KLX megadeal closes $11.8 billion week, new notes jump in heavy trading, new MGM also gains

By Paul Deckelman and Paul A. Harris

New York, Nov. 21 – The high-yield primary sphere closed out the week on Friday with just one new deal seen having come to market during the session – but it was a big one, as KLX, Inc., being spun off from aircraft interior components manufacturer B/E Aerospace, Inc., touched down in Junkbondland with a $1.2 billion issue of eight-year notes.

Traders said that the forward calendar offering firmed solidly on heavy trading when it moved into the aftermarket following pricing.

They also saw a considerable amount of action in MGM Resorts International’s new 8.25-year megadeal, which had priced late in the session on Thursday but which did not begin trading in the secondary realm until Friday. Those bonds gained more than a point when they finally began to trade.

Those deals swelled the week’s tally of new issues to $11.81 billion in 21 tranches, according to data compiled by Prospect News. That was up from the $7.41 billion that priced in 15 tranches during the previous week, ended Nov. 14; in fact, this week was the busiest in the primary arena since the week ended Oct. 10, when some $11.95 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers had gotten done in 15 tranches, according to the data,

The week’s deals, in turn, raised year-to-date issuance to $304.65 billion in 567 tranches, running about 2.6% ahead of the new-deal pace seen last year. Some $296.9 billion of new junk bonds had priced in 623 tranches by this point on the calendar last year, according to the data.

Traders said the main focus of activity in the secondary market this week had been trading in new or recently priced issues.

But aided by a better equities market, junk had a better tone to it on Friday, as reflected in the behavior of statistical indicators of secondary market performance. They were up across the board. After having been mixed on Thursday and lower over the six straight sessions before that. In fact, Friday was the first higher session seen in the junk market since Nov. 5.

On a week-over week basis, the indicators were mixed versus where they had gone home to close out the previous week, after having been lower all around last week. This was the third week in the last four that the indicators have ended mixed on the week.

KLX prices $1.2 billion

Only one deal cleared the market during the Friday session.

KLX priced a $1.2 billion issue of eight-year senior notes (Ba3/BB) at par to yield 5 7/8%.

The yield printed in the middle of the 5¾% to 6% yield talk.

J.P. Morgan, Citigroup, Goldman Sachs, Credit Suisse and Wells Fargo were the joint bookrunners.

Proceeds will be used to fund the spinoff of KLX from B/E Aerospace, Inc., a Wellington, Fla.-based manufacturer of aircraft cabin interior products, aerospace fasteners, consumables and logistics services.

The week ahead

Although the KLX deal was the only one to price Friday, it was not the only one expected to price.

Two other deals were scheduled to go, but were pushed into the week ahead, sources said.

These include EnTrans International, LLC’s $250 million offering of six-year senior secured notes (B2/B).

The deal, in the market via sole bookrunner Credit Suisse, was talked on Thursday to yield 8¾% to 9%.

And Parq Resort and Casino was expected to price $200 million offering of seven-year senior secured second-lien notes (Caa1/B-), via Credit Suisse and Dundee.

On Thursday the deal was talked with an 11½% coupon to yield 12%.

In addition to those, Tibco Software Inc. has been in the market with a $950 million offering of seven-year senior notes (Caa2/CCC) via J.P. Morgan, Jefferies and MCS Capital. A roadshow was scheduled to wrap up late in the past week, with the deal scheduled to price on Friday.

However it has been “radio silence” on the Tibco deal, market sources say.

DHX to bring C$150 million

In addition to the above, the week will get underway with a Canadian dollar-denominated deal expected to price on Tuesday.

DHX Media Ltd. plans to sell C$150 million of seven-year senior notes (/BB-/) via RBC Capital and Scotia.

One or two dollar-denominated deals could also surface in the early part of the pre-Thanksgiving week ahead, a syndicate banker said on Friday.

However activity is generally expected to be muted as the market moves toward the four-day holiday weekend, sources say.

New KLX issue takes off

In the secondary market, traders saw the new KLX 5 7/8% notes due 2022 gaining altitude, in heavy trading, after the soon-to-be spun-off B/E Aerospace unit’s $1.2 billion forward calendar deal priced at par.

A trader quoted the new bonds trading in a 100½ to 100¾ context, and estimated volume in the new deal at more than $95 million, making it easily the day’s most actively traded junk issue.

A second trader pegged those bonds at 100 5/8 bid, 100 7/8 offered.

At another desk, a trader later saw the new bonds “trading very well,” having gotten as good as between a 101½ and 102 bid context.

There was “good trading action,” he said of the busy dealings in the new paper.

MGM megadeal moves up

A trader meantime saw Thursday’s big new offering from Las Vegas-based gaming giant MGM Resorts International as having jumped to a bid range between 101 and 101¼ bid.

A second trader declared that the MGM Resorts’ 6% notes due March 2015 “traded pretty well,” also seeing them in that same 101 to 101¼ context.

On Thursday, MGM had rolled the dice on its $1.15 billion quick-to-market offering, which priced at par after having been upsized from an originally announced $1 billion.

At the Gimme Credit independent investment advisory service, senior analyst Kim Noland noted the planned use of proceeds for the big new deal to retire the company’s notes due next year, as well as funding the development of a new casino in Maryland, right outside of Washington, and another in Springfield, Mass. Noland opined: “We continue to view MGM as a core holding (even though our preferred use of funds is debt repayment, we have a positive view on both the new projects as we view their markets as relatively underserved and the new resorts should add nicely to cash flow).”

While Noland allowed that the gaming industry fundamentals remain challenged in most of the major markets, Las Vegas seems to at least be showing signs of stabilization.

She said that with the new deal, “MGM’s liquidity problems likely have been solved as recent financings have given it time to await a full Las Vegas recovery.”

The company’s existing 7 7/8% notes due 2017 were meantime seen down 1 point on the day at 107 3/8 bid.

HD Supply higher

Among other recently priced deals, a trader saw HD Supply Holdings, Inc.’s 5¼% senior secured first-priority notes due 2021 having pushed as high as 101½ bid, well up from where the notes had finished on Thursday.

A second trader said the bonds were up 7/8 point on the day, finishing at 101¼ bid, on active volume of over $22 million.

The Atlanta-based wholesale supplier of facilities maintenance and building supplies and equipment priced its $1.25 billion quick-to-market offering at par late Wednesday.

When the bonds were freed for aftermarket dealings, traders saw heavy volume in the new issue, topping the $85 million mark. The bonds had traded as high as just under 101 bid and as low as 100 1/8, before ending in a context of 100 3/8 to 100½.

The company’s existing issuer were meantime a little easier on the day, with its 8 1/8% notes due 2019 ending off about 1/8 point at 108¾ bid, with over $8 million having changed hands.

Better market tone

A trader said that all told, “there was pretty good bid to the market today, with equities doing very well, and the news out of China,” where the country’s central bank announced that it will cut interest rates in order to stimulate the sluggish economy – an economy that is seen as a great driver for world commodity markets.

“Commodities finally had a bid to them,” he said, which in turn helped recently beleaguered high-yield sectors like coal, oil and steel, “so that kind of helped the effort across high yield too.”

But a second trader said that even though there was a better tone, trading activity was restrained, almost as if in anticipation of what promises to be a slow week ahead, shortened by Thursday’s Thanksgiving holiday and the anticipated very slow and uneventful sessions that will sandwich that day off.

“Some people were not in.” he said, “while others blew out earlier than they normally would even for a Friday.”

Indicators up on day, mixed on week

Statistical indicators of junk market performance turned higher across the board on Friday, after having been mixed on Thursday and lower all around for six straight sessions before that.

The indicators ended mixed on the week versus where they had finished at the end of last week, when they had all been lower. It was the third week in the last four that those indicators have been mixed on a week-to-week basis.

The KDP High Yield Daily Index jumped by 14 basis points on Friday to end at 71.73, breaking a five-session losing streak that included Thursday’s 10 bps loss. That loss had also been its eighth such downturn in the previous nine sessions, a skid interrupted only by one session during which it finished unchanged on the day.

Its yield meantime declined by 6 bps to 5.50%, after having risen over the previous six sessions including Thursday, when it rose by 2 bps.

But Friday’s numbers compared unfavorably to the 72.23 index reading and 5.35% yield recorded last Friday, Nov. 14.

The Markit CDX North American High Yield Series 23 index posted its second straight gain on Friday, improving by 15/32 point to close at 106 29/32 bid, 106 31/32 offered. On Thursday, it had edged up by 1/16 point as it broke out of a seven-session losing streak.

The index was also up slightly from 106 7/8 bid, 106 15/16 offered last Friday.

The Merrill Lynch U.S. High Yield Master II Index also took a turn for the better on Friday, rising by 0.329% – its first improvement after seven successive sessions on the downside, including Thursday, when it had been off by 0.086%.

The gain raised its year-to-date return to 3.975% from 3.634% on Thursday. However, the index remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

Despite Friday’s advance, the index finished the week down 0.365% from where it had closed out the previous Friday, its third straight weekly retreat. The index has now moved higher in 32 weeks out of the 47 since the start of the year, and lower in the remaining 15 weeks.

During the week ended Nov. 14, it lost 0.268% to finish the week with a year-to-date return of 4.356%.

According to the FINRA-Bloomberg Active US High Yield Bond Index, junk market volume slid to $2.657 billion on Friday, from $3.906 billion on Thursday.

© 2015 Prospect News.
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