KCA Deutag prices, trades up; calendar builds; Mattel active again; U.S. Steel trades

By James McCandless and Paul A. Harris

San Antonio, March 23 – A single new issue wrapped the second-slowest week of the year so far for new dollar-denominated high-yield deals.

KCA Deutag UK Finance plc priced an upsized $400 million of five-year senior secured notes in an offering that moved smartly higher when it freed for trade.

The KCA Deutag deal brought the week’s total for issuance to $1.85 billion, a sharp drop from the previous week.

Meanwhile the calendar grew substantially, promising a busy week ahead despite the market close for the Good Friday holiday.

The high yield secondary market closed the week muted, according to traders, as newer issues were driven by news.

Mattel, Inc.’s notes started climbing again after trading down when Toys “R” Us decided that it would liquidate its U.S. assets, a process that began in earnest Friday with the announcement of store-closing sales.

United States Steel Corp.’s new paper closed the week changing hands actively, extending a run of activity that began Tuesday when the company announced the results of a tender offering.

A recent pricing from J. C. Penney Co., Inc. continues to face downward pressure as part of an overall squeeze in the retail space.

Intelsat SA and Frontier Communications Corp. capped the week in high volume.

KCA Deutag prices, trades up

Friday’s primary market session came against a backdrop of continued chop in the global financial markets but nevertheless generated a steady stream of new issue news.

One dollar-denominated deal cleared the market, coming upsized and tight to talk.

KCA Deutag UK Finance priced an upsized $400 million issue of five-year senior secured notes (B3/B-) at par to yield 9 5/8%.

The deal was increased from $375 million.

The yield printed at the tight end of yield talk that was set in the 9¾% area.

The new KCA Deutag paper was at 101 bid in the secondary market shortly after terms circulated, according to a trader who added that the deal was particularly notable due to the fact that although the Aberdeen, United Kingdom-based driller is a respected company it does business in emerging markets countries, which puts it out of bounds for a lot of straight-up high-yield accounts.

Citigroup was the left bookrunner. HSBC, First Abu Dhabi Bank, Goldman Sachs and J.P. Morgan were the joint bookrunners.

The onshore and offshore oil, gas and geothermal driller plans to use the proceeds to fund its acquisition of certain of Dalma Energy LLC’s subsidiaries and certain rigs located in Saudi Arabia, and other assets, and to refinance Dalma Energy debt.

Ply Gem starts roadshow

Despite the capital markets volatility going on in the background, the active forward calendar saw a substantial buildup of business, most of it expected to clear before the end of the holiday-abbreviated March 26 week.

Ply Gem Holdings Inc. started a roadshow on Friday for a $645 million offering of eight-year senior notes (expected ratings Caa1/CCC+).

An investor conference call is scheduled for Monday.

Initial price talk is 7% to 7¼%.

Deutsche Bank, JP Morgan, UBS, Barclays, Goldman Sachs, BofA Merrill Lynch, RBC, Jefferies, MUFG, Natixis, SG and Credit Agricole are the joint bookrunners for the buyout deal.

Wyndham starts Monday

Wyndham Hotels & Resorts, Inc. plans to start a roadshow on Monday in New York for a $500 million offering of eight-year senior notes (Ba2/BB-).

Joint bookrunner Barclays will bill and deliver. Deutsche Bank, BofA Merrill Lynch, Credit Suisse, Goldman Sachs and Wells Fargo are also joint bookrunners.

Proceeds will be used to help fund the acquisition of La Quinta Holdings Inc.’s hotel franchise and hotel management businesses for $1.95 billion in cash, and for general corporate purposes.

Boyne secured deal

Boyne USA, Inc. started a roadshow on Friday for a $400 million of seven-year senior secured second lien notes (expected ratings B2/B) via sole bookrunner Wells Fargo.

Initial price talk is 7½% to 7¾%.

Pricing is expected on Tuesday.

The Boyne Falls, Mich.-based ski resort owner and operator plans to use the proceeds to purchase seven resort properties and personal property currently owned by Och-Ziff Real Estate, but operated by Boyne, and to repay debt.

American Greetings starts Monday

American Greetings Corp. plans to start a roadshow on Monday for a $325 million offering of eight-year senior notes (Caa1/CCC+).

The deal, which was announced Friday, is being led by Deutsche Bank Securities Inc. and is expected to price on April 3.

Proceeds, along with a $445 million term loan and a $250 million revolver will be used to help fund the acquisition of a 60% ownership stake in the Cleveland-based greeting card company by Clayton, Dubilier & Rice.

Asked about the big build-up of the calendar amid volatility in the capital markets, a trader remarked that the above-mentioned deals – most of them related to acquisitions – are committed financings.

Dealers may not have the luxury of biding their time awaiting tranquil intervals, the source added.

Busy pre-Easter calendar

Deals announced Friday take positions on a new deal calendar that already contained business for the pre-Easter week heading into Friday’s session.

McDermott International Inc. is already on the road with $1.5 billion of senior notes (B2/B), including $950 million of six-year notes with initial talk of 8 3/8% to 8½%, and eight-year notes with initial talk that has them coming 3/8% behind the six-year notes.

And Coty Inc. was already marketing $2 billion of senior notes in four tranches.

The dollar-denominated tranches, expected to be sized at $500 million apiece, feature eight-year notes guided at 5¾% to 6% and 10-year notes guided at 6% to 6¼%.

The deal also features euro-denominated tranches with five- and eight-year maturities.

There is no early buzz on the euro-denominated portions yet, a London-based capital markets banker said on Friday.

That’s because regulations prohibit dealers from “whispering” prices around the market in order to begin finding an appropriate rate.

Any deal that has cross-border aspects must come with formal announcements only, the banker said.

Hence “initial price talk” tends to appear in widely circulated dealer memos, much the way official or final price talk surfaces in both the American and European markets.

A big week

With nearly all of the above-mentioned business teed up to price before the close of the session on Holy Thursday, its looks like a busy week, a trader remarked.

All told, the announced business at Friday’s close came to $5.37 billion in 10 tranches from six different issuers.

There could be more, drive-bys, for instance, the trader said.

That will require a more supportive backdrop in the global capital markets than that of the late March 19 week, the source added.

Yet despite the chop in equities, high yield is holding in notably, the trader insisted, adding that the index is presently yielding between 6.2% and 6.25%, up from the 5% handle yields of early 2017, but still relatively low.

And in spite of news of steady and substantial cash outflows from the high-yield funds, there is little if any talk around the market of investors selling in order to raise cash, the trader said.

Mixed Thursday flows

Daily cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time.

High-yield ETFs sustained $54 million of outflows on Thursday.

Actively managed funds saw $25 million of inflows on the day.

The Thursday daily flows come on the heels of the $1.174 billion of net outflows in the week to Wednesday’s close, as reported on Thursday by Lipper US Fund Flows.

That was the ninth negative flow in the past 10 weeks.

Factoring the most recent numbers, dedicated high-yield funds were in the red to the tune of $17.72 billion for 2018 to Wednesday’s close, according to a Prospect News analysis of the data.

Corestate prints at 3¾%

The only Friday news to surface in the euro-denominated primary market came from Corestate Capital Holding SA which priced a €300 million issue of non-callable five-year notes (BB+) at par to yield 3 ¾%.

Credit Suisse and Morgan Stanley were the bookrunners.

The Luxembourg-based real estate investment company plans to use the proceeds to repay debt.

Slow week at $1.85 billion

With KCA Deutag priced, the week’s total for high-yield issuance came to $1.85 billion in three tranches – and one of those was the subordinated piece of an otherwise investment-grade deal from Assurant, Inc.

That was a sharp drop from the $8.84 billion seen the previous week and the second slowest week of the year, ahead of the $0.59 billion seen in the Feb. 11 week.

Year-to-date issuance now totals $57.22 billion in 106 tranches, less than three-quarters of the $77.60 billion in 136 tranches for the comparable period of 2017.

Mattel gains

El Segundo, Calif.-based toy manufacturer Mattel continued to see activity in its newer issues, a market source said, as the liquidation process begins for Wayne N.J.-based bankrupt toy retailer Toys “R” Us.

After news of missed payments from the retailer and downgrades from the ratings agencies, the company’s issues have recently been trending lower.

But in Friday’s session, Mattel’s 4.35% notes due 2020 picked up ¼ point to close at 97½ bid. Its 6¾% notes due 2025 jumped up 1 point to close at 98¾ bid.

U.S. Steel trades

Pittsburgh-based integrated steel producer U.S. Steel’s new issues ended the week in high volume, having picked up steam on Tuesday when the company announced that it had received tenders for $483,912,000 of its $780 million of 8 3/8% senior secured notes due July 1, 2021 by Monday’s deadline.

“They faced a little downward pressure today,” a trader said. “It could just be coming back to Earth or people are starting to think about what damage potential tariffs could do.”

The steel sector as a whole has been in focus after president Donald Trump announced tariffs intended to protect the domestic steel industry along with aluminum producers from foreign competition. On the face of it, the import barriers appeared to be good news for companies like U.S. Steel even as industries in other sectors are expected to suffer adverse effects.

Traders saw U.S. Steel’s 6¼% paper due 2026, priced last week in a $650 million deal, trade down ¼ point to close at 99¾ bid.

J. C. Penney continues slide

Plano, Texas-based retailer J.C. Penney’s recent $400 million issue of seven-year senior secured second priority notes traded downward to close the week, traders confirmed.

“Not many people have a good outlook on retail right now,” a trader said. “Everything in that sector is tightening up.”

The 8 5/8% securities were seen by traders hovering at the 94 bid level.

Volume names active

Norwalk, Conn.-based wireline telecom name Frontier Communications had an active week in its recent $1.6 billion issue of eight-year second-lien secured notes and the last day of the period was no exception.

The 8½% notes due 2026 were traded heavily in Friday’s session but remained at 96 bid, traders reported.

Luxembourg-based satellite communications company Intelsat added to the volume in telecom.

The Intelsat Jackson Holdings SA 5½% notes due 2023 lost about ¼ point to close just above 80 bid. Its 7¼% notes due 2020 stayed level at 92 bid.

Indexes slide again

The KDP High Yield Daily Index fell by 2 basis points to end the week at 70.22. Its yield rose by 1 bps to end at 5.91%. In Thursday’s session the measure had lost 9 bps.

The Markit Series 29 CDX Index fell by 32.8 bps to end at 105.935. It had suffered a similarly sized decline of 35.3 bps on Thursday.

The Merrill Lynch High Yield Index lost 10.4 bps to close at a return of negative 1.016% for the year, putting it below the negative 1 % threshold. On Thursday the index gave up 13.3 bps.

© 2015 Prospect News.
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