Viacom sub notes price, CDW drives by; iHeart up on results, debt plan; funds gain $726 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 23– Junkbondland saw a pair of new deals get done on Thursday totaling $1.9 billion of new U.S. dollar-denominated and fully junk-rated paper spread across three tranches, according to syndicate sources.

That was up from the $500 million that priced in two tranches on Wednesday.

Media giant Viacom Inc. brought a $1.3 billion two-part issue of junior subordinated fixed-to-floating-rate notes, split into equally-sized $650 million tranches of non-call-five- and non-call-10-year paper.

Technology solutions provider CDW Corp. meantime did a more conventional upsized $600 million issue of eight-year senior notes.

Two U.S.-based companies tapped the euro-denominated market on Thursday with upsized issues – healthcare data services provider Quintiles IMS Holdings, Inc. with an eight-year transaction and iconic apparel maker Levi Strauss & Co. with a 10-year offering.

Away from the new deals, broadcaster iHeartCommunications, Inc.’s paper was mostly better after parent company iHeartMedia, Inc. released its quarterly results. The company also said in a filing that it was considering restructuring its debt to avoid bankruptcy.

Statistical market performance measures turned mixed on Thursday after being higher across the board on Tuesday and again on Wednesday; it was the third mixed session in the last six trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – was in positive territory for a fourth consecutive week after two outflows, according to data released on Thursday. Some $726 million more came into the weekly reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday. Last week, inflows had totaled $158 million (see related story elsewhere in this issue).

Viacom two-part hybrid

Two issuers brought a total of three tranches on Thursday, raising a combined total of $1.9 billion.

Viacom priced $1.3 billion of junior subordinated fixed-to-floating rate notes due 2057 (Ba1/BB/BB+) in two $650 million tranches.

Both came at par.

The non-call-five notes have a 5 7/8% fixed coupon for the first five years, after which they pay interest at three-month Libor plus 389.5 basis points.

The non-call-10 notes have a 6¼% fixed coupon for the first 10 years, after which they pay interest at three-month Libor plus 389.9 bps.

BofA Merrill Lynch and Morgan Stanley were the joint structuring agents and joint bookrunners for the debt refinancing deal.

CDW upsizes

CDW priced an upsized $600 million issue of eight-year senior notes (Ba3/BB-) that came at par to yield 5%.

The amount was increased from $500 million.

The yield printed at the tight end of yield talk that had been set in the 5 1/8% area.

The debt refinancing deal played to $3.5 billion of orders, according to an investor.

J.P. Morgan, Morgan Stanley, Wells Fargo, BofA Merrill Lynch, Barclays, Goldman Sachs and RBC were the joint bookrunners.

Quintiles upsizes

Two U.S.-based issuers placed single tranches of bonds totaling €1.9 billion during the European primary market session on Thursday.

Both deals were upsized.

Quintiles IMS priced an upsized €1,425,000,000 issue of eight-year senior notes (Ba1/BB+) at par to yield 3¼%.

The issue size was increased from €850 million, while the concurrent term loan was downsized by €575 million.

The yield printed on top of yield talk set in the 3¼% area.

Joint bookrunner J.P. Morgan will bill and deliver. Barclays, BofA Merrill Lynch, Goldman Sachs, HSBC and Wells Fargo were also joint bookrunners.

The Danbury, Conn.-based health care data services provider is bringing the deal as part of a series of transactions that also includes a refinancing of $3,065,000,000 equivalent of dollar- and euro-denominated term loans and a $600 million increase to its term loan B and an extension of the term B to 2024. Combined proceeds will be used to refinance debt and for general corporate purposes, which may include share repurchases and future acquisitions.

Levi Strauss inside talk

Levi Strauss launched and priced an upsized €475 million issue of senior notes due 2027 (Ba2/BB+/BB) at par to yield 3 3/8%.

The size was increased from €450 million.

The yield printed 12.5 basis points beneath the tight end of the 3½% to 3 5/8% price talk.

BofA Merrill Lynch was the left bookrunner. Goldman Sachs, JPMorgan, Deutsche Bank, SunTrust Robinson Humphrey Inc., Scotia Capital and Wells Fargo were the joint bookrunners.

The San Francisco-based apparel maker plans to use the proceeds, together with cash on hand, to purchase its 6⅞% senior notes due 2022. The additional proceeds resulting from the €25 million increase in the issue size, will be used to reduce the amount of balance sheet cash required to fund tender for 6 7/8% notes.

Inflows

“Rates have gotten so tight that anyone who has any reason whatsoever to come to the market ought to come right now,” a London-based debt capital markets banker remarked, shortly after Levi Strauss launched its deal inside price talk.

Technical forces are to blame for bringing junk deals at notable tights, sources say.

The new issue supply – especially deals that represent new paper, rather than refinancing deals which ultimately result in little or no new paper – has been muted.

And investors are getting cash that needs to be put to work.

As potential issuers come out of earnings blackouts with fresh financial numbers, primary market business will pick up, an investment banker said.

As to the cash, indications are that money continues to flow in.

The daily cash flows for dedicated high-yield bond funds were positive on Wednesday, the most recent session for which data was available at press time, an investor said.

High-yield ETFs saw $281 million of inflows on the day.

Asset managers saw $35 million of inflows on Wednesday.

Viacom notes seen firmer

In the secondary market, a trader quoted Viacom’s new 5 7/8% debentures due 2057 with a five-year fixed-rate coupon at 100 3/8 bid, 100 7/8 offered, up from the par level at which the New York-based media conglomerate had priced that issue.

He also saw the other half of that off-the-shelf junior subordinated fixed-to-floating-rate deal – the 6¼% debentures due 2057 with a 10-year fixed coupon – at that same 100 3/8 bid, 100 7/8 offered level, also up from a par issue price.

CDW notes little seen

A trader noted the par pricing of CDW Corp.’s quickly shopped 5% notes due September 2025.

But he said he had not seen any initial aftermarket activity in the new 8.5-year deal from the Lincolnshire, Ill.-based provider of technology solutions to business, government, education and healthcare organizations.

United Rentals up slightly

A trader said that he had “not really” seen much going on in Wednesday’s two-part new issue from United Rentals (North America) Inc., which was structured as an add-on to the Stamford, Conn.-based construction equipment and tool rental company’s existing 2026 and 2027 bonds.

“Those add-ons generally don’t trade very well,” he opined, adding that “guys were scrambling around – a few flippers and guys adding [onto established positions] – but there was nothing really significant going on with those.

A second trader quoted the 5 7/8% notes due September 2026 at 104¾ bid, 105 offered, calling them unchanged on the session, while seeing the 5½% notes due May 2027 at 101¾ bid, 102 offered, also unchanged.

At another shop, a trader said the 5 7/8% notes had “inched up” about 1/16 point to close at 104 15/16 bid, on volume of over $10 million, while pegging the 5½% notes higher by ¼ point on the session at 102 bid, but with only around $5 million having changed hands.

On Wednesday, United Rentals had priced $250 million of the 5 7/8% notes at 104.625 to yield 5.253%. They had moved up to around 104 7/8 bid in initial aftermarket trading, with around $13 million traded.

It had also priced $250 million of the 5½% notes at 101.375 to yield 5.324%, and those new bonds had gained around ½ point in the aftermarket to 101 7/8 bid as more than $21 million traded.

Both tranches of that quick-to-market transaction brought the total amount of the respective existing bonds up to $1 billion. United Rentals sold $750 million of the 5 7/8% notes due 2026 last April and $750 million of the 5½% notes due 2027 last October.

Hearty gains for iHeart

Away from the new issues, solid fourth-quarter results – including revenue and operating income growth – propelled a pair of iHeartCommunications’ distressed notes up on the session, traders said.

Included in that were the San Antonio, Texas-based radio broadcasting and outdoor advertising company’s 9% notes due 2021, which were up 1¼ points to 81, a trader said, while the 9% notes due 2019 were up 1 point to 87¼, a market source said.

At another desk, a market source saw those 2021 notes jump by 1½ points on the day to 81¼ bid, with over $14 million traded, while the 2019 notes were seen even busier, with over $16 million having changed hands, and the bonds up ½ point at 87¼ bid.

“In general, the market reacted positive to [iHeart’s] earnings,” one of the traders said.

However, bucking that positive trend were its 14% notes due 2021, which were a “bit sideways,” a trader said, citing the possibility of a restructuring of certain debt. He saw the notes down 3/8 point to 39¾ bid, with brisk volume of more than $24 million recorded.

According to a 10-K filing with the Securities and Exchange Commission, iHeartCommunications is considering a “global restructuring” of all of its outstanding debt.

If the company is unable to complete the restructuring, it may need to file for bankruptcy, the filing added.

Included would be the company’s senior secured credit facilities, its priority guarantee notes, its legacy notes and its senior notes due 2021.

Other possibilities under consideration are refinancings, exchange offers, consent solicitations, issuance of new debt, amendments to existing debt and other transactions, according to the filing.

Indicators turn mixed

Overall, a trader said that “it’s been pretty quiet – we’re in a holiday week and heading towards the month-end.”

He said that while “the market keeps grinding higher” activity flows on Thursday were relatively light.

Statistical market performance measures turned mixed, after having been higher across the board on Tuesday and again on Wednesday. Three out of the last six sessions have been mixed.

The KDP High Yield Index gained 6 basis points Thursday to close at 72.55, a third consecutive new high point for the year and over the past 52 weeks. That was also its third straight advance after one loss and six gains in a row before that. It had pushed upward by 8 bps on Tuesday and another 7 bps on Wednesday.

Its yield came in by 2 bps to end at 4.99%, its fourth narrowing in the last five sessions, after tightening by 2 bps on Tuesday and 3 bps on Wednesday. Thursday marked the first time this year the yield has been under 5.00%.

However, the Markit CDX Series 27 High Yield Index was marginally lower on Thursday, ending at 107 21/32 bid, 107 23/32 offered, its first loss after having moved up the previous two sessions. It had edged up by 1/16 point on Wednesday after firming by nearly 7/32 point on Tuesday.

But the Merrill Lynch High Yield Index rose by 0.157%, its fourth consecutive improvement after one loss and its ninth such upturn in the last 11 days. The index had risen by 0.203% on Tuesday and by 0.143% on Wednesday.

Thursday’s gain upped its year-to-date return to 2.664%, its fourth straight new peak level for 2017, up from the previous zenith of 2.503% on Wednesday.

-Colin Hanner contributed to this review

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