Mattel prices $1 billion issue to cap slower $5 billion week; more PetSmart punishment

By Paul Deckelman and Paul A. Harris

New York, Dec. 15 – The high-yield primary market closed out the week on Friday with just one new deal – but it was a big one.

Toy manufacturer Mattel Inc. priced $1 billion of eight-year notes in a much anticipated forward calendar deal.

Traders said that the megadeal appeared too late in the session for any meaningful aftermarket activity.

However, they said that the company’s recently embattled existing notes were actively traded.

But, unlike the downside trading in that paper that took place throughout the week in the wake of the company’s recent ratings downgrades, the existing Mattel issues ended the session mixed.

Mattel’s pricing brought the week’s total of new dollar-denominated and fully junk rated paper up to $5.04 billion in nine tranches – about half of the previous week’s new issuance.

With Mattel priced, syndicate sources said that left Lonestar Resources US Inc.’s $250 million of five-year notes as the sole remaining deal on the calendar heading into the final two weeks of 2017. The energy company’s prospective issue is expected to price during the upcoming week.

Traders said that recently priced deals from Whiting Petroleum Corp. and Iron Mountain Inc. held steady around the trading levels they had hit after pricing earlier in the week, but on very light volume.

Away from new or recently priced issues, the traders said that retailer PetSmart Inc.’s existing notes were once again topping the Most Actives list. However, as had been the case with the Mattel notes, PetSmart’s paper was mixed on the day instead of being down all around.

Statistical market performance measures were also mixed on Friday, after having turned lower across the board on Thursday.

The indicators were meantime higher all around versus where they had finished out last week, ended Dec. 8. It was the first stronger week after two straight weeks in which the indicators had been mixed versus the week before.

Mattel prices tight

Mattel priced a closely watched $1 billion issue of eight-year senior notes (Ba3/BB-/BB) at par to yield 6¾% on Friday.

The fallen angel debt refinancing deal came at the tight end of the 6¾% to 7% yield talk. Early guidance was the high 6% to 7% area.

BofA Merrill Lynch was the left bookrunner.

The deal came on the back of recent credit ratings downgrades that saw the company slip into the speculative-grade range from its former investment-grade status and a subsequent sell-off in its existing bonds.

However Friday’s deal played to a good book that included both investment-grade and high-yield accounts, market sources said.

Mattel’s credit difficulties came when toy retailing giant Toys “R” Us, Mattel’s second biggest customer, went bankrupt in September, owing Mattel $136 million, a trader recounted on Friday.

Prior to the mid-September bankruptcy of Toys “R” Us, Mattel’s 5.45% senior notes due 2041 were trading around 105, the trader said.

By the end of October they were trading around 90.

News that Fitch and Moody’s cut Mattel to junk caused another precipitous drop in the 5.45% notes, to around 80, the trader said.

Lonestar alone

Mattel just about cleared the active forward calendar heading into year-end.

Almost but not quite.

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

Lonestar Resources was scheduled to launch a $250 million offering of five-year senior notes on a Friday investor call.

The deal, which is being led by JP Morgan, is expected to price early in the Dec. 18 week.

The Fort Worth-based oil and natural gas company plans to use the proceeds to pay off its 8¾% senior notes due 2019 and to pay down its revolver.

Mixed Thursday flows

Cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to an investor.

High-yield ETFs sustained $336 million of outflows on the day.

Actively managed high-yield funds were flat to slightly positive, seeing $5 million of inflows.

The news trailed a Thursday afternoon report from Lipper US Fund Flows that the dedicated junk funds saw $922 million of outflows in the week to the Wednesday, Dec. 13 close.

Week’s issuance falls

Friday’s new issue from Mattel brought the amount of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers up to $5.04 billion in nine tranches, according to data compiled by Prospect News.

That was only around half of the $10.54 billion which had priced in 21 tranches the previous week, ended Dec. 8, and down as well from the $13.12 billion which had come to market the week before that, ended Dec. 1 – the second heaviest new-issuance week so far this year, lagging only the week ended March 10, which saw an astounding $17.53 billion of new junk paper come to market in 26 tranches, the biggest new-issuance week ever for the junk market, the data indicated.

This week’s new deals raised year-to-date issuance for 2017 to $282.49 billion in 521 tranches as of the close Thursday, running about 26% ahead of the $223.42 billion which had priced in 351 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Existing Mattel notes mixed

In the secondary sphere traders said the new Mattel paper was not initially seen trading around following its pricing, having appeared too late in the day for any meaningful aftermarket dealings.

They said, however, that El Segundo, Calif.-based toymaker Mattel’s existing notes were active on some volume.

But they said that those notes were mixed on the day, a change from their recently weaker performance across the board.

The notes had been losing ground all week after the three major ratings agencies all downgraded Mattel, pushing it squarely into junk bond from its previous investment-grade status.

A market source saw Mattel’s 3.15% notes due 2023 ending the day at 86 1/8 bid, down 3/8 point, on volume of more than $14 million.

However, its recently embattled 5.45% long bonds due 2021 jumped by 1¾ points on the session, ending at 83¼ bid, on more than $8 million traded.

On Thursday, the 3.15% notes had been down a deuce on the day, also on over $8 million of volume, while the 5.45s had swooned more than 12 points from their last previous round-lot positions last week on more than $19 million of turnover.

Whiting, Iron Mountain steady

Among recently priced issues, a trader said that Whiting Petroleum’s new 6 5/8% notes due Jan. 15, 2026 were in “a really wide market,” at 101½ bid, 102½ offered, but on very light trading that left those notes where they had been on Thursday.

Denver-based oil and natural gas exploration and production company Whiting priced $1 billion of those notes at par on Tuesday of this week after the quickly shopped megadeal was upsized from an originally announced $750 million.

He likewise saw Iron Mountain’s new 5¼% senior notes due March 15, 2028 little changed at 100½ to 100¾, also on light trading volume.

The Boston-based records and documents storage company priced a quick-to-market $825 million of those notes at par this past Tuesday.

PetSmart pain persists

Apart from new or recently priced offerings, traders saw PetSmart’s paper active, though mixed on the session.

The Phoenix-based pet food and other supplies retailer’s 7 1/8% notes due 2023 closed down more than ½ point at just under 58 bid, on volume of over $17 million.

Its 5 7/8% notes due 2025 ended at 74½ bid, up 3/8 point, with over $16 million of turnover.

Indicators turn mixed

Statistical market performance measures were also mixed on Friday, after having turned lower across the board on Thursday. They had also been mixed on Tuesday and Wednesday.

The indicators were meantime higher all around versus where they had finished out the week prior, ended Dec. 8. It was the first stronger week after two straight weeks in which the indicators had been mixed versus the week before.

The KDP High Yield Daily Index lost 1 basis point on Friday to end at 71.86. It dropped by 4 bps on Thursday, was unchanged on Wednesday and stronger on Monday and Tuesday.

Its yield meantime fell by 1 bp on Friday to 5.29% after Thursday’s 1 bp rise and Wednesday’s 2 bps widening. It had also come came in by 1 bp on Tuesday, after being unchanged on Monday.

Friday’s levels represented a firming from last Friday’s 71.83 index reading and 5.28% yield.

The Markit CDX Series 29 index gained 1/8 point on the day to 108 3/32 bid, 108 5/32 offered after being down 3/32 point Thursday.

It was up from last Friday’s 107 15/16 bid, 108 offered.

© 2015 Prospect News.
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