Acadia prices upsized add-on; Frontier’s new issues all the rage; steel, oil bonds in retreat

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Sept. 14 – The high-yield bond market was slightly weaker on Monday, trending in line with equities as Rosh Hashanah kept players from their desks.

Additionally, investors were keeping an eye towards the Federal Reserve’s policy meeting later this week. Speculation had been that the two-day meeting, which begins on Wednesday, will result in the first interest rate increase since 2008. However, with the recent volatility in the markets, chatter has grown that the raise could be put off or could be less than expected.

As for the day’s high-yield dealings, the primary market did see one deal get done, a $275 million add-on of 5 5/8% notes due 2023 from Acadia Healthcare Co. Inc. Most of the day’s secondary activity, however, centered on Frontier Communications Corp.’s $6.6 billion three-tranche deal from Friday.

“The activity was dominated by Frontier,” one trader said.

Away from new and recent deals, the steel sector remained under pressure as the space awaits a ruling on potential import duties from the U.S. International Trade Commission.

The energy arena was also trending toward the softer side on Monday as domestic crude oil prices declined by 1.19%.

Acadia upsizes add-on

One deal priced during the Monday primary market session.

Acadia Healthcare priced an upsized $275 million add-on to its 5 5/8% senior notes due Feb. 15, 2023 (B3/B-) at 100.5 to yield 5.515%.

The deal size was increased from $250 million.

The reoffer price came on top of price talk.

BofA Merrill Lynch and Jefferies LLC were the joint bookrunners.

The Franklin, Tenn.-based provider of inpatient behavioral health-care services plans to use the proceeds to fund a cash tender for any and all of its outstanding 12 7/8% senior notes due 2018, to repay revolver debt and for general corporate purposes, including acquisitions.

Frontier dominates

From last week’s business, Frontier Communications’ three-part $6.6 billion deal was deemed Monday’s main event.

“All those new issues were the most active” of the day, according to one trader.

The trader said the $1 billion of 8 7/8% notes due 2020 inched up half a point, ending at 101 3/8. The $2 billion of 10½% notes due 2022 – the more active of the three issues, the trader noted – ticked up a quarter-point to 101¾. And the $3.6 billion of 11% notes due 2025 closed up a touch at 101 3/8.

A second market source pegged the 8 7/8% notes at par 7/8 bid, 101¼ offered, the 10½% notes at 101 3/8 bid, 101¾ offered and the 11% notes at 101 1/8 bid, 101 3/8 offered.

All the issues priced Friday at par.

Meanwhile, investors were “hitting the old and buying the new,” a trader said.

“The new bonds are a little bit better rated” than the older issues, he remarked.

The company’s existing 6 7/8% notes due 2025 fell a point to 84½, and the 7 1/8% notes due 2023 declined over 2 points to 87 5/8.

J.P. Morgan Securities LLC, BofA Merrill Lynch and Citigroup Global Markets Inc. were the joint bookrunners on the new issue.

Proceeds will be used to help fund the acquisition of Verizon’s wireline operations in California, Florida and Texas. The proceeds will be escrowed until the close of that acquisition, which is expected in late March.

Other financing for the $10.54 billion transaction will come in the form of a $1.5 billion delayed-draw term loan, the inclusion of which resulted in a reduction of the size of the bond portion, which was originally contemplated at about $8 billion. In addition, the financing includes proceeds from a $750 million sale of common shares with a $75 million greenshoe and $1.75 billion of 11 1/8% convertible preferred shares with a $175 million greenshoe.

Frontier Communications is a Stamford, Conn.-based provider of rural telecommunications services.

Steel sector troubles

U.S. steel producers continued to wane Monday following news from last week regarding the International Trade Commission’s investigation of cheaper imports.

“There was more cold water dumped on steel,” a trader said, seeing Steel Dynamics Inc.’s 5¼% notes due 2023 slipping over half a point to 97.

He noted that the issue “hadn’t traded in a couple of weeks.”

United States Steel Corp.’s 7% notes due 2018, however, held steady at par ½.

And AK Steel Corp.’s 7 5/8% notes due 2021 were seen offered at 61, which was deemed “probably a little lower.”

The ITC issued a report on Thursday in which the trade group said that it is looking into imports of cheaper cold-rolled flat steel from at least seven different countries, including China and the United Kingdom. The group said it expects to rule in the coming weeks on whether or not to impose duties on such imports in an effort to help domestic steelmakers amid a decline in the price of the commodity.

Oil bonds dip

Oil prices were soft as the week began, and the oil and gas space traded in line with those moves.

A trader said there was “fairly heavy volume” in Chesapeake Energy Corp.’s 4 7/8% notes due 2022, which slipped over half a point to 74 3/8.

Oasis Petroleum Inc.’s 6 7/8% notes due 2023 then closed just a touch lower at 84¾.

Among weaker credits, GulfMark Offshore Inc.’s 6 3/8% notes due 2022 managed to gain ground, closing up half a point at 62¾.

However, Comstock Resources Inc.’s 7¾% notes due 2019 fell half a point to 30¼, as the 9½% notes due 2020 dropped nearly 2 points to 32.

Chaparral Energy Inc. was also lower, with its 8¼% notes due 2021 falling nearly a point to 45½.

Market trades soft

Market indicators were slightly weaker by Monday’s bell, mirroring similar declines in the equity markets.

The KDP High Yield Daily index slipped to 68.25 with a 6.27% yield, compared with Friday’s reading of 68.26 with a 6.25% yield.

The CDX North American High Yield Series 24 index also ended a shade softer, according to a market source. The source pegged the level at 104.6 bid, 104.68 offered.

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