Oneok, Hill-Rom price; new Hill-Rom notes move up; market awaits oversubscribed KIK offering

By Paul Deckelman and Paul A. Harris

New York, Aug. 18 – The high-yield primary churned out its first new deals on Tuesday after three consecutive sessions of pricing inactivity, syndicate sources said.

All told, $925 million face amount of new dollar-denominated, fully junk-rated paper came to market in two tranches during the session. They were the first offerings to get done since last Wednesday, when $1.7 billion of such paper from domestic or industrialized-country borrowers had priced in three tranches, according to data compiled by Prospect News.

Energy operator Oneok Inc. priced $500 million of eight-year notes, with the new paper coming at a discount to par.

Earlier, Hill-Rom Holdings Inc., a medical technology provider, had also done an eight-year deal, this one worth $425 million.

Both of the day’s pricings were regularly scheduled transactions off the forward calendar.

When the new Hill-Rom bonds hit the aftermarket, traders reported solid gains in very active trading.

They reported little immediate aftermarket activity in Oneok, which priced later in the session.

The syndicate sources meantime reported that the planned $390 million eight-year offering from KIK Custom Products Inc., a Canadian supplier of pool chemicals and household and personal care products, has been attracting considerable investor interest, causing it to be at least two-times oversubscribed.

KIK was the sole remaining deal on the active forward calendar, with market sources seeing further pricing activity after that as relatively unlikely during the traditional late-August lull heading into the Labor Day holiday break.

Statistical measures of junk market performance turned lower across the board on Tuesday after having been mixed over the previous three sessions and down all around for two consecutive sessions before that.

Oneok at a discount

Amid rugged conditions in the high-yield market, two new issues priced on Tuesday.

Both had been marketed via roadshows.

Neither was upsized.

And despite junk being under pressure throughout the session, both came on top of price talk.

Oneok priced a $500 million issue of non-callable 7½% eight-year senior notes (Ba1/BB+) at 98.522 to yield 7¾%.

The yield came on top of yield talk.

Citigroup Global Markets Inc. was the bookrunner.

The Tulsa, Okla.-based natural gas company plans to use the proceeds to fund the acquisition of limited partner units of Oneok Partners LP under an equity support agreement, which will then be used to repay commercial paper at Oneok Partners and fund capital expenditures at Oneok Partners.

Hill-Rom atop talk

Hill-Rom Holdings priced a $425 million issue of eight-year senior notes (B1/BB-) at par to yield 5¾%.

The yield printed on top of yield talk. Official talk came at the tight end of the 5¾% to 6% whisper and tight to initial guidance in the high 5% to low 6% context, sources say.

The deal went well, according to a buyside source.

Goldman Sachs & Co. was the left bookrunner for the acquisition deal. J.P. Morgan Securities LLC, BofA Merrill Lynch and PNC Capital Markets were the joint bookrunners.

KIK Custom oversubscribed

In the wake of Tuesday's two deals the active calendar was left with a sole offering.

KIK Custom Products' $390 million eight-year senior notes deal (Caa2/CCC) is heard to be two-times oversubscribed.

With pricing having moved substantially higher than initial guidance, there is a buzz in the market about the deal, a trader said.

To recap, on Monday KIK talked the deal to price at a discount with an all-in yield of 10½%, 100 basis points wide of initial guidance in the mid-9% context, market sources say.

Books were scheduled to close Tuesday afternoon.

Hill-Rom bonds move higher

In the secondary arena, the new 5¾% notes due 2023 from Hill-Rom Holdings were clearly the standout performers in an otherwise mostly dull market.

Soon after the notes priced, a trader saw them in a 100¾-to-101½ bid context – and they moved up from there.

A second trader a little later on saw the bonds between 101¼ and 101½.

Yet another saw them first around 101 bid and later around 101½, and “bonds were trading.”

Towards the end of the session, a market source estimated volume in the Chicago-based medical technology company’s deal at more than $43 million, making it easily the busiest purely junk-rated issue of the day.

He pegged the bonds at 101 5/8 bid, well up from their par issue price.

Oneok not initially seen

The day’s other pricing, Oneok’s 7½% notes due 2023, priced later in the session and consequently did not enjoy the kind of instant popularity that the Hill-Rom issue had.

A trader said that he “did not really” see much activity in the credit, just “one smaller dealer offering the bonds at par,” versus their 98.522 issue price, “so there’s not much there yet.”

Recent deals trade quietly

There was a falloff in activity in recently priced new issues, some of which had been trading fairly busily up until now.

For instance, Post Holdings Inc.’s two tranches of bonds, which heretofore had been among the most actively traded issues since pricing last Wednesday, both calmed down considerably on Tuesday.

A market source saw only about $7 million of its 7¾% notes due March 2024, calling them down 3/8 point on the day at 102 3/8 bid.

About the same amount of the other half of that two-tranche deal, the 8% notes due 2025, also traded, with those notes seen going home at 102 5/8 bid, down 1/8 point on the day.

The St. Louis-based breakfast cereal-producer had priced $800 million of the 8.5-year notes and $400 million of the 10-years notes, each at par, in a regularly scheduled $1.2 billion forward-calendar transaction last Wednesday. When they were freed for trading on Thursday, both tranches had shot up to around the 102½ bid level, with over $78 million of the 7¾% notes and over $35 million of the 8% notes having changed hands at that time. The bonds stayed at or above 102½ during the following several sessions in fairly busy dealings, including on Monday, when over $13 million of the 7¾% had moved around, the most active purely junk issue in an overall quiet session.

Other recent offerings were even quieter.

A trader said that AMAG Pharmaceuticals Inc.’s 7 7/8% notes due 2023 lost 3/8 point on the day to close at 103 bid, on volume of around $2 million.

The Waltham, Mass.-based specialty pharmaceuticals company had priced $500 million of the notes at par last Wednesday in a regularly scheduled offering that was upsized from an initial $450 million. Once priced, the bonds jumped to an initial 101½-to-102½ bid context and then continued to firm after that, including during last Thursday’s session, when over $23 million had changed hands, putting them well up on the Most Actives list.

A trader saw New York-based business software provider Infor (US), Inc.’s 5¾% first-lien senior secured notes due 2020 up ¼ point on Tuesday at 100 1/8 bid, though on only $2 million or so having traded.

However, at another desk, a trader quoted the bonds at par bid, 100¾ offered, calling them down 1/8 point on the day.

That quickly shopped $500 million deal had priced last Tuesday at 99 to yield 5.986% after the issue was upsized from an originally planned $400 million.

Traders saw the bonds having moved up to around a 99 5/8-to-100 1/8 level around the middle of the week, continuing to firm to around par bid, 100½ offered as the week came to a close, with the notes holding those gains and staying at or above par in trading so far this week.

Quieter, easier market seen

Overall, a trader remarked that “the market continues to give ground, even though HRC [Hill-Rom]] did well.”

The beleaguered energy sector remained under pressure despite an upturn in crude oil prices. The benchmark U.S. crude grade, West Texas Intermediate for September delivery, gained 75 cents on the session to move back above the $42.00 per barrel mark on Tuesday, closing at $42.62, a 1.7% gain.

Nonetheless, Oklahoma City-based oiler SandRidge Energy Inc.’s 8¾% notes due 2020 lost ¾ point to end at 66½ bid, while cross-town rival Chesapeake Energy Corp.’s 5¾% notes due 2023 were down 5/8 point at 71½ bid. The latter company’s 6 1/8% notes due 2021 retreated ¾ point to end at 74 bid.

A trader opined that Tuesday’s session “was actually quieter than yesterday[Monday].”

And he suggested that things would grow quieter still ahead of the upcoming Labor Day holiday break, which will begin after the close on Friday, Sept. 4 and will include a full market close the following Monday, Sept. 7.

“That’s the standard practice for this time, coming into the end of August.

“Then we usually get the ramp-up [of activity in both the primary and secondary markets] in the second week of September.

“September generally is usually one of the top three months of the year,” new-issuance wise, representative of pent-up demand built up during the preceding quiet weeks.

However, noting investor worries about when the Federal Reserve will finally raise interest rates, coupled with the prolonged weakness in energy – normally a key segment of the junk new-issue market – “the landscape feels a little different this year,” he cautioned.

“The enthusiasm isn’t quite there as much.”

Indicators turn lower

Statistical measures of junk market performance turned lower across the board on Tuesday after having been mixed over the previous three sessions and down all around for two consecutive sessions before that.

The KDP High Yield Daily index moved lower by 4 basis points on Tuesday to end at 68.34 after having been unchanged on Monday at 68.38, which had followed successive gains on Thursday and Friday. Before that, it had suffered six straight losses and eight losses out of the prior nine sessions.

Its yield, meanwhile, rose by 1 bp for a second session in a row on Tuesday, ending at 6.24%; it had also risen by 1 bp on Monday after having tightened by 3 bps on both Thursday and on Friday. Going back a little further, the yield had risen in two straight sessions before that and in four sessions out of the previous five.

The Markit Series 24 CDX North American High Yield index dipped by 7/32 point on Tuesday to close at 104 11/32 bid, 104 23/32 offered, its second successive setback. It was also off by 3/32 point on Monday and has now been on the downside in five sessions out of the last six and in eight sessions out of the last 11.

The Merrill Lynch North American Master II High Yield index eased by 0.064% on Tuesday after having moved up by 0.008% on Monday. It was the index’s second loss in the last three sessions and, over the longer term, its 10th loss in the last 12 trading days.

Tuesday’s retreat lowered the index’s year-to-date return to 0.388% from 0.452% on Monday; those levels remain well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 2015 Prospect News.
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