Darling Ingredients, Surgery Center price; MGM, Realogy trade up; Nexeo Plastics jumps

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 28 – The domestic high-yield primary market remained active on Thursday with two new deals pricing.

Darling Ingredients Inc. priced a $500 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5¼%.

Surgery Center Holdings, Inc. priced a $430 million issue of eight-year senior notes (Caa2/CCC) at par to yield 10%.

The European primary market was also active with Netherlands-based Leaseplan Corp. NV pricing €1.35 billion of five-year senior secured notes in two tranches.

Meanwhile, new paper was in focus in the secondary space.

MGM Resorts International’s 5½% senior notes due 2027 (existing ratings Ba3/BB-) and Realogy Group LLC’s 9 3/8% senior notes due 2027 (B2) were both seen well above their issue price in active trading in the secondary space.

While volume remained light, Nexeo Plastics’ recently priced 10 1/8% senior notes due 2026 jumped with the notes now almost 4 points above their issue price.

PG&E Corp.’s 6.05% senior notes due 2034 continued to see gains in high-volume activity with the notes shooting up to 102 in intra-day trading.

Despite periods of softness, the technicals in the high-yield market remain strong with the space continuing to see inflows.

High-yield mutual funds and exchange-traded funds saw inflows of $590 million for the week ended Wednesday, marking the third consecutive week of inflows, according to fund-flow statistics generated by AMG Data Services Inc.

Darling prices tight

In Thursday's new issue market, Darling Ingredients priced a $500 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5¼%.

The yield printed at the tight end of the 5¼% to 5 3/8% yield talk and well inside of initial talk in the high 5% area.

BofA Merrill Lynch was the left lead bookrunner on the debt refinancing deal.

Surgery Center comes wide

Surgery Center Holdings priced a $430 million issue of eight-year senior notes (Caa2/CCC) at par to yield 10%.

The yield printed 25 basis points beyond the wide end of the 9½% to 9¾% yield talk. Initial guidance was in the 9¼% to 9½% area.

There were also covenant changes to the deal.

Jefferies LLC was the lead left bookrunner for the debt refinancing deal.

Bifurcated primary market

Thursday's dollar-denominated deals point to a current trend in the primary market, a debt capital markets banker commented shortly after the Thursday close.

It is a bifurcated market, the source said.

Darling Ingredients, which came with high double-B credit ratings, priced tight to talk, and appeared to go very well, the banker noted.

Surgery Center, which came with triple-hook ratings (CCCs on both sides of the split) priced well wide of talk, amid covenant changes which suggested pushback from investors.

A year ago, when the bank loan market was red hot, deals like Surgery Center, the recent Nexeo Plastics deal or the withdrawn Kodiak Gas Services offer might easily have come as syndicated loans, the banker said.

Indeed, the covenant adjustments these placements underwent as junk bond deals suggests they ended up going in front of investors looking a good deal like loans.

But the junk bond market is flush with cash, with strong retail inflows and accounts heard to be sitting on comparatively high cash balances. The calendar has been less than robust.

And junk has come roaring into 2019. It has now returned a whopping 7.01% in the year to Wednesday's close, according to the J.P. Morgan High Yield index.

In such circumstances, shouldn't deals such as Surgery Center, Nexeo and Kodiak expect warmer receptions in the junk bond market than those that they ultimately received?

Ordinarily, yes, the investment banker said.

However, investors, with a weather eye on the performance of the U.S. economy, are presently somewhat wary of risk, even in such a notable rally as the one that has been unfolding in the 2019 high-yield market, the source added.

LeasePlan prices €1.35 billion

In Thursday's European high-yield primary market session, Netherlands-based LeasePlan priced €1.35 billion of five-year senior secured notes in two tranches.

The deal included €750 million of notes that priced at par to yield 3 5/8% and €600 million of Euribor plus 387.5 bps notes which priced at par.

Left global coordinator Deutsche Bank will bill and deliver. JPMorgan was the joint global coordinator.

MGM trades up

MGM Resorts’ 5½% senior notes due 2027 were trading up in high-volume activity in the secondary space.

The notes were seen changing hands between par ½ and par ¾ early in the session. They were seen trading between par 7/8 and 101 in the late afternoon, a market source said.

Another source saw the notes at par 7/8 bid, 101 3/8 offered.

The notes were still trading at a premium despite the deal doubling in size during the subscription process, sources said.

MGM Resorts priced a $1 billion issue of the 5½% notes at par in a Wednesday drive-by.

The deal was upsized from $500 million.

The yield printed in the middle of yield talk in the 5½% area and inside of initial talk in the 5¾% area.

Realogy Group in demand

Realogy Group’s 9 3/8% senior notes due 2027 were in demand in the secondary space with the notes jumping in active trading.

The notes were quoted at par ½ bid, 101 ¼ offered early in the session. They were trading north of 102 in the afternoon, sources said.

The notes carried a nice coupon, which sources attributed to their strong performance in the secondary space.

Realogy Group priced an upsized $550 million issue of the 9 3/8% notes at par on Wednesday.

The initial size of the deal was $400 million. The deal was driven to the market by reverse inquiry, which accounted for the full initial size of the deal, sources said.

The yield printed 12.5 bps beneath the tight end of the 9½% to 9¾% yield talk.

Nexeo Plastics jumps

While trading volume remained light for Nexeo Plastics’ recently priced 10 1/8% senior notes due 2026, the notes jumped over the past two sessions and are now almost 4 points above their issue price.

The notes were quoted at 101 3/8 bid, 102 3/8 offered on Thursday, according to market source.

They rose 1¼ points to 101¾ on Wednesday.

Nexeo Plastics priced a $410 million issue of the 10 1/8% notes on March 22.

Pacific Gas & Electric soars

Pacific Gas & Electric’s 6.05% senior notes due 2034 remained major volume movers in the secondary space on Thursday with the notes continuing to see large gains.

The 6.05% notes traded north of 102 in intraday trading before coming in to close the day at 99.

The notes rose 2 points from Wednesday’s close after a 1½ point gain on Wednesday.

The notes were making large gains on Thursday on news that accounts were proposing a $35 billion plan that would allow the embattled utility company to emerge from bankruptcy within a year, according to a market source.

The notes were in focus on Wednesday on news PG&E had been allowed to access $5.5 billion in financing.

Wednesday inflows

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

High-yield ETFs saw an impressive $415 million of inflows on the day.

Actively managed high-yield funds saw $10 million of inflows on Wednesday, the trader said.

Late Thursday the market heard that the combined funds saw $590 million of inflows on the week to Wednesday's close.

Indexes mixed

Indexes were again mixed on Thursday as they have been for much of the week.

The KDP High Yield Daily index dropped 1 bp to close Thursday at 70.09 with the yield now 5.9%.

The index rose 4 bps on Wednesday and 1 bp on Tuesday after dropping 7 bps on Monday.

The ICE BofAML US High Yield index continued to climb above the 7% threshold on Thursday.

The index rose 5 bps with the year-to-date return now 7.148%.

The index was up 2.8 bps on Wednesday and 20.7 bps on Tuesday after dropping 9.1 bps on Monday. with the year-to-date return again surpassing 7%.

The index has been flirting with 7% returns for the past several sessions. The index again surpassed 7% returns on Tuesday.

It initially crossed the 7% threshold on March 21 but sank below it the following day.

The index just recently passed 6% year-to-date returns on March 11.

The CDX High Yield 30 index gained 29 bps to close Thursday at 106.26.

The index dropped 19 bps on Wednesday after gaining 19 bps on Tuesday.

The index dropped 14 bps on Monday.

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