FAGE prices, rises; Diamond Resorts hits road; Navient adds to gains; AerCap, Intelsat higher

By Paul Deckelman and Paul A. Harris

New York, July 27 – The high-yield primary sphere quieted down on Wednesday. Just one deal priced, Greek dairy products maker FAGE International SA’s $420 million of 10-year notes.

After that regularly scheduled forward calendar offering priced, traders saw the new bonds firm smartly in active dealings when they hit the aftermarket.

Wednesday’s single-deal session stood in sharp contrast to Tuesday, when four issuers combined to bring $2.74 billion of new dollar-denominated and fully junk-rated paper to market. It was the heaviest volume of new paper seen in Junkbondland since June 13, when five issuers priced $4.91 billion in seven tranches, according to data compiled by Prospect News.

Among Tuesday’s deals, financial services company Navient Corp.’s quickly shopped five-year offering was the standout performer Wednesday, adding to the robust initial aftermarket gains it had notched right after pricing.

Traders also saw busy trading Wednesday in Tuesday’s other deals – homebuilder Pulte Group, Inc.’s upsized $1 billion two-part transaction plus the regularly scheduled calendar deals from Swiss chemical company Ineos Group Holdings SA and industrial textile manufacturer Xerium Technologies, Inc. Those new deals mostly traded at or a little above their respective issue prices.

Away from the credits that have actually priced, syndicate sources said that hospitality and vacation ownership company Diamond Resorts International, Inc. was beginning a roadshow for its $600 million offering of eight-year notes.

Away from the new deals, traders said that AerCap Holdings NV’s notes were higher across the company’s capital structure in busy trading, after the Dutch aircraft leasing company closed on a new credit facility and got a credit ratings upgrade.

Intelsat SA’s bonds were better after the Luxembourg-based communications satellite company posted better-than-expected quarterly results and reported progress in reducing its debt.

Statistical market performance measures turned mixed on Wednesday, after having been lower across the board on Tuesday. It was the second mixed session in the last three trading days.

FAGE prices tight

FAGE International and FAGE USA Dairy Industry Inc. priced Wednesday's sole deal, a $420 million issue of 10-year senior notes (B1/BB-) that came at par to yield 5 5/8%.

The yield printed 12.5 basis points below the tight end of the 5¾% to 6% official yield talk. However, earlier in the day unofficial talk of 5 5/8% to 5¾% was circulating the market, sources said.

The deal played to an order book that was four times to five times oversubscribed at the official price talk, a trader said.

Another trader, who saw the new FAGE 5 5/8% notes in the secondary market at 102 bid, said that allocations were tough.

Citigroup Global Markets Inc. was the bookrunner for the debt-refinancing deal.

Diamond Resorts sets roadshow

Diamond Resorts International plans to start a roadshow on Monday for its $600 million offering of eight-year senior notes (Caa1/CCC+), according to a syndicate source.

RBC Capital Markets is the left bookrunner. Barclays and Jefferies LLC are joint bookrunners.

Proceeds will be used to help fund the acquisition of Diamond Resorts by Apollo for $30.25 per share, or $2.2 billion.

Elsewhere in the primary market, look for price talk to surface Thursday for Eagle Materials Inc.’s $300 million offering of 10-year senior notes (Ba1/BBB).

The deal, originally slated to price Friday, could instead price on Thursday, a trader said.

That's because orders already came to $2 billion on Wednesday, in part because the deal is playing to accounts unaccustomed to looking at anything with a speculative-grade credit rating but among whom the present ultra-low-rate environment is generating a reach for yield.

Initial guidance on Eagle Materials is 4 7/8% to 5 1/8%, the trader said.

Meanwhile it has been radio silence on the U.S. Xpress Enterprises Inc. $320 million offering of eight-year notes (B3/B+), a deal that had a roadshow in the July 11 week and was scheduled to clear by the end of that week. Although there is a buzz in the market that the deal is shelved, there has been no official word, sources say. A Wednesday call to the Chattanooga-based company was not immediately returned.

Although things seem slow in the primary market, it's far from dead, sources say.

With a lot of high-yield issuers clearing their earnings-related issuer blackouts this week, look for new issue activity to begin to pick up in earnest beginning in the later part of the week ahead and especially in the Aug. 8 week, a syndicate banker said.

Dealers are out there pitching the presently excellent condition of the high-yield market to prospective issuers – a pitch that showcases the mathematical unlikelihood of rates moving substantially lower than they are right now as well as what is believed to be a massive amount of cash chasing yield, sources say.

However, some of those prospective issuers have no particular uses of proceeds while others just seem inclined to wait, they add.

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, according to a portfolio manager.

High-yield exchange-traded funds sustained $207 million of outflows on the day.

However, actively managed funds were slightly positive, seeing $5 million of inflows on Tuesday.

Dedicated bank loan funds saw $30 million of inflows on Tuesday, including $23 million of inflows to bank loan ETFs.

New FAGE issue firms

In the secondary market, traders saw strong gains in the new FAGE International 5 5/8% notes due 2026.

One trader saw the notes trade up to 101 7/8 “right out of the gate” after having priced at par, while several others saw the notes continuing to climb beyond that.

One said the bonds traded between 101½ and 102 5/8 bid during the session, with last prints in a 102-to-102¼ bid context. He said that over $95 million of the notes traded, putting the credit right near the top of the Most Actives list.

Another pegged the new notes at 102-to-102½ bid.

At yet another desk, the bonds were quoted late in the day around 102¾ bid.

Tuesday deals trade actively

Traders saw considerable activity in the four issues that had priced during Tuesday’s session.

The strongest of the group was clearly the new Navient 6 5/8% notes due 2021.

Those bonds had pushed up to around the101¼ bid mark late Tuesday after the Newark, Del.-based financial services company priced its upsized $750 million drive-by deal at par, and they kept on going on Wednesday.

A trader saw them get up to 101¾ bid, with over $76 million having changed hands.

Another trader saw them moving between 101 3/8 and 102¼ bid, while a third saw them going home in a 101½-to-102 bid range.

The other three Tuesday deals were seen mostly trading at or a little above their respective issue prices.

Bloomfield Hills, Mich.-based homebuilder Pulte Group’s quickly shopped $600 million of 5% notes due January 2027 were seen at 100 1/8 bid, up 1/8 point on the day from the par level where they had priced, on volume of $33 million. The other half of that upsized $1 billion two-part deal – the $400 million add-on to its existing 4¼% notes due 2021 – went home at 103½, unchanged from their issue price, with $25 million traded.

Swiss chemicals maker Ineos Group’s 5 5/8% notes due 2024 were seen at 99¼ bid, 100¼ offered, versus the par level where that $500 million deal had priced.

Xerium Technologies’ 9½% senior secured notes due 2021 were seen around the 99 bid level, up from Tuesday’s 98.54 issue price.

Intelsat gains altitude

Intelsat was “probably one of the more notable ones” among active distressed bonds, a trader said Wednesday.

The Luxembourg-based commercial satellite services provider reported its second-quarter results on Wednesday, beating analysts’ expectations. In response, the debt was “creeping up a little bit,” the trader said.

He saw the 7¼% notes due 2019 pushing up to a 72 to 72½ context, while the 8% notes due 2024 closed “around 95.”

The trader said that overall, the bonds were up half a point to a point, “depending on which flavor you are looking at.”

For the quarter, Intelsat posted earnings per share of 98 cents on revenue of $542 million.

Analysts polled by Thomson Reuters had predicted earnings per share of 34 cents on revenue of $537.3 million.

Additionally, Intelsat reaffirmed its 2016 guidance, placing revenue between $2.14 billion and $2.2 billion.

Also helping the company’s outlook was a series of refinancings in the second quarter and a tender offer that wrapped just after the third quarter started. The tender swapped about $675 million face value of Intelsat Jackson Holdings SA’s 6 5/8% notes due 2022 for cash. (See related story elsewhere in this issue.)

AerCap broadly higher

Traders saw AerCap’s 5 7/8% notes due 2022 up 3/8 point at 114¼ bid, with over $108 million traded, while its 3.95% notes due 2022 also gained 3/8 point to end at 104 5/8 bid.

The bonds rose after the company completed a $700 million six-year credit facility and Fitch Ratings elevated its debt to BBB- from BB+.

Indicators turn mixed

Statistical market performance measures turned lower across the board on Tuesday after having been mixed on Monday and higher on Friday. It was the first all-around weaker session since July 15 and only the second in the last eight trading days.

The KDP High Yield index lost 3 bps on Wednesday to close at 69.17, on top of Tuesday’s 9-bps retreat. It was the index’s third straight loss and its fourth in the last five sessions.

Its yield meantime was unchanged at 5.54%, after having risen by 3 bps on Tuesday, its second straight 3 bps rise. It was the second unchanged result in the last seven sessions.

However, the Markit Series 26 CDX index saw its first gain after two straight losses, rising by 5/32 point on Wednesday to close at 104 5/16 bid, 104 11/32 offered, after having eased by 11/32 point on Monday and another ¼ point on Tuesday. It was the index’s second gain in the last four sessions.

But the Merrill Lynch High Yield index suffered its second consecutive loss after six straight advances. It was down by 0.045% after having fallen by 0.197% on Tuesday.

Wednesday’s reversal lowered the index’s year-to-date return to 12.274% from Tuesday’s 12.324%, which itself was down from Monday’s close at 12.546%, the index’s fifth consecutive new peak year-to-date return.

Stephanie N. Rotondo contributed to this review

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