Almost-blizzard quiets U.S. junk primary; Europe busier; new Heinz notes active; Cliffs gains

By Paul Deckelman and Paul A. Harris

New York, Jan. 27 – What had been billed as a “monster” blizzard turned out to be something considerably less – at least in New York, if not necessarily elsewhere, such as storm-ravaged New England.

But enough people avoided The Big Apple and vicinity on Tuesday to considerably still the domestic high-yield market, which saw no dollar-denominated pricings; the only deal actually coming to market during the day was a smallish seven-year subordinated euro-denominated transaction from Belgian heavy-equipment provider Sarens Group.

European junk marketeers also reported that France’s Albea Beauty Holdings SA, a maker of plastic packaging for the cosmetics industry, would be shopping around a small add-on to its existing 2019 notes.

But while there were no actual pricings in the U.S. section of Junkbondland, the day was not without its own activity. Syndicate sources heard that Dollar Tree, Inc. – fresh from its victory over rival Dollar General Corp. in the battle to see which discount retailer will buy yet another competitor, Family Dollar Stores Inc. – will hit the road Wednesday with a $2.5 billion bond deal to partially fund that takeover.

An even bigger deal – European telecom operator Altice International’s $4.57 billion equivalent dollar- and euro-denominated multi-part behemoth – was seen continuing to wend its way through the market, with pricing expected this week.

A big deal that priced on Monday – food manufacturer H.J. Heinz Co.’s $2 billion 10-year issue – was eagerly gobbled up by investors when it started to trade, with over $100 million of the new bonds changing hands.

Away from the new-deal arena, coal and iron ore company Cliffs Natural Resources Inc.’s bonds rose solidly for a second straight session, buoyed by the news that a Canadian affiliate had begun restructuring. Coal operator Peabody Energy Corp.’s bonds rose after it reported quarterly and full-year earnings.

Statistical indicators of junk market performance turned mixed on Tuesday after having been higher across the board for the previous four consecutive sessions.

Sarens €125 million at a premium

Owing to severe winter weather in the northeastern United States, most of the news in the quiet Tuesday primary market session emanated from Europe.

Terms emerged on one small deal.

Belgium-based Sarens Group priced €125 million of 5 1/8% seven-year senior subordinated notes (/BB/) at 100.625.

The deal size had been announced last week at €75 million and €150 million.

The notes feature a 75-basis-points coupon step-up if the Standard & Poor's rating falls below BB-.

Joint bookrunner ING will bill and deliver. BNP Paribas, Degroof and KBC were also joint bookrunners.

The Wolvertem, Belgium-based provider of heavy lifting and specialized transport equipment plans to use the proceeds to repay operating leases and exercise options linked to equipment leases.

Albea tap

Albea Beauty Holdings is in the market with a €45 million add-on to its 8¾% senior secured notes due Nov. 1, 2019 (expected ratings B2/B).

Neither the timing on the deal nor price talk had surfaced by press time Tuesday.

Joint bookrunner BofA Merrill Lynch will bill and deliver. J.P. Morgan is also a joint bookrunner.

Proceeds will be used for general corporate purposes.

The original €200 million issue priced at par in October 2012 as part of an overall $647 million equivalent issuance of seven-year senior secured notes that included $385 million of 8 3/8% notes due Nov. 1, 2019, which also priced at par.

Dollar Tree starts Wednesday

Dollar Tree, which is in the process of putting in place debt financing backing its $8.5 billion acquisition of Family Dollar Stores, generated the only new-issue news in the dollar-denominated primary market on Tuesday.

Dollar Tree plans to start a roadshow on Wednesday for a $2.5 billion offering of eight-year senior notes (Ba3/B+).

The deal is expected to price on Feb. 6.

JPMorgan, Wells Fargo, BofA Merrill Lynch, RBC and U.S. Bank are the joint bookrunners.

The deal is bridged, according to a buyside source, who added that the bridge loan is capped at 9½%.

Altice deal buzz

Finally, the severe weather in the northeastern U.S. may come to bear upon the timing of the Altice International $4.57 billion equivalent notes offer backing the acquisition of Portugal Telecom assets from Brazil's Grupo OI, a source said on Tuesday afternoon.

Word had circulated the market on Monday that the deal, which is said to be playing to intense demand, could wind up pricing on a foreshortened timeline that would possibly have it clearing mid-to-late this week, instead of late in the week, as had been expected.

However, no official price talk has been heard, and the deal will likely be in the market at least a day after official talk surfaces, the source said.

Despite threatening weather on Monday the New York roadshow played to a full room, the source added.

As reported, the Altice SA $1,755,000,000 10-year senior notes (expected ratings B3/B) had initial guidance of 8½% to 8¾% and will almost certainly come tighter than that, according to an investor who is watching the situation closely.

The order book for the tranche was reported on Monday morning at $4.5 billion.

The Altice Financing SA $2.06 billion of eight-year senior secured notes have been guided in the low to mid 7s, the investor said, and added that the buzz in the market has the book for the dollar-denominated secured tranche 2.5-times oversubscribed.

Those levels and amounts of demand remained relevant on Tuesday, a source said.

In addition to the above-mentioned tranches, Altice SA is selling €500 million of 10-year unsecured notes, Altice Financing SA is selling €500 million of eight-year secured notes, and Altice Finco SA is selling $385 million of 10-year unsecured notes.

Snow big deal

What had been billed as a monster storm set to rival the great New York blizzards of 1888, 1947, 1996 and 2010 – complete with fanciful names cooked up by an inventive news media such as “snowmageddon” and “snowpocalypse” – turned out to be something closer to meteorology’s answer to Y2K, at least in New York City and its immediate environs, which only saw about 10 inches of snowfall rather than the predicted three feet. The same could not be said for snow-bound places to the east of the Apple, however, including large portions of New England.

But many people did, in fact, heed official warnings or take note of greatly curtailed mass transit options to stay away from the city’s Financial District, producing an even slower session than had been seen on Monday. The Finra/Bloomberg High Yield Bond index showed volume of $2.143 billion on Tuesday, well down from Monday’s already-shrunken $3.054 billion level.

Things were “a little quiet,” one cityside trader who did make it in to his office said, while a second agreed that “many places were very lightly staffed today.”

New Heinz bonds busy

But there were enough people on the job in New York and elsewhere to rack up some impressive trading numbers for the new H.J. Heinz 4 7/8% senior secured second-lien notes due 2025 that had priced late in the day on Monday.

“They were the volume leader, with over $100 million having traded,” one market source said, although there was little price movement from the par level at which that $2 billion drive-by offering had priced.

“Right out of the gate, they were wrapped around par,” he said, quoting the bonds going home at 100 1/8 bid.

At another desk, the bonds were seen in a par-to-100¼ bid context, while a third trader saw them going home at par – which he called down ¼ point from the peak trading level – with over $102 million having changed hands.

The Pittsburgh-based packaged foods giant’s existing 4¼% notes due 2020 were again seen trading at around 101 bid where they had been on Monday, when they lost about ½ point or so ahead of the big new secured deal. But a market source said that afternoon volume of about $6 million was only around half of the more than $13 million that had traded on Monday.

TerraForm trades around

For a second straight session, there were pretty busy dealings in the new TerraForm Power Operating LLC 5 7/8% notes due 2023, with a trader declaring that “a fair amount” traded around 102 bid, “but it hasn’t moved too much” from where the issue had been on Monday.

At another desk, a trader pegged those bonds at 101 7/8 bid, 102 1/8 offered, while a third put them at 102 bid, calling them up 1/8 point on the day, on volume of over $25 million – second only to the new Heinz paper, he said.

On Monday, volume had been over $40 million, making it the most active issue of the day. The notes had been seen at that time trading around a 101½-to-102 context, largely unchanged from where they had finished on Friday.

The Beltsville, Md.-based clean energy company had priced $800 million of the notes earlier Friday at 99.214 to yield 6% in a regularly scheduled forward calendar offering.

Cliffs climbs, again

Away from the new or recently priced deals, Cliffs Natural Resources’ debt was seen sharply higher for a second consecutive session on Tuesday after the Cleveland-based coal and iron ore producer put its troubled Bloom Lake mining operation into restructuring proceedings in Canada.

“That brought its whole structure up by 1½ to 2½ points, a trader said, quoting the company’s 3.95% notes due 2018 at 84½ bid, up 2½ points on the day.

A second trader called the 3.95s three-point winners on the day, seeing them finish in an 84-to-85 bid context on volume of about $8 million.

He said that its 4 7/8% notes due 2021 were also up a trey at 71 bid, 72 offered on volume of about $5 million.

The move by Cliffs – long expected after it failed to find a buyer or investor for the Quebec iron ore mine – will help insulate the U.S. parent company from most of the $650 million to $700 million in closure costs tied to the mothballed asset.

It was the second big piece of news to come out of Cliffs in as many days; on Monday, the bonds had firmed around 2 points across the board after the company said that it had managed to cut its debt load by $400 million in 2014 – and would suspend its quarterly stock dividend, choosing to use the savings from that move for further debt paydown.

“We see accelerated debt reduction as a more effective means of protecting our shareholders than continuing to pay a common share dividend,” Lourenco Goncalves, the company’s chairman, president and chief executive officer, said in a prepared statement. “The elimination of this dividend provides us with additional free cash of $92 million annually, which we intend to use for further debt reduction.”

While the company’s bonds sizzled, its shares fizzled on that news, posting sizable losses on Monday and again on Tuesday.

Peabody bonds pop

St. Louis-based coal operator Peabody Energy’s bonds rose, even though the company posted a sizable fourth-quarter loss – its revenues and adjusted EBITDA actually beat analysts’ expectations.

Its 6% notes due 2018 gained 1 point on the session to close at 82½ bid on volume of more than $12 million.

Peabody executives also said that the company would carefully watch and conserve its cash in order to ride out currently weak coal-market conditions, by means including cutting capital expenditures and slashing its stock dividend, which should save about $90 million annually (see related story elsewhere in this issue).

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Tuesday after having been higher across the board for the previous four consecutive sessions.

The KDP High Yield Daily index eased by 1 basis point on Tuesday to end at 70.89, its first loss after four straight gains, including Monday, when it had risen by 3 bps.

Its yield was meanwhile unchanged at 5.54% after three straight sessions during which it had narrowed, including Monday’s 1 bp tightening.

The Markit Series 23 CDX North American High Yield index saw its first loss after four advances in a row, retreating by 5/16 point to close at 105 15/16 bid, 106 offered. On Monday, it had gained 5/32 point.

But the Merrill Lynch U.S. High Yield Master II index ended on the upside – though just barely, edging up by 0.001%, its seventh straight improvement. On Monday, it had been up by 0.105%.

The latest gain lifted its year-to-date return to 0.45%, its third consecutive new high point for the year, up from the previous peak, Monday’s 0.449% reading.

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