Quiet primary closes $5.42 billion week; Adient dual-currency deal hitting the road; energy weaker

By Paul Deckelman

New York, July 29 – The high-yield market had a mostly quiet session on Friday, the final trading day of July.

The primary saw no new deals price, although there was one new-deal announcement, from industrial components manufacturer Johnson Controls Inc.

It said that its Adient Global Holdings Ltd. subsidiary – which is being spun off from the parent company – plans to sell $2 billion equivalent of new bonds to help finance that transaction – dollar-denominated 10-year notes and euro-denominated eight-year paper.

High-yield syndicate sources sad that the company will begin marketing that deal via a roadshow that will begin on Monday in Europe and which will continue later in the coming week in the United States.

With no deals pricing during Friday’s session, the week’s tally of new dollar-denominated junk bonds stayed right where it had finished out on Thursday, with $5.42 billion having priced during the week, up from $4.086 billion the previous week, ended July 22.

Secondary market traders said that recently priced new issues, such as Thursday’s deals from NXP Semiconductors NV and Eagle Materials, Inc. and Wednesday’s new deal from FAGE International SA were finishing up the week not far from the levels they had held during Thursday’s active trading.

Away from the new deals, traders saw mostly lower levels in energy credits such as Continental Resources, Inc., California Resources Corp. and Oasis Petroleum Inc., although sector peer Chesapeake Energy Corp. was higher on news that it might make an asset sale.

Statistical market performance measures were mixed on Friday, after having been lower across the board on Thursday. It was the second mixed session in the last three trading days.

The indicators were meanwhile down all around versus where they had finished out the previous Friday, July 22. It was their first lower week after five consecutive weeks of Friday-to-Friday gains.

Adient begins roadshow

There were no pricings of dollar-denominated junk bonds on Friday, unlike the other four days of this week.

There was one new-deal announcement, with Johnson Controls saying that its soon-to-be spun-off Adient subsidiary plans to sell $2 billion of notes as part of the financing for that spinoff.

The offering will consist of eight-year euro-denominated notes and 10-year dollar-denominated notes. Tranche sizes are to be determined.

High-yield syndicate sources said that Adient will market the deal to prospective investors in Europe and the United States, beginning on Monday in London, then moving on to Frankfurt and Paris on Tuesday, to New York on Wednesday and to Boston on Thursday.

The Rule 144A and Regulation S for life transaction is being brought to market via an underwriting syndicate led by global coordinator Citigroup Global Markets Inc.

Citi will also be the lead bookrunner on the dollar-denominated notes. Bank of America Merrill Lynch, Goldman Sachs & Co., J.P. Morgan Securities LLC, Mitsubishi UFG Securities International plc, U.S. Bancorp and Wells Fargo Securities LLC are also joint bookrunners on the dollar-denominated notes.

Bookrunners on the euro-denominated portion of the deal are Barclays, which will handle billing and delivery, Credit Agricole CIB and UniCredit Bank AG, all of which are active bookrunners, as well as Banca IMI, Commerzbank Capital Markets Corp., ING Financial Markets LLC and Citi.

Both tranches will also have a number of co-managers.

Johnson Controls, a Milwaukee-based maker of various industrial and electronic components, plans to spin off its Adient automotive seating and interiors business on October 31, 2016.

In addition to the upcoming bond deal, financing for the spinoff will include a $3 billion credit facility, comprised of a $1.5 billion term loan A facility and a $1.5 billion revolving credit facility.

The week ahead

Besides the Aident roadshow, several other deals are on the horizon

Syndicate sources said that Foundation Building Materials LLC is shopping $575 million senior secured notes due 2021 via subsidiaries LSF9 Cypress Holdings LLC and FBM Finance Inc. The Rule 144A for life and Regulation S deal is coming to market via Goldman Sachs, the left bookrunner, and Jefferies LLC, Credit Suisse Securities (USA) LLC and RBC Capital Markets, the joint bookrunners.

The Tustin, Calif.-based building materials company plans to use the proceeds from the bond deal, together with other sources including an ABL facility, to repay existing credit facilities and other debt, to partly fund its acquisition of Winroc, repay fees and expenses incurred in connection with other transactions, and for general corporate purposes.

Initial guidance on the deal is in the 8½% area. Its roadshow lasts through Tuesday.

Diamond Resorts International, Inc., a Las Vegas-based hospitality and vacation ownership company, will be on the road beginning Monday with a $600 million issue of eight-year senior notes via left bookrunner RBC and joint bookrunners Barclays, Jefferies, PSP and Natixis.

The proceeds from the deal, along with a $1.3 billion credit facility, will be used to help fund the leveraged buyout of the company by Apollo Global Management LLC.

One other deal that has been on the forward calendar for a while is U.S. Xpress Enterprises Inc.’s $320 million issue of eight-year senior notes.

The Chattanooga, Tenn.-based intermodal freight company’s deal will come to market via J.P. Morgan and Wells Fargo, the joint bookrunners.

Proceeds from the deal will be used to repay term loan debt.

$5.4 billion week

The lack of any new deals pricing on Friday leaves the week’s new issuance total where it was at the close of Thursday’s session.

A total of eight tranches of new U.S. dollar-denominated and fully high-yield rated paper from domestic or industrialized-country borrowers priced during the first four days of the week, adding up to $5.42 billion, according to data compiled by Prospect News.

That was up from the $4.09 billion that priced last week, ended July 22, also in eight tranches.

This week’s new-issue activity brought the year-to-date total up to $128.91 billion in 186 tranches.

That was running 31.6% behind the new-deal pace seen at this time last year, when $188.589 billion had priced in 304 tranches by this point on the calendar, the Prospect News data indicated.

Last week, this year’s new-issuance pace had trailed 2015 by 34.5% year over year.

Recent deals trade around

Secondary market traders saw some of the recently priced offerings moving around on Friday.

One quoted NXP’s 4 1/8% notes due 2021 at 103 1/8 bid, 103¼ offered.

The Dutch semiconductor company’s quickly shopped $500 million add-on to its existing 4 1/8% notes due 2021 priced at 101.875 on Thursday to yield 3.697%

The established 4 1/8s had been trading around a 103¾ to 104 bid context on Wednesday before the new deal was announced. After the pricing of the add-on, they changed hands at a considerably lower level before trying to move back up to where they had been, reaching the 103 bid neighborhood.

“The folks who bought the add-on [around its issue price] got a quick couple of points,” a trader said.

The new Eagle Materials 4½% notes due 2026 were seen going home at a 101 5/8 to 101¾ bid context.

“They started out the day at 101 5/8 to 101¾ and ended pretty much in the same spot,” one of the traders said.

The Dallas-based maker of building products came to market on Thursday with $350 million of those notes in a regularly scheduled forward calendar offering.

That split-rated (Ba1/BBB) offering priced at par – and the new bonds flew up to around a 101¾ to 102 bid trading level.

Traders said the deal was supposed to have priced on Friday but was moved up when its order book became well oversubscribed, with over $2 billion of orders by Wednesday.

They suggested, though, that much of the interest came from higher-grade accounts reaching for yield from a crossover name.

Fage International’s 5 5/8% notes due 2026 were seen by a trader to be slightly higher on Friday afternoon; he pegged those bonds at 102 1/8 bid, 102 5/8 offered, a gain of about 1/8 to ¼ point.

That regularly scheduled $420 million issue from the Athens, Greece-based dairy products producer and its Johnstown. N.Y.-based subsidiary FAGE USA Dairy Industry Inc. priced at par on Wednesday and then popped up to around the 102 bid level, where it stayed in heavy trading. Activity was over $76 million on Wednesday and over $36 million on Thursday.

Energy names easier

Apart from the new deals, traders said that the energy patch remained a problematic area, with the dollar price for world crude oil languishing in the lower 40s after having been above $50 as recently as several weeks ago.

A trader said that Denver-based oi l and natural gas company’s 5% notes due 2022 were down 3/8 point, ending at 93½ bid, 94 offered on what he termed “decent” volume of more than $23 million.

He saw Oasis Petroleum’s 6 7/8% notes due 2022 ending at 87¼ – a full 1 point drop, he said, though round-lot volume was a paltry $8 million.

California Resources’ 8% notes due 2022 were down ¼ point on the day at 64 bid, with about $12 million changing hands.

Chesapeake climbs higher

Also in the oil and gas space, Chesapeake Energy’s 8% second-lien notes due 2022 were called “up a couple points” on “news they are possibly selling a position in their Barnett Shale” property, a trader said.

The trader saw the paper ending in a 90 ZIP code versus levels in an 86½ to 87 context in early trading.

A second trader pegged the notes at 89, up 2½ points.

Chesapeake is based in Oklahoma City.

Indicators mixed on day, off on week

Statistical market performance measures were mixed on Friday after being lower across the board on Thursday. It was the second mixed session in the last three trading days.

The indicators were meanwhile down all around versus where they had finished out the previous Friday, July 22. It was their first lower week after five consecutive weeks of Friday-to-Friday gains.

The KDP High Yield Index lost 6 basis points on Friday to close at 69.06, on top of Thursday’s 5 bps retreat. It was the index’s fifth straight loss.

Its yield meantime jumped by 11 bps to 5.68% after having risen by 3 bps on Thursday.

It was the fourth widening in the last five trading days.

Friday’s levels compared unfavorably with the 69.35 index reading and 5.48% yield registered last Friday.

The Markit Series 26 CDX Index saw its first gain after one loss, firming by 3/8 point to end at 104 13/32 bid, 104 7/16 offered. On Thursday, it had fallen by 9/32 point.

On the week, the index was down from last Friday’s 104¾ bid, 104 25/32 offered level.

The Merrill Lynch High Yield Index suffered its fourth consecutive loss after six straight advances. It was down by 0.087% after falling 0.104% on Thursday.

That loss lowered the index’s year-to-date return to 12.059% from 12.157% on Thursday, which itself was down from Monday’s close at 12.546%, which had been the index’s fifth consecutive new peak year-to-date return.

For the week, the index lost 0.41% – its first weekly loss after five straight weekly gains.

The index rose 0.292% during the week ended July 22

So far the year, the index has finished higher in 22 weeks, versus eight weeks in which it ended lower.

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