Builders First Source leads continued drive-by parade, new bonds pop; Valeant jumps on results, guidance

By Paul Deckelman and Paul A. Harris

New York, Aug. 9 – For a second consecutive session, the high yield primary realm continued to be ruled on Tuesday by opportunistically timed and quickly shopped “drive-by” offerings pricing just hours after they had surfaced in the market.

A trio of such issuers brought a total of $1.5 billion of new dollar-denominated and fully junk-rated paper to market, each in a single-tranche offering.

Builders First Source Inc., a building materials manufacturer and supplier, had the big deal of the day, a $750 million issue of eight-year secured notes.

After that pricing, traders saw those new bonds having firmed smartly on brisk initial aftermarket volume.

MGM Growth Properties LLC, a gaming-oriented real estate investment trust, rolled the dice on an upsized $500 million of 10-year notes, with the new bonds quoted up modestly, though on much less volume than the Builders Source paper saw.

Another real estate investment company, Kennedy-Wilson Holdings, Inc., meanwhile did a $250 million add-on to its existing 2024 notes.

Besides those three brand-new transactions, the syndicate sources said that dealers holding seven-year senior secured notes from data management company Veritas priced an upsized $405 million of those notes, and plan to also sell another €230 million of that paper this week. Those notes had been converted from a hung-up bridge loan that had been part of the now-postponed debt financing for the intended acquisition of Veritas by the Carlyle Group from information technology company Symantec Corp. last fall.

Away from the new issues, traders said there was intense activity in Valeant Pharmaceuticals International Inc.’s various note issues, all of it to the upside in busy trading, after the drug maker released second-quarter financial results, including guidance, details on the company’s internal restructuring plans and an update on its debt-reduction efforts.

Statistical market performance measures were higher across the board for a fourth straight session on Tuesday; they had first improved on Thursday and stayed higher on Friday and on Monday as well after having been mixed over the previous four consecutive sessions.

Builders FirstSource comes tight

Dealers brought four tranches of bonds from four issuers on Tuesday, generating an overall $1.88 billion of proceeds.

However only $1.5 billion of that amount came in the form of freshly minted bonds, as sellers cleared $405 million of Veritas US Inc. and Veritas Bermuda Ltd. bonds that remained on their books in the wake of a hung bridge loan.

Among the freshly minted bonds Builders FirstSource, Inc. priced a $750 million issue of eight-year senior secured notes (B3/B+) at par to yield 5 5/8%.

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

Initial guidance was in the high 5% to 6% yield context, an investor said.

The notes were 101¼ bid, 101¾ offered at the Tuesday close, a trader said.

Credit Suisse and Deutsche Bank were the joint bookrunners for the debt refinancing.

MGM Growth upsizes

MGM Growth Properties LLC priced an upsized $500 million issue of new non-callable 10-year senior notes (B2/BB-) at par to yield 4½%.

The yield printed at the tight end of yield talk in the 4 5/8% area. Initial guidance had the deal coming with a yield in the high 4% context.

Following the disclosure of terms there was not much secondary market activity in the notes, according to the bond trader who spotted them generically at par ¼ bid, 101¼ offered.

BofA Merrill Lynch was the left bookrunner. Barclays, JP Morgan, Citigroup, Deutsche Bank, BNP Paribas, Fifth Third, Morgan Stanley and SMBC Nikko were joint bookrunners.

The Las Vegas-based real estate investment trust (REIT) plans to use the proceeds to refinance amounts under the revolver drawn in connection with the acquisition of Borgata Hotel Casino and Spa from MGM Resorts International, completed on Aug. 1, 2016, with any remaining proceeds for general corporate purposes.

Kennedy-Wilson taps 5 7/8% notes

Kennedy-Wilson Holdings, Inc. also brought new notes in the form of an upsized $250 million add-on to its 5 7/8% senior notes due April 1, 2024 (B2/BB-) that priced at par.

The deal was upsized from $200 million.

The reoffer price came cheap to price talk in the 100.25 area.

Initial guidance was par to 100.25, according to a portfolio manager said.

The add-on notes were par ½ bid, 101½ offered in the secondary market, the trader said.

BofA Merrill Lynch was the left bookrunner. Deutsche Bank, J.P. Morgan and US Bancorp were the joint bookrunners.

The Beverley Hills, Calif.-based real estate investment company plans to use the proceeds to repay $60 million of the outstanding balance under its revolver and the remainder for general corporate purposes which may include future acquisitions, co-investments, capital expenditures and debt repayment.

Veritas secured notes

An upsized dealer offering of $405 million of Veritas US Inc. and Veritas Bermuda Ltd. senior secured notes due Feb. 1, 2023 (B1/B+) priced at 93.50 to yield 8.841%.

The offering was upsized from $387 million.

The reoffer price came rich to price talk in the 93 area.

Initial guidance was 92 to 93, an investor said.

Morgan Stanley, BofA Merrill Lynch, UBS, Jefferies, Citigroup, Goldman Sachs and Mizuho were the sellers.

Dealers plan to price an upsized €240 million (from €230 million) amount of the Veritas senior secured notes due Feb. 1, 2023 on Wednesday.

The euro-denominated notes are also talked at 7½%, in the 93 area.

Dealers converted a Veritas hung bridge loan into the senior secured notes due Feb. 1, 2023 in the wake of the postponement of debt financing backing the buyout of the company by the Carlyle Group from Symantec Corp. in November 2015.

Diamond Resorts returns

Diamond Resorts International, Inc. launched a $600 million offering of eight-year senior notes (Caa1/CCC+).

The offer will roadshow this week and is also expected to price this week.

RBC is the left bookrunner. Barclays and Jefferies are the joint bookrunners.

Proceeds will be used to fund the LBO of the company by Apollo Global Management LLC and to refinance certain existing Diamond Resorts International debt.

The notes offer ran an Aug. 1-4 roadshow and was subsequently delayed when the company elected to restate earnings.

As reported, Diamond Resorts postponed its earnings release for the quarter ending June 30.

In an Aug. 4 filing with the Securities and Exchange Commission the company said its independent registered public accounting firm expressed the view that Diamond Resorts may not have correctly applied the relative sales value inventory valuation model in the preparation of its consolidated financial statements for 2014 and subsequent periods.

Inflows on Monday

The cash flows of the dedicated high yield bond funds were positive on Monday, an investor said.

For the third consecutive day high yield ETFs saw strong inflows: $284 million on the day. It follows $525 million of total inflows last Thursday and Friday, market sources say.

The inflows represent a big turn in the cash tide of the ETFs which saw $2.8 billion of outflows in nine sessions leading up to Thursday.

High yield asset managers were also positive, at $105 million, on Monday.

And dedicated bank loan funds, lately tending to see positive flows, saw $55 million of inflows on Monday, said the investor whose portfolio includes both high yield bonds and leveraged loan.

Builders’ bonds boom

In the secondary market, the new 5 5/8% senior secured notes due 2024 from Builders First Source were “clearly the standout performers” among the new and recently priced bond issues, a market source said.

The Dallas-based building materials maker’s bonds were seen by one trader 101¼ and 101¾ bid, while a second pegged them in a 101¼ to 102 bid context.

Yet another trader located the notes at 101 ½ bid, and estimated volume in the new paper at over $56 million, placing the issue well up on the day’s Most Actives list.

MGM Growth quoted higher

Elsewhere among the day’s new issues, one of the traders quoted MGM Growth Properties’ 4½% notes due 2026 in a 100¼ to 101¼ bid context, up from their par issue price, but did not see any volume levels comparable to Builders Source.

And the traders did not immediately report any initial aftermarket dealings in the new Kennedy-Wilson Holdings add-on to its 5 7/8% notes due in April of 2024.

Hilton gets hot

Among the deals which got done during Monday’s session, Hilton Worldwide Holdings Inc.’s new 4¼% notes due 2024 did the best, with traders seeing the McLean, Va.-based international hospitality company’s new issue having firmed solidly.

Hilton had priced $1 billion of the notes at par on Monday in a quick-to-market transaction, after that offering was upsized from an originally announced $750 million. It firmed modestly to a 100¼ to 100¾ bid range in initial aftermarket dealings.

On Tuesday, the Hilton bonds moved up, with a trader seeing them trade around a 101 to 101¼ bid context, while a second called the notes up 1/8 point on the day, at 101 1/8, with over $55 million having traded.

Monday deals stay busy

Looking at Monday’s other offerings, Graphic Packaging Holding Co.’s 4 1/8% notes due 2024 gained 3/16 point on Tuesday, a trader said, going home at 100 5/8 bid.

The Marietta, Ga.-based provider of packaging products had priced $300 million of those notes at par in a quickly shopped offering; the bonds had been seen around a 100 3/8 to 100½ bid context, in active dealings of around $23 million.

HCA Holdings, Inc.’s 4½% senior secured notes due in February of 2027 were seen about holding steady around the 100 1/8 to 100¼ bid area, on volume of over $40 million.

The Nashville-based hospital operator had priced $1.2 billion of those notes at par on Monday, after that quick-to-market, split-rated (Ba1/BBB-/BB+) offering had been upsized from an originally planned $1 billion.

Valeant very improved

Traders said that the standout name on the day, away from the new issues, was Valeant Pharmaceuticals, whose bonds were higher across the Laval, Que.-based drugmaker’s capital structure.

A trader saw its flagship issue, the 6 1/8% notes due 2025 “up around 4 or 5 points,” at 87¼ bid, on volume of more than $60 million.

Its 5 3/8% notes due 2020 rose nearly 5 points to end at 93 bid, with nearly $50 million of that paper having changed hands.

Its shortest-dated paper, the 6¾% notes due in August of 2018, improved by 2¼ points, ending at 100½ bid, on around $25 million of volume.

Valeant reported second-quarter financial results, including guidance, details on the company’s internal restructuring plans and an update on its debt-reduction efforts.

Its recently installed chairman and chief executive officer declared on Tuesday that Valeant “remains committed” to paying down at least $1.7 billion of permanent debt this year, as it tries to chop down its total debt load of more than $31 billion.

He said that the company had reduced debt by some $880 million since the end of the first quarter.

He also said that Valeant would enter talks with its banks on some covenant changes in its credit agreement (see related story elsewhere in this issue).

Indictors continue rise

Statistical market performance measures were higher across the board for a fourth straight session on Tuesday; they had improved on Thursday and stayed higher on Friday and on Monday as well after having been mixed over the previous four consecutive sessions.

The KDP High Yield index was up by 14 basis points on Tuesday to end at 69.73, its fourth straight gain and sixth upturn in the last seven sessions; it had also risen by 9 bps on Monday.

Its yield narrowed on Tuesday by 4 bps, to 5.49%, its fourth straight narrowing, after having come in by 3 bps on Monday.

The Markit Series 26 CDX index posted its fifth straight gain on Tuesday, firming by 1/8 point to close at 104 21/32 bid, 104 23/32 offered. On Monday, it had edged up by 1/32 point. Tuesday was the sixth upturn in the last eight sessions.

The Merrill Lynch High Yield index was also up for a fifth straight session, firming by 0.351%, on top of Monday’s 0.254% gain.

The gains of the last five sessions had broken out of a six-session slump.

Tuesday’s advance brought the index’s year-to-date return up to 13.353%, its third consecutive new peak level for the year, eclipsing the former mark of 12.957%, which had been set on Monday.

Tuesday’s close marked the first time that the index’s return had finished above the 13% level since Dec. 12, 2012, when it had closed out that year at 15.583%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.