Blue Racer, Virtusa price; Fortress adds on; Guitar Center outperforms; LBM at a premium

By Paul A. Harris and Abigail W. Adams

Portland, Ore., Dec. 9 – Buyers were receptive and available for the three domestic deals which priced in the Wednesday junk bond market.

On the heels of a massive Tuesday, $1.3 billion of new paper priced over the Wednesday session from Fortress Transportation and Infrastructure Investors LLC, Virtusa Corp. and Blue Racer Midstream, LLC/Blue Racer Finance Corp.

Meanwhile, the secondary space was down slightly on Wednesday although the market still felt relatively well bid despite a red day for equities, in particular, equities from the tech sector.

New paper dominated the tape after more than $5 billion priced on Tuesday.

Guitar Center, Inc.’s 8½% senior secured notes due 2025 (Caa1/B-) outperformed in the aftermarket with the notes jumping to a 104-handle.

LBM Acquisition, LLC’s 6¼% senior notes due 2028 (B2/CCC+/CCC+) and Occidental Petroleum Corp.’s two-tranches of senior notes (expected ratings Ba2/BB-/BB) were also trading with large premiums.

While trading with a nominal premium, GrafTech International Ltd.’s 4 5/8% senior notes due 2028 (B1/BB-) and OneMain Finance Corp.’s 4% senior notes due 2030 (Ba3/BB-//Kroll: BB+) remained on a par-handle.

Issuers have good day

In Wednesday's primary market issuers continued to watch their anticipated costs of capital tumble, thanks to massive amounts of cash seeking a home in high-yield bonds, market sources said.

Wednesday issuers including Fortress Transportation, Virtusa Corp. and Blue Racer Midstream saw dramatic price declines relative to early guidance on their deals (see stories in this issue).

Blue Racer, in particular, priced its upsized $600 million issue (from $550 million) of 7 5/8% five-year senior notes (B2/B/B+) at par. The yield came at the wide end of the revised 7½% to 7 5/8% final talk. However, that final talk had been revised from earlier official talk of 7¾% to 8%. Initial guidance was in the low 8% area. There are 50 basis points of interest savings from the wide end of that early guidance (8 1/8%) to Wednesday's final print (7 5/8%).

The deal was playing to $2 billion of orders on Wednesday morning (all but $100 million of it representing reverse inquiry), according to a trader who added that the new Blue Racer 7 5/8% notes due 2025 broke to an eye-popping 103½ bid, 104½ offered.

In general, the burst of issuance that has come in the early part of the Dec. 7 week has played to order books that have been big to massive.

And bond allocations have routinely been dire. Witness the lifting done by investors chasing the Blue Racer bonds in the secondary market shortly after they began trading, the trader pointed out.

Bonds priced Tuesday by bankrupt Guitar Center, the 8½% senior secured notes due January 2026 (Caa1/B-), which came at par, were 104 bid, 105 offered at Wednesday's close (see next section).

The feeding frenzy in the primary is partly being driven by a perception on the part of investors that pricing on many of these December deals has been fair, the trader said.

Notwithstanding plummeting guidance and price talk, issuers are perceived to be leaving a little bit of price on the table for investors, which helps to explain these phenomenal secondary market performances, according to the source.

Guitar Center outperforms

Guitar Center’s 8½% senior secured notes due 2025 outperformed in the secondary space.

The notes traded as high as 105 before settling to trade in the 104 to 104¼ context heading into the market close, a source said.

The notes gained more than 2 points during Wednesday’s session. They jumped to a 102-handle shortly after breaking for trade on Wednesday.

The notes were active despite the small size of the issue with $86 million in reported volume heading into the market close.

The secured notes from the struggling music instrument retailer will aid its restructuring plan with the company currently in Chapter 11 bankruptcy protection.

“It’s essentially exit financing,” a source said, with proceeds to be used to take out its debtor-in-possession financing.

The company’s bankruptcy plan was a good one and reduced $800 million in debt while receiving $165 million in a new equity investment.

The equity sponsors were major names like the Carlyle Group and Ares Capital.

“They’re basically protecting their investment,” a source said.

Their involvement was also a factor driving the demand for the new notes.

Guitar Center priced an upsized $350 million, from $335 million, issue of the 8½% notes at par on Tuesday.

Pricing came on top of yield talk, which tightened from earlier talk of 8¾% to 9%.

The deal was a blowout and was at least 4x oversubscribed, sources said.

Strong premiums

Several recent deals were putting in strong performances in the secondary space and gained 2 to 3 points of premium their initial days in the aftermarket.

LBM Acquisition’s 6¼% senior notes due 2029 outperformed despite their low credit rating.

The 6¼% notes traded as high as 103¾ and were wrapped around 103 heading into the market close, a source said.

There was more than $84 million of the bonds on the tape during Wednesday’s session.

LBM priced an upsized $550 million, from $390 million, issue of the 6¼% notes at par on Tuesday.

Pricing came tighter than the 6½% to 6¾% yield talk. Initial guidance was in the 7% area.

Occidental Petroleum’s two tranches of senior notes were also trading with large premiums in the aftermarket.

The oil and gas company’s new 5½% senior notes due 2025 traded as high as 102¾ but dropped back down to a 101-handle in the late afternoon.

They were changing hands in the 101 3/8 to 101 5/8 context heading into the market close, a source said.

There was more than $93 million on the tape.

Occidental’s 6 1/8% senior notes due 2031 traded as high as 103¾ but dropped down to a 102-handle as the market weakened.

The second tranche of notes was in the 102 3/8 to 102¾ context heading into the market close.

There was more than $153 million in reported volume.

Occidental priced a $750 million tranche of the 5½% notes and a $1.25 billion tranche of the 6 1/8% notes at par on Tuesday.

The 5½% notes priced at the tight end of the 5½% to 5¾% yield talk.

The 6 1/8% notes priced tighter than the 6¼% to 6½% yield talk.

The deal was upsized from $1.5 billion.

Par-handle

While trading with a nominal premium, GrafTech’s 4 5/8% senior notes due 2028 and OneMain’s 4% senior notes due 2030 remained on a par-handle in the aftermarket.

GrafTech’s 4 5/8% notes were changing hands in the par ¼ to par 5/8 context heading into Wednesday’s close with more than $23 million in reported volume, according to a market source.

While the deal was in demand during bookbuilding and trading with a nominal premium in the aftermarket, some sources opted out of the deal.

There is a concern about the chemical company’s fundamentals, in particular its medium-term cash flows which support the payment of the notes, a source said.

GrafTech priced a $500 million issue of the 4 5/8% notes at par on Tuesday.

Pricing came at the tight end of revised yield talk in the 4¾% area, which tightened from earlier talk in the 5% area.

Initial guidance was 5¼% to 5½%.

OneMain’s 4% senior notes due 2030 were among the most actively traded issues during Wednesday’s session.

However, the notes were trading with a nominal premium.

They were largely trading in the par 1/8 to par 3/8 context throughout Wednesday’s session with more than $90 million in reported volume.

OneMain priced an upsized $850 million, from $500 million, issue of the 4% notes at par on Tuesday.

Pricing came tighter than talk for a yield in the 4¼% area. Initial guidance was 4 3/8% to 4½%.

$515 million Tuesday outflows

High-yield ETFs sustained $515 million of outflows on Tuesday, the most recent session for which data was available, according to a market source.

Actively managed high-yield funds were positive on the day, posting $30 million of inflows on Tuesday, the source added.

Indexes

Indexes were flat to down on Wednesday.

The KDP High Yield Daily index was up 2 points to close the day at 68.56 with the yield now 4.54%.

The index was up 2 points on Tuesday and 8 points on Monday.

The ICE BofAML US High Yield index shaved off 4.2 bps with the year-to-date return now 5.195%.

The index was up 7.8 bps on Tuesday and 12 bps on Monday.

The index shot past 5% returns last Friday.

The CDX High Yield 30 index dropped 15 bps to close Wednesday at 109.09.

The index was down 22 bps on Tuesday and 11 bps on Monday.

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