint bookrunners.

The Chicago-based airline plans to use the proceeds for general corporate purposes.

Griffon upsizes tap

Also in a drive-by, Griffon Corp. priced an upsized $275 million add-on to its 5¼% senior notes due March 1, 2022 (S&P: B+/Fitch: B+) at 101.00.

The issue size was increased from $200 million.

Deutsche Bank Securities Inc. managed the sale.

The New York-based diversified management and holding company plans to use the proceeds to finance substantially all of its acquisition of certain entities and assets of the ClosetMaid business from Emerson Electric Co.

Mixed Tuesday flows

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

High-yield ETFs saw $178 million of inflows on the day.

Actively managed funds were flat to negative on Tuesday, posting $5 million of outflows on the day.

Dedicated bank loan fund were essentially flat, although positive, seeing $15 million of inflows on Tuesday, the source said.

New United slightly firmer

In secondary market action Wednesday, a trader said that the new United Continental Holdings 4¼% notes due 2022 had firmed slightly to a 100¼-to100¾ context, after having priced at par.

The United Airlines operator’s existing 5% notes due 2024 were meantime seen by a market source to have firmed by 3/8 point on the day, to 102¼ bid, on volume of around $11 million.

The traders did not immediately report an initial aftermarket activity in the new Chesapeake two-part add-on deal, nor in Griffon Corp.’s tack-on transaction, both of which priced after the UAL offering had gotten done.

One of the traders, however, did see Chesapeake’s 8% notes due 2022 gain 7/8 point on the session to finish at 108 3/8 bid, with over $24 million of those bonds having changed hands.

Pilgrim’s paper pops

A trader saw both tranches of Pilgrim’s Pride notes, which had priced on Tuesday, at “pretty good” levels and on “decent volume.”

He quoted the Greely, Colo.-based poultry producer’s 5¾% notes due in March of 2025 at 102 7/8 bid, while its 5 7/8% notes due 2027 ended at 102 3/8 bid.

At another shop, a trader also saw the 5 7/8% notes at 102 3/8 bid, calling them up 5/8 point from Tuesday’s late aftermarket levels. He noted that it was the most actively traded junk credit of the day, with turnover of more than $76 million recorded.

The trader also saw the 5¾ paper at 102 7/8, calling that down around 1/8 from Tuesday’s finish. Volume was over $22 million.

Pilgrim’s Pride priced a $250 million add-on to its existing $500 million of 5¾% 7.5-year notes at 102 on Tuesday, yielding 5.42%. The new bonds firmed to the 103 area in initial aftermarket dealings, though not on any sizable volume.

The company also priced $600 million of the 5 7/8% 10-year paper, a completely new issue, at par, and the notes initially moved up to 101¾ bid.

That regularly scheduled forward calendar offering had been upsized to $850 million from an originally announced $700 million size.

Bombs away on Bombardier

Apart from the new deals, traders said that Canadian aircraft manufacturer Bombardier’s several series of bonds were rapidly losing altitude, along with the company’s shares, on the news that the U.S. plans to slap a stiff tariff on imports of Bombardier aircraft.

A trader said the company’s 7½% notes due 2025 plunged by some 3 7/8 points on the session, ending at 98 5/8 bid, with more than $33 million seen having traded.

Its 8 ¾% notes due 2021 sank by nearly 3¾ points, finishing at just over 106½ bid, on volume of over $24 million.

Bombardier’s 6% notes due 2022dropped by 3¼ points, to 95½ bid, with over $23 million seen having changed hands.

Bombardier’s Toronto Stock Exchange-traded class B shares meantime finished Wednesday at C$2.10, down 17 Canadian cents, or 7.49%, on volume of some 24.7 million shares, or about six times the norm.

The bonds and shares slid as investors reacted to the news that Washington plans to levy a heavy tariff on Bombardier C Series aircraft – twin-engine 100-to-150-passenger jets roughly equivalent to Boeing’s 737 series. That would essentially triple the price of the $20 million aircraft. Bombardier is scheduled to begin delivering 75 of the jets to Delta Air Lines next spring.

Boeing had claimed – and Commerce apparently agreed – that the $1 billion bailout from the Quebec provincial government, which Montreal-based Bombardier received in 2015, along with a $372 million interest-free loan from Canada’s federal government, plus $149 million in development loans and other aid the company got from the British government for its Northern Ireland manufacturing facilities, helped give Bombardier an unfair advantage over Boeing in competing for airline contracts.

Bombardier and the Canadian and British governments all decried the Commerce Department’s decision.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday, after having been higher across the board on both Monday and Tuesday, when those indicators had strengthened after having been mixed last Friday and lower all around last Thursday.

For a second straight session, the KDP Daily High Yield Index edged up by 1 basis point on Wednesday, matching Tuesday’s gain, as it ended at 72.34. The index had also firmed by 5 bps on Monday, its first advance after two straight losses of 3 bps each on Thursday and Friday.

Its yield was unchanged at 5.11%, its second such steady performance in the last three trading days. The yield had come in by 1 bp on Tuesday, after having also been unchanged on Monday and having widened by 3 bps on Friday.

The Markit CDX Series 28 High Yield Index gained more than 5/16 point on Wednesday, ending at 107 15/32 bid, 107 17/32 offered, its fourth consecutive advance. The index had also risen by over 1/8 point on Tuesday, on top of increases of 1/32 point on Monday and a marginal improvement on Friday.

But the Merrill Lynch North American High Yield Index faltered on Wednesday after three advances in a row before that, retreating by 0.034%, versus Tuesday’s 0.082% upturn.

Wednesday’s loss dropped the index’s year-to-date return to 6.878%, down from Tuesday’s finish at 6.915%, its second consecutive new peak level for the year.

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