Sally drives by, trades up; downsized American Energy on tap; TerraForm bounces after slide

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 – The high-yield primary market saw a quieter session on Wednesday with a sole $750 million offering, versus the $1.74 billion of new paper that priced in three tranches during Tuesday’s session.

Sally Beauty Holdings, Inc., a Denton, Texas-based retailer and distributor of professional beauty supplies, came to market with a quickly shopped offering of 10-year notes.

After the well-oversubscribed offering priced, traders said the new bonds firmed smartly when they hit the aftermarket on heavy volume.

The traders also saw continued strengthening in Tuesday’s three junk bond deals, PBF Holding Co., LLC, Rackspace Hosting, Inc. and Ally Financial Inc., all on active volume.

Away from the credits that have actually priced, a perspective new deal that has been on the forward calendar for a full month – from American Energy – Permian Basin, LLC – is expected to finally price during Thursday’s session, though somewhat downsized from the originally planned $560 million.

Apart from the new deals, traders saw TerraForm Power, Inc.’s bonds having regained at least some of the ground they lost on Tuesday, when investors reacted to the news that some hedge funds had either dumped or were at least reducing their holdings in parent SunEdison, Inc.

Statistical measures of junk market performance turned mixed on Wednesday after having been higher across the board on Tuesday. It was the indicators’ second mixed session in the last three trading days.

Sally Beauty prices tight

Sally Beauty Holdings priced Wednesday's sole deal, a $750 million drive-by issue of 10-year senior notes (Ba2/BB+) at par to yield 5 5/8%.

The yield printed tight to the 5¾% yield talk. Initial yield guidance was in the high 5% range.

The debt refinancing deal played to a $3.7 billion order book, according to a market source.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. and RBC Capital Markets were the joint bookrunners.

American Energy talk is 12%

American Energy – Permian Basin is expected to price its downsized $530 million offering of five-year senior secured first-lien notes (B2/B) on Thursday, traders say.

The deal, which kicked off in mid-October and has spent much of the intervening time on the sidelines of the high-yield primary market, has “baseline price talk” of 12% minimum, a source said on Wednesday.

It has been subjected to covenant changes, and at least two revised offering documents were circulated subsequent to the deal's October launch, sources say.

Goldman Sachs is the left bookrunner.

Mixed flows on Tuesday

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

High yield exchange-traded funds saw $155 million of cash inflows on Tuesday.

That number follows the more modest $27 million of inflows that the ETFs saw on Monday and is further evidence that retail investors are presently demonstrating a more vigorous appetite for junk, sources say.

Meanwhile asset managers saw outflows of $175 million on Tuesday.

And dedicated bank loan funds saw $10 million of outflows on the day.

Sally is a beauty

In the secondary market, Sally’s new 5 5/8% notes due 2025 moved up solidly when they began trading around after their par pricing.

A trader said the new bonds had moved up to 101 5/8 bid, and a second saw them even better than that, getting as good as the 102 bid range.

At another desk, a market source saw the bonds going home at 101 5/8 bid, estimating the volume in the new issue at almost $70 million, making it the busiest issue in Junkbondland on the session.

Tuesday deals move up

Tuesday’s issue of 7% notes due 2023 from PBF Holding also saw busy dealings on Wednesday, with over $30 million of the new notes having changed hands.

Several different traders saw the notes around the 101 bid level, calling then up around 1/8 point on the session.

The Parsippany, N.J.-based independent petroleum refiner, along with its PBF Finance Corp. funding subsidiary, priced $500 million of the split-rated (B1/BBB-) notes at par on Tuesday in a quick-to-market offering.

The new notes promptly moved up to a 100¾ -to-101 bid context when they were freed to trade after having priced.

Ally Financial’s new 5¾% senior subordinated notes due 2025 were firmer in very active dealings on Wednesday, a trader said, seeing the notes moving around between 99 and 100 1/8 bid, with the day’s final trades going off in a narrower 99 7/8-to-par range.

A second trader also saw the notes finishing the day around par, with over $63 million having traded.

The Detroit-based online banking and auto loan company’s $750 million drive-by offering had priced at 99.065 on Tuesday in order to yield 5 7/8%.

Traders said the new bonds had moved around in a 99-to-99 5/8 bid context before settling in around 99½ in initial aftermarket dealings on Tuesday.

A trader said of Tuesday’s third deal to price, Rackspace Hosting’s 6½% notes due January 2024, “that one struggled a little bit.”

The San Antonio, Texas-based cloud computing company priced its $500 million regularly scheduled forward calendar issue at par late Tuesday after upsizing the offering from an originally announced $350 million, but no real aftermarket dealings were seen at that time.

The trader said that “it traded below par” earlier in Wednesday’s session but firmed off that low and were going home around par bid.

“They were wrapped around par,” said a second trader, who saw them going out around 99¾ bid, 100 1/8 offered.

He said that volume in the new deal was a brisk $41 million.

TerraForm bounces off lows

Away from activity in the new or recently priced deals, one of the traders noted a rise in TerraForm Power’s bonds, coming a day after those issues had fallen sharply.

“TERP was active,” he said, referring to the Bethesda, Md.-based wind and geothermal power producer’s equity ticker symbol.

“There was a lot of news again in that space today.”

He saw its 5 7/8% notes due 2023 and its 6 1/8% notes due 2025 up around 2 or 3 points in a 79½-to-80 bid context, “so they got a little bounce” after Tuesday’s sell-off

On Tuesday, the 2023 bonds had swooned by 7½ points to 77½ bid, on volume of over $29 million, while the 2025s had plunged by more than 9 points on the session, closing at 76 bid, on volume of about $10 million.

More than $19 million of the former and $13 million of the latter had traded on Wednesday.

A second trader saw the 5 7/8% notes trading “all over the place” between a low of 76¾ bid and their eventual high of 79¾ bid.

The bonds had taken their nosedive on Tuesday on the news that hedge fund managers were voting with their feet and deserting TerraForm’s parent company, SunEdison, after the latter’s recent disappointing earnings results. The Maryland Heights, Mo.-based company reported a quarterly loss of 91 cents per share on Nov. 10 – far wider than the roughly 70 cents per share of red ink Wall Street had been expecting.

Hedge fund manager Daniel Loeb's Third Point LLC said in a regulatory filing Friday that it had completely liquidated its position in the company in the third quarter, selling 12.4 million SunEdison shares for $370.9 million.

Hedge fund Greenlight Capital – SunEdison’s biggest single shareholder – said in a regulatory filing that it plans to cut its stake in the underperforming solar power technology company by 25%, or 6.2 million shares, reducing that stake down to 18.6 million shares.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Wednesday after having been higher across the board on Tuesday. It was the indicators’ second mixed session in the last three trading days, counting Monday’s mixed session.

The KDP High Yield Daily index, which had snapped a seven-session losing streak on Tuesday, was back on the downside on Wednesday for the eighth time in the past nine sessions, easing by 2 basis points to finish at 66.02. On Tuesday, it had risen by 15 bps, its first gain since Nov. 3.

Its yield was unchanged on Wednesday at 6.84% after having come in by 5 bps on Tuesday, its first narrowing after seven straight sessions during which it had widened.

The Markit Series 25 CDX North American High Yield index, though, posted its third straight gain, firming by 11/32 point to finish at 102 3/16 bid, 102¼ offered after having advanced by 3/32 on Tuesday and by 15/32 point on Monday.

The Merrill Lynch North American Master II High Yield index fell by 0.103% after having gained 0.354% on Tuesday, which was its first such rise after three straight setbacks, including Monday’s 0.198% retreat, which had also been its eighth such downturn in the previous nine trading days.

The index’s year-to-date loss widened to 1.569% from Tuesday’s 1.467% deficit. But those year-to-date losses still remain well above the index’s worst 2015 cumulative setback of 3.069%, recorded on Oct. 2.

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