GameStop, Service King price to cap slower $6.6 billion week; recent deals stay strong

By Paul Deckelman and Paul A. Harris

New York, Sept. 19 – The high-yield primary closed out a somewhat less-busy week on Friday, pricing a pair of deals collectively worth $550 million.

The day saw GameStop Corp., a Grapevine, Texas-based electronic game retailer, price an upsized $350 million of five-year notes, which came too late in the session for aftermarket trading.

Earlier, Service King, a Richardson, Texas based operator of auto collision repair shops, came to market with $200 million of eight-year notes. Traders said the oversubscribed deal firmed modestly when it moved into the secondary sphere.

Those Lone Star State deals topped off a week that saw $6.59 billion of new U.S.-dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers price in 14 tranches, according to data compiled by Prospect News – respectable enough, but well down from the $12.77 billion that got done in 19 tranches the week before, ended Sept. 12, one of the heaviest new-issue weeks seen so far this year.

The week’s total raised year-to-date issuance to $236.6 billion in 452 tranches, according to the data, running about 3.8% ahead of the pace seen a year ago, when $227.94 billion of new junk paper had priced in 492 tranches by this point on the calendar, off from the previous week’s 5.4% year-over-year gap.

Over the first two weeks of September, issuance seemed to be on track towards validating the ambitious predictions made before the Labor Day holiday break that primaryside activity would drastically ramp up once the traditional late-August lull was past, perhaps even reaching the $40 billion mark for the full month – a psychologically potent milestone that has only been achieved three times in the history of the junk bond market.

However, issuance seems to have slackened since then.

Traders saw continued brisk trading volume in recent new issues, including Thursday’s offerings from Simmons Foods, Inc., American Airlines Group, Inc. and Anixter Inc., as well as Wednesday’s transaction from Alcoa Inc.

They said that most of those new deals had firmed from their issue price, some by multiple points, although here and there a deal stayed right around its issue price.

Going back a little further, last week’s giant-sized three-part offering from California Resources Corp. continued to trade strongly, with all three tranches seen several points above their par issue price.

Statistical indicators of junk market performance were higher across the board for a third consecutive session on Friday, after having been mixed on Monday and Tuesday and lower for three sessions before that.

The indicators were also higher across the board versus where they had finished out the previous week – after two weeks before that when they were lower all around on a Friday-to-Friday basis.

GameStop upsizes

Two issuers completed single-tranche dollar-denominated deals on Friday, raising a combined total of $550 million.

Both deals were marketed via roadshows.

One was upsized. And one priced at the tight end of talk and the other priced on top of talk.

GameStop priced an upsized $350 million issue of five-year senior notes (Ba1/BB+) at par to yield 5½%.

The deal was increased from $250 million.

The yield came on top of yield talk and in line with initial guidance in the mid-5% yield context.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan was the joint bookrunner.

The Grapevine, Texas-based electronic game retailer plans to use the proceeds to pay down its asset-based credit facility and for general corporate purposes, which may include acquisitions, dividends and stock buybacks.

Service King prices tight

Service King priced a $200 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 7 7/8%.

The yield printed at the tight end of yield talk that had been fixed in the 8% area.

J.P. Morgan, BofA Merrill Lynch, Credit Suisse, Deutsche Bank and Macquarie were the joint bookrunners.

Proceeds will be used to help fund Blackstone’s acquisition of a 55% stake in Service King from Carlyle Group.

Service King’s bond deal played to a book that was more than three-times oversubscribed, according to a market source.

A portfolio manager who played noted that leverage on the deal comes to 6.5-times free cash, which is considerable.

“It’s a good rollup story,” said the manager.

“An automobile collision repair business is pretty recession-proof.

“It could have come tighter but JP Morgan priced it right,” the portfolio managers added, spotting the new 7 7/8% notes at par ¾ bid, 101 ¼ offered in trading, improved from the par issue price.

TUI halves deal size

In the European primary, TUI AG launched and priced a downsized €300 million issue of five-year senior notes (B2/B+) at par to yield 4½% on Friday.

The deal was reduced from €600 million. A proposed tranche of seven-year senior notes was withdrawn from the market.

Joint physical bookrunner J.P. Morgan will bill and deliver. Citigroup and UniCredit were also joint physical bookrunners.

The Hannover, Germany-based travel and tourism company plans to use the proceeds to refinance debt and for general corporate purposes.

The week ahead

The week ahead will get underway to a three-deal, $3 billion calendar.

Heading into the weekend the biggest offer on the active calendar is the Burger King/Tim Hortons deal, a $2.25 billion offering of 7.5-year senior notes (Caa1/B-/B) which is on a roadshow expected to run into the week ahead, including presentations in Canada.

Talk has yet to surface, however conversations have been taking place in a yield context of 5½% to 5¾%, sources say.

Also Tembec Industries Inc. is roadshowing a $375 million offering of senior secured notes due December 2019 (B3/B-), expected to price on Tuesday.

Yield discussions on Tembec are taking place in the low-to-mid 8% yield context, sources say.

And RSP Permian, Inc. is in the market with a $450 million offering of senior notes due 2022 (B3/B-).

Yield discussions there have taken place in the 7% area, sources say.

Also in the week ahead, watch for Zebra Technologies Corp. to kick off a $1.25 billion offering of notes via Morgan Stanley, a trader said on Friday.

Zebra launched a $2 billion term loan on Thursday.

Proceeds from the debt will be used to help fund the acquisition of Motorola Solutions Inc.’s enterprise business.

“We could see $10 billion of issuance next week, but I think that’s a stretch,” the trader commented.

Notwithstanding recent news of $1.2 billion of weekly outflows from dedicated high-yield funds for the week to last Wednesday’s close, technicals most recently appear supportive of a vigorous calendar, sources said on Friday.

On the day trailing the outflow report, Thursday, cash flows turned meaningfully positive.

Thursday saw $387 million of inflows. Exchange-traded funds (ETFs) saw the lion’s share, $317 million, the biggest daily inflow since February, according a trader who tracks ETFs closely.

“As soon as the FOMC [decision] circulated on Wednesday you saw things start to turn around,” the trader said.

Service King seen firmer

In the secondary market, a trader quoted the new Service King 7 7/8% notes due 2022 in a 100½ to 101 bid context.

That was up from the par level at which the bonds had priced.

No immediate aftermarket dealings were seen in the day’s other deal, GameStop’s 5½% notes due 2019.

Simmons Foods seen better

Thursday’s new issue from Simmons Foods “was up pretty nicely,” a trader said, seeing those 7 7/8% second-lien senior secured notes having traded up to 101¾ and left at 101¾-102, versus the par level at which the Fayetteville, Ark.-based poultry processor and pet foods producer had priced its $415 million issue.

Those bonds had been seen above the 101 mark in initial secondary dealings after they were priced.

A second trader saw them trading between 101 5/8 and 101 7/8.

More than $42 million of those notes changed hands on Friday, topping the high yield Most Actives list.

American Air, Anixter stay busy

Two of Thursday’s other deals, from American Airlines Group and Anixter Inc., were also among the day’s busier issues.

A market source saw American Airlines’ 5½% notes due 2019 having racked up more than $17 million in trades, although he saw the bonds having eased slightly to 100¾ bid, while a second saw them “wrapped around” that price point.

However, another trader saw them considerably better, trading between 101½ and 101 7/8 during the afternoon, saying the issue was “up, up and away.”

The Fort Worth, Texas-based airline operator had priced its quick-to-market offering of $750 million of those bonds at par, after the deals was upsized from $500 million originally. They had traded in a 100½ to 101 context after pricing.

The new Anixter 5 1/8% notes due 2021 were seen by a trader at 100¼ bid, also on volume of more than $17 million, about unchanged on the session.

A second trader pegged those bonds trading between par and 100¼, “a little lower than they were Thursday night.”

Anixter, a Glenview, Ill-based distributor of enterprise cabling and security solutions, electrical and electronic wire and cable and OEM supply fasteners, priced a quickly shopped $400 million of those notes at par on Thursday, after which they traded around ¼ to ½ point better.

Among the recent new deals, a trader singled out Anixter, as well as the $430 million of new 7 5/8% seven-year senior notes that West Chester, Ohio-based metals producer AK Steel Corp. priced on Sept. 11 as deals that “seemed to be lagging – they’re trading at or around deal price.”

However, he said that “a lot of the others were doing better.”

He said that “they have been [well bid-for], for the most part.”

Alcoa improves

Among the recent deals that he has seen doing better was Alcoa’s 5 1/8% notes due 2024.

He quoted the giant Pittsburgh-based aluminum producer’s notes trading between 101½ and 102 bid, “definitely better.”

A second trader saw Alcoa’s bond gaining 1 point on the session, going home at 101 3/8 bid, 101 5/8 offered.

The company priced $1.25 billion of the notes at par on Wednesday.

Although the split-rated (Ba1/BBB-/BB+) deal priced off the investment-grade desks, it was traded off the high yield desks and junk market sources saw considerable interest from high yield investors.

More than $18 million of the notes traded on Friday.

There was also sizable trading in another Wednesday deal.

A market source said that more than $11 million of York Risk Services’ new 8 ½% notes due 2022 had changed hands, seeing the bonds at 100 11/16 bid, which he called down 5/16 point.

A second trader saw them at 100 5/8 bid, 101 1/8 offered, up ½ point.

The Parsippany, N.J.-based provider of risk-management and claims management services sold $270 million if those notes, pricing them at par, and they had gotten up to the 101 bid area.

California climb continues

A trader said that last Thursday’s giant-sized offering from Los Angeles-based oil and natural gas exploration and production company California Resources “continues to trade very well.”

He said that its 6% notes due 2024 had moved up to a 105 to 105¾ context, versus the par level at which at $2.25 billion of paper had priced.

He saw its 5½% notes due 2021 having pushed up to around 104 to 104½, versus the $1.75 billion issue’s par pricing level.

And he saw its $1 billion of new 5% notes due 2020 having moved up to 103 to 103½ bid.

In contrast, the 6% notes had been trading around a 103 to 103 3/8 context last Friday, while its 5½% notes had pushed up to around the 103 level and the 5% paper were around a 102 bid level at that time.

New issues in the spotlight

The trader opined that “the theme of the week was the new deals dominating.

“That’s where the focus is. Accounts were putting money to work in the new deals.”

In contrast, he said the non-new-deal secondary market “was just kind of hanging out. There seems to be a bid there – but they’re not really moving.

“It was very stagnant in the secondary market today.”

Indicators stay stronger

Statistical indicators of junk market performance were higher across the board for a third consecutive session on Friday, after having been mixed on Monday and Tuesday and lower for three sessions before that.

The indicators were also higher across the board versus where they had finished out the previous week – after two weeks before that when they were lower all around on a Friday-to-Friday basis.

The KDP High Yield Daily Index gained 6 basis points on Friday to end at 72.98, its third successive advance. It had been up by 7 bps on Thursday and by 8 bps on Wednesday.

Its yield declined, also for a third second straight session, coming in by 6 bps, to 5.39%. It had come in by 3 bps each of the two previous sessions.

Those levels compare favorably with the 72.86 index reading and 5.46% yield at the end of the previous week, on Friday, Sept. 12.

The Markit CDX Series 22 index posted its fourth consecutive advance, finishing up 5/32 point at 107 11/32 bid, 107 15/32 offered. On Thursday, it had been up by 7/32 point.

The index finished the week up from 106 13/16 bid, 106 15/16 offered last Friday.

The widely followed Merrill Lynch High Yield Master II Index improved for a third straight session, rising by 0.083%, on top of Thursday’s gain of 0.17% and Wednesday’s 0.105%, which had been its first after six straight sessions on the downside before that.

The new show of strength lifted its year-to-date return to 4.9% from 4.812% on Thursday. However, it still remained well below its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was closed for all intents and purposes due to the Labor Day holiday break.

On the week, the index was up by 0.213% – its first weekly gain after two losing weeks in a row. So far this year, the index has risen in 28 weeks, against 10 declines. Last week, it had lost 0.634%, leaving its year-to-date return at 4.677%.

© 2015 Prospect News.
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