Post two-part megadeal, upsized AMAG Pharmaceuticals price, AMAG gains; broad market lower

By Paul Deckelman and Paul A. Harris

New York, Aug. 12 – The high-yield primary market remained busy on Wednesday despite an overall more bearish tone in junk, much the same thing as had been seen during Tuesday’s session.

High-yield syndicate sources said that two issuers brought a total of $1.7 billion of new dollar-denominated and fully junk-rated paper to market during the session – a little bit under the $1.8 billion from three issuers that had gotten done on Tuesday, pricing in four tranches.

For a second straight session a two-tranche megadeal was the highlight of the day, as breakfast cereal manufacturer Post Holdings, Inc. priced $800 million of 8.5-year notes and $400 million of 10-year paper.

That regularly scheduled forward calendar offering came to market too late in the session for any real aftermarket activity, traders said.

They also saw specialty drug manufacturer AMAG Pharmaceuticals, Inc. do an upsized $450 million of eight-year notes. That deal priced early enough in the day for some secondary market activity, the traders said, with the new bonds quoted solidly firmer.

There was a fair amount trading activity in Tuesday’s billion-dollar bond behemoth from glass packaging giant Owens-Illinois, Inc., with both tranches – eight- and 10-year notes – seen going home firmer on the day.

Tuesday’s new offerings from business software company Infor (U.S.), Inc. and cable, telephone and internet service provider Midcontinent Communications also traded above their respective issue prices.

Statistical measures of junk market performance were lower across the board on Wednesday, their second consecutive down day. The indicators had worsened all around on Tuesday, after having been mixed on Monday. Wednesday marked the fourth loss in the last five sessions

Post prices $1.2 billion

Wednesday’s session in the high-yield primary market saw $1.7 billion of proceeds raised by two issuers that brought a total of three tranches.

Both deals ran brief roadshows.

Two tranches were upsized and one was downsized.

Against a backdrop of significant volatility in the global capital markets, one tranche priced in the middle of yield talk and the other two priced at the wide ends of talk.

Post Holdings placed $1.2 billion of senior notes (B3/B) on Wednesday in a two-part transaction that saw $200 million of proceeds shifted to the short-duration tranche from the long-duration tranche.

The deal included an upsized $800 million of 7¾% 8.5-year notes that priced at par to yield 7.748%. The amount was increased from $600 million. The yield printed near the wide end of the 7½% to 7¾% yield talk.

In addition the St. Louis-based ready-to-eat cereal company priced a downsized $400 million tranche of 8% 10-year notes at par to yield 8.002%. The size was decreased from $600 million. The yield printed near the wide end of the 7¾% to 8% yield talk.

Barclays was the lead left bookrunner. Credit Suisse, Nomura, BMO, Goldman Sachs and SunTrust were the joint bookrunners.

Proceeds, in conjunction with proceeds from $275 million of new equity, will be used to refinance part of Post’s existing term loan and for general corporate purposes, which may include potential future acquisitions, working capital and capital expenditures.

AMAG upsizes

AMAG Pharmaceuticals priced an upsized $500 million issue of eight-year senior notes (B3/B+) at par to yield 7 7/8%.

The deal was increased from $450 million.

The yield printed in the middle of the 7¾% to 8% yield talk. Earlier guidance had the deal coming in the high 7% yield context, according to a bond trader.

Jefferies was the left bookrunner. Barclays was the joint bookrunner.

The Waltham, Mass.-based specialty pharmaceutical company plans to use the proceeds to help fund the acquisition of Cord Blood Registry, a stem cell collection and storage company serving pregnant women and their families, from GTCR for $700 million.

The $50 million of additional proceeds resulting from the upsizing of the notes offer will be used to put cash on the balance sheet.

At the conclusion of Thursday’s session only one deal remained on the active forward calendar as business expected to clear before the end of the present week.

KIK Custom Products Inc. (Kronos Acquisition Holdings Inc.) is scheduled to conclude a roadshow for its $390 million offering of eight-year senior notes (Caa2/CCC) on Thursday.

Formal talk has yet to surface. However earlier in the week the deal was being discussed in the mid-9% yield context, according to a buyside source.

Joint bookrunner Barclays will bill and deliver. BMO, Nomura and Macquarie are also joint bookrunners.

AMAG issue improves

When the new AMAG Pharmaceuticals 7 7/8% notes due 2023 were freed for secondary dealings, a trader quoted the notes in a 101¾ to 102½ bid context.

That was up from the par level at which the regularly scheduled forward calendar deal had priced.

Traders meantime did not report any immediate aftermarket activity in either tranche of the St. Louis-based breakfast cereal manufacturer Post Holdings’ $1.2 billion two-part offering, owing to the relative lateness of the hour at which it had priced.

Busy session for Owens-Illinois

Among the deals that had priced on Tuesday, there was brisk trading in the new two-part drive-by issue from Owens- Brockway Glass, a subsidiary of Perrysburg, Ohio-based glass containers giant Owens Illinois.

A trader said that early in the session its 5 7/8% notes due 2023 had been trading at 100 1/8 bid, 100¾ offered, before coming off that peak to trade around 99¾ bid, 100¼ offered, while its 6 3/8% notes due 2025 were at 99½ bid, par offered in the early going.

He said that there seemed to be more interest in the new eight-year notes than in the 10-year paper.

Later on in the session, a trader – taking note of the macroeconomic factors whipsawing the market around – said that as stocks, which had begun the session well down, managed to recover from those early lows to end with only small losses on the day, “our stuff started to do better as well.”

He saw both halves of the Owens-Illinois offering heading home at 100 3/8 bid, 100 7/8 offered.

That was up from the respective issue prices of both tranches. Owens Illinois had priced $700 million of the eight-year notes at 99.219 on Tuesday to yield 6% and had priced $300 million of the 10-year notes at par.

At another desk, a trader said there had been robust trading in the 10-year notes, with $41 million having changed hands.

Those notes – which had begun trading right around their par issue price – fell to 99 5/8 bid during the morning, the trader said, but had turned things around by the afternoon to end up 3/8 point at 100 3/8 bid.

Tuesday deals trade better

Apart from the giant Owens-Illinois deal, traders said the other two issues which had come to market on Tuesday were trading above their respective issue prices on Wednesday.

One saw Midcontinent Communications’ 6 7/8% notes due 2023 at 100¾ bid, 101 offered, although he said the last trades he saw had come around midday ET and “nothing after that.”

That was up from the par level at which the Minneapolis-based provider of cable, phone and internet service had priced its $300 million regularly scheduled forward calendar deal late in the session – too late for any aftermarket activity at that time.

A trader said that Infor’s 5¾% first-lien senior secured notes due 2020 were around 99¾ bid, par offered, also around midday.

A second pegged the bonds at 99 5/8 bid, 100 1/8 offered, although he said that was down ¼ point from the closing levels around 99 7/8 seen on Tuesday, when the notes had come in sufficient time to trade after pricing.

The New York-based business software provider priced $500 million of the notes at 99 to yield 5.986%, after the quick-to-market offering was upsized from an originally shopped $400 million.

Market in retreat

While the new deals seemed to be doing better, the same could not be said for the overall market.

“The carnage continues,” one trader exclaimed

Veteran junk market-watcher Kingman D. Penniman, the founder and president of KDP Investment Advisors Inc. in Montpelier Vt. – whose proprietary high-yield index slid to a nearly six-year low during Wednesday’s session, ending at 68.22 – opined that “we all want to know what’s next.”

He said that “some think the high-yield market is attractive because of the recent weakness – while others think that the worst may happen.”

As things stand now, he said, “we really are trading around the low trading ranges that we have seen over the past recent cycles.”

Penniman noted that back in October 2002 the index was trading as low as 65, although he allowed that “that was during a recessionary period when we had the telecom bust and defaults hit 10.6% in 2001 and 8.4% in 2002.”

A little more recently – in March 2009 – his index hit its all-time low point of 49.67. At that time, the financial markets were still reeling from the massive losses that had been seen during The Great Recession of 2008-2009. The low, he said, came “just before the Fed opened up the QE window – and high yield was able to refinance.

From that low point, the index “kept increasing all that year and ended on Dec. 31 at 71.19 – and then kept climbing.”

Penniman doesn’t believe that the junk market currently is “anywhere near to 2002 or 2009 type environments.”

He said that “there really isn’t much guidance here, given that a lot of the pressure is on commodity-related credits and retail interest rate fears.”

He predicted that “at some point the market will decide – assuming the economic data points we’ve seen are correct – that prices and spreads are attractive.”

At that point, “sellers will become buyers again.”

Even so, for now, it’s “a horrible mark-to-market time for traditional fundamental investors.”

Indicators lose more ground

Statistical measures of junk market performance were lower across the board on Wednesday, their second consecutive down day. The indicators had worsened all around on Tuesday, after having been mixed on Monday. Wednesday marked the fourth such loss in the last five sessions

The KDP High Yield Daily Index plunged by 39 basis points on Wednesday to end at 68.22, the index’s sixth straight loss and its eighth loss in the last nine sessions. It had lost 23 bps on Tuesday.

Wednesday’s close established a new 52-week low for the index, eclipsing the old mark of 68.61, set on Tuesday. As previously noted, it was the index’s lowest finish in nearly six years – since Sept. 15, 2009, when it had closed at 68.06.

Its yield, meanwhile, ballooned out by 14 bps to 6.28%, after having risen by 7 bps on Tuesday. It was the second straight widening out and the fourth such widening in last five sessions.

The Markit Series 24 CDX North American High Yield Index retreated by 1/8 point on Wednesday to close at 104 31/32 bid, 105 1/32 offered. It was its second straight loss, its fourth loss in the last five sessions and its fifth such downturn in the last eight sessions. The index had also fallen by 13/32 point on Tuesday.

The Merrill Lynch North American Master II High Yield Index was also being hammered down, posting its eighth loss in a row.

It dropped by 0.349% on the session, after having given up 0.397% on Tuesday.

Wednesday’s loss dropped the index’s year-to-date return to 0.254% from 0.606% on Tuesday.

It was the index’s lowest finish since the 0.203% reading recorded on Jan. 22.

Those levels also remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Several other index components also continued to erode, bringing them to their worst levels of the year so far.

The index’s yield-to-worst rose to a new 2015 high of 7.328%, its fourth straight new peak level, from the previous zenith of 7.226% on Tuesday.

Its spread to worst versus comparable Treasury issues widened out by 11 bps to 5.86%, a new wide point for the year to date, supplanting the previous highest yield of 575 bps, set on Tuesday, when it had widened by 16 bps.

And the average price of its components listed within fell to a fourth consecutive new low for the year of 95.4045, down from 95.76412 on Tuesday, the previous low level.

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