Ashtead, J.C. Penny price; investors await California Resources; Gymboree dives post-earnings

By Paul Deckelman and Paul A. Harris

New York, Sept. 10 – The high-yield primary market stepped up its pace a little on Wednesday, with syndicate sources seeing some $900 million of new U.S. dollar-denominated and fully junk-rated paper having priced in two tranches, up from Tuesday’s $649 million and Monday’s $450 million, each day’s action also coming in a pair of tranches.

British equipment rental company Ashtead Group brought a quickly shopped and upsized $500 million of 10-year secured notes to market.

Retailer J.C. Penney Co., Inc. meanwhile rang up an upsized $400 million of five-year notes, which priced as a regularly scheduled forward calendar offering. Early aftermarket gains in the new bonds quickly faded, traders said.

Two other domestic borrowers were also tapping the junk market on Wednesday, although – relatively uncommon for U.S.-based companies – Boston-based document and records storage company Iron Mountain Inc.’s deal, brought through a European subsidiary, was denominated in sterling, while Dallas-based chemical company Celanese US Holdings LLC’s transaction was denominated in euros.

Back in the dollar-denominated market, participants awaited Los Angeles-based energy operator California Resources Corp.’s $5 billion three-part offering, with the giant-sized deal expected to price Thursday afternoon.

Away from the primary sphere, Gymboree Corp.’s bonds nosedived in heavy trading after the underperforming children’s apparel retailer reported poor fiscal second-quarter numbers.

Statistical indicators of junk market performance turned mixed on Wednesday after having been lower across the board on Tuesday.

Ashtead drives by

Two issuers completed single-tranche deals in the dollar-denominated primary market, raising a total of $900 million of proceeds.

Both transactions were upsized.

Ashtead Group priced an upsized $500 million issue of 10-year second-priority senior secured notes (Ba3/BB-) at par to yield 5 5/8%.

The debt refinancing deal was upsized from $400 million.

The yield printed on top of yield talk and tight to initial guidance in the 5½% area, sources said.

Deutsche Bank, Citigroup, J.P. Morgan, BofA Merrill Lynch, Wells Fargo, RBS, Lloyds, Barclays, HSBC and MUFG were the joint bookrunners.

J.C. Penney upsizes

J.C. Penney priced an upsized $400 million issue of non-callable five-year senior notes (Caa2/CCC-) at par to yield 8 1/8%.

The deal was upsized from $350 million.

The yield printed at the tight end of yield talk in the 8¼% area.

JPMorgan, Barclays and Goldman Sachs were the joint bookrunners.

The Plano, Texas-based department store company plans to use the proceeds to fund the tenders for its 6 7/8% medium-term notes due 2015, its 7.65% debentures due 2016 and its 7.95% debentures due 2017. Any remaining proceeds will be used for general corporate purposes, which may include repaying debt.

California Resources price talk

California Resources set price talk for its massive $5 billion offering of senior notes (Ba1/BB), which is coming in three bullet tranches.

A tranche of 5.5-year notes that will have a par call one month prior to maturity is talked to yield 4¾% to 5%.

A tranche of seven-year notes that will have a par call two months prior to maturity is talked to yield 5¼% to 5½%.

And a tranche of 10-year notes that will have a par call one month prior to maturity is talked to yield 5¾% to 6%.

Tranche sizes remain to be determined.

Books close at 10 a.m. ET on Thursday, and the Rule 144A and Regulation S with registration rights deal is set to price Thursday afternoon.

The tight ends of talk on all three tranches backed up by 25 basis points from earlier guidance, market sources say.

The 5.5-year notes had come with 4½% to 4¾% guidance. The seven-year notes had 5% to 5¼% guidance. And the 10-year notes had been guided at 5½% to 5¾%, sources say.

BofA Merrill Lynch, JPMorgan, Citigroup, Wells Fargo, Goldman Sachs, HSBC, Morgan Stanley, MUFG and US Bancorp are the joint bookrunners.

Talking the deals

Jupiter Resources Ltd. talked its $1,125,000,000 offering of eight-year senior notes (B3//) to yield 8½% to 8¾%.

Books were scheduled to close late Wednesday afternoon.

Credit Suisse, TD, RBC, Barclays, Goldman Sachs, UBS, Deutsche Bank and Nomura are joint bookrunners.

AK Steel Corp. talked its $430 million public offering of seven-year senior notes (Caa1/B-) to yield in the 7½% area.

Books were scheduled to close at 2 p.m. ET on Wednesday. The deal is set to price after 4:30 p.m. ET, following the pricing of the concurrent offering of common stock.

Credit Suisse, Citigroup and JPMorgan are the joint bookrunners.

American Energy – Woodford, LLC talked its $325 million offering of eight-year senior notes (Caa1//) to price at a small discount and to yield in the 9% area.

Books close at noon ET on Thursday, and the deal is set to price thereafter.

Credit Suisse, Deutsche Bank and Morgan Stanley are the joint bookrunners.

Aecom starts Thursday

Aecom Technology Corp. plans to start a roadshow on Thursday for a $1.6 billion two-part offering of senior notes (Ba3/BB-).

The deal includes notes maturing in 2022, which come with three years of call protection and feature a three-year 35% equity clawback.

In addition, Aecom Technology is selling non-callable notes maturing in 2024.

Tranche sizes remain to be determined.

BofA Merrill Lynch, BNP Paribas, JPMorgan, MUFG, Scotia and Morgan Stanley are the joint bookrunners for the acquisition financing and debt repayment deal.

Tower starts roadshow

Tower International, Inc. began a roadshow on Wednesday for a $250 million offering of eight-year senior notes (expected ratings B2/B).

JPMorgan, Citigroup, Goldman Sachs and Wells Fargo are the joint bookrunners for the debt refinaning.

Iron Mountain upsizes

In the sterling-denominated market, Iron Mountain priced and upsized a £400 million issue of eight-year senior notes (Ba1/B+) at par to yield 6 1/8%.

The deal was upsized from £350 million.

The yield printed in the middle of the 6% to 6¼% yield talk.

Joint physical bookrunner JPMorgan will bill and deliver. Barclays was also a joint physical bookrunner.

BofA Merrill Lynch, Credit Agricole CIB and Wells Fargo Securities were joint bookrunners.

Celanese prints at 3¼%

Celanese US Holdings priced a €300 million issue of non-callable five-year senior notes (Ba2/BB+) at par to yield 3¼%.

The yield printed at the tight end of the 3¼% to 3½% yield talk.

Joint bookrunner Deutsche Bank will bill and deliver. BofA Merrill Lynch, Citigroup, HSBC, JPMorgan and Royal Bank of Scotland are also joint bookrunners for the debt refinancing.

New Penney pops, then drops

In the secondary market, when the new J.C. Penney 8 1/8% notes due 2019 were freed for aftermarket dealings, a trader saw them get as good as a 101-to-101¼ bid context.

However, a little later another trader saw them trading between 100¼ and 101¼, with a third pegging them in a 100¼ to 100¾ range.

“They quickly traded up to 101¼, but then fell back to around par,” yet another market source said.

And another trader opined that “they began to fall, almost as soon as they hit the street.”

Sanchez, Teine deals hold gains

A trader saw Tuesday’s add-on offering from Sanchez Energy Corp. continuing to trade above the par level at which the Houston-based oil and natural gas exploration and production company had priced that $300 million issue of 6 1/8% notes due 2023, after upsizing the quickly shopped offering from $250 million originally.

On Tuesday, they had traded in a 100½-to101 bid context; on Wednesday, the trader saw them between 100¾ and 101.

A second trader saw them still in the 100½-to-101 range.

Tuesday’s other pricing – Calgary, Alta.-based oil and gas operator Teine Energy Ltd.’s 6 7/8% notes due 2022 – edged up on Wednesday to 100 9/16 bid on brisk volume of more than $10 million, making it one of the day’s busier junk issues.

A second trader saw those bonds remaining in a 100 3/8-to-100 5/8 context.

On Tuesday, the bonds had traded in a par-to-100 3/8 context versus its 99.234 issue price, which had yielded 7%.

Cequel seen lower

A trader said that most of the recent new issues “were trading around their deal price,” or perhaps ¼ to ½ point higher.

One exception, he said, was Cequel Communications LLC’s $500 million issue of 5 1/8% notes due 2021, which priced last Thursday at 97.25 to yield 5.589%.

After the St. Louis-based cable company’s quick-to-market transaction had priced, the bonds hung in around that 97ish context – but on Wednesday, he said, “they kind of traded off,” trading into a 95¾ bid.

They firmed off that low point to go out trading between 96 and 97.

A second trader meantime located the new Cequels at 96½ -97, which he called down ½ point on the day.

Gymboree gyrates post-earnings

Away from the new deals, a trader declared that “Gymboree was probably the most notable name” of the day, “trading into the ‘40s post-earnings. So those bonds are down, call it 15 points.”

Another market source saw the San Francisco-based children’s apparel retailer’s 9 1/8% notes due 2018 ending at around 48 bid, which he called down some 13¼ points on the day. Volume of more than $28 million made those bonds one of the most active issues of the day in the junk bond market.

The paper plummeted after the company reported that for the fiscal second period ended Aug. 2, sales slid to $264.3 million from $290.9 million a year earlier, while comparable-store sales at outlets open at least one year – considered a key retailing industry performance metric, since it culls out both stores that have not yet established a track record as well as those that have since been closed – swooned by 10% from a year earlier.

Adjusted EBITDA shrank to $9.6 million in the latest period from $24.8 million for the second quarter of fiscal 2013.

The company’s net loss meanwhile more than tripled to $31.2 million from the $9.4 million of red ink seen a year earlier.

On the liquidity front, Gymboree burned through some $14.6 million of its cash, bringing its cash balance at the end of the quarter down to $24.9 million from $39.4 million a year earlier.

The company said that it had $64 million in borrowings outstanding under its $225 million asset-backed loan facility, which translates to about $95.5 million of undrawn availability after deducting letters of credit and outstanding borrowings.

Looking ahead, the company expects to report full-year adjusted EBITDA in the range of $90 million to $110 million. Based on this guidance, Gymboree “expects to have sufficient liquidity during fiscal 2014 to service its debt and invest in the business to drive long-term growth.”

RadioShack numbers on tap

Another underperforming retailer scheduled to report numbers on Thursday is RadioShack.

On average, Wall Street is expecting that the Fort Worth-based consumer electronics store chain operator will post a loss of about 65 to 66 cents a share on revenue of around $735 million for the 2015 fiscal second quarter ended Aug. 2.

A trader said that the company’s 6¾% notes due 2019 “aren’t trading – but I’ve heard they’ve been quoted down into the lower 30s. So they’re clearly under some pressure as well – there’s concern about whether they’re going to file [for bankruptcy] or not, or pull a rabbit out of the hat. But they’re clearly for sale as well.”

Another market source saw them going out on Wednesday around 36 bid – up around 3 points on the day, but down from higher recent levels. Trading was all odd lots, with no round-lot transactions recorded.

Those bonds had recently been trading around 40, though they had dipped as low as a 33 context on Tuesday, against a back drop of a slide in the company’s New York Stock Exchange-traded shares, which plummeted 28 cents, or 23%, to end at 94 cents per share – the biggest one-day loss in the stock in more than two years, since July 2012.

The stock was in freefall after Wedbush Securities analyst Michael Pachter cut his price target to zero, warning that a bankruptcy filing was imminent and that the value of its equity would be completely wiped out.

He said in a research note that the company’s much-ballyhooed turnaround plan, including the closing of several hundred underperforming stores, had failed to take hold.

“RadioShack's operational decisions are now being vetted by creditors, and equity investors are no longer relevant to management decisions. The creditors clearly are in control of the ship, and, in our view, the ship is sinking,” Pachter declared.

The shares gyrated around on Wednesday between a low of 76 cents and a high of $1.09. While bearish assessments from Pachter and other analysts threw a pall over the name, late in the session news reports said that investment bank UBS AG and Standard General LP were cobbling together a financing package that might rescue the company and keep it from sliding into bankruptcy. Hedge fund Standard General is RadioShack’s largest shareholder, with a 7% stake.

Softer market, outflows seen

A trader said that “the market’s general tone was definitely on the softer side.”

A second trader, meanwhile, said that he had heard that junk mutual funds and exchange-traded funds had been seeing outflows on a daily basis all week – predicting that the weekly fund-flow number that will be released on Thursday afternoon will likely be negative.

While Monday’s flow numbers were pretty light, he said he heard that on Tuesday about $250 million had left those funds.

He projected that “we may see $500 to $600 million this week,” which, for the purposes of tabulating the flows, ended on Wednesday. He added the caveat, “that depends on what they did today.”

He said that the outflows had been “heavier on the ETF side than on the managed funds, the way that JNK and HYG” – the SPDR Barclays High Yield Bond ETF and the iShares iBoxx $ High Yield Corporate Bond Fund, respectively – “have been trading this week.”

Last week, AMG /Lipper reported a $198 million outflow from the funds it tracks for the week ended Sept. 3 – the first such outflow after three straight weeks of inflows to the funds.

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Wednesday after having been lower across the board on Tuesday, which had followed two mixed sessions before that.

The KDP High Yield Daily index saw its second precipitous plunge in as many sessions as it nosedived by 24 basis points to close at 73. 18. That followed Tuesday’s 22-bps fall.

Besides being the second straight loss, Wednesday marked the eighth time in the last nine sessions the index ended on the downside.

Its yield meantime rose by 8 bps to end at 5.33%, its second straight widening out and ninth rise in the last 10 sessions. On Tuesday, it had been up by 6 bps after having been unchanged on Monday.

However, the Markit CDX Series 22 index saw its first gain after two straight losses, improving on Wednesday by 7/32 point to 107¼ bid, 107 9/32 offered. On Tuesday, it had declined by 19/32 point.

But the widely followed Merrill Lynch High Yield Master II index saw its second straight loss on Wednesday and its sixth downturn in the last seven sessions. It lost 0.316% after having slid by 0.153% on Tuesday.

The latest setback lowered its year-to-date return to 4.878% from 5.211% on Tuesday. It was the index’s first time below the psychologically significant 5% mark since Aug. 13, when it had closed at 4.885%. Its return remained well below its peak level of the year so far, 5.847%, set last Monday.

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