Murray’s new notes drift down; Constellation reaches for the stars; Halcon up despite downgrade

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, April 10 – The secondary high-yield bond market was holding onto the week’s gains on Friday.

The KDP High Yield index ended higher at 71.65, with a 5.23% yield. That compared to Thursday’s reading of 71.64, with a 5.24% yield.

However, while that index was up, the Markit Series 24 CDX North American High Yield index was unchanged at 107.7 bid, 107.78 offered, according to a market source.

Murray Energy Corp.’s newly priced 11¼% six-year notes were trading actively during the session. The downsized deal came to market on Thursday at a discount.

On Friday, the company announced that its cash tender offer was going swimmingly, with 97% to 98% of bondholders participating by the early deadline.

Meanwhile, Constellation Brands Inc. was heading into higher territory following the company’s quarterly earnings release on Thursday. In addition to reporting figures that were mostly in line with estimates, the company declared its first-ever dividend.

In the oil and gas space, Halcon Resources Corp. shrugged off a downgrade from Standard & Poor’s. The rating change came one day after the company announced a private debt-for-equity exchange.

The U.S. primary market was quiet Friday with no news emerging. However there were two new deals announced in Europe, one by French chemical company SNF Floerger, the other by German auto parts manufacturer ZF Friedrichshafen AG.

SNF Floerger starts roadshow

In primary news, SPCM SA, the holding company for SNF Floerger, plans to begin a roadshow on Monday in London for a €550 million offering of eight-year senior notes (expected BB+), according to a market source.

The roadshow continues on Tuesday, and the Rule 144A and Regulation S deal is set to price after that.

Lead left bookrunner BNP Paribas will bill and deliver. Credit Agricole CIB and SG CIB are the joint bookrunners.

The Andrézieux, France-based producer of polyacrylamide plans to use the proceeds to refinance its 5½% notes due 2020 in full, as well as to repay revolver debt and for general corporate purposes.

ZF Friedrichshafen to meet

Also Friday, ZF Friedrichshafen mandated Barclays, BNP Paribas, Commerzbank and Deutsche Bank to arrange investor meetings ahead of an expected dollar- and euro-denominated offering of bonds, according to an informed source.

The non-deal roadshow starts Tuesday in Munich and Frankfurt, moves to London on Wednesday and wraps up in Paris and Amsterdam on Thursday.

Proceeds will be used to help fund the merger with Livonia, Mich.-based supplier of automotive systems, modules and components, TRW Automotive Holdings Corp.

On Friday Moody’s Investors Service assigned a Ba2 rating to a €1.5 billion senior unsecured guaranteed notes offer to be issued by ZF North America Capital, Inc.

The prospective issuer is a Friedrichshafen, Germany-based auto parts manufacturer.

Elsewhere in the European market, Goldman Sachs issued a save-the-date memo for Monday in London, according to a market source.

It plans to present a possible new deal from and existing issuer in the food and beverage sector.

Murray comes in

Back in secondary action, Murray Energy’s new $1.3 billion issue of 11¼% notes due 2021 was drifting lower Friday, just one day after the downsized issue priced at a discount.

One market source saw the notes in a 96 3/8 to 96½ ZIP code, which compared to a context of 96 7/8 to 97¼ after pricing.

At another desk, the notes were seen at 96¼ bid, 96½ offered.

The issue priced at 96.856.

The St. Clairsville, Ohio-based coal producer plans to use proceeds to buy a stake in Foresight Energy LP. However, though the company initially planned to purchase an 80% stake, its difficulty raising the necessary cash resulted in its amending the terms of the sale agreement and scaling back its stake to 34%.

Also on Friday, Murray announced the early results of its cash tender offer for its 8 7/8% notes due 2021 and 9½% notes due 2020. As of the early tender deadline on Wednesday, over 97.5% of 8 7/8% noteholders had validly tendered the debt, while over 98% of the 9½% bondholders had validly tendered.

Additionally, the company took away the clause that made the tender contingent upon its Foresight acquisition.

The tender expires April 22.

Elsewhere in the established coal space, there was weakness all around.

A source saw Alpha Natural Resources Inc.’s 6¼% notes due 2021 falling 1½ points to 24 bid, while Peabody Energy Corp.’s 6½% notes due 2020 lost a point to 62 bid.

Constellation thriving

Constellation Brands’ debt was moving up Friday, as investors reacted positively to the company’s earnings results out Thursday.

At one shop, the 7¼% notes due 2017 were seen at 111 bid, 111¼ offered, up from previous levels around 110¾. The 4¼% notes due 2023 inched up slightly to 104 from 103 7/8.

On Thursday, the purveyor of alcoholic beverages reported fourth-quarter net income of $215 million, or $1.06 per share. On an adjusted basis, that came to $1.03 per share, above the 98 cents per share forecast by analysts surveyed by FactSet.

Sales came in line with expectations at $1.36 billion.

On top of mostly beating analysts’ expectations, Constellation also announced its first dividend payment since the company went public in 1973. Class A stockholders will receive 31 cents per share and class B holders 28 cents per share on May 22.

But while the news out Thursday was mostly positive, there was some downside.

Looking to 2016, Constellation is predicting earnings per share of $4.55 to $4.75, or $4.70 to $4.90 on an adjusted basis. Analysts in FactSet’s survey had previously speculated that earnings per share would be in the area of $5.46.

Halcon downgraded

Halcon Resources remained on an upward tick Friday, following gains Thursday based on new of a debt-for-equity exchange.

The 9¾% notes due 2020 closed around 78, up from a 76½ to 77 context previously, according to a market source. The 8 7/8% notes due 2021 were seen climbing to nearly 77, up from previous trades with a 75 handle.

The Houston-based oil and gas company said it had entered into an exchange agreement with two funds managed by Franklin Resources Inc., in which the company will exchange $116.5 million of the bonds for 65.5 million shares of stock.

The exchange price was about $1.78 per share.

Upon completion of the deal, Franklin will have the second-largest publicly disclosed equity stake in Halcon.

But while the exchange was not deemed a distressed exchange, Standard & Poor’s cut the company’s rating anyway.

The corporate credit rating was lowered to CCC+ from B, while the rating on the senior unsecured notes fell to CCC- from CCC+.

Alliance One steady

Among other companies that have recently seen ratings changes, Alliance One International Inc.’s 9 7/8% notes due 2021 were holding steady following a downgrade on Thursday.

The notes were pegged at 88½ bid, 88¾ offered.

On Wednesday, S&P dropped the Morrisville, N.C.-based tobacco distributor to CCC+ from B-.

The second-lien notes were cut to CCC from CCC+.

The ratings agency cited concerns about the company’s weak operating performance, negative free cash flow and weak liquidity.

Each of those issues has been blamed on a global oversupply of tobacco and delayed orders.

And while the company has stated that things should get back on track towards the end of the current year – or the beginning of the next year, at the latest – S&P remains concerned about unsustainable leverage and believes a covenant breach is likely within the next year, barring any amendments or waivers.

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