Upsized Extended Stay prices to cap $3.22 billion week; recent deals trade firmly

By Paul Deckelman and Paul A. Harris

New York, March 11 – The high-yield primary market finished out a busy week dominated by opportunistically timed and quickly shopped drive-by offerings on Friday with the latest in a string of such transactions.

Extended Stay America, Inc. a lodging industry-oriented real estate investment trust, priced an upsized $800 million add-on to its existing 2025 notes.

Traders later quoted the new issue modestly higher.

That deal topped off a week which saw a total of $3.22 billion of new U.S. dollar-denominated and fully junk-rated paper price in five tranches, up from the $2.12 billion that got done in two tranches last week, according to data compiled by Prospect News.

The week’s issuance, in turn, raised the year-to-date total of new junk bonds from domestic or industrialized-country borrowers to $17.72 billion in 30 tranches – although that lagged 71.1% behind the pace seen last year, when $61.5 billion of junk paper had priced in 96 tranches by this point on the calendar.

Among recently priced issues, junk players saw new credits such as Lease Plan Corp. NV, First Data Corp., Sinclair Television Group, Inc. and Level 3 Communications Inc. all firming from their pricing levels.

Statistical market performance measures finished higher across the board for a second consecutive session on Friday. They had improved all around on Thursday after having been mixed on Wednesday and lower on Tuesday. Before that, the indicators had shown eight consecutive stronger sessions.

The indicators were all also higher versus where they had finished last Friday. It was their fourth consecutive week-over-week gain after two straight weekly losses before that, and their sixth weekly gain in the last eight weeks.

Extended Stay upsizes

Extended Stay America and its subsidiary ESH Hospitality, Inc. completed Friday’s sole high-yield deal, an upsized $800 million add-on their 5¼% senior notes due May 1, 2025 (B3/BB-) which priced at 98.5 to yield 5.46%.

The add-on – which the Charlotte, N.C. Lodging REIT brought for the purpose of repaying debt – was increased from $500 million.

The reoffer price came at the cheap end of the 98.5 to 99 price talk but on top of the initial guidance.

Joint bookrunner J.P. Morgan will bill and deliver. Deutsche Bank, Citigroup, Goldman Sachs, Barclays, BofA Merrill Lynch, Morgan Stanley, Credit Suisse and Macquarie were also joint bookrunners.

The week ahead

Only one deal remained on the active calendar at Friday’s close.

TRAC Intermodal LLC has been marketing $485 million of second lien notes due 2021.

The deal, announced earlier in the past week, was on a schedule that had it clearing the market before the Friday close.

However there has been no formal price talk or any other news since the roadshow announcement.

Early guidance was 10% but it could come wider as interested investors are looking for more coupon and covenant concessions, a portfolio manager said.

Beyond TRAC Intermodal, the week ahead ought to see some primary market activity, sources say.

One syndicate banker professed visibility on at least three deals, one each from the health care, media and technology sectors, and all of them sized at $500 million or bigger.

There is a good deal of cash on the sidelines and it is difficult to get things done in the secondary market, which is leaving investors clamoring for a meaningful pick up in the new issue market, sources say.

One reason for optimism in the high-yield market is the new stimulus announced during the past week by the European Central Bank.

“It’s huge,” a hedge fund manager asserted on Friday, adding that it should allay apprehensions about companies being able to refinance debt.

Mixed flows on Thursday

Cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs were essentially flat, sustaining $12 million of outflows on the day.

However actively managed funds saw $140 million of inflows on Thursday.

The news came on the heels of Thursday afternoon’s report that dedicated junk bond funds saw a hefty $1.8 billion of inflows for the week to Wednesday’s close, the fourth consecutive inflow to the junk funds.

However daily flows for dedicated bank loan funds were negative on Thursday, the trader said.

The loan funds saw $30 million of outflows on the day.

New Extended Stay higher

In the secondary market, a trader quoted the new Extended Stay 5¼% add-on notes due May 2025 in a 98¾ to 99 bid context.

That was up from the bonds’ issue price of 98.5.

At another desk, a trader pegged the issue at between 98¾ and 99 1/8 bid.

However, another market source pointed out that the company’s existing 5¼% notes had been trading around the par level prior to the announcement of the new deal.

He said that those bonds were finishing in line with the new deal’s 98½ issue price – down 1½ points on the day, on volume of over $11 million.

At another desk, the existing bonds were seen going out down 1¾ points on the day at that 98½ bid mark.

LeasePlan bonds solidly higher

Among recently priced issues, traders saw the new LeasePlan 7 3/8% senior secured notes due 2021 firming smartly.

In morning dealings, the paper was seen around 102 5/8 bid, 101 3/8 offered – well up from their Thursday afternoon par issue price.

During the afternoon, one of the traders saw the bonds in a 103 to 103¼ bid context, although he said there wasn’t that much real activity in the credit – only around $10 million traded.

A second trader located the bonds at 103 bid, 103½ offered, calling them up by 1 point from their late Thursday levels.

LeasePlan, a Netherlands-based vehicle leasing company, suddenly appeared in the market on Thursday with a restructured €1.55 billion equivalent dollar- and euro-denominated offering that had been shopped around to junk investors in February only to have been postponed at that time because of the intense market volatility.

Helped by favorable developments in the macroeconomic sphere, with the European Central Bank unveiling a big stimulus package that included lower interest rates and bond purchases earlier that day, LeasePlan dusted off its postponed deal, tinkered around with it a little bit, dropping a planned seven-year euro notes, and then brought it to market via its Lincoln Finance Ltd. subsidiary.

It priced the $400 million of dollar bonds at par as well as €1.25 billion of 6 7/8% five-year secured notes, which also came at par.

A trader quoted the new dollar bonds late in the day on Thursday at 102 bid, 103 offered, setting the stage for Friday’s gains.

Recent deals seen firmer

Among other recently priced new issues, a trader said that First Data’s add-on to its existing $1 billion of 5% senior secured notes due January 2024 was trading at 101½ bid.

A second trader also confirmed the bonds at that level on Friday.

The Atlanta-based electronic transactions processor’s quickly shopped new deal had priced at 99.5 on Wednesday to yield 5.076%, after it was upsized to $900 million from an originally planned $500 million.

While there had been little real aftermarket activity in the bonds on Wednesday, owing to the lateness of the hour at which the issue had priced, on Thursday the bonds were the busiest junk issue, clocking in at over $74 million traded.

After trading close to the 101 bid level early Thursday, the bonds retreated from that peak, ending the session at around 100½ bid, setting the stage for Friday’s sizable advance.

Wednesday’s other offering from Sinclair Television Group, a subsidiary of Baltimore-based television station group owner Sinclair Broadcast Group, Inc., was likewise seen trading at solidly firmer levels on Friday.

Traders at two separate shops saw the bonds at 102¼ bid.

Sinclair had priced its quick-to-market $350 million offering of 5 7/8% notes due 2026 at par.

The bonds priced early enough in the day to see considerable aftermarket activity during Wednesday’s session, zooming by 1½ points from their issue price, with over $66 million having traded, the day’s busiest Junkbondland credit.

They continued to climb in Thursday’s trading, up another 7/8 point to end around 102¼, on volume of over $29 million.

The bonds were little changed during Friday’s dealings.

And a trader saw the week’s first deal – Level 3’s $775 million offering of 5¼% notes due 2026 – having moved up to 101 bid by Friday afternoon.

Broomfield, Colo.-based Level 3, an operator of a fiber-optic telecommunications network and provider of various telecom services to wholesale and retail customers, priced its quick-to-market offering at par on Tuesday via the company’s Level 3 Financing, Inc. funding subsidiary, after having been upsized from an originally announced $500 million.

A primaryside source said that the deal “played to a book of more than $2.7 billion and was the subject of a lot of reverse inquiry.”

While aftermarket activity was intense, with over $100 million of the new notes changing hands on Tuesday after they were freed to trade – the day’s busiest issue – plus another $44 million on Wednesday, there was not much price movement seen once they began trading. They were generally hanging in at a par to 100¼ bid context.

However, a trader Friday said that they were lifted along with most other issues in Junkbondland, quoting the old saying “a rising tide lifts all boats.”

“The whole market had a bid,” a second trader said. “Guys who came with drive-by issues this week got lucky.

“That’s kind of how the market was this week.”

Yet another trader noted “look at all of the inflows we’ve had – almost $5 billion last week, almost $2 billion this week.”

He joked: “The lemmings want to put their money to work – so everyone says, ‘Let’s do a deal.’”

Most names higher

Although Friday’s market was largely new-deal focused, a trader said, things were also hopping away from the new issues.

For instance, he saw Frontier Communications Corp.’s 11% notes due 2025 – “a good benchmark for all of the high-beta names, the go-go credits,” the trader said – were up more than 2 points, ending at 103¼ bid.

More than $22 million of the Stamford, Conn.-based wireline telecommunications company’s paper changed hands.

Indicators firm on day, week

Statistical market performance measures finished higher across the board for a second consecutive session on Friday. They had improved all around on Thursday after having been mixed on Wednesday and lower on Tuesday. Before that, the indicators had shown eight consecutive stronger sessions.

The indicators were all also higher versus where they had finished last Friday. It was their fourth consecutive week-over-week gain after two straight weekly losses before that, and their sixth weekly gain in the last eight weeks.

The KDP High Yield Daily Index jumped by 37 basis points on Friday to end at 65.46, its second straight gain after two consecutive losses and its 10th gain in the last 12 sessions, including an eight-session winning streak before the losses.

It had also edged up by 3 bps on Thursday.

Its yield came in by 8 bps on Friday to 6.74%, after having been unchanged on Thursday and having risen by 5 bps on Wednesday. Friday was the index’s ninth narrowing in the last 12 sessions.

Its levels compared favorably with the 65.07 index reading and 6.79% yield seen last Friday.

The Markit Series 25 CDX North American High Yield Index zoomed by1 3/32 points on Friday to go home at 102 9/32 bid, 102 5/8 offered – its third straight gain and its 11th gain in the last 12 sessions. On Thursday, it had improved by 11/16 point.

The index was up on the week from last Friday’s 100 31/32 bid. 101 offered level.

And the Merrill Lynch North American High Yield Master II Index was up by 0.774% Friday, its second straight gain, on top of Thursday’s 0.326% rise. Those gains followed two 2 straight losses, but eight wins in a row before that.

Friday’s gain raised the index’s year-to-date return to 2.518% – its second consecutive new peak level for the year, surpassing the old mark of 1.73%, which had been set on Thursday.

For the week, the index was up by 1.154% – its fourth successive weekly improvement. It had been up by 3.088% last week, one of the biggest weekly gains ever.

© 2015 Prospect News.
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