Fresenius new deal closes $6.1 billion week; new Targa notes busy; energy still pressured

By Paul Deckelman and Paul A. Harris

New York, Oct. 24 – The high-yield primary sphere finished out the week on Friday with a sizable deal from healthcare name Fresenius Medical Care, which priced $900 million of new notes in two tranches consisting of six- and 10-year notes.

Traders said that the new paper firmed in initial aftermarket dealings.

The Fresenius offering brought the week’s new-issuance total to $6.07 billion in 13 tranches, according to data compiled by Prospect News. That was well up from the one solitary tranche worth just $500 million that had priced during the previous, holiday-shortened week ended Oct. 17 – a week marked by intense volatility and uncertainty in the financial markets.

The latest week, in turn, raised year-to-date new-issuance to $271.32 billion in 507 tranches, according to the data, running about 1.9% ahead of the pace seen at this time last year, which ultimately turned into a near-record year for issuance. Some $266.23 billion had priced in 558 tranches by this point on the calendar a year ago.

Among recently priced new issues, traders saw very active dealings in the Targa Resources Partners LP notes that came to market on Thursday. The midstream natural gas and natural gas liquid services provider’s quickly-shopped new issue was seen to have firmed modestly once it reached the aftermarket

There was also fairly brisk trading in Thursday’s other new issue, from Graphic Packaging International Inc., although those notes were seen to have come in slightly from the gains they had initially put up.

Greatly reduced activity levels were seen in other recent new issues that had traded heavily after they were first priced and then freed for the secondary, including Tesoro Logistics LP, Schaeffler Holding Finance BV and Constellation Brands, Inc.

Statistical measures of market performance were higher on the day for a second consecutive session Friday, and were finishing up across the board versus where had closed out the previous Friday for a second straight week.

Fresenius prices tight

Friday’s sole high-yield issuance came in the form of a $900 million two-part deal (Ba2/BB+) from German dialysis company Fresenius, issuing via Fresenius Medical Care US Finance II, Inc.

It included $500 million of six-year notes which priced at par to yield 4 1/8%. The yield printed at the tight end of the 4 1/8% to 4¼% yield talk.

In addition Fresenius priced $400 million of 10-year notes at par to yield 4¾%, at the tight end of the 4¾% to 4 7/8% yield talk.

Wells Fargo was the left bookrunner. Citigroup, Deutsche Bank, Scotia, HSBC and SunTrust were joint bookrunners.

The company plans to use the proceeds to repay debt, to fund acquisitions and for general corporate purposes.

Slim calendar

Looking to the week ahead, the active forward calendar held only one deal at Friday's close.

Essar Steel Algoma Inc. is roadshowing a $625 million two-part offering of secured notes that is expected to price during the middle part of the week ahead.

The deal includes $350 million of five-year senior secured notes (Ba3/B+) and $275 million of seven-year junior secured notes (B3/B-).

Official talk has yet to surface but the senior secured notes have been whispered in a mid-7% yield context, according to a market source who added that the junior secured notes have been whispered in a mid-9% context.

Deutsche Bank is the left bookrunner. Goldman Sachs and Jefferies are the joint bookrunners.

Elsewhere, look for a deal from the energy sector to surface on Monday and a deal from the industrial sector to come on either Monday or Tuesday, according to a sell-side source.

Neither deal is expected to be big.

“The risk premium has come off of the market,” a debt capital markets banker said Friday.

Another banker allowed that there is definitely more appetite for double-B rated paper. Witness Fresenius, as well as Graphic Packaging, which priced a $250 million issue of eight-year bullet paper (Ba3/BB+) at par to yield 4 7/8% on Thursday, also at the tight end of talk

However it remains to be seen how single-B and triple-C deals will fare, the banker remarked.

Earnings season has slowed down the high-yield calendar, the source said, adding that investment-grade issuance always ramps up before high yield and the investment-grade market just concluded a big week so high-yield primary market activity may not be far behind.

Inflows picking up

Dedicated high-yield funds are seeing substantial inflows, market sources said on Friday.

On Thursday the market heard that the funds saw $1.71 billion of inflows for the week to Wednesday's close.

Of that amount, 49% went into exchange-traded funds, according to a sellside source.

The inflow reported Thursday, the second inflow in the past four weeks, erases the previous week’s $529 million outflow, and brings the four-week moving average back into the black, at $41 million, source said.

The average ended the previous week at negative $254 million.

And flows remained strongly positive on Thursday, the first day of the new reporting period, according to a trader.

Thursday flows saw $27 million of inflows to ETFs, and a whopping $675 million daily inflow into actively managed funds.

“Inflows have been picking up daily for the past five days,” a syndicate banker summarized shortly after Friday’s close.

Providence wraps acquisition

Providence Service Corp. had been in the market with a $200 million offering of seven-year senior notes (B3/B-) to help fund the acquisition of Matrix Medical Network from Welsh Carson.

However in an Oct. 23 press release Providence announced that it entered into a credit amendment to add a new $250 million term loan tranche to partly finance that acquisition.

Also Providence issued to Coliseum Capital Management, LLC and certain of its affiliates a $65.5 million 14.0% unsecured subordinated note, a bridge financing that will be repaid with the proceeds from a rights offering of common stock.

New Fresenius notes firmer

In the secondary realm, traders saw both halves of the new Fresenius notes moving up modestly from the par level at which they priced.

A trader whose company was not involved in the deal said that the 4¾% notes due 2024 were trading in a 100¾ to 100 7/8 context. “You didn’t see much, once you got past mid-day,” he added, although he quoted the bonds going out around 100¾ to 101.

He said that the 4 1/8% notes due 2020 were ending at 100 5/8 to 100¾.

A second trader saw those notes between 100 5/8 and 100 7/8 bid, while the 10-years closed between 100½ and 100¾.

At another desk, a market source pegged the new six-year notes as high as 101 bid and put them among the day’s busiest high-yield credits, with over $31 million having changed hands.

Targa trades actively

While there was brisk trading in the new Fresenius 2020 notes, the day’s most active credit was the Targa Resources 4 1/8% notes due 2019.

The Houston-based midstream natural gas and natural gas liquids services provider priced $800 million of those notes at par on Thursday in a quick-to-market transaction after upsizing the offering from an originally announced $550 million.

A market source said that on Friday more than $44 million of the notes changed hands, tops in the high-yield space. He saw them finishing at 100 5/8 bid, calling that up 3/8 point from the levels seen in the initial aftermarket dealings late Thursday.

A second trader saw them trading at 100½ to 100¾ bid when “they came to a grinding halt in the middle of the afternoon.

“That’s actually up from where we were at the beginning of the day.”

Graphic Packaging is busy

Thursday’s other transaction, from Graphic Packaging International, “did okay today,” one of the traders said, seeing the Marietta, Ga.-based packaging products company’s 4 7/8% notes due 2022 around 100½ bid.

The quickly shopped $250 million issue had traded at par, and had moved as high as around the 101 bid area in initial aftermarket action.

A trader said that the new deal saw a relative large amount of activity on Friday, with over $11 million having been traded.

He saw the notes going home at 100¾ bid, calling that down ¼ point on the day.

Recent deals hold most gains

A trader said that the recent new deals, for the most part, “maintained their pop” after having firmed smartly in active post-pricing aftermarket activity.

“Especially the stuff that came earlier in the week – I think it was priced at more of a concession. After last week’s volatility, that’s what they needed to do to get the stuff done.”

But volume levels on most of those recent deals had dwindled, down to around several million dollars on the day from the 10s of millions earlier in the week.

Tesoro Logistics’ 5½% notes due 2019, for instance were up 1 1/8 point, ending at 102¼ bid, on volume of about $4 million, while its 6¼% notes due 2022 also gained 1¼ point to 103¼ bid, but only on $2 million of turnover.

The San Antonio, Texas-based, owner-operator of energy pipelines and other transportation and storage infrastructure priced $500 million of the 5½% notes and $800 million of the 6¼% notes at par on Wednesday; both had seen more than $80 million of trading at higher levels on Thursday.

German ball-bearing manufacturer Schaeffler AG priced $475 million of 6¼% senior secured PIK toggle notes due 2019 and $675 million of 6¾% senior secured toggle notes due 2022 at par on Tuesday as part of a larger €1.2 billion three-part offering that also included a euro-denominated tranche. The bonds traded actively when they were first freed but by Friday volume in the 2019 issue had dropped to around $3 million, with the notes ending at 102 7/8 bid, while about $5 million of the 2022 notes were closing at 103 7/8 bid.

Constellation Brands’ 3 7/8% notes due 2019 eased by 1/8 point on Friday to 101½ bid on volume of about $6 million.

Its 4¾% notes due 2024 were up 1/8 point on Friday to 102 bid, with over $7 million traded.

The Victor, N.Y.-based producer and importer of such well-known alcoholic beverage lines as Robert Mondavi wines and Corona beer, had priced its quickly shopped $800 million two-part offering on Monday, evenly divided into two $400 million tranches, which had traded actively at higher levels when they were first freed.

Overall market firmer

A trader said that “away from [the new deals], the rest of the market continues to trade with a really firm tone to it.

“We had big [mutual and exchange-traded fund] inflows. It was as though last week,” when Junkbondland struggled, “never happened.”

The market, he said, “kind of just followed equities higher, just grinding higher all day long.”

Generically speaking, he said, things were up at least ¼ point.”

He continued that “with the exception of some of the energy credits, with oil [prices] down, everything else was kind of bid-for today.”

The energy names “were underperforming, especially the [exploration and production] guys.”

Indicators extend gains

Statistical indicators of junk market performance were stronger for a second straight session on Friday and for a sixth time in the last seven sessions.

They were also higher across the board for a second consecutive week.

The KDP High Yield Daily Index posted its seventh successive advance, rising by 1 basis point to 72.52, after having gained 8 bps on Thursday.

Its yield was unchanged at 5.32%, after having come in by 6 bps on Thursday. It was the second unchanged yield in three sessions.

Those levels compared favorably with the 71.76 index reading and 5.65% yield seen the previous Friday, Oct. 17.

The Markit CDX North American High Yield Series 23 index was up by ¼ point on Friday, its second straight advance, as it ended at 106 29/32 bid, 106 15/16 offered. It had rebounded on Thursday by ½ point from Wednesday’s ½ point loss.

The index was also up from 105 9/16 bid, 105 11/16 offered a week earlier.

The Merrill Lynch High Yield Master II Index rose for a seventh session in a row on Friday, improving by 0.005%, on top of Thursday’s 0.076% advance.

The latest gain lifted its year-to-date return to 4.71% from Thursday’s 4.704%. But the year-to-date return remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

For the week, the index was up by 0.942%, its second straight weekly gain. The previous Friday, it had risen by 0.371%, for a year-to-date return of 3.732%.

According to the FINRA-Bloomberg Active US High Yield Bond Index, Friday’s junk market volume fell to $2.409 billion from Thursday’s $4.353 billion total.

© 2015 Prospect News.
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