Compass, Targa, American Greetings price; McDermott dominates; funds lose $573 million

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 5 – The primary market was busy on Thursday with dealers clearing the active forward calendar. Four deals totaling $1.76 billion priced – two of them coming as drive-bys from the energy sector.

Targa Resources Partners LP priced an upsized $1 billion issue of eight-year senior notes (existing ratings Ba3/BB-) at par to yield 5 7/8%.

Resolute Energy Corp. priced a $75 million add-on to its 8½% senior notes due May 1, 2020 (Caa1/B-/B+) at 99.51 to yield 8.76%.

In a roadshow deal, Compass Diversified Holdings LLC priced a $400 million issue of eight-year senior notes (B3/B-) at par to yield 8%.

After an elongated and embattled marketing tour, American Greetings Corp. priced a downsized, restructured $282.5 million issue of 8¾% seven-year senior notes (Caa1/CCC+) at 87 to yield 11.499%.

As new paper enters the market, recent deals from McDermott International Inc. and Freedom Mortgage Corp. continued to perform well in the secondary space.

McDermott’s new 10 5/8% senior notes due May 2024 (B2/B-) were up sharply in high volume trading while Freedom Mortgage’s new 8¼% senior notes due 2025 (B2/B-) were relatively unchanged but also active.

Ball Corp.’s 4 7/8% senior notes due 2026 (Ba1/BB+/BB+) were quoted higher on Thursday.

However, the notes saw little change in trading price while the Broomfield, Colo.-based food and beverage packaging company’s 5¼% senior notes due 2025 (Ba1/BB+) traded up.

Meanwhile high-yield mutual and exchange-traded funds saw a third consecutive losing week. Lipper US Fund Flows reported high-yield funds sustained $573 million of aggregate outflows for the week closing on Wednesday.

Targa upsizes

Targa priced an upsized $1 billion issue of eight-year senior notes (existing ratings Ba3/BB-) at par to yield 5 7/8%.

The issue size was increased from $750 million.

The yield printed in the middle of the 5¾% to 6% yield talk and at the tight end of early guidance for a yield in the 6% area.

Joint bookrunner BofA Merrill Lynch will bill and deliver. Barclays, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBC Capital Markets LLC and Wells Fargo Securities LLC were also joint bookrunners.

The Houston-based company plans to use the proceeds to repay bank debt and for general partnership purposes, which may include redeeming or repurchasing some of its outstanding notes, as well as for working capital, capital expenditures and acquisitions.

Resolute Energy’s add on

Resolute Energy priced a $75 million add-on to its 8½% senior notes due May 1, 2020 (Caa1/B-/B+) at 99.51 to yield 8.76%.

The reoffer price came on top of final price talk and rich to initial talk of 98.5 to 99.

Goldman Sachs & Co. was the sole bookrunner.

The notes are presently callable 102.125.

The deal was seen trading at 99 5/8, a trader said. However, the add-on is not expected to see much trading action, according to a market source said.

“You’re not going to see too much,” the source said. “Generally, it’s already spoken for.”

The Denver-based independent oil and natural gas exploration and production company plans to use a portion of proceeds to repay debt currently outstanding under its senior credit facility.

The remaining amount will be used for general corporate purposes including capital expenditures related to its previously announced 2018 plan.

Compass Diversified prices

In a roadshow deal, Compass Diversified priced a $400 million issue of eight-year senior notes at par to yield 8%.

The yield printed at the wide end of the 7¾% to 8% yield talk, and well wide of the 7¼% to 7½% initial guidance.

BofA Merrill Lynch was the left bookrunner. Fifth Third Bank, SunTrust Robinson Humphrey, TD Securities and US Bancorp were the joint bookrunners.

The Westport, Conn.-based holding company plans to use the proceeds, together with cash on hand and borrowings from a concurrent $500 million term loan, to repay its existing credit facilities. Any remaining proceeds would be used for general corporate purposes.

American Greetings’ discount

After an elongated and embattled tour of the high-yield road, American Greetings Corp. priced a downsized, restructured $282.5 million issue of 8¾% seven-year senior notes (Caa1/CCC+) at 87 to yield 11.499%.

The deal was reduced from $300 million shortly after being trimmed from $325 million.

The $25 million amount of the earlier downsize was shifted to the term loan, a source said.

In a restructuring, the tenor of the notes decreased to seven years from eight years.

The coupon printed on top of coupon talk. The reoffer price came rich to price talk of 85.

Talk on the deal widened during the time it was on the road, market sources say. After being initially talked in the low-to-mid 8% range, guidance blew out to 10½% to 11% early in the April 2 week.

Deutsche Bank Securities Inc., Citizens Capital, ING, BofA Merrill Lynch, HSBC and SMBC Nikko were the joint bookrunners.

Proceeds will be used to purchase the issuer’s 7 7/8% notes due 2025 under a pending change-of-control tender offer related to the acquisition of a 60% stake in the company by Clayton, Dubilier & Rice.

The deal has struggled, according to market sources.

Emanating from the battered retail sector, the company’s greeting cards business is not universally liked among high-yield investors, as American Greetings must compete in an age of e-greetings and emoji-festooned instant messages, a buyside source remarked.

McDermott dominates

McDermott’s new 10 5/8% senior notes due 2024 (Caa1/CCC+) dominated trading in the secondary market with more than $90 million of bonds in play during Thursday’s session.

The notes were seen trading sharply above their 94.75 issue price, sources said. Early in the session they were observed at 97 1/8 bid, 97 5/8 offered, a trader said. Later in the session, they traded at 96¾.

“It is a chunky yield, especially in this environment,” a market source said.

McDermott priced its downsized $1.3 billion issue of 10 5/8% six-year senior notes at 94.75 to yield 11.865% on Wednesday.

The amount 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.

“They pulled it and put it back out at a level where there was interest,” a market source said.

Freedom Mortgage active

Freedom Mortgage’s newly priced 8¼% senior notes due 2025 (B2/B-) were again active in the secondary market although with little movement in trading prices, market sources said.

The notes were seen at par 5/8 bid, 101½ offer with the notes largely wrapped around 101 in active trading, sources said. While the notes did trade as high as 101¼, they were largely unchanged, a market source said.

Nearly $36 million of bonds traded during Thursday’s session.

In an upsized deal, Freedom Mortgage priced $700 million of the seven-year senior notes at par to yield 8¼% on Wednesday.

The offering 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.

The notes have been active since breaking for trading on Wednesday, sources said.

Ball Corp. up

Ball Corp.’s 4 7/8% senior notes due 2026 were seen quoted – though not trading – higher on Thursday after a dip on Wednesday. The bonds, which priced at par on March 6, were seen at 100 bid, 100 3/8 offer on Thursday after they were quoted at 99¾ bid, 100½ offer on Wednesday.

While quoted higher, the notes were unchanged in scattered trades on Thursday at par ¼, a market source said.

“They’re relatively unchanged,” a market source said. “They’re really not going to move too much.”

However, the notes are sensitive to Treasuries and may pull back if the market sees a backup in Treasuries, the source said.

While Ball Corp.’s recent issue was unchanged, the company’s 5¼% notes did see some trading action on Thursday which pushed the notes up.

The 5¼% notes were seen at 103 7/8 bid, 104 3/8 offer on Thursday with more than $10 million of bonds in play.

Cash market strong

The cash market in junkbondland was strong on Thursday with the general market up ¼ to ½ point, a market source said.

Typically, the credit default swap index has been the outperformer in the market with cash lagging but those roles saw a reversal on Thursday, the source said.

While there were signs of improvement on Wednesday, the daily cash flows of dedicated high-yield bond funds were mixed, a trader said.

High-yield ETFs saw $173 million of inflows on Wednesday while actively managed funds sustained $45 million of outflows on Wednesday.

Over a longer period, Lipper US Fund Flows reported high-yield funds sustained $573 million of aggregate outflows for the week closing on Wednesday.

While the primary market has been active, sources were surprised there was not a more robust calendar given present conditions, a source said.

However, opportunistic issuers are continuing to adjust to the new, higher interest rates now available to junk issuers, the source said.

For most of those prospective opportunistic issuers, the 4% handle yields seen in 2016 and 2017 are presently unavailable, the trader said.

Indexes higher

The KDP High Yield index was up 19 basis points to 70.35 on Thursday from 70.16 on Wednesday. The yield decreased 6 bps to 5.85% from 5.91%.

The Merrill Lynch High Yield index saw large gains on Thursday and was up 35 bps, shaving the negative year-to-date return to 0.622%. The negative year-to-date return was 0.972% on Wednesday.

The CDX high yield 30 index was up 26 bps on Thursday.

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