New York, Aug. 18 – The high-yield primary sphere remained on its mid-summer hiatus on Monday, with no new deals seen having priced during the session.
However, syndicate sources said that the forward calendar continued to build, with participants anticipating a busy market once the approaching Labor Day holiday is out of the way. Possibly as much as $40 billion of new paper is to be offered, they noted.
| Moody’s Investors Service and Standard & Poor’s both put Dollar General’s Baa3/BBB- ratings on review for possible downgrades, citing the expected jump in the company’s leverage should its bid be successful.
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| Dollar General unveiled financing plans for its bid calling for the issuance of more than $12 billion of new notes and bank loans. Dollar General’s existing bonds, meantime, retreated in very active trading.
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| Away from the primaryside, NII Holdings Inc.’s paper surged on heavy volume, continuing its rebound after being battered for much of last week.
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| Statistical market performance indicators turned higher across the board on Monday after having been mixed on Friday.
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| September may hit $40 billion
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| The primary market put up another goose egg on Monday as one source described the high-yield market as ultra-quiet, with numerous players having embarked upon mandatory two-week vacations.
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| No meaningful volume of new issue business is expected before September, sources say.
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| However, volume is expected to pick up dramatically in September, according to players on the buyside and sellside.
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| September volume could hit $40 billion, a trader said, referencing a Monday telephone conversation with a dealer.
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| Should issuance in that volume materialize, it would not be the first September to top the $40 billion mark.
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| September 2012 saw $44.4 billion of issuance in 86 junk-rated, dollar-denominated tranches.
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| And the standing record for monthly issuance came the following September, 2013, which saw $46.9 billion in 67 deals.
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| That said, $40 billion months are by no means common. In addition to the previous two Septembers, the market topped that level only one other time, in May 2013, when it turned out $46.2 billion in 102 tranches.
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| Pipeline builds, details scarce
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| The pipeline of deals expected to be post-Labor Day business continued to build on Monday.
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| A new name was added to a growing list of proposed acquisition financings as Dollar General entered a competing bid to acquire Family Dollar for $78.50 per share in cash, in a transaction valued at $9.7 billion.
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| The deal, which is going forward with a debt commitment from Goldman Sachs Bank USA and Citigroup Global Markets Inc., would feature $12.3 billion of debt that is expected to come in the form of notes and bank loans.
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| Family Dollar has already agreed to be acquired by Dollar Tree Inc. for $74.50 per share, comprised of $59.60 in cash and $14.90 in Dollar Tree stock, subject to a collar.
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| According to Dollar General, its all-cash proposal of $78.50 per share would provide Family Dollar shareholders with a substantially superior valuation to the $74.50 per share cash/stock offer announced by Dollar Tree.
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| That financing commitment, from J.P. Morgan Securities LLC, Wells Fargo Bank NA, Bank of America NA, Royal Bank of Canada and U.S. Bank, would feature $2.8 billion of senior notes and $5.65 billion of bank debt.
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| M&A roster grows
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| Whoever prevails in the Family Dollar acquisition, that financing will take a place alongside a growing list of merger and acquisition financings expected to feature high-yield components greater than $500 million.
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| The list includes:
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| • Scientific Games Corp. with $3.45 billion of notes, to help fund the acquisition of Bally Technologies Inc.;
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| • Valeant Pharmaceuticals International Inc. with $2.75 billion of senior secured notes to help fund the acquisition of Allergan Inc.;
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| • Frontier Communications Corp. with $1.9 billion of senior notes backing the acquisition of AT&T Inc.’s wireline business and statewide fiber network in Connecticut;
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| • Safeway Inc. with $1.63 billion of senior secured notes to fund the merger of Safeway and AB Acquisition LLC (Albertsons LLC);
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| • Aecom Technology Corp. with $1.6 billion senior notes to fund the acquisition of URS Corp.;
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| • Jupiter Resources Ltd. with $1.13 billion of eight-year senior notes to fund the acquisition of Bighorn from Encana, a deal sidelined by market volatility in late July and early August;
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| • Steel Dynamics Inc. with $1 billion of notes in tranches of five- and seven-year notes to fund the purchase of Severstal Columbus LLC;
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| • Sensata Technologies BV with up to $750 million senior notes to fund the acquisition of Schrader;
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| • CBS Outdoor Americas Inc. with a possible $715 million of notes to fund acquisition of certain outdoor advertising businesses from Van Wagner Communications LLC;
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| • K Steel with $700 million to fund the acquisition of Severstal North America’s integrated steelmaking assets in Dearborn, Mich.; and
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| • Gannett Co. Inc. with $650 million to $675 million of new seven- and 10-year senior notes to help fund the acquisition of the full ownership of Cars.com.
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| Add to those a pair of names that have surfaced in recent days: Charter Communications, which is in the process of acquiring customers and systems from Comcast Corp., is expected to bring a bond deal post-Labor Day, and Pike Corp., with bonds backing the acquisition of the company by Court Square Capital Partners.
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| XPO bonds gyrate
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| In the secondary market, traders said that activity was slow, which is pretty typical for summer Mondays.
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| For instance, a trader said that he saw “a whopping 250,” or $250,000, of the new XPO Logistics Inc. 7 7/8% notes due 2019 that had priced on Thursday. He quoted the bonds around the same 103 to 103¼ context seen late Friday, noting “that was about the excitement.”
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| The Greenwich, Conn.-based transportation logistics company had priced $500 million at par in a regularly scheduled forward calendar deal. After that, the new bonds were heard to have firmed smartly, quickly moving up to the 103 bid and above level and staying there.
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| A second trader pegged the bonds at 103¼ bid, 103¾ offered, calling that up ¼ of a point.
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| However, at another desk, a market source said there had been several large-sized trades for the new bonds very late in the session, perhaps totaling $3 million or $4 million, and he said the last trade had gone off at 101 5/8 bid – a drop of some 1 3/8 points from prior levels.
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| Recent deals seen better
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| Elsewhere among the recently priced issues, a trader said that Gulfport Energy Corp.’s 7¾% notes due 2020 were up 1/8 of a point, at 107 3/8 bid, 107 7/8 offered.
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| On Wednesday, the Oklahoma City-based oil and natural gas exploration and production company’s quick-to-market $300 million add-on to its existing issue had priced at 106 to yield 6.106%, after having been upsized from an originally announced $250 million, and the bonds had firmed to the 107 area when they began trading around on Thursday.
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| American Eagle Energy Corp.’s 11% senior secured notes due 2019 were heard by a source to have gained 3/8 point on Monday, though in quiet trading, going out at 99½ bid, 100½ offered.
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| The Denver-based E&P company had priced its $175 million forward calendar deal on Wednesday at 99.059 to yield 11¼%.
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| And Intrepid Aviation Group Holdings, LLC’s 6 7/8% notes due 2019 were seen unchanged on the day at 102¼ bid, 102¾ offered.
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| The Stamford, Conn.-based commercial airline leasing company priced $215 million of the notes on Aug. 8 as an add-on to its existing bonds, pricing them at 102 to yield 6.356% after upsizing the issue from $150 million.
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| The notes had gained ¼ of a point on Friday, a trader said.
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| Dollar General bonds lower
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| The news that Dollar General will be making a run at snatching Family Dollar Stores away from intended suitor Dollar Tree by coming in with a bigger bid that values its proposed takeover of its sector peer at $9.7 billion – backed up by an estimated $12.3 billion of new bond and bank debt – pushed the Goodlettsville, Tenn.-based discount retailing giant’s existing bonds down sharply, as both Moody’s and S&P spoke of a possible downgrade of its precariously investment-grade ratings.
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| A market source said Dollar General’s 3¼% notes due 2023 were the most active issue, with some $43 million of the bonds having changed hands. They fell to the equivalent of 91 bid from prior levels just under 95.
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| The company’s 1 7/8% notes due 2018 retreated the equivalent of 2 3/8 points to end at just under 96½ bid, with over $30 million having traded.
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| Dollar General’s 4 1/8% notes due 2017 dropped the equivalent of 2¼ points, to the 104 bid level, on volume of over $17 million.
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| NII notes better
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| Back among the purely junk-rated credits, NII Holdings’ bonds topped the high-yield most-actives list on Monday. The bonds, in fact, occupied the top four spots on that list.
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| Those bonds had been badly beaten up last week, after the Reston, Va.-based provider of “Nextel” wireless service to customers in Mexico and elsewhere in Latin America warned that it would probably have to file for bankruptcy – but they had been recovering from their perhaps oversold levels on Friday.
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| That rebound continued Monday, with a trader seeing the company’s 11 3/8% notes due 2019 up 4¼ points to end at 71 bid, with over $37 million of the bonds having been traded.
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| He saw the 7 7/8% notes due 2019 up 4 points at 70, on volume of more than $30 million.
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| The company’s 10% notes due 2016 gained some 7½ points to the 26½ level, although a second trader later located those bonds around 28 bid, calling that an 8 7./8% advance, with over $26 million of turnover.
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| And the first trader saw the 7 5/8% notes due 2021 get as good at 17¾ bid, calling that up 1½ points, on volume of over $15 million.
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| “They were by far the volume leaders,” he said, attributing the solid gains the bonds showed to the proverbial “dead cat bounce.”
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| J.C. Penney pop fades
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| Elsewhere, a trader said that the rise seen late last week in J.C. Penney Co. Inc.’s bonds was just about over. He quoted the Plano, Texas-based department store operator’s 7.95% notes due 2017 at 103 bid, down ¼ of a point, on volume of around $7 million.
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| As for the company’s other bonds, he said there were “a couple of issues trading today” on volume of no more than $1 million. He said that these issues “were either up or down½ point, on light trading.”
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| Penney’s bonds had improved on Thursday and again on Friday in active dealings after the company reported that it lost $172 million, or 56 cents per share, during the second quarter. Excluding one-time items, it lost 75 cents per share – less than the 98 cents to $1 of red ink Wall Street had been expecting, and considerably improved from a year ago, when earnings had plunged by $586 million, or $2.66 per share.
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| Total revenue in the latest quarter rose 5% to $2.8 billion, beating Wall Street forecasts of $2.79 billion.
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| And Penney said that same store sales increased 6% for the quarter from their year-ago levels, its third consecutive quarterly gain.
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| Those sales at stores which have been open for at least one year – thus excluding the impact of new stores and also those since closed – are seen as a key retailing industry performance metric.
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| Market indicators all firmer
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| Statistical indicators of junk market performance were higher across the board on Monday, after having turned mixed on Friday. The indicators have now been higher all around in three out of the last four sessions.
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| The KDP High Yield Daily index rolled on to its 10th straight gain on Monday, improving by 9 basis points for a second consecutive session to end at 73.92. Its yield meanwhile came in by 3 bps to close at 5.14%, after having tightened by 7 bps in each of the three previous sessions.
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| The Markit CDX Series 22 index gained 3/8 of a point to finish at 107 31/32 bid, 108 offered. On Friday, it had been down by 5/32 of a point.
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| And the widely followed Merrill Lynch High Yield Master II index posted its sixth consecutive advance, moving up by 0.167%, on top of Friday’s 0.115% improvement.
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| Monday’s upturn lifted the index’s year-to-date return to 5.408% from Friday’s 5.232%, although it still remained down from the 5.751% return recorded on July 7, the peak level so far for 2014.
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| Sara Rosenberg contributed to this report
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