HD Supply, Surgery Partners price deals, new HD notes firmer, existing bonds busy, post-Easter market quiet

By Paul Deckelman and Paul A. Harris

New York, March 28 – The high yield primary sphere kicked off the final week of March on Monday with a pair of pricings.

Industrial distributor HD Supply Holdings, Inc. came to market with a $1 billion drive-by offering of eight-year notes, offered via a subsidiary.

When the new notes were freed for aftermarket activity, they were quoted at somewhat higher levels.

The company’s existing 11½% notes due 2020 – which are being refinanced with the proceeds from the new deal – were seen having moved up in active trading.

The day’s other transaction – a scheduled $400 million forward calendar offering from healthcare operator Surgery Partners, Inc. – also was priced through a subsidiary. Traders did not immediately report any aftermarket dealings.

Recently priced issues such as AMC Networks Inc., Constellium NV and CenturyLink, Inc. were seen little changed from last week’s closing levels.

However, iStar’ Inc.’s new issue continued to struggle.

Statistical market performance measures remained lower across the board for a fourth consecutive session on Monday, their fifth lower session in the last nine trading days.

HD Supply drives through

Two issuers, each one bringing a single tranche of junk, raised a combined $1.4 billion on Monday.

One of the two deals came as a drive-by.

Neither was upsized.

As to executions, neither of Monday's deals priced at the tight end of talk. One came in the middle. The other came at the wide end.

HD Supply, Inc. priced a $1 billion issue of eight-year senior notes (B3/B) at par to yield 5¾% in a drive-by.

The yield printed in the middle of the 5 5/8% to 5 7/8% yield talk. However the yield printed at the tight end of the 5¾% to 6% early guidance and inside of the initial guidance of 6%.

There was a significant reverse inquiry factor at play in the deal, sources said.

Barclays was the left lead bookrunner. J.P. Morgan, BofA Merrill Lynch, Goldman Sachs and Wells Fargo were the joint bookrunners for the debt refinancing deal.

Surgery Partners triple hooks deal

Elsewhere Surgery Center Holdings, Inc. priced a $400 million issue of five-year senior notes (Caa2/CCC+) at par to yield 8 7/8%.

The yield printed at the wide end of yield talk in the 8¾% area.

Jefferies LLC was the left bookrunner for the debt refinancing and general corporate purposes deal which priced following an investor roadshow. BofA Merrill Lynch, Goldman Sachs and Morgan Stanley were the joint bookrunners.

Thin calendar

In the wake of Monday’s two deals the forward calendar was thin, with just one announced deal.

However it’s a big one.

Western Digital Corp. has been roadshowing $5.6 billion of bonds in two tranches, a $1.5 billion tranche of split-rated of seven-year senior secured notes (Ba1/BBB-/BBB-), which are being guided in the low 6% yield context, and a $4.1 billion tranche of straight speculative grade eight-year senior unsecured notes (Ba2/BB+/BB+) guided in the 9% area.

Price discussions do not seem to have moved, a trader said on Monday morning.

The buzz in the market is that the deal is about one-half subscribed, across both tranches, the trader added.

Although Western Digital is the sole deal on the active forward calendar, the March-April crossover week should be an active one in the primary market, sources said.

Look for two deals from the health care sector to appear this week, as long as market conditions remain supportive, a sellside source said.

Mixed flows

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

High yield ETFs sustained $124 of outflows on the day.

Actively managed funds saw $45 million of inflows on Thursday.

The flow data follows news which surfaced late last week that the dedicated funds saw inflows of $2.16 billion for the week to last Wednesday's close.

Meanwhile the dedicated bank loan funds sustained $25 million of outflows on Thursday, the source said.

New HD supply better

When the new HD Supply 5¾% notes due 2024 hit the aftermarket after pricing, a trader said that the Atlanta-based industrial products distributor’s paper had firmed to 100½ bid, 101¼ offered, versus their par issue price.

Existing HD notes busy

The company’s existing 11½% notes due 2020, which are to be refinanced using the proceeds from the new bond deal – were seen trading higher on the session.

A trader saw those bonds at 111 1/8 bid, which he called up ½ to ¾ point on the day.

At another desk, a market source also saw the bonds around that level, on trading of more than $14 million – busy enough to land the issue among the day’s Most Actives in a mostly quiet session.

Recent issues little changed

Among some of the recently pried deals, a trader called AMC Networks’ offering of 5% notes due 2024 “relatively unchanged” around 99½ bid.

The company – a unit of Leawood, Kan.-based nationwide movie theater operator AMC Entertainment Holdings, Inc. – priced $1 billion of the notes in a quickly shopped offering on Wednesday that was upsized from an originally announced $750 million.

More than $46 million of the paper traded on Thursday, easing about ½ point from the bonds’ issue price.

Another Wednesday deal – Constellium NV’s 7 7/8% senior secured notes due 2021 – was also seen little changed from Thursday levels, with a trader seeing those bonds at 99½ bid.

A second trader quoted them at 99 bid, 99½ offered, calling them down ¼ point.

Constellium, a Netherlands-based manufacturer of aluminum parts used in various industries, priced $425 million of the notes at par, after upsizing its regularly scheduled forward calendar deal from an originally announced $400 million.

iStar struggles

One of the recent new deals which has bucked the general trend and has not done so well has been iStar’s 6½% notes due 2021.

A trader lamented “those have not traded well,” seeing the notes at 97¾ bid, which he said was about a half-point drop or so.

A market source at another shop pegged the bonds at 97½ bid, 98¼ offered, down at least ½ point from Thursday’s close – which itself was down 2 points from their par issue price.

The New York-based financial services firm priced $275 million of the notes at par last Wednesday, after upsizing the quickly shopped offering from $250 million originally.

Muted market

A trader said that overall, “there was really not much happening in the Street today,” as people came straggling back in after the long holiday weekend.

“It was a very, very muted day in trading,” he said.

Indicators remain lower

Statistical market performance measures remained lower across the board for a fourth consecutive session on Monday, their fifth lower session in the last nine trading days.

The KDP High Yield Daily index lost 17 basis points on Monday to end at 65.45, after having plunged by 25 bps on Thursday. The index was not published on Friday due to the market close in observance of the Good Friday-Easter holiday.

Monday market the index’s fourth straight loss after four straight upside sessions, and its fifth loss in the last nine trading days.

The index’s yield rose by 5 bps on Monday to end at 6.68% – its third straight widening out after five consecutive narrowings and fourth widening in the last nine sessions. It had also widened out by 6 bps on Thursday.

The Markit Series 25 CDX North American High Yield index retreated by 7/32 point on Monday to close at 101 11/16 bid, 101 23/32 offered, its fourth straight loss after one gain and its fifth setback in the last six trading sessions. On Thursday, it had declined by 5/16 point. The index was not published on Friday.

The Merrill Lynch North American High Yield Master II index fell back on Monday, its fourth consecutive loss after having posted three consecutive improvements before that and its sixth loss in the last nine sessions.

It was down by 0.084%, versus Thursday’s 0.595% downturn.

Monday’s fall softened the index’s year-to-date return to 2.798% from 2.884% on Thursday. The index was not published on Friday.

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