American Greetings on tap; McDermott, Freedom Mortgage price; secondary space ‘contained’ amid volatility

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 4 – Two high-yield deals totaling $2 billion priced on Wednesday with one deal upsized and another downsized. McDermott International Inc. priced its downsized $1.3 billion issue of 10 5/8% six-year senior notes (B2/B-) at 94.75 to yield 11.865% on Wednesday.

The issue size was decreased from $1.5 billion. Freedom Mortgage Corp. priced an upsized $700 million issue of seven-year senior notes (B2/B-) at par to yield 8¼% on Wednesday.

The issue size was increased from $500 million.

While McDermott was not seen trading after pricing late in the afternoon, Freedom Mortgage was active on the tape with the notes seen trading up.

American Greetings Corp.'s $325 million offering of eight-year senior notes (Caa1/CCC+) is expected to price on Thursday after it was initially expected to price on Tuesday.

As volatility roiled equity markets, the high-yield secondary market remained firm with little movement on the morning’s downswing or afternoon’s upswing, a market source said.

While down earlier in the day, California Resources Corp.’s 8% senior secured second-lien notes due 2022 closed the day unchanged, the source said.

While the energy sector in high yields did not see major movements despite the volatility of broader markets, Weatherford International’s 9.875% senior notes due 2024 and 2025 (Caa1/B) were down 1 to 2 points in active trading during Wednesday’s session.

Riverbed Technology Inc.’s 8.875% senior notes due 2023 (Caa1/CCC+) were up 1½ point in active trading on Wednesday after the San Francisco-based information technology company appointed a new CEO.

American Greetings on Thursday

American Greetings is now expected to price its $325 million offering of eight-year senior notes (Caa1/CCC+) on Thursday. The original timeline had the deal on a trajectory to price earlier in the week, sources say.

Whisper backed up to the 10½% to 11% area, sources say. Earlier talk had the deal whispered at 8¼% to 8½%.

Downsized McDermott prices

In the new issue market, McDermott priced its downsized $1.3 billion issue of 10 5/8% six-year senior notes (B2/B-) at 94.75 to yield 11.865% on Wednesday.

The issue size was decreased from $1.5 billion.

The yield came 136.5 basis points beyond the midpoint of yield talk in the 10½% area. There were also changes to the offering document, some of them bearing upon how the company may disburse cash and incur additional debt.

Initial price talk on the six-year notes had them coming with an 8%-handle yield, sources said.

The Houston-based engineering and design company also withdrew its long-dated tranche of notes, which would have come with an eight-year maturity.

Prior to revisions, the six-year notes tranche had been sized at $950 million.

The 10 5/8% coupon matches the bridge cap, according to market sources who add that the discount will come at the expense of the dealers.

The bridge loan backing the deal was partially syndicated.

Bridge participants are expected to shoulder some portion of the discount, sources say.

The deal came into the market in connection with the merger of McDermott and Chicago Bridge and Iron. Proceeds will be used to repay debt at both entities and for general corporate purposes.

Joint global coordinator and joint bookrunner Barclays will bill and deliver. Credit Agricole was also a joint global coordinator and joint bookrunner. ABN Amro, Goldman Sachs & Co., MUFG and RBC Capital Markets LLC are also joint bookrunners.

The $200 million amount by which the bond offer was downsized will be made up by increasing the term loan by the same amount, moving the loan size to $2.26 billion from a revised amount of $2.06 billion.

The loan had previously been downsized from $2.15 billion.

The deal priced late in the afternoon and was not seen trading by sources queried.

Freedom Mortgage trades up

Freedom Mortgage’s newly priced 8¼% senior notes were among the most actively traded in the secondary space after pricing on Wednesday, a market source said.

Freedom Mortgage priced an upsized $700 million issue of the seven-year senior notes (B2/B-) at par to yield 8¼%.

The issue size was increased from $500 million.

The yield printed in the middle of yield talk in the 8¼% area and tight to the 8¼% to 8½% initial guidance.

The debt refinancing deal was said to be driven to market by $500 million of reverse inquiry, according to sources.

JP Morgan, Barclays, KeyBanc, UBS, Goldman Sachs and Morgan Stanley were the joint bookrunners.

“They’ve been pretty active since they broke,” a market source said. One market source pegged the bonds at 101 bid.

The bonds were also seen at par ½ bid, 101 offer late Wednesday with the final trade at par ¾, according to another market source said. Most trades were in a range of par ¾ to 101½, sources said.

With more than $46 million on the tape, new paper from Freedom Mortgage was the major volume mover of Wednesday’s session.

Secondary ‘contained and orderly’

The secondary space was “contained and orderly,” on Wednesday, a market source said, as equities experienced a roller coaster ride that saw the Dow Jones industrial average down more than 400 points in the morning and up more than 200 points by market close.

Some bonds were quoted about ¼-point lower in the morning but there were few names that actually traded lower, a market source said.

While the secondary space firmed up with the rally in equities, few names were lifted.

“It was pretty contained and orderly on both the downside and upside,” the source said.

California Resources unchanged

While down in intraday trades, California Resources 8% senior notes were unchanged on the day, a market source said. The 8% notes, which trade in close correlation with the price of crude oil, were 77½ bid, 78¼ offered, down a point at mid-morning, a trader said.

They were later seen quoted at 78 bid, 78¾ offer on Wednesday.

While the notes were seen trading as low as 77½, they closed the day at 78¾, flush with Tuesday’s closing trading, a source said.

The barrel price of West Texas Intermediate crude oil for May 2018 delivery was down $1.19, or 1.87%, at $62.32 early in Wednesday’s session. The price rebounded in the afternoon closing the day at $63.51, an increase of 14 cents, or 0.22%.

Weatherford down

While the energy sector was largely unchanged on the day, Weatherford’s 9.875% senior notes due 2024 and 9.875% senior notes due 2025 were down almost two points during Wednesday’s session.

Weatherford’s 9.875% notes due 2024 dropped about 1 7/8-point to trade at 86 5/8 in scattered trading activity.

Weatherford’s 9.875% notes due 2025 dropped about 1 point to trade at 87½. The 2025 notes were far more active than the 2024 notes and saw more than $19 million bonds in play during Wednesday’s session.

Weatherford stock reached a new 52-week low in intraday trading on Wednesday before closing the day flush with Tuesday.

The Houston-based oil and natural gas service company redeemed its outstanding 9 5/8 senior notes due 2019 on March 31.

Riverbend up

Riverbend Technology’s 8.875% senior notes due 2023 (Caa1/CCC+) were up about 1½-point in active trading on Wednesday. The notes were seen trading at 94¼ with about $11 million of the bonds in play.

The information technology company announced on Wednesday that Paul Mountford, the current senior vice president and chief sales officer, will take the helm of the company from retiring chief executive officer Jerry Kennelly, who co-founded the company in 2002.

Tuesday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $100 million of outflows on the day.

Actively managed funds sustained $105 million of outflows on Tuesday, the trader said.

Indexes up

The KDP High Yield index was up 5 points to 70.16 on Wednesday from 70.12 on Tuesday. The yield decreased 2 bps to 5.91% from 5.93%.

The Merrill Lynch High Yield index against saw gains on Wednesday. The index gained 1.1 bps with the negative year-to-date return improving to 0.972. The negative year-to-date return was 0.983 on Tuesday.

The CDX high yield 30 index was up 13 bps on Wednesday after gaining 11 bps on Tuesday.

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