Giant-sized Frontier three-parter, plus HealthSouth, Allegion price to cap $8.7 billion week

By Paul Deckelman and Paul A. Harris

New York, Sept. 11 – Frontier Communications Corp. priced its long-awaited $6.6 billion three-part offering on Friday, capping off one of the heaviest volume weeks the high-yield primary market has seen in several months.

Traders said that the wireline telecommunications and broadband service provider’s behemoth of a bond deal – consisting of five-, seven- and 10-year notes – priced early enough in the day to see considerable aftermarket dealings, particularly the 10-year piece. They said the three tranches initially firmed solidly, but backed off from those peak levels as the day wore on.

Frontier’s regularly scheduled deal off the forward calendar mostly overshadowed the day’s other two pricings, both of them quick-to-market transactions. Medical facilities operator HealthSouth Corp. did an upsized $350 million of 10-year notes while Allegion plc, an Irish provider of security products and solutions, came to market with $300 million of eight-year notes. Traders quoted the new HealthSouth bonds modestly higher, but said that Allegion seemed to have caught a bid.

The day’s $7.25 billion haul of new dollar-denominated, fully junk-rated notes was the second-largest volume seen so far this year in Junkbondland, surpassed only by the $8.78 billion of new notes from domestic or industrialized-country borrowers that priced back on March 13, according to data compiled by Prospect News. Almost all of the latter issuance came from one deal – a three-part, $8.5 billion offering from Canadian drugmaker Valeant Pharmaceuticals International Inc., the biggest purely junk-rated deal seen so far this year. Frontier’s big deal moves into second place among sizable issues.

The day’s tally of new paper lifted issuance for the week – shortened by Monday’s market close in the United States for Labor Day – to $8.65 billion in eight tranches, a far cry from the week before, ended Sept. 4, which saw exactly zero new issuance.

It easily topped the most recent large-volume week – $7.42 billion in 11 tranches during the week ended Aug. 7 – and in fact was the biggest week since that ended June 5, which saw $9.83 billion of new junk paper priced in 16 tranches, according to the data.

The week’s issuance lifted the year-to-date total of new junk bonds to $214.09 billion in 343 tranches, according to the data – although that was still running 8.1% behind the $232.97 billion which had priced in 435 tranches by this point on the calendar last year, the data indicated.

Traders said that the major focus of the days in the market was “waiting around for Frontier,” and saw little real activity outside of trading in the new bonds, as well as those priced earlier in the week by Mallinckrodt plc and Targa Resources Partners LP.

Statistical indicators of junk market performance were mixed for a third consecutive session, and the fourth mixed session in the last six. However, they were higher across the board from where they had ended up last Friday, after having been mixed last week. It was the second week in the last three the market measures have been higher on a Friday-to-Friday basis.

Frontier prices megadeal

The Friday session saw three issuers bring a total of five tranches, raising a combined $7.25 billion of proceeds.

One of the five tranches came upsized.

Two of the five came as drive-bys.

Of the executions, one of the five tranches came at the tight end of talk. One came on top of talk. And the three tranches priced by Frontier Communications priced at the wide ends of talk that saw substantial – and expected – downward revisions on Friday morning.

Frontier priced $6.6 billion of senior bullet notes (Ba3/BB-) in three tranches on Friday.

The deal included $1 billion of five-year notes that priced at par to yield 8 7/8%, $2 billion of eight-year notes that priced at par to yield 10½%, and $3.6 billion of 10-year notes that priced at par to yield 11%.

J.P. Morgan, BofA Merrill Lynch and Citigroup were the joint bookrunners.

Proceeds will be used to help fund the acquisition of Verizon’s wireline operations in California, Florida and Texas. The proceeds will be escrowed until the close of that acquisition, which is expected in late March 2016.

Frontier revisions expected

Price talk across all three Frontier tranches tightened substantially on Friday from official talk that was circulated late Thursday.

The 8 7/8% five-year notes priced at the wide end of the 8¾% to 8 7/8% final talk; earlier talk was in the 9¼% area.

The 10½% seven-year notes priced at the wide end of the 10¼% to 10½% final talk; earlier talk was in the 10 7/8% area.

And the 11% 10-year notes priced at the wide end of the 10¾% to 11% final talk; earlier yield talk was 11¼% to 11½%.

However the downward revisions in the price talk had been expected and did not appear to diminish demand or impair trading, sources said.

Demand was strongest for the seven- and 10-year notes, which were strong out of the gates, faded a bit, but were continuing to trade at premiums to the issue prices heading into Friday’s close, a trader said.

The roadshow had been truncated because the demand was solid, a portfolio manager said, adding that the order book was said to be around two-times the deal-size at Thursday’s close.

The initial roadshow schedule had the Frontier $6.6 billion megadeal pricing late this coming Tuesday or early Wednesday.

HealthSouth upsizes

Elsewhere Friday HealthSouth priced an upsized $350 million issue of 10-year senior notes (B1/B+) at par to yield 5¾%.

The debt refinancing deal was increased from $300 million.

The yield printed on top of yield talk.

Morgan Stanley, Barclays, BofA Merrill Lynch, Citigroup, Goldman Sachs, J.P. Morgan, RBC and SunTrust were the joint bookrunners.

Allegion drives by

Allegion priced a $300 million issue of eight-year senior notes (Ba2/BB+) at par to yield 5 7/8%.

The yield printed at the tight end of yield talk that had been set in the 6% area and inside of initial guidance of 6% to 6¼%, the source said.

J.P. Morgan, Goldman Sachs, Wells Fargo, Credit Suisse, BofA Merrill Lynch, BNP Paribas and Citigroup were the joint bookrunners for the debt refinancing deal.

Friday’s transactions emptied the active forward calendar.

However the September pipeline remains substantial, sources say, adding that dealers are expected to press ahead to clear that calendar in the week ahead, market conditions permitting.

Frontier firms after pricing

In the secondary market, a trader opined that “everybody was waiting all day for Frontier to price.” Once it did, the Stamford, Conn.-based wireline telecommunications and internet broadband service provider’s new issue saw “a fair amount of volume” – something of an understatement

A market source at another desk saw more than $109 million of the new 11% notes due 2025 having traded, making it easily the busiest bond of the session. He said the notes got as good as 102½ bid from their par issue price earlier in the day.

However, several other traders said that while the bonds had firmed smartly initially after pricing they came down off those peaks later on.

One, for instance, initially quoted the 10-years in a 102 to 102½ context – but by the end of the day had seen them come back down to 100¾ bid, 101½ offered.

At another desk, a trader located them at 101¼ going home, although another had them at 101¾ bid, 102¼ offered.

While there was some trading also going on in the other two tranches of that tripartite issue, market sources said the volume was nowhere near that of the 11% 10-years.

In the other two tranches also, the bonds were seen having come in from their initial stronger levels.

A trader saw the 8 7/8% notes due 2020 initially trade as strongly as 101½ to 101 7/8 offered early on – only to give much of those gains back to close between par and 100¾ bid. Another market participant pegged the bonds at 101¼ bid, 101 5/8 offered. Yet another quoted the bonds going out at 101 bid.

Frontier’s new 10½% notes due 2022 initially traded up to a 102 1/8 to 102 5/8 range – but later on located them somewhere in a 101 to 101½ bid range. A second trader saw them at 101 5/8 bid, 102 1/8 offered.

Frontier’s existing bonds – which had fallen last week when the pending new deal was announced – were meanwhile all seen better in active dealings Friday.

A market source said that its 6 7/8% notes due 2025 shot up some 3¼ points to 87¼ bid, with over $23 million traded.

Its 9% notes due 2031 rose more than 2 points to end at 90¼ bid, with over $16 million having traded.

HealthSouth, Allegion firmer

Traders saw firmer initial levels in the day’s other two new deals.

HealthSouth’s 5¾% notes due 2025 were seen by a trader in a 100½ to 101 bid context. That was up from the par level at which the Birmingham, Ala.-based healthcare services provider priced its upsized issue.

A market source meantime saw Dublin, Ireland-based security products and solutions provider’s 5 7/8% notes due 2023 having moved as high as 101¾ bid, 102¾ offered versus their par pricing level.

Active trading in recent deals

Among recently priced offerings, a trader said that Mallinckrodt’s 5 5/8% notes due 2023 eased by 1/8 point on the day to end at 100½ bid, with over $21 million changing hands.

The United Kingdom-based drugmaker priced $750 million of the notes at par in a drive-by deal on Wednesday.

Targa Resources’ 6¾% notes due 2024 dipped below par, ending ½ point lower at 99½ bid. Over $26 million of the Houston-based energy company’s new bonds were traded.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a third consecutive session on Friday and for a fourth session in the last six.

However, they were higher across the board from where they had ended up last Friday, after having been mixed last week. It was the second week in the last three in which the market measures have been higher on a Friday-to-Friday basis – strong weeks following three straight weeks before that in which they had moved lower each week.

The KDP High Yield Daily Index finished down by 4 basis points on Friday at 68.26, its first loss after six consecutive gains, including Thursday’s 5 bps advance.

It yield, meanwhile, held steady at 6.25%, after having risen by 2 bps on Thursday. That widening followed five straight sessions before that in which the yield had declined.

Those levels, however, compared favorably with the 67.99 index reading 6.32% yield seen the previous Friday, Sept. 4.

The Markit Series 24 CDX North American High Yield Index rose by 1/16 point on Friday to close at 104 5/8 bid, 104¾ offered. It was the second straight rise by the index, which had also firmed by 7/32 on Thursday, after having moved lower on Wednesday. Friday’s advance was the third gain seen in the last four sessions and the fifth improvement in the last eight sessions.

It also finished up from the 103¾ bid, 103 25/32 offered level seen last Friday.

The Merrill Lynch North American Master II High Yield Index, though, posted its second loss in a row, easing by 0.01%, on top of Thursday’s 0.048% decline. That setback had followed three successive higher finishes.

Friday’s loss lowered the index’s year-to-date return to 0.685% on Friday from the previous day’s 0.695%.

However, it was still up by 0.456% on the week, its third straight weekly gain. It had risen 0.276% during the week ended Sept. 4, leaving its year-to-date return at 0.227% last Friday.

The three straight weekly gains have followed three straight weekly losses for the index. With 36 weeks in the books so far this year, the index has seen gains in 22 of them, versus 14 weeks in which it saw losses.

Year-to-date returns, however, remain well below the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 2015 Prospect News.
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