Flora Food on tap; WeWork prepares debut; Netflix below par; Freeport slides; ATD tanks

By Abigail W. Adams and Paul A. Harris

Portland, Me., April 24 – While no new deals priced on Tuesday, the European and domestic high-yield primary market remained active with the forward calendar growing.

Flora Food Group set price talk for its €1.05 billion equivalent dual-currency offering of eight-year senior notes (confirmed B3/expected B-/expected B-) with pricing expected Wednesday.

WeWork announced its debut in the junk bond market with a $500 million seven-year bullet offering set to price later in the week.

Cerba Healthcare announced a €60 million add-on to the 5 3/8% senior notes due April 15, 2025 (Caa1/CCC+) issued by Constantin Investissement 3 SAS and Hibu Group talked its £225 million offering of five-year senior secured notes (B3/B-) via Yell Bondco plc to yield in the 8½% area.

Meanwhile, the secondary market was soft across the board on Tuesday with ETFs seeing a sell-off and bonds in the ETF basket down ½ to ¾ point, a market source said.

While the market was down, it was an overall quiet day in the secondary space. The 10-year Treasury yield crossing above 3% has not had that much of an impact on the market, a source said.

Netflix, Inc.’s new 5 7/8% senior notes due 2028 (Ba3/B+) were weaker on Tuesday and trading below their issue price as the internet television network’s older issues also traded down.

Heartland Dental, LLC’s 8 ½% senior notes due 2026 (Caa2/CCC) were relatively unchanged with trades at par ½.

Freeport-McMoRan Inc.’s junk bonds were down 1.5 to 2.5 points on Tuesday after the company reported disappointing first quarter earnings before the market open and announced its mining operations in Indonesia had encountered a problem.

However, American Tire Distributors’ 10¼% senior notes due 2022 were the major losers of Tuesday’s session with the notes dropping almost 50% after Goodyear Tire & Rubber Co. announced it would no longer distribute its tires through the company.

Flora sets talk, pricing Wednesday

Flora Food Group set price talk for its €1.05 billion equivalent two-part offering of eight-year senior notes (confirmed B3/expected B-/expected B-).

The euro-denominated tranche, sized at a minimum of €500 million, is talked to yield 5¾% to 6%.

The dollar-denominated tranche, sized at a minimum of $500 million, is talked to yield 7¾% to 8%.

Books were three-times oversubscribed early Tuesday, according to a trader focused on the sector.

With the deal set to roadshow in Boston late Tuesday, demand was bound to grow as there would be accounts from that city desiring to become involved, the trader added.

The offer is set to price on Wednesday.

Global coordinator Credit Suisse will bill and deliver. Deutsche Bank and KKR are also global coordinators. BNP Paribas, Credit Agricole CIB, Goldman Sachs, HSBC, ING, Lloyds, Mizuho, RBC, SG CIB and UniCredit are joint bookrunners.

The issuing entity will be Sigma Holdco BV, the indirect parent of Unilever’s global Spreads business, Flora Food Group.

Proceeds will be used to help fund the acquisition of Unilever’s spreads business by KKR.

WeWork debuts

WeWork announced its debut in the junk bond market on Tuesday.

The New York-based provider of shared workspaces and related business services plans to price a $500 million seven-year bullet deal in the mid-to-late part of the April 23 week.

Initial guidance is in the high 7% area.

JP Morgan is leading the sale.

Europe stays busy

With the European forward calendar outpacing the dollar-denominated calendar two to one, the European market unsurprisingly continued to generate news on Tuesday.

Hibu Group talked its £225 million offering of five-year senior secured notes (B3/B-) to yield in the 8½% area. Yell Bondco plc will be the issuer.

The deal, which is being managed by global coordinator and left lead Credit Suisse, was expected to price Tuesday. However, no terms were available as the London session was drawing to a close, according to a sell-side source based there.

Elsewhere, Cerba Healthcare announced a €60 million add-on to the 5 3/8% senior notes due April 15, 2025 (Caa1/CCC+) issued by Constantin Investissement 3 SAS.

The deal was scheduled to be shopped on a Tuesday investor call.

Joint bookrunner BNP Paribas will bill and deliver. Deutsche Bank and Natixis are also joint bookrunners.

The Paris-based operator of clinical pathology laboratories plans to use the proceeds to fund the acquisition of Groupe Bio7, a France-based specialist in clinical analysis, and to repay certain Groupe Bio7 debt, as well as to finance other bolt-on acquisitions and to pay down Cerba’s revolver.

As it works through a €3 billion active calendar – most, if not all of it expected to price before the weekend ahead – the euro-denominated new issue market should remain busy, at least for another fortnight, a syndicate banker said.

It could cool down slightly mid-May but look for the throttle to open back up in late May and early June, the source advised.

Soft market

The secondary space was soft across the board on Tuesday with ETF-related names the big underperformers as ETFs experienced a sell-off, market sources said.

Equity markets continued to be roiled by volatility with the Dow Jones Industrial average down 424 points at Tuesday’s close.

Tuesday also saw the 10-year Treasury yield pass through the 3% mark to reach its highest point since 2014. However, the Treasury yield’s impact on the high-yield market is limited, a market source said.

“It’s really not affecting the high-yield market,” the source said. “Nothing’s really moved.”

“We’ve been within 25 bps for the last three or four months. It’s not that different.”

While ETFs saw a sell-off on Tuesday with ETF related bonds down ½ to ¾ point, sources expect them to return to their previous levels.

Mixed Monday flows

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

High-yield ETFs sustained $19 million of outflows on Monday.

Actively managed funds, however, saw $45 million of inflows on Monday.

Monday’s deals

While no new paper entered the space on Tuesday, Netflix’s newly priced 5 7/8% senior notes due 2028 were active although the notes weakened slightly.

The paper was seen at 99¾ bid, par offered on Monday with most trades around 99 7/8, market sources said.

It was seen at 99 7/8 bid, par 1/8 offered after breaking on Monday with most trades at par.

While the notes weaker, “they’re not too far below par,” a market source said. “The market clearly didn’t help today.”

The company’s existing 5½% senior notes due 2022 and 4 3/8% senior notes due 2026 continued to trade down with the notes sliding another ¼ to ½ point, a market source said.

“It was just kind of a sideways day,” the source said.

Freeport-McMoRan slides

Freeport-McMoRan’s junk bond structure was down on Tuesday after the Phoenix, Ariz.-based international mining company announced first quarter earnings and troubles with its operation in Indonesia.

The shorter end of the structure was seen down 1.5 point while the longer end was down 2 to 2.5 points, a market source said.

Freeport-McMoRan announced first quarter earnings prior the market open Tuesday, which missed analyst expectations, sending the stock plummeting more than 14%.

The company reported adjusted earnings per share of 46 cents, which was 10 cents below the consensus estimate of 56 cents.

The company also announced Tuesday it has run into issues with its copper mining operation in Indonesia because the company’s current environmental management program is incompatible with new environmental requirements introduced in Indonesia in April.

American Tire tanks

While the market was down across the board on Tuesday, American Tire’s 10¼% senior notes due 2022 experienced the most dramatic drop. The 10¼% notes were at 97½ last week, a market source said.

They opened Tuesday at 80 and steadily traded down to 49¾ as the day progressed in high volume trading, a market source said.

The Huntersville, N.C.-based tire distributor announced late last week that its relationship with Goodyear was ending.

Goodyear ended its distribution agreement with American Tire after entering into a joint distribution venture with Bridgestone.

Without Goodyear, investors appeared to have lost confidence in American Tire, sources said.

Indexes’ losses continue

Indexes continued to lose ground on Tuesday, their fourth consecutive trading day of losses.

The KDP High Yield index was down 16 basis points on Tuesday to 70.70 with the yield rising to 5.76%.

The index has posted losses since April 19 after seeing 10 consecutive trading days of gains.

The Merrill Lynch High Yield index sank further into negative territory on Tuesday after briefly turning positive. The index was down 19.6 bps on Tuesday with the negative year-to-date return now 0.261%.

The index returned to negative territory on Monday. The index had had a positive year-to-date return since April 12.

The CDX high yield 30 index was down 17 basis points to close Tuesday at 106.47. The CDX has posted losses since April 17.

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