Dynegy leads $6.7 billion of new deals; secondary down further; Toys, AMD retreat; coal soft

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, Oct. 10 – Dynegy Inc. led a strong session in the high-yield primary market, pricing $5.1 billion of notes in a three-part transaction.

In addition to Dynegy, two other issuers came to market with a further three tranches on Friday. Between them the three companies raised a whopping $6.7 billion.

But despite the unusually high volume in the primary, the secondary high-yield bond market finished the week soft yet again, as investors continued to worry about a slowing global economy and looming interest rate hikes.

Toys “R” Us Inc. was on the decline, just two days after the company revised the interest rate on its new term loan. The dip could signal that investors don’t have much confidence in the retailer as it tries to muddle through the holidays.

Meanwhile, Advanced Micro Devices Inc. retreated further, following news out midweek regarding the exit of its president and chief executive officer.

And the coal sector was again under pressure as China prepared to raise tariffs on coal imports and Morgan Stanley downgraded the sector as a whole.

“Coal keeps getting beat up,” a trader said. “It’s like a broken record.”

Dynegy prices $5.1 billion

Friday’s total of $6.7 billion made it the busiest day in almost exactly a month. The last time issuance was higher was on Sept. 11 when $9.4 billion of deals came to market, led by California Resources Corp.’s $5 billion spread across three tranches.

Still, executions on Friday were mixed amid volatility in the global markets. One tranche priced at the tight end of talk, two priced on top of talk, one priced at the wide end and two came wide of talk.

Dynegy priced a $5.1 billion three-part senior notes transaction (B3/B+).

A restructured $2.1 billion tranche of five-year notes priced at par to yield 6¾%. The tranche was upsized from $2 billion while the maturity was decreased to five years from 5.25 years. The yield printed on top of yield talk.

A $1.75 billion tranche of eight-year notes priced at par to yield 7 3/8%. The yield printed on top of yield talk. The announced size range of the tranche was $1.5 billion to $2 billion.

A $1.25 billion tranche of 10-year notes priced at par to yield 7 5/8%. The yield printed at the tight end of yield talk in the 7¾% area. The announced size range of the tranche was $1 billion to $1.5 billion.

Price talk in each tranche came 25 basis points wider than earlier guidance, according to a trader who added that the short-duration tranche had been guided in the 6½% area, the eight-year notes in the 7 1/8% area and the 10-year notes in the 7½% area.

All three tranches firmed in the secondary, with the outperformer being the long-maturity tranche, the 7 5/8% notes due 2024, according to a trader who added that trading volumes were extremely thin heading into Friday’s close in front of the three-day Columbus Day holiday weekend, for which the bond market in the United States will close on Monday.

Morgan Stanley, Barclays, Credit Suisse, RBC and UBS were the joint bookrunners for he acquisition financing.

Lundin brings secured debt

Lundin Mining Corp. priced a $1 billion offering of senior secured notes (Ba2/B+) in a pair of re-sized tranches.

An upsized $550 million tranche of six-year notes priced at par to yield 7 ½%. The tranche was increased from $500 million. The yield printed 12.5 basis points beyond the wide end of yield talk that had been set in the 7¼% area.

A downsized $450 million tranche of eight-year notes priced at par to yield 7 7/8%. The tranche was reduced from $500 million. The yield printed 12.5 bps beyond the wide end of yield talk that had anticipated a yield in the 7½% area.

The joint bookrunners were BofA Merrill Lynch and Scotia Capital.

The Toronto-based mining company plans to use the proceeds to partially fund the acquisition of an 80% interest in the Candelaria and Ojos del Salado copper mine in Chile from Freeport-McMoRan, as well as to repay bank debt and to fund working capital.

Metaldyne prints at 7 3/8%

Metaldyne Performance Group Inc. priced a downsized $600 million issue of eight-year senior notes (B3/B+) at par to yield 7 3/8%.

The yield printed at the wide end of yield talk that had been fixed in the 7¼% area.

The deal was cut from $700 million earlier in the week, with proceeds shifted to the company’s term loan, which was upsized to $1.35 billion from $1.25 billion.

Deutsche Bank, Goldman Sachs, BofA Merrill Lynch, KeyBanc, Morgan Stanley, Nomura and RBC are joint bookrunners for the debt refinancing deal.

Market loses ground

In trading, the high-yield bond markets took another hit Friday, following the Dow Jones Industrial Index’s 115-point drop that effectively erased all of the gains seen in 2014 so far.

“It’s still ugly,” a trader said. “A lot of stuff just continues to get beaten up.”

The KDP High Yield Index neared its 52-week low, coming in at 71.65, with a 5.72% yield. That compared to Thursday’s reading of 72.02, with a 5.65% yield.

The KDP index also finished the week more than half a point below its week-earlier level of 72.24. That decline undid all the gains of the previous week, ending Oct. 3, and left the index lower than it was two weeks ago on Sept. 26, when it closed at 71.91.

The Markit CDX Series 22 Index was meantime off over half a point on Friday, declining to 105.2 bid, 105.35 offered, according to a market source.

The Market index was nearly two points lower than its finish a week ago, when it closed at 107 1/32. As with the KDP index, the latest week’s decline more than outweighed the rise recorded in the week before. On Sept. 26 it had finished at 105 7/8 bid.

Toys takes a dip

Among specific names, Toys “R” Us’ debt was losing ground Friday.

On Wednesday, the Wayne, N.J.-based retailer’s term loan – a $1.025 billion facility due 2020 put together by Goldman Sachs Group Inc. – increased the interest rate on the deal to Libor plus 875 basis points.

The deal had originally been talked at Libor plus 800 bps to 825 bps.

In the bonds, the 7 3/8% notes due 2018 were seen “down 5½ points from a couple days ago,” a trader said, placing the issue at 64. The 10 3/8% notes due 2017 then dropped nearly 4 points to 76.

Another trader said the name was “definitely lower.

“It was not immune from the [day’s] carnage.”

He saw the 10 3/8% notes at 76, down from 80 previously. The 7 3/8% notes of 2018 were deemed down 4 to 5 points at 64.

A third market source pegged the 7 3/8% notes at 66½ bid, down 2 points on the day.

AMD declines further

Advanced Micro Devices was “a little bit lower,” a trader said, as investors continued to react to a recently announced management transition.

The trader said the 7% notes due 2024 were the more active of the company’s bonds, which fell 1½ points to 90½.

Another trader echoed that level.

At another desk, a market source called the 7½% notes due 2022 down a point at 96½.

On Wednesday, AMD said that Rory Read, president and chief executive officer, is leaving the post he has held for the last three years as the company attempts to take market share from Intel.

Lisa Su, chief operating officer, will take over.

But analysts at Wedbush Securities were concerned about the transition, which came so close to the company’s next earnings release. The move could indicate that the turnaround is taking longer than anticipated.

Wedbush cut its rating on the equity to “neutral” from “outperform,” also lowering its price target to $3 from $6. The stock closed at $2.72 on Friday, down 23 cents on the day.

Additionally, Wedbush lowered its fourth-quarter guidance, while maintaining its third-quarter outlook.

Looking to the fourth quarter, Wedbush is now predicting earnings of 4 cents per share, down from its previous 8 cents per share. Revenue estimates were lowered to $1.44 billion from $1.9 billion, both falling below the consensus estimates of 5 cents earnings per share on $1.49 billion in revenue.

No help for coal

There was just no relief for the coal sector on Friday.

“The coal sector really got bamboozled yesterday,” one trader said, noting that most names saw losses of 6 to 7 points on the day. He said the declines were being blamed on news that China was raising tariffs on imported coal, beginning Oct. 15.

Also on Thursday, Morgan Stanley analysts downgraded the entire sector, stating that while they believed prices for metallurgical coal had hit a floor, the ensuing recovery could take longer than anticipated.

The analysts also cut the 2015 price target for hard coking coal to $125 per ton from $133 per ton.

The sector remained weak as the week came to an end, but the massive losses seen the day before were mostly contained.

A trader called Arch Coal Inc.’s debt down 1 to 1½ points on the day, seeing the 7¼% notes due 2021 at 36, the 9 7/8% notes due 2019 at 40 and the 7¼% notes due 2020 at 41¾.

Another trader said the 8% senior second-lien notes due 2019 fell 3 to 4 points to 68.

In Alpha Natural Resources Inc. debt, a trader said the 6% notes due 2019 were off over 5½ points in one trade, ending at 46. The 6% notes due 2021 declined 3 points to 47.

Another source deemed the 6¼% notes due 2021 at 47 bid, a 3-point loss for the day.

A trader also saw Walter Energy Inc.’s 9½% senior secured notes due 2019 dipping nearly 2 points to 84 5/8, while a second trader placed the issue in an 84 to 85 context.

The second trader said that it was a 1 to 2 points drop for the first-liens.

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