Fired-up primary has second straight big day, pricing $4.37 billion; funds up $610 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 8 – The newly resuscitated high-yield primary market picked up on Thursday right where it had left off on at the close on Wednesday, pricing new junk bond deals at a frantic pace.

Wednesday and Thursday’s activity followed several weeks of almost complete inactivity.

If anything, Thursday was even busier than Wednesday, with some $4.37 billion of new dollar-denominated and fully junk-rated offerings from domestic or industrialized-country issuers coming to market in nine tranches – the heaviest pace of new high-yield activity in a number of months.

German automotive and industrial components manufacturer Schaeffler AG priced a total of $1.5 billion of dollar-denominated new paper, broken into equally-sized $500 million tranches of five-, seven and 10-year senior secured PIK toggle notes, as part of a six-part bond behemoth that also included euro-denominated tranches in those maturities.

All of the day’s other offerings were single-tranche affairs, and all of Thursday’s deals were upsized and all but one were regularly scheduled transactions coming off the forward calendar.

The sole drive-by offering, appropriately enough, came from car-rental giant Hertz Corp., with $800 million of eight-year notes.

Energy operator Antero Midstream Partners LP did $600 million of eight-year paper.

Packaging maker Crown Holdings Inc. and builder Beazer Homes USA Inc. each brought a $400 million issue to market – Beazer’s consisting of 5.5-year notes, Crown’s of 10-years; the latter deal also included a euro-denominated component.

Building materials company BMC Stock Holdings, Inc. priced $350 million of secured eight-year notes, while Canadian pool chemicals and household products maker KIK Custom Products Inc. did a $265 million add-on to its existing 2023 notes.

Traders said that when the new deals hit the aftermarket, they were mostly firmer, with Beazer in particular posting handsome secondary gains.

The same could not be said of Wednesday’s new offerings; they were mostly seen having come down from the peak levels they had established in initial aftermarket dealings after their respective pricings.

Away from the new deals, oil and natural gas issues like Chesapeake Energy Corp. got a boost from continued strong crude oil prices.

Statistical market performance measures were trending higher on Thursday, after having been mixed over the three previous days.

It was the indicators’ second across-the-board better session in the last five trading days.

Another numerical market gauge – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – was back on the upside this week, rebounding from last week’s loss, which had been the first downturn after three consecutive weeks of net inflows.

Some $610 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, more than offsetting the previous week’s $387 million net outflow (see related story elsewhere in this issue).

Schaeffler prices six tranches

A hectic Thursday in the high-yield primary market saw seven issuers bring a total of nine dollar-denominated tranches to raise $4.37 billion.

All but one deal was in the market at least overnight.

Executions bore the signatures of a red hot primary market.

All of Thursday’s issuers upsized their deals.

Of the nine tranches, six priced at the rich or tight ends of talk. The other three priced inside of talk.

IHO Verwaltungs GmbH, a holding company for Schaeffler AG, priced an upsized €3.59 billion equivalent of senior secured PIK toggle notes (Ba1/B+) in six tranches.

The deal, which was increased from €2.5 billion equivalent, featured €2.25 billion of euro-denominated notes in three tranches.

A €750 million tranche of five-year notes priced at par to yield 2¾%. The cash coupon is 2¾%. The PIK coupon is 3½%. The yield printed at the tight end of the 2¾% to 3% yield talk.

A €750 million tranche of seven-year notes priced at par to yield 3¼%. The cash coupon is 3¼%. The PIK coupon is 4%. The yield printed at the tight end of the 3¼% to 3½% yield talk.

A €750 million tranche of 10-year notes priced at par to yield 3¾%. The cash coupon is 3¾%. The PIK coupon is 4½%. The yield printed at the tight end of the 3¾% to 4% yield talk.

The transaction also included $1.5 billion of dollar-denominated notes in three tranches. All three tranches saw notes coming with yields that were 12.5 basis points inside of yield talk.

A $500 million tranche of five-year notes priced at par to yield 4 1/8%. The cash coupon is 4 1/8%. The PIK coupon is 4 7/8%. The yield talk was 4¼% to 4½%.

A $500 million tranche of seven-year notes priced at par to yield 4½%. The cash coupon is 4½%. The PIK coupon is 5¼%. The yield talk was 4 5/8% to 4 7/8%.

A $500 million tranche of 10-year notes priced at par to yield 4¾%. The cash coupon is 4¾%. The PIK coupon is 5½%. The yield talk was in the 5% area.

The deal played to €7 billion of orders, according to a trader.

The euro portion of the deal was very well received especially by German accounts who love the name and saw the yields as “high” relative to what other German corporates are paying, a London-based sellside source said.

Global coordinator Citigroup will bill and deliver for the dollar-denominated notes.

Global coordinator Deutsche Bank will bill and deliver for the euro-denominated notes.

BofA Merrill Lynch and HSBC were bookrunners.

Hertz sees big upsize

In Thursday’s sole a.m.-to-p.m. drive-by deal Hertz Global Holdings priced an upsized $800 million issue of 5½% eight-year senior notes at par to yield 5.499%.

The issue size was increased from $500 million.

The yield came at the tight end of the 5½% to 5 5/8% yield talk. Initial guidance was 5½% to 5¾%.

Lead left active bookrunner Barclays will bill and deliver. Citigroup Global Markets was also an active bookrunner.

The Estero, Fla.-based vehicle rental company plans to use the proceeds, including the additional amount resulting from the $300 million upsizing of the deal, to redeem $800 million of its 6¾% senior notes due 2019.

The company also announced in a Thursday press release that Hertz Holdings Netherlands BV plans to come to market with a €225 million offering of senior notes in the week ahead, pending market conditions.

Antero refinances

Antero Midstream Partners priced an upsized $650 million issue of eight-year senior notes (B1/BB) at par to yield 5 3/8%.

The issue size was increased from $500 million.

The yield printed at the tight end of the 5 3/8% to 5 5/8% yield talk. Early guidance was 5¾%.

J.P. Morgan was the lead bookrunner for the bank debt refinancing.

Crown’s two-part bullet

Crown Holdings priced an upsized amount of senior bullet notes in a two-part dual-currency transaction.

Crown European Holdings SA talked an upsized €600 million amount of eight-year notes (Ba2/BB) at par to yield 2 5/8%. The tranche size was increased from €310 million. The yield printed in the middle of the 2½% to 2¾% yield talk.

Joint bookrunner Deutsche Bank will bill and deliver for the euro-denominated notes. Citigroup, Wells Fargo, BBVA, BNP Paribas, BofA Merrill Lynch, Credit Agricole, HSBC, Mizuho Securities, Santander and UniCredit were also joint bookrunners.

Crown Americans LLC and Crown Americas Capital Corp. V priced an upsized $400 million amount of 10-year notes (Ba3/BB-) at par to yield 4¼%. The tranche size was increased from $350 million. The yield printed at the tight end of the 4¼% to 4½% yield talk.

Joint bookrunner Citigroup will bill and deliver for the dollar-denominated tranche. Deutsche Bank, Wells Fargo, BNP Paribas, BofA Merrill Lynch, ING, Mizuho, MUFG, Santander, Scotia and TD were also joint bookrunners.

Philadelphia-based packaging company plans to use the proceeds to repay a portion of its term loan A facilities and for general corporate purposes.

Beazer brings 5.5-year deal

Beazer Homes priced an upsized $400 million issue of 5.5-year senior notes (B3/B-) at par to yield 8¾% on Thursday, according to a syndicate source.

The issue size was increased from $300 million.

The yield printed at the tight end of the 8¾% to 9% yield talk.

Credit Suisse, Deutsche Bank and Goldman Sachs were the joint bookrunners.

The Atlanta-based single-family homebuilder plans to use the proceeds to refinance its 6 5/8% second-lien notes due 2018.

BMC upsized and tight

BMC Stock Holdings priced an upsized $350 million issue of 5½% eight-year senior secured notes (B3/BB-) at par to yield 5.499%.

The deal size was increased from $325 million.

The yield printed at the tight end of the 5½% to 5¾% yield talk; that official talk came on top of initial guidance.

Barclays was the lead left bookrunner. Wells Fargo, Goldman Sachs and RBC were the joint bookrunners.

The Atlanta-based building materials distributor plans to use the proceeds to refinance its 9% senior secured notes due 2019 and pay down the balance of its ABL facility.

KIK upsizes tap

KIK Custom Products priced an upsized $265 million add-on to its 9% senior notes due Aug. 15, 2023 (Caa2/CCC) at 103 to yield 8.243%.

The issue size was increased from $235 million.

The reoffer price came at the rich end of the 102.5 to 103 price talk.

Barclays, BMO, Nomura and Macquarie were the joint bookrunners.

The Toronto-based supplier of pool and spa treatment products and household and personal care products plans to use the proceeds to refinance its $235 million term loan B-2 due 2022 and to pay the related prepayment premium.

Landry’s roadshow

Thursday’s action cleared the calendar of announced business for the remainder of the post-Labor Day week.

Landry’s Inc. plans to start a roadshow on Monday for a $575 million offering of eight-year senior notes.

Jefferies will be the lead left bookrunner.

Proceeds, along with proceeds from a concurrent $1.5 billion senior secured credit facility, will be used to refinance existing debt, including the company’s 9 3/8% senior notes due 2020 and an existing senior secured credit facility, and to make a distribution to its indirect parent to redeem all of its outstanding 10¼% senior notes due 2018.

Big back-to-back sessions

Thursday’s $4.37 billion of new paper in nine tranches, coming on the heels of Wednesday’s $3.85 billion in six tranches, marked the primary market’s biggest back-to-back issuance so far this year, according to data compiled by Prospect News.

Thursday’s new-deal tally marked the heaviest new-issuance day the junk market had seen since June 13, when $4.91 billion priced in seven tranches.

The day’s seven deals and nine dollar-denominated tranches was the most deals and tranches brought in a single day so far this year, surpassing the six offerings and seven tranches which priced on May 25, although that session saw a greater volume of new paper, $5.44 billion, the data indicated.

Beazer bonds boom

When the day’s new issues hit the aftermarket, traders said that most of them firmed respectably in active trading – Thursday’s offerings, along with Wednesday’s dominated the junk market’s Most Actives list on Thursday.

The standout performer was Beazer Homes’ 8¾% notes.

A trader saw the builder’s paper at 102¼ bid, 103¼ offered on the break, after the bonds had priced at par.

He later saw the notes in a 103 to 103½ bid context.

Another trader pegged Beazer’s new bonds at 103½ bid, with over $59 million traded.

Other deals firm in secondary

The new Hertz 5½% notes moved up to 100 5/8 bid after their par pricing, with over $47 million changing hands.

Crown Holdings’ 4¼% notes due 2026 didn’t really move much from par, ending around 100 1/8 bid, a market source said, but on busy volume of over $46 million.

Schaeffler’s five- and 10-year notes also saw active dealings, with the 10s gaining ¾ point on the day from their par issue price on volume of more than $32 million, and the fives gaining a full point to 101 bid on some $23 million of turnover.

Traders meantime saw the company’s seven-year notes doing even better, ending around 101¼ to 101¾ bid, though on less volume than the five- and 10-years.

BMC Stock Holdings’ 5½% notes moved up to 102 bid on the close, with over $28 million trading.

And KIK’s add-on 9% notes jumped to 104¼ bid from their 103 issue price, with about $11 million traded.

Wednesday deals trade off

A trader said that “yesterday’s [i.e. Wednesday’s] stuff all traded off, seeing most of that session’s new issues off anywhere from 5/8 point to one full point down.

The sole exception, he said, was Novelis Corp.’s 5 7/8% notes due 2026, which he said were unchanged at 101¼ bid.

A second trader, though, called that off ¼ point, on heavy volume of over $87 million.

Oil prices boost energy names

Away from the new deals, another surge in domestic crude oil prices pushed energy names up on Thursday.

Chesapeake Energy’s 6 5/8% notes due 2020, for instance, added 1½ points to close at 91 bid, according to a market source. Sector peer Denbury Resources Inc. saw its 6 3/8% notes due 2021 tick up ½ point to 74½.

Canadian oilsands producer MEG Energy Corp. was also better, its 7% notes due 2024 gaining a point to close at 81 bid.

Oil prices rose nearly 4% on the day to $47.93 a barrel. The gains came in the wake of the U.S. Energy Information Administration’s weekly report, which showed a 14.5 million decline in crude inventories last week.

The large draw was attributed to tropical storms and Hurricane Hermine.

The report also showed that imports declined by 1.8 million barrels a day.

Indicators turn better

Statistical market performance measures were trending higher on Thursday, after being mixed over the three previous days.

It was the indicators’ second across-the-board better session in the last five trading days.

The KDP High Yield Index posted its second straight gain on Thursday, improving by 5 basis points to end at 70.78, on top of Wednesday’s 8 bps rise.

It was the third gain in the last four sessions and established new year-to-date and 52-week highs for the index, eclipsing the old mark of 70.73 that had been set on Aug. 30 and which was matched on Wednesday.

Its yield meantime came in by 1 bp to 5.20, its second consecutive narrowing and third in the last four days. The yield had also tightened by 3 bps on Wednesday.

The Markit Series 26 CDX Index was unchanged on the day, finishing at 104 21/32 bid, 104 11/16 offered, after dropping by nearly 5/32 point on Wednesday, in contrast to Tuesday’s roughly ¼ point pickup.

The Merrill Lynch High Yield Index made it five advances in a row on Thursday, rising by 0.052%, after improving by 0.087% on Wednesday.

Thursday’s rise upped its year-to-date return to 14.992% – its fourth straight new 2016 peak cumulative level, eclipsing the old mark of 14.931%, set on Wednesday.

-Stephanie N. Rotondo contributed to this review

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.