U.S. Steel, Diamond Offshore, Penske price to open August; new Penske bonds jump; Hertz rebounds

By Paul Deckelman and Paul A. Harris

New York, Aug. 1 – August in Junkbondland began with a roar on Tuesday, as a trio of issuers brought $1.55 billion of new U.S. dollar-denominated high-yield paper to market.

United States Steel Corp. had the big deal of the day, pricing $750 million of 10-year notes.

Primaryside sources meantime heard that its sector peers such as AK Steel and Big River Steel LLC might soon be doing junk deals themselves.

Energy driller Diamond Offshore Drilling, Inc. brought a $500 million issue of eight-year notes to market.

And the session’s sole quickly shopped transaction came from car-seller Penske Automotive Group, Inc., which priced $300 million of three-year subordinated notes.

The new Penske paper was heard by traders to have firmed smartly when it hit the aftermarket after pricing.

Monday’s new deal from Cliffs Natural Resources, Inc. and Friday’s offering from United Rentals, Inc., were among the day’s most actively traded credits.

Away from the new deals, traders saw Hertz Corp. paper – which had gotten clobbered in Monday’s action – regaining some of their lost ground on Tuesday.

Statistical market performance measures turned higher across the board on Tuesday after having been mixed over the previous two sessions. They had turned mixed on Friday after having moved lower on Thursday for the first time since July 6.

US Steel prices tight

Three issuers raised a total of $1.55 billion on Tuesday

Only one of the three came with an a.m.-to-p.m. drive-by.

Two of the three deals priced at the tight ends of talk while the third priced on top of talk.

In an offer that was in the market overnight United States Steel Corp. priced a $750 million issue of eight-year senior notes (Caa1/B) at par to yield 6 7/8%.

The yield printed at the tight end of yield talk in the 7% area and inside of initial guidance of 7% to 7¼%.

BofA Merrill Lynch, J.P. Morgan, Barclays, Morgan Stanley, PNC, Wells Fargo and Goldman Sachs were the joint bookrunners for the debt refinancing.

A couple of other steel names are heard to be in the wings, sources say.

Big River Steel LLC is in the deal queue with a $500 million offering of senior notes (B3/B), according to market sources who say it should price before mid-August.

The Osceola, Ark.-based owner and operator of a flat-rolled steel mini-mill launched a $500 million term loan, being led by Goldman Sachs, on Monday.

Also AK Steel is expected to bring a junk bond deal in the near term, an investor said.

Diamond Offshore at a discount

Diamond Offshore Drilling, Inc. priced a $500 million issue of 7 7/8% eight-year senior bullet notes (Ba3/BB-) at 99.272 to yield 8%.

The yield printed on top of price talk in the 8% area.

Earlier guidance was 7½%, sources said.

Diamond Offshore pricing headed north amid some investor pushback on covenants, a trader said.

The company apparently selected pay up as opposed to relent on the covenant language in question, the source added.

The new Diamond Offshore Drilling 7 7/8% notes due 2025 were par bid, par ¼ offered at the dealer, an investor said late Tuesday, and added that they were 99½ bid, par offered away from the dealer.

Joint active bookrunner Barclays will bill and deliver. J.P. Morgan was also a joint active bookrunner.

Penske oversubscribed

Penske Automotive Group, Inc. priced a $300 million issue of three-year senior subordinated bullet notes (S&P: B+) at par to yield 3¾%.

The yield printed at the tight end of the 3¾% to 4% yield talk.

The deal was said to be half done by means of reverse inquiry, and played to an order book that was three-times oversubscribed, an investor said.

J.P. Morgan, BofA Merrill Lynch, US Bancorp and Wells Fargo were the joint bookrunners.

The Bloomfield Hills, Mich.-based automotive retailer plans to use the proceeds to repay its U.S. credit agreement that matures Sept. 30, 2020, and for general working capital purposes.

Cornerstone going well as guidance tightens

Although the primary market passed another relatively sleepy summer session on Tuesday, things are going to pick up heading into an expected mid-August recess, sources say.

In the wake of Tuesday's action, however, there is but one deal on the active dollar-denominated calendar.

Cornerstone Chemical Co. is on the road with a $430 million offering of seven-year senior secured notes (B2/B) backing the buyout of the company.

Initial talk was in the low-to-mid 7% area.

However the deal is going well, and that talk has been reeled in to 7%, an investor said on Tuesday.

Goldman Sachs is the left bookrunner.

The roadshow is scheduled to wrap up on Wednesday in Boston.

Mixed Monday flows

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

High-yield ETFs saw $37 million of inflows on the day.

However actively managed funds sustained $90 million of outflows on Monday, the source added.

Penske paper pops

In the secondary market, traders said that Penske Automotive Group’s new 3¾%senior subordinated notes due 2020 was the day’s most actively traded high-yield credit, with over $30 million changing hands.

One trader saw the automotive retailer’s drive-by deal trading in a 100½-to-101¼ bid context, marveling that the issue was as popular as it was since “it came with a pretty low coupon.”

Another trader pegged those bonds at 101¼ bid.

A trader meantime said that he had not seen any immediate aftermarket levels in Pittsburgh-based U.S. Steel’s new deal, nor in the new eight year notes from Houston-based Diamond Offshore Drilling.

Cliffs gets clipped

Elsewhere, a trader said that Cliffs Natural Resources’ new 5¾% notes due 2025 were “a little easier today,” locating those bonds at 97¾ bid, which he called down ½ point from the levels they hit in initial aftermarket dealings on Monday.

A second trader saw that paper at 97½ bid.

More than $21 million traded on Tuesday.

The Cleveland-based iron ore producer had priced its quickly shopped $575 million add-on to the existing $500 million of those notes sold earlier this year, at 97, to yield 6.253%.

The new notes had initially moved up to a 97½-to-97¾ bid context when they were freed for trading.

One of the traders said that Monday’s other new issue – from Columbus, Ohio-based homebuilder M/I Homes, Inc. – was “holding steady” around the 101½ bid level, “bit on not that much volume.”

The company had priced a $250 million of those 5 5/8% notes due 2025 at par in a quick-to-market transaction.

United Rentals little changed

Going back a little further, a trader said that United Rentals’ 4 7/8% notes due in January of 2028 “haven’t really gone anywhere,” seeing them going home at 100¼ bid, unchanged on the day.

More than $13 million of those notes had traded.

The Stamford, Conn.-based construction and industrial equipment and leasing firm had priced $925 million of that paper at par in an unscheduled deal on Friday, and it had moved up to a 100¼-to-100½ bid context in active aftermarket dealings.

Hertz heads higher

Away from the new deals, a trader saw Hertz Corp.’s 6¾% notes due 2019 “pretty active today,” and up about ½ point on the session, in sharp contrast to Monday, when those notes had moved lower.

They closed at 99¾ bid, with about $26 million traded.

Its recently priced 7 5/8% notes due 2022 – 3-point losers on Monday – got back 3/8 point of that Tuesday, ending at 99 3/8 bid, with over $18 million of volume.

The Estero, Fla.-based car rental company’s paper had fallen Monday after it scrubbed plans to redeem the 6¾% notes, saying that all of the conditions of the redemption had not been met.

Indicators improve

Statistical market performance measures turned higher across the board on Tuesday after having been mixed over the previous two sessions. They had turned mixed on Friday after having moved lower on Thursday for the first time since July 6.

The KDP High Yield Daily Index rose by 1 basis point on Tuesday to end at 72.60. On Monday, it had fallen by 3 bps, its second straight downturn, having ended down by 4 bps on Friday, after having been unchanged on Thursday following gains on Tuesday and Wednesday.

Its yield rose by 4 bps to 4.99, its fourth straight widening, having also increased by 1 bp each on Friday and Monday.

The Markit CDX Series 28 High Yield Index rose by 1/8 point Tuesday to 107 23/32 bid, 107 25/32 offered, after edged up by 1/32 on Monday.

© 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.