Primary rolls on with Charter, Superior, Cornerstone, Valvoline; funds gain $195 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 3 – The high-yield primary kept rolling along on Thursday, with nearly $3 billion of new dollar-denominated and junk-rated paper coming to market from four issuers, including three opportunistically timed and quickly shopped offerings.

It was the third straight session – and the biggest so far – in the nascent month of August and the eighth session in a row in which new deals had priced, as well as the biggest single day for the primaryside since early June, according to data compiled by Prospect News.

The day’s action was led by an upsized $1.5 billion 10.5-year offering from cable television operator Charter Communications, Inc. via a pair of funding subsidiaries.

It also featured somewhat smaller offerings from oil and gas operator Superior Energy Services, Inc., which priced $500 million of seven-year notes, chemical producer Cornerstone Chemical Co., which did an upsized $450 million of seven-year secured paper, and automotive lubricants producer Valvoline Inc., with $400 million of eight-year notes.

All of the day’s issues traded actively in the aftermarket, with Superior and Valvoline doing especially well.

Traders also saw considerable activity in other recently priced issues, including Wednesday’s offerings from Ashtead Group plc and AK Steel Corp. and Tuesday’s new credits from United States Steel Corp. and Diamond Offshore Drilling, Inc.

Statistical market performance measures turned lower across the board on Thursday after being better all around on Tuesday and again on Wednesday following two straight sessions before that in which they had been mixed.

However, another numerical indicator was on the plus side on Thursday, as flows of investor cash into or out of high yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends, rose moderately this week, after easing slightly last week. Some $195 million more came into those weekly-reporting-only domestic funds than left them during the week ended Wednesday, in contrast to last week’s $21 million outflow. This week was the second net inflow in the last three weeks (see related story elsewhere in this issue).

Charter upsizes

A new deal market that sprang to life on Wednesday, trailing weeks of near dormancy, continued to crank on Thursday.

Four issuers raised a combined total of $2.85 billion.

Three of the four came with drive-bys.

Two of the four upsized their offers.

Executions pointed to a market where issuers are calling the tune, sources say. Two of Thursday’s four deals came tight to talk. The other two came on top of final talk that tightened from early guidance.

CCO Holdings, LLC and CCO Holdings Capital Corp., subsidiaries of Charter Communications, priced an upsized $1.5 billion issue of senior notes due Feb. 1, 2028 (B1/BB+/BB+) at par to yield 5%.

The amount was increased from $1 billion.

The yield printed on top of official yield talk. Initial talk had been 5% to 5 1/8%, but that whisper hardly had time to circulate the market when word went out the “5% is the number,” according to a trader who added that there was no investor call, just an announcement in the market that the deal was out there.

Demand had to be big, the trader added.

BofA Merrill Lynch was the left bookrunner for the stock buyback deal. Citigroup, Wells Fargo, Credit Suisse, Deutsche Bank, UBS and Goldman Sachs were the joint bookrunners.

Superior Energy drives by

Superior Energy Services priced a $500 million issue of seven-year senior notes at par to yield 7¾%.

The yield printed at the tight end of the 7¾% to 8% yield talk.

There was reverse inquiry on the deal, a trader said, adding that the company's existing bonds had not been trading well and there was a sense that the new deal would come cheap because of that.

JP Morgan, Wells Fargo, Capital One, RBC, Scotia and Citigroup managed the debt refinancing deal.

Valvoline prices tight

Valvoline priced a $400 million issue of eight-year senior notes (Ba3/BB) at par to yield 4 3/8%.

The yield printed at the tight end of yield talk that was set in the 4½% area and below the 4 5/8% to 4¾% initial guidance.

There was over $1 billion in the book early Thursday, according to a trader who watches the space.

Citigroup was the lead bookrunner. Morgan Stanley, BofA Merrill Lynch, Scotia, Deutsche Bank, Goldman Sachs and JP Morgan were the joint bookrunners.

The Lexington, Ky.-based supplier of automotive lubricants plans to use the proceeds to make a voluntary contribution to its tax-qualified U.S. domestic pension plan.

Cornerstone upsized

In Thursday’s sole roadshow deal, Cornerstone Chemical priced an upsized $450 million issue of seven-year senior secured notes (B2/B) at par to yield 6¾%.

The offering was increased from $430 million.

The yield printed on top of final yield talk and at the tight end of previous official talk of 6¾% to 7%. Talk firmed through the course of the time that the deal was in the market. Initial guidance was in the low-to-mid 7% area. That subsequently firmed to the 7% area early in the July 31 week.

Goldman Sachs was the left bookrunner. Credit Suisse and KeyBanc were the joint bookrunners.

Proceeds will be used to help fund the acquisition of Cornerstone Chemical Co. by Littlejohn & Co. LLC from H.I.G. Capital and to repay debt. The additional $20 million of proceeds resulting from the upsizing of the deal will be used to reduce the amount of equity in the acquisition financing.

The issuing entity will be CSTN Merger Sub, Inc., which will become Cornerstone Chemical when the acquisition closes.

Murphy Oil plans notes

Murphy Oil Corp. announced in a Thursday press release that it intends to offer $550 million of senior notes due 2025.

J.P. Morgan and BofA Merrill Lynch are the joint physical bookrunners for the public offer.

BNP Paribas, DNB, Scotia, MUFG, Wells Fargo and Goldman Sachs are the joint bookrunners.

The El Dorado, Ariz.-based independent oil and natural gas exploration and production company plans to use the proceeds to redeem its 2½% notes due December 2017.

Wednesday inflows

Daily cash flows for dedicated high-yield bond funds were positive on Wednesday, the most recent session for which data was available at press time.

High-yield ETFs saw $142 million of inflows on the day.

Asset managers saw $20 million of inflows on Wednesday.

The news preceded a Thursday afternoon report from Lipper US Fund Flows that dedicated high-yield bond funds saw $195 million of inflows in the week to Wednesday’s close.

Biggest day in many weeks

With $6.38 billion of new dollar-denominated junk bonds having come to market in 12 tranches from domestic or industrialized-country borrowers so far in the new month of August – all in only three sessions – the month is well on its way to overtaking the feeble new-deal activity seen during July, when just $8.58 billion in 20 tranches had gotten done during the entire month, according to data compiled by Prospect News.

Thursday’s $2.85 billion primary session was the biggest session so far in August – which also saw $1.98 billion get done in five tranches on Wednesday and $1.55 billion of new paper in three deals on Tuesday.

But it was not only the biggest day of the month so far but the heaviest single-day issuance in Junkbondland since back on June 5, when $5.08 billion of new junk priced in seven tranches, according to the data, including four tranches alone totaling $3.78 billion from hospital operator Tenet Healthcare Corp.

Day’s deals trade actively

Traders said that Thursday’s new issues dominated the day’s Most Actives List, with Waggaman, La.-based Cornerstone Chemical Co., through its CSTN Merger Sub funding unit, leading the way.

The only one of the day’s new deals not a drive-by issue, it was the first of the four offerings to price, as shown by the strong volume totals.

A trader said that at least $91 million of those 6¾% senior secured notes due 2024 changed hands during the session, including more than $78 million in big round-lot transactions.

He saw the notes moving around between 100¼ and 101½ bid during the day but said the bonds were finally going out at 100¼ bid, up just a little from their par issue price.

Stamford, Conn.-based cable, broadband and phone service provider Charter Communications had the big deal of the day, weighing in at an upsized $1.5 billion of new 5% notes due February 2028 – but the gains were not so big when the issue hit the aftermarket.

A trader said the new bonds traded between par and 100¼ but down towards the end of the session were in a tight range of par to 100 1/16, which he called “laughable, just awful.”

A second trader pegged the notes a little more generously at 100¼ bid going out, with around $26 million traded.

The day’s other two issues, though, showed some better aftermarket gains.

Houston-based oil and natural gas exploration and production operator Superior Energy’s new 7¾% notes due 2024 “were just moving around” in a 101 to 101½ bid context towards the end of the day, a trader said, helped by “its nice coupon,” on volume of over $41 million.

And motor lubricant manufacturer Valvoline’s 4 3/8% notes due 2025 also slid easily up to the 101 to 101½ bid area, with over $37 million of turnover.

Recent issues also active

There was also considerable activity among some of the issues which priced earlier in the week.

Both tranches of Ashtead Group’s new deal from Wednesday racked up more than $50 million of volume on Thursday, with the London-based equipment rental company’s 4 1/8% notes due 2025 seen up by about 5/16 point on the day and its 4 3/8% notes due 2027 up by 3/8 point on the day, both going out around 100¾ bid.

Ashtead priced $600 million of each issue at par in a drive-by deal.

AK Steel’s 6 3/8% notes due 2025, on the other hand, were seen ending around par bid, right where the West Chester Township, Ohio-based steel producer had priced its quickly shopped $280 million issue on Wednesday. More than $40 million of the notes changed hands on Thursday.

AK sector peer U.S. Steel’s 6 7/8% notes due 2025 were also unchanged on the day, ending around 100 5/8 bid, with over $31 million traded. The Pittsburgh-based steelmaking giant priced $750 million of those notes at par in a regularly scheduled forward calendar deal on Tuesday.

And Diamond Offshore Drilling’s 7 7/8% senior secured notes due 2025 gained ¼ point on Thursday, a trader quoting the notes at 100¼ bid, with around $13 million traded.

The Houston-based global offshore energy drilling company priced $500 million of the notes at par on Tuesday in a regularly scheduled offering.

All told, a trader said that the new issues were the dominant force in Thursday’s market because “there was just a lot of paper.

“The new guys were pretty much where everything was at.”

Indicators head south

Statistical market performance measures turned lower across the board on Thursday, after being better all around on Tuesday and again on Wednesday following two straight sessions before that in which they had been mixed.

The KDP High Yield Daily Index lost 3 basis points on the session Thursday to close at 72.59, its first setback after two straight gains, including Wednesday’s 2 bps rise.

Its yield ballooned out by 9 bps to 5.06%, after having come in by 2 bps on Wednesday, its first narrowing after four successive sessions in which the yield had widened out.

The Markit CDX Series 28 High Yield Index retreated by nearly 5/32 point on Thursday, finishing at 107 19/32 bid, 107 21/32 offered, its first loss after three straight improvements, including Wednesday’s slight 1/32 point advance.

The Merrill Lynch North American High Yield Index backtracked by 0.045% on Thursday, in contrast to its gains the two previous sessions including Wednesday, when it closed up by 0.006%.

Thursday’s loss dropped the index’s year-to-date return to 6.186%, down from Wednesday’s 6.233%, which had been its second straight new 2017 cumulative peak level.

© 2015 Prospect News.
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