Primary pipeline thin; Altice dominates secondary; Magnolia trades up; Ply Gem skyrockets

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 18 – The European and domestic primary market remained quiet on Wednesday with no deals pricing in either arena and the forward calendar thin.

ContourGlobal Power Holdings SA set initial price guidance for its €700 million two-part senior secured notes offer (/BB/BB).

Bruin E&P Partners LLC is holding a roadshow for a $600 million offering of eight-year senior notes with pricing expected on Friday.

Comstock Resources, Inc. is in the market with an $850 million offering of eight-year senior notes. However, the deal is experiencing some pushback, sources said.

While the active forward calendar remained light, there is a substantial pipeline of deals expected in the second half of 2018.

BMC Software (Banff Merger Sub Inc.), CEVA Logistics and Netflix Inc. are among the names in the pipeline.

While no new paper entered the secondary market on Wednesday, the deals that priced Tuesday remained active.

Altice France SA’s 8 1/8% senior notes due Feb. 1, 2027 (B1/B) dominated trading in the secondary space with the notes continuing to make gains.

Altice’s 7 3/8% senior notes due 2026 were also major volume movers on Wednesday with the notes trading down slightly.

While trading activity surrounding the notes tempered on Wednesday, Magnolia Oil & Gas’ 6% senior notes due 2026 (B3/BB-/BB-) were also seen well above their issue price.

Ply Gem Holdings Inc. 8% senior notes due 2026 skyrocketed on Wednesday with the notes climbing more than 8 points after news broke NCI Building Systems, Inc. and Ply Gem Parent, LLC will merge.

ContourGlobal’s guidance

In Europe, initial price guidance was out in the ContourGlobal Power Holdings SA €700 million two-part senior secured notes offer (/BB/BB).

The deal is expected to come in a €300 million minimum tranche of five-year notes with initial guidance 3½%.

The long tranche features seven-year notes and is also expected be sized at €300 million minimum with initial guidance in the low 4% area.

The roadshow was scheduled to wrap up on Wednesday.

Forward calendar

A presently thin dollar-denominated calendar sports a pair of energy names.

Bruin E&P Partners is roadshowing a $600 million offering of eight-year senior notes (B3/B+). Initial guidance is 7½% to 7¾%, and pricing is expected Friday, sources say.

Meanwhile, Comstock Resources has undertaken a refinancing of its 2019 and 2020 maturities, for which purpose it has undertaken an $850 million placement of eight-year senior notes (Caa1/B/B).

Initial guidance is in the 9% area, sources say.

However, that may not be enough, according to a trader who said pushback surfaced after bookrunner BofA Merrill Lynch paraded the deal recently at the New York roadshow.

Bondholders know the company has to get the deal done, and want a bigger concession because of it, the trader said, forecasting that Comstock will ultimately come significantly cheap to the initial talk, and therefore should trade well.

Some calendars have Comstock pricing before the end of the week.

However, it could slip into the July 23 week, the trader said.

Softer crude oil prices during the past fortnight have failed to damage high yield energy names, an investor said, adding that high yield energy spreads have actually tightened in the past two weeks.

Pipeline

Meanwhile there is a substantial pipeline of deals staging for execution in the second half of 2018, some nearer at hand than others, sources say.

In the nearer at hand category, BMC Software (Banff Merger Sub Inc.) is expected to bring $1,825,000,000 of senior notes (Caa2) to fund the buyout of the company by KKR.

And CEVA Logistics is expected to show up with $350 million of seven-year senior secured notes, a debt refinancing deal via Credit Suisse.

Another name out there in the intermediate term is Netflix which continues to burn cash, and will need to return, an investor said, noting that Netflix last showed up in mid-April of 2018 with a $1.9 billion placement of 5 7/8% senior notes due 2028.

In a note to shareholders on Monday, Netflix said it anticipates negative-$3 billion to negative-$4 billion of free cash flows for the full year 2018.

“While interest rates have risen and the federal tax rate is now lower (reducing the tax shield on interest costs), we judge that our after-tax cost of debt continues to be lower than our cost of equity, so we anticipate that we’ll continue to finance our capital needs in the high yield market,” the company said.

Altice dominates

Altice’s new 8 1/8% senior notes due 2027 dominated trading activity in the secondary market with more than $92 million of the bonds on the tape by late afternoon.

The notes were quoted at par ¾ bid, 101 offered, a market source said.

They were seen trading as high as 101 1/8, another source said. Altice priced an upsized $1.75 billion tranche of the 8 1/8% notes at par on Tuesday as part of a dual-currency offering.

The deal was heavily oversubscribed and was the dollar-denominated tranche was upsized from the initial $1.25 billion size.

The deal priced at the tight end of yield talk in the 8¼% area.

The large deal was welcome in the secondary space that has seen a dearth of new issuance, sources said.

The deal “had a little bit of a roll to it,” with proceeds to be used to take out the Paris-based telecommunications company’s 6% senior notes due 2022, a market source said.

While the new 8 1/8% senior notes were making gains in the secondary space, Altice’s 7 3/8% senior notes due 2026 were losing ground.

The notes were quoted as low as 97½ bid, 98 offered on Wednesday but regained some footing and were quoted at 98¼ bid, 98¾ offered later in the afternoon, a market source said.

They were down ¼ point to trade at 98¼ with about $33 million bonds on the tape by late afternoon.

Altice’s outstanding junk bonds have been the most actively traded of the week in the run up to the new deal, a market source said.

Altice’s junk bonds have been in focus in the secondary space since April with the notes climbing and falling amid speculation Altice was considering the sale of subsidiary SFR Group.

Altice reaffirmed last week it would not sell the SFR Group and launched a refinancing package.

Magnolia going strong

While trading of the notes paled in comparison to Tuesday, Magnolia Oil & Gas’ 6% senior notes due 2026 continued to see gains in the secondary space.

The notes were also quoted at par ¾ bid, 101 offered. They were seen up about 3/8 point to trade up to 101 with about $14.5 million of the bonds on the tape.

Magnolia Oil & Gas priced a $400 million issue of the 6% notes at par on Tuesday. The yield printed in the middle of yield talk in the 6% area.

Ply Gem skyrockets

Ply Gem’s 8% senior notes due 2026 skyrocketed on Wednesday with the notes climbing more than 8 points on news the building products company would merge with NCI Building Systems.

The notes were quoted at 104½ bid, 105½ offered on Wednesday.

They traded to a low of 102¼ and a high of 104 7/8 during Wednesday’s session with about $26 million of the bonds on the tape, a market source said.

They were quoted at 96 bid, 96½ offered on Tuesday.

Ply Gem and NCI Building announced Tuesday evening they had signed a definitive agreement and will combine in a stock-for-stock merger.

The combined company will have a pro forma enterprise value of $5.5 billion and Ply Gem’s outstanding $645 million of the 8% senior notes will become part of the pro forma capital structure of the new company, according to company news release.

The deal is expected to close in the fourth quarter of 2018 subject to NCI shareholder and regulatory approval.

Tuesday inflows

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

High-yield ETFs saw $76 million of inflows on the day.

Indexes gain

Three benchmarks for the high-yield secondary market all posted gains on Wednesday.

The KDP High Yield index was again up 1 basis point to close Wednesday at 70.40. However, the yield remained flat at 5.87%. The index was also up 1 bps on Tuesday after a 1 bps drop on Monday.

The Merrill Lynch High Yield index continued its upward momentum on Wednesday. The index gained 4.6 bps with the year-to-date return now 0.627.

Wednesday marked the ninth consecutive trading day of gains for the index, which crossed into the black on July 6.

The CDX High Yield 30 index rose 13.8 bps closing Wednesday at 106.8 after a 26.5 bps drop on Tuesday.

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