Owens-Illinois megadeal, Infor lead primary; new Infor up; oil slide drags overall market down

By Paul Deckelman and Paul A. Harris

New York, Aug. 11 – The high-yield primary sphere continued to churn out new deals at brisk pace on Tuesday despite a negative overall market tone in Junkbondland egged on by falling equities, sliding oil prices and concern about the devaluation of China’s yuan and what that might do to the global economy.

Three new deals came to market in four tranches, generating $1.8 billion of new dollar-denominated and fully junk-rated paper. That was up from the $1.1 billion of such paper from domestic or industrialized-country borrowers that got done on Monday, according to data compiled by Prospect News.

Giant glass-packaging manufacturer Owens-Illinois, Inc. priced a quickly shopped $1 billion two-part issue consisting of $700 million of eight-year notes and $300 million of 10-year paper.

Business software provider Infor (US), Inc. came to market with an upsized $500 million of five-year secured notes. Traders saw that new deal – the only one of the day’s offerings to actually generate meaningful aftermarket activity – having moved up about a point from its discounted issue price.

Midwest cable, phone and internet service provider Midcontinent Communications had the day’s sole regularly scheduled pricing off the forward calendar, a $300 million eight-year issue.

There was brisk trading in Monday’s new deals from financial research services provider MSCI Inc. and from death-care company Service Corp. International.

Away from the new deals, oil and natural gas credits such as Chesapeake Energy Corp. and California Resources Corp. were once again getting whacked around in the wake of falling crude oil prices.

Statistical measures of junk market performance turned mixed lower across the board on Tuesday after having been mixed on Monday. It was the third such loss in the last four sessions.

Owens-Illinois $1 billion deal

Activity ramped up in the new issue market on Tuesday.

The session saw $1.8 billion raised in four tranches from three issuers.

Two of the three issuers came with drive-bys.

One of the four tranches was upsized.

Executions appeared solid with three of the four tranches pricing on top of yield talk, while the fourth came on top of price talk and toward the wide end of yield talk.

Owens-Brockway Glass Container Inc., a wholly owned subsidiary of Owens-Illinois, priced $1 billion of non-callable senior notes (B1/BB-) in two tranches.

The acquisition deal included $700 million of 5 7/8% eight-year notes that priced at 99.219 to yield 6%. The yield printed on top of yield talk as well as on top of initial guidance.

The deal also included $300 million of 10-year notes that priced at par to yield 6 3/8%. The yield also printed on top of yield talk as well as initial guidance.

Deutsche Bank Securities Inc., BofA Merrill Lynch, BNP Paribas, Credit Agricole CIB, Goldman Sachs & Co., J.P. Morgan Securities LLC and Scotia Capital were the joint bookrunners.

Infor upsizes

Infor (US) priced an upsized $500 million issue of 5¾% five-year first-lien senior secured notes (B1/B+) at 99 to yield 5.986%.

The deal size was increased from $400 million.

The reoffer price came on top of price talk. The yield came toward the wide end of the 5¾% to 6% yield talk. That official yield talk came on top of initial guidance, according to a bond trader. However, the reoffer price came rich to the 98.5 to 98.75 initial guidance, the trader said.

Credit Suisse Securities (USA) LLC was the bookrunner.

The New York-based provider of business software plans to use the proceeds to fund the acquisition of Oakland, Calif.-based GT Nexus, a manufacturing software producer. The additional $100 million of proceeds resulting from the upsizing of the deal will be put toward the acquisition in lieu of cash.

Midcontinent atop talk

Midcontinent Communications priced a $300 million issue of eight-year senior notes (B3/B) at par to yield 6 7/8%.

The yield printed on top of yield talk.

Official talk came in line with initial guidance in the high 6% yield context, according to a high-yield bond trader.

SunTrust Robinson Humphrey Inc. was the left bookrunner for the dividend deal. Wells Fargo Securities LLC and RBC Capital Markets were the joint bookrunners.

Mixed flows

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

High-yield exchange-traded funds saw $177 million of inflows on Monday.

Asset managers sustained $40 million of outflows.

Meanwhile, dedicated bank loan funds saw $5 million of outflows on Monday.

Infor trades up

When the new Infor (US) 5¾% secured notes due 2020 were freed for secondary dealings, traders saw those new notes having moved higher from their discounted issue price.

One quoted the bonds at 99¾ bid, 100¼ offered, versus their 99 pricing level.

A second saw them in a 99¾-to-100½ bid context, which several other market sources also agreed with.

As the first of the day’s three transactions to price, Infor had the opportunity to trade around.

Traders saw no appreciable aftermarket for the day’s other two new issues – Minneapolis-based cable television phone and internet provider Midcontinent Communications and Perrysburg, Ohio-based glass packaging manufacturer Owens-Illinois.

Busy day for Monday deals

The traders saw brisk activity in the two deals that had come to market on Monday.

New York-based financial research services provider MSCI’s 5¾% notes due 2025 “were very active, a lot of bonds trading,” a market source said, seeing more than $47 million of the notes having changed hands.

He saw the bonds having risen to a 100¾-to-101 bid context, up from the par level at which the $800 million drive-by issue had come to market on Monday after being upsized from an originally announced $500 million.

A second trader said that there had been a little post-pricing activity on Monday, with the new bonds having gotten as good as 100¾ bid; he saw them having tacked on another ¼ point on Tuesday to close at 101 bid.

Monday’s other new issue, from Houston-based funeral home and cemetery operator Service Corp. International, proved that even in a down market, there’s life after pricing, with mostly higher levels seen.

Over $17 million of the bonds were moving around, a trader said, quoting them at 104 – up a little from the 103.75 level at which that $300 million fungible add-on to the company’s existing 5 3/8% notes due 2024 had priced to yield 4.719%.

However, he saw that level well down from the day’s highs near 105.

“They opened strong but got weaker as the day went on,” said another trader, who saw the notes offered during the morning around 104 3/8.

Then later in the afternoon, he said they were closing around a 103 7/8-to-104¾ bid context.

Energy names under pressure

A resumption of the decline in energy prices – the September contract for the benchmark U.S. crude grade, West Texas Intermediate, nosedived by $1.51 per barrel, or 3.39%, on Tuesday, ending at $43.45 – predictably dragged oil and natural gas credits lower. On Monday, WTI had jumped by $1.09 per barrel.

Chesapeake Energy’s 5¾% notes due 2023 slid by 3½ points to 72 bid, with over $23 million of the Oklahoma City-based oiler’s bonds having traded. Its 4 7/8% notes due 2022 likewise swooned by 3 5/8 points to close at 71 bid, with over $15 million traded.

Los Angeles-based E&P operator California Resources’ 6% notes due 2024 were down by more than a deuce on the day at 73¼ bid, on volume of over $28 million.

Oklahoma City-based SandRidge Energy Inc.’s 8¾% notes due 2020 plummeted by 4¼ points on Tuesday, ending at 65¼ bid, on volume of more than $31 million.

Indicators turn lower

All told, a trader said, “it looks like we really gave up some ground today!”

How much was evident from the statistical measures of junk market performance, which turned lower across the board on Tuesday after having been mixed on Monday. It was the third such loss in the last four sessions.

The KDP High Yield Daily index lost 23 basis points on Tuesday to close at 68.61, the index’s fifth straight loss and its seventh loss in the last eight sessions. It had eased by 1 bp on Monday.

Tuesday’s close established a new 52-week low for the index, eclipsing the old mark of 68.76 set on July 27. It was the index’s lowest finish since Oct. 5, 2011, when it closed at 68.53.

Its yield, meanwhile, rose by 7 bps to 6.14% after having been unchanged on Monday. It was the third widening out in the last four sessions.

The Markit Series 24 CDX North American High Yield index dropped by 13/32 point on Tuesday to go out at 105 3/32 bid, 105 1/8 offered, its first loss after one gain as well as its third loss in the last four sessions and fourth loss in the last seven trading days. On Monday, it had finished up by 9/32 point.

The Merrill Lynch North American Master II High Yield index posted its seventh successive downturn, sliding by 0.397%, on top of Monday’s 0.04% setback.

Tuesday’s loss lowered the index’s year-to-date return to 0.606% from 1.006% on Monday.

It was the index’s first time under the psychologically important 1% barrier since Feb. 2, when it had finished at 0.723%, and its lowest finish since the 0.45% recorded on Jan. 27.

Those levels also remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Several other index components also posted setbacks, bringing them to their worst levels of the year so far.

The index’s yield to worst rose to a new 2015 high of 7.226%, its third straight new high, from the previous zenith of 7.139% on Monday.

Its spread to worst versus comparable Treasury issues widened out by 16 bps to 5.75%, a new wide point for the year to date, supplanting the previous widest spread of 560 bps, set last Friday. It had tightened by 1 bp on Monday.

And its average price of the components listed within fell to a third consecutive new low for the year of 95.76412, down from 96.17154 on Monday, the previous low level.

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