H&E Equipment drives by, firms; recent issues lose ground; funds plunge $2.19 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 – Activity in the recently busy high-yield primary market continued to moderate on Thursday, the second straight session during which only one new fully junk-rated, dollar-denominated deal priced, following a string of sessions which saw multiple offerings get done.

H&E Equipment Services, Inc., a heavy equipment manufacturing and services company, priced $750 million of eight-year notes in a quick-to-market offering.

Traders saw those new bonds trade up on active volume when they hit the aftermarket.

The pricing of the deal coincided with the news that H&E had been outbid in its effort to acquire equipment rental company Neff Corp., with that M&A battle ultimately won by United Rentals Inc. The latter company plans to finance its purchase using newly issued debt along with borrowings from its existing asset-based credit facility. Meanwhile, United Rentals’ existing bonds, including its recently priced 10.5-year issue, were Wlower on the day, though not on much volume.

Traders said that other recently priced deals continued to pace the Most Actives list, including issues from electric car manufacturer Tesla, Inc., golf and country club operator Club Corp. Holdings Inc. and fast-food eateries operator Restaurant Brands International Inc. All were seen lower on the day.

Statistical market performance measures turned lower across the board on Thursday after being mixed on Tuesday and again on Wednesday, which followed an upturn on Monday, their first time on the plus side since Aug. 2.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – fell sharply this week, according to numbers released on Thursday. Some $2.19 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday. That big outflow followed – and completely dwarfed – two consecutive weekly net inflows totaling $319 million (see related story elsewhere in this issue)

H&E Equipment prices tight

Amid diminishing liquidity in the late summer high-yield market, H&E Equipment Services priced a $750 million issue of eight-year senior notes (B2/BB-) at par to yield 5 5/8%.

The yield printed at the tight end of yield talk that was set in the 5¾% area.

Wells Fargo was the sole bookrunner for the debt refinancing deal which surfaced on the heels of H&E Equipment Services’ bid for Neff Corp. falling to a competing bid from United Rentals Inc. (see related story in this issue).

H&E Equipment had in place an $825 million senior unsecured bridge loan to help fund that acquisition of Neff for $1.2 billion, including about $690 million of Neff debt.

The high-yield bond market had anticipated an $825 million bond offer to replace the bridge loan.

In the wake of the succeeding bid from United Rentals, which H&E Equipment is declining to counter, the bridge loan is canceled, sources said.

In the crossover market, Ipalco Enterprises Inc. priced $405 million of 3.7% seven-year senior secured notes (Fitch: BB+) on Thursday.

The deal, which priced at a spread and is being traded at spreads, saw some high-yield play, a trader said.

Enova talked at 8½% area

News surfaced Thursday on the sole high-yield deal widely known to be on the road.

Enova International Inc. talked its $250 million offering of seven-year senior notes (Caa1/B-) to yield in the 8½% area.

Official talk comes on top of earlier guidance.

The deal, in the market via active bookrunner Jefferies, is set to price on Friday.

H&E issue heads higher

In the secondary realm, a trader said that the new H&E Equipment Services 5 5/8% notes due 2025 moved up to a 100¾ to 101½ bid context versus the par level at which the Baton Rouge, La.-based heavy equipment manufacturing and services company had priced its quickly shopped new deal.

A trader at another shop pegged the bonds at 101 3/8 bid going home and said the $35 million of turnover put the credit high up on the day’s Most Actives list.

United Rentals trades off

Even as H&E’s new deal was pricing, investors were digesting the news that the company’s bid to acquire Miami-based equipment rental company Neff Corp. had come up short.

Neff rival United Rentals’ $25 per share cash bid for Neff, totaling $1.3 billion, overmatched H&E’s $1.2 billion offer.

Stamford, Conn.-based United Rentals plans to finance the acquisition using a combination of borrowings from its existing ABL plus new debt that it will issue – amount and type as yet undetermined (see related story elsewhere in this issue).

United Rentals’ existing bonds were seen trading lower against that backdrop, though “there really was not much volume in the name,” a trader said.

Its busiest bond was its 5 7/8% notes due 2026, seen down 3/8 point on the day at 106 1/8 bid, with around $8 million changing hands on a round-lot basis.

The company’s recently priced 4 7/8% notes due January 2028 fell by ½ point on the day to 99¼ bid. Around $7 million traded.

United Rentals priced $925 million of those notes at par in a drive-bay transaction on July 28.

Its 5½% notes due 2025 eased by 3/8 point, closing at 105¼ bid on around $3 million traded in round lots and some additional smaller odd-lot transactions during the day.

Recent deals struggle

Away from the equipment-rental names, traders said there was brisk trading activity in some of the recently priced new issues, most of it on the downside.

Tesla’s 5.3% notes due 2025, for instance, were seen down by nearly 1¼ points Thursday, ending at just over 97½ bid, a trader said.

A second trader called them down 1 point on the day at 97 7/8 bid, 98¼ offered.

Tesla was the day’s volume leader in Junkbondland, with over $86 million changing hands.

The Palo Alto, Calif.-based electric car manufacturer and energy storage products company priced $1.8 billion of those notes at par last Friday – the biggest junk bond deal since satellite broadcaster Sirius XM Radio Inc.’s $2 billion two-part offering back on June 26.

The forward calendar transaction was upsized from an originally announced $1.5 billion.

Elsewhere among the recent new deals, a trader saw ClubCorp’s 8½% notes due 2025 swoon by a full 4 points on the day, ending at 96 bid, on volume of over $15 million.

The Dallas-based operator of golf, country and business clubs, had priced $425 million of the notes at par on Tuesday after that regularly scheduled issue was downsized from $475 million originally.

Restaurant Brands International’s 5% senior secured notes due 2025 eased by 1/8 point on the day, ending at 101 3/8 bid, with over $13 million having traded.

The Oakville, Ont.-based company – which operates and franchises the Burger King, Tim Hortons and Popeyes Louisiana Kitchen quick-service restaurant chains in the United States, Canada and internationally – priced $1.3 billion of the notes at par on Aug. 8 after that quick-to-market transaction was upsized from an originally announced $1 billion.

Indicators turn lower

Statistical market performance measures turned lower across the board on Thursday after being mixed on Tuesday and again on Wednesday, which followed an upturn on Monday, their first time on the plus side since Aug. 2.

The KDP High Yield Daily Index lost 7 basis points on the day, ending at 71.90. It was the second straight loss for the index, which was down by 2 bps on Wednesday after being unchanged on Monday and 3 bps better on Tuesday.

For a second straight session, its yield rose by 1 bp, finishing at 5.28%; those two widenings on Wednesday and Thursday followed Tuesday’s 1 bp tightening – the first time the yield had come in after six consecutive days during which it had risen.

The Markit CDX Series 28 High Yield Index posted a loss of more than 17/32 point on Thursday, after being unchanged on Wednesday. On Tuesday, it had seen its third straight upturn after breaking out of a six-session slump before that, edging up by around 1/16 point.

The Merrill Lynch North American High Yield Index lost 0.094% on Thursday versus its 0.082% gain on Wednesday. The recently choppy index had also been down on Tuesday and up on Monday after four straight losses before that.

Thursday’s retreat lowered the index’s year-to-date return to 5.498% from Wednesday’s 5.598 finish. It was also down from its Aug. 2 close at 6.233%, its 2017 year-to-date peak level.

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