Multi-Color moved to Monday; U.S. Renal, Radian trade up; Frontier decline continues

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 14 – It was a waiting game in the domestic high-yield primary market on Friday as the deal du jour ended up being held over the weekend.

The Multi-Color Corp. (LABL Escrow Issuer, LLC) $1.39 billion two-part deal backing the buyout of the company by Platinum Equity LLC and the merger of Multi-Color with W/S Packaging Holdings, Inc. was expected to price during Friday’s session but will now come on Monday.

The week ahead will also feature another highly anticipated deal.

Nexstar Broadcasting, Inc. will be in the market with its $1.12 billion offering of eight-year senior notes backing the acquisition of Tribune Media Co.

Meanwhile, the secondary space was largely flat on Friday as equities turned to red.

New paper remained in focus with both of Thursday’s deals performing well in the aftermarket, despite mixed receptions in the primary.

While struggling during bookbuilding, U.S. Renal Care, Inc.’s 10 5/8% senior notes due 2027 (Caa2/CCC+) were trading at a premium to their issue price in the secondary.

Radian Group Inc.’s newly priced 4 7/8% senior notes due 2027 (Ba2/BB+) were also trading up in the secondary space.

Outside of the new paper, Frontier Communications Corp.’s junk bonds remained in focus as the company engages in informal restructuring talks with creditors regarding its senior notes with upcoming maturities.

Multi-Color remains in market

The Multi-Color $1.39 billion two-part deal backing the buyout of the company is a tale of two tranches, according to market sources.

Its $650 million tranche of seven-year senior secured notes (B2/B) is faring just fine, or better.

Talked to yield in the 7% area, tight to initial guidance in the low 7% area, it is two-times oversubscribed, a trader said.

Demand is such that pricing might even have been ratcheted down to the 6¾% area, but the dealer's hand was stayed by the expectation that the tranche could grow with a possible shift of proceeds from the far-less-healthy unsecured tranche.

The unsecured tranche features $740 million of eight-year senior notes (Caa2/B-) talked to yield 10% to 10¼%, well wide of initial guidance in the low 9% area.

It has engendered pushback from lenders who want more protection from bond covenants, and more compensation for perceived risk, sources say.

Books for the two-part deal were scheduled to close Friday.

However, pricing was moved to Monday, as the dealer undertakes changes to the offering documents, and possibly revisits pricing, an investor said on Friday afternoon.

A kind of dance

In showing up with deals that feature tranches of both secured and unsecured bonds, equity sponsors have lately been setting up a kind of dance with bond investors, a trader remarked on Friday, as the market awaited word on the Multi-Color deal.

The secured tranches are quickly oversubscribed.

However, demand for the unsecured tranches, which tend to come with covenant packages that are so issuer friendly they could only be expected to clear the very hottest of markets, tends to lag.

Although there is no explicit quid pro quo, there is sometimes an understanding among accounts that allocations of the in-demand secured paper might, to a certain extent, hinge upon a willingness to take down some of the less popular unsecured bonds.

In any case, investors balk at weak covenant protection afforded by the unsecured paper, whereupon the issuer and dealer begin making concessions in pricing and covenants, and sometimes shift proceeds to the secured tranches from the unsecured tranches, whereupon investors circle back around, and books for the unsecured paper begin to fill.

Such was the case in early April when Staples, Inc. brought $3 billion of secured and unsecured paper in a deal set to pay a dividend to sponsor Sycamore Partners, the source recounted.

In that case, proceeds were shifted, secured tranches grew and covenants tightened.

The steps in these combination secured/unsecured encounters between the buyside and sellside are becoming familiar and to a certain extent routine, the trader remarked.

The week ahead

Away from Multi-Color the June 17 week will get underway with a somewhat modest active deal calendar.

Nexstar Broadcasting will be marketing its $1.12 billion offering of eight-year senior notes backing the acquisition of Tribune Media Co.

Factors such as the uncertainties in trade relations between the United States and China, and the intentions of the Federal Reserve Bank with respect to interest rates in an economy that appears to have slowed, might forestall a meaningful buildup of the calendar, an investor said on Friday.

However, a syndicate banker sees the glass half full, and counsels that for opportunistic borrowers seeking to refinance debt, sooner may be better than later.

The issuance window appears to be open right now, the banker asserted.

And recent executions, for the most part, have seen issuers treated decently in the primary market.

Now is the time to think about bringing your deal, the official said.

As for tomorrow, well...who knows?

U.S. Renal Care trades up

After a rough start, U.S. Renal Care’s 10 5/8% senior notes due 2027 were trading up in the secondary space.

The notes were seen changing hands at par ¼ early in the session but gained in the afternoon.

They were seen at par ½ bid, 101 offered heading into the market’s close, sources said.

The deal was heard to have struggled during bookbuilding. However, with the large coupon, the notes saw a nice break in the secondary, a market source said.

U.S. Renal Care priced a $505 million issue of the 10 5/8% notes at par on Thursday.

The yield printed toward the wide end of yield talk in the 10½% area.

The deal underwent covenant changes that bear primarily upon how the company may disburse cash and incur additional debt.

Radian trades up

Radian’s newly priced 4 7/8 senior notes due 2027 were also putting in a strong performance in the secondary space.

The notes were changing hands at par ½ bid, 101 offered, which seemed to be the standard level reached by recent deals with tight pricing, a source said.

Radian priced an upsized $450 million issue of the 4 7/8% notes in a Thursday drive-by.

The issue size increased from $350 million with the deal heard to be as much as 3x oversubscribed during bookbuilding.

The yield printed at the tight end of yield talk in the 5% area and low to initial talk in the low 5% area.

Frontier in focus

Frontier remained a closely watched name in the secondary space with the front end of the capital structure under pressure as creditors begin informal talks with the company over its upcoming maturities.

While there are few bonds outstanding, Frontier’s 8½% senior notes due 2020 took a beating over the past week.

The notes were trading in a range of 88 to 90 on Friday. They began the week at 94, a market source said.

While the company has a $17 billion debt load, which is unsustainable, the notes maturing in 2020 offer the potential for a significant return, a source said.

Frontier’s 10½% senior notes due 2022 continued to trend lower in active trading on Friday. The notes were down another ½ point to close Friday at 67.

The notes dropped 7 points over the past week. They were trading around 74 on Monday.

Headlines were circulating on Friday about informal negotiations that had begun between Frontier and a group of creditors over the 2022 notes, a source said.

Proposals in circulation include swapping unsecured debt for new secured notes or a bankruptcy filing, Bloomberg reported.

Elliot Management, Apollo Global Management, Franklin Resources Inc. and Capital Group Cos. own 60% of the unsecured 10½% senior notes due 2022 and 11% senior notes due 2025, also known as Frontier’s CTF paper.

The CTF paper has been particularly hard hit amid the recent news, according to a market source.

Thursday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, according to a market source.

High-yield ETFs saw $108 million of inflows on the day.

Actively managed high-yield funds saw $15 million of inflows on Thursday.

News of Thursday's daily flows follows a Thursday afternoon reporting that the combined funds saw $1.72 billion of new outflows in the week to Wednesday's close, according to Lipper US Fund Flows.

Indexes mixed

Indexes were mixed on Friday although all saw cumulative gains on the week.

The KDP High Yield Daily index gained 3 basis points to close Friday at 70.15 with the yield now 5.68%.

The index was up 3 bps on Thursday, dropped 7 bps on Wednesday, gained 7 bps on Tuesday and rose 29 bps on Monday.

The index saw a cumulative gain of 35 bps on the week.

The ICE BofAML US High Yield index dropped 3.8 bps with the year-to-date return now 8.958%.

The index gained 6.6 bps on Thursday, dropped 11.6 bps on Wednesday and gained 13.1 bps on Tuesday and 34.9 bps on Monday.

The index was up 44.2 bps on the week.

The index crossed the 9% year-to-date return threshold on Tuesday only to fall below it on Wednesday.

The CDX High Yield 30 index dropped 19 bps to close Friday at 102.26.

The index rose 25 bps on Thursday, dropped 34 bps on Wednesday and gained 29 bps on Tuesday and 39 bps on Monday.

The index was up 40 bps on the week.

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