Navient drives by, firms modestly; Melco on tap; Consolidated on road; Monday deals active; KAR climbs

By Paul Deckelman and Paul A. Harris

New York, May 23 – The high-yield primary market took a step backward on Tuesday after Monday’s busy session, which saw over $3 billion of new junk-rated and U.S. dollar-denominated paper price in a flurry of drive-by offerings.

In contrast, Tuesday saw just a single deal come to market, generating $500 million of new paper – a quickly shopped offering of eight-year notes from loan servicer Navient Corp.

But syndicate sources said activity was shaping up elsewhere, with Macau-based gaming company Melco Resorts & Entertainment expected to price $1 billion of eight-year notes on Wednesday.

Meanwhile, alternative energy operator Consolidated Energy Ltd. was heard to have begun a roadshow for its $500 million two-part bond deal, pricing later in the week.

In the secondary arena, traders heard the new Navient bonds quoted at modestly better aftermarket levels.

There was active trading in the issues that had priced on Monday – Chesapeake Energy Corp., KAR Auction Services, Inc., PBF Energy, Inc., Molina Healthcare, Inc. and Meritage Homes Corp., with notable upside movement in the new KAR Auction Services issue.

Statistical market performance measures were higher across the board for a third straight session on Tuesday; they had improved on Friday and then stayed on the upside on Monday and Tuesday – this after having been mixed on Thursday and having ended lower all around last Wednesday for the first time in nearly two weeks, since May 4.

Navient drive-by

Navient Corp. priced Tuesday's sole deal, a $500 million issue of 6 ¾% eight-year senior bullet notes (Ba3/B+/BB) that came at 99.99 to yield 6¾%.

The yield printed on top of yield talk in the 6¾% area, but at the tight end of the 6 7/8% initial talk.

Joint bookrunner Barclays will bill and deliver. BofA Merrill Lynch and JP Morgan were also joint bookrunners.

The Newark, Del.-based loan servicer plans to use the proceeds for general corporate purposes including debt repurchase.

Melco expected Wednesday

Melco Resorts & Entertainment is expected to price $1 billion of eight-year senior notes (expected ratings Ba3/BB-) on Wednesday, according to a portfolio manager.

The deal, which has been marketed by means of investor meetings in Asia, Europe and the United States, is being guided in the 5% area, the investor said.

It is said to already be playing to $500 million of demand, largely from Asian investors, the source added.

ANZ and BofA Merrill Lynch are the joint global coordinators for the debt refinancing.

Consolidated Energy roadshow

Consolidated Energy Ltd. began a roadshow today in New York for a $500 million two-part offering of senior notes.

On offer are eight-year fixed-rate notes which come with three years of call protection, being guided to yield 7¼% to 7½%, and five-year floating-rate notes which come with one year of call protection, talked at 99.75 with a 375 basis points spread to Libor.

Tranche sizes remain to be determined.

Dealers are mulling the possibility of pricing and allocating the deal in two separate stages, with the floating-rates notes tranche expected to involve a somewhat more intensive marketing effort than is expected to be the case with the fixed-rate notes, the source said.

The deal, via sole bookrunner Morgan Stanley, is set to price later this week.

A grind or an opportunity

Noting that Monday's Chesapeake Energy Corp. triple hooks deal – a $750 million issue of 10-year senior notes (Caa2/CCC) – fetched a mere 8%, a portfolio manager remarked that at present the junk market is cranking out tight-pricing deals done in executions that leach out most if not all of the value, for investors.

“And it just seems to go on and on,” the investor said.

However the present new-issue market represents a notable opportunity for eligible issuers who are still able to lock in capital at attractive rates, a debt capital markets banker countered.

For the adventurous there are situations that offer higher yields to investors, the banker noted.

However right now the middle-of-the-fairway deals are indeed pricing rather tight, the source conceded.

Mixed Monday flows

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

High-yield ETFs saw $106 million of inflows on the day.

However asset managers sustained $15 million of outflows on Monday.

Dedicated bank loan funds, meanwhile, saw $40 million of inflows on the day, Monday.

Navient moves up

Traders said that the new Navient Corp. 6¾% notes due 2025 firmed modestly in active dealings when they reached the aftermarket.

One pegged the bonds in a100 1/8 to 100 5/8 bid context, up slightly from their issue price just a touch below par.

A second trader saw the notes going home at 100 3/8 bid.

Busy volume of more than $33 million put the new drive-by credit high up on the day’s Most Actives list.

KAR gets in gear

The traders saw brisk trading activity in the new paper that had priced during Monday’s more than $3 billion session, with KAR Auction Services’ 5 1/8% notes due 2025 as particular standouts.

KAR “really traded up today,” one of the traders said, seeing the bonds having pushed up to 101½ bid.

A second saw the notes at 100 3/8 bid, which he called up by 5/8 point from the 100¾ level up to which the notes had traded on Monday.

More than $65 million of the notes changed hands on Tuesday.

KAR, a Carmel, Ind.-based provider of vehicle auction services and floor-room financing for the used-vehicle industry, priced its $950 million quick-to-market offering at par on Monday, after the deal was upsized from an originally announced $800 million.

Chesapeake churns higher

Among the other deals which priced during Monday’s bond barrage, Chesapeake Energy’s new 8% notes due 2027 were easily the busiest purely junk-rated credit Tuesday, with more than $102 million of turnover.

One trader saw the bonds get no better than a little above the par level.

However, a market source at another desk said it looked like the bonds surged late in the session to around the 101 1/8 bid level; he said the paper had been unchanged or even slightly lower in their initial aftermarket foray following the Oklahoma City-based natural gas and oil exploration and production company having priced its quickly shopped $750 million offering Monday.

Monday deals move up

Among the other issues that were seen trading around on Tuesday, the new PBF Energy, Inc. 7¼% notes due 2025 were seen struggling; a trader said that they traded into a 99 bid going home – down from the par level at which the Parsippany, N.J.-based oil refineries operator’s unscheduled $725 million deal had priced.

A second trader put the bonds at 99 1/8 bid, down ¾ point on the session, on volume of over $90 million.

Molina Healthcare, Inc.’s 4 7/8% notes due 2025 were seen at 100 1/8 bid, about where the Long Beach, Calif.-based managed healthcare company had priced its $330 million drive-by deal on Monday.

Meritage Homes Corp.’s 5 1/8% notes due 2027 firmed to 100¼ bid, with more than $20 million traded – up from the par level at which the Scottsdale, Ariz.-based builder’s unscheduled $300 million issue had priced on Monday.

Indicators extend gains

Statistical market performance measures were higher across the board for a third straight session on Tuesday; they had improved on Friday and then stayed on the upside on Monday and Tuesday – this after having been mixed on Thursday and having ended lower all around last Wednesday for the first time in nearly two weeks, since May 4.

The KDP High Yield Daily index moved up by 8 basis points on Tuesday to end at 72.58, its third consecutive gain, matching the size of Monday’s upturn; it had also jumped by 10 bps on Friday, rebounding from two straight losses, including Thursday’s 6 bps setback.

Its yield came in by 9 bps on Tuesday to end at 4.95%, its third straight narrowing. It had also tightened by 3 bps on Monday and by 4 bps on Friday. That narrowing came after the yield had widened out over the previous two sessions, including Thursday’s 2 bps rise.

The Markit CDX Series 28 index edged up by 1/32 point on Tuesday to finish at 107 9/16 bid, 107 19/32 offered, its fourth straight gain, including Monday’s rise of nearly 7/32 point.

\ The Merrill Lynch North American High Yield index posted its third straight upturn, rising by 0.094%, following gains of 0.146% on Monday and 0.239% on Friday, the latter advance coming on the rebound after two straight setbacks, including Thursday’s 0.098% retreat.

Tuesday’s improvement lifted the index’s year-to-date return to 4.59%, its third consecutive new 2017 year-to-date high point. That was up from 4.492% on Monday the previous new peak level.

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