NCI, Centene price first dollar deals of year, new NCI bonds jump, junk mixed on day, week

By Paul Deckelman and Paul A. Harris

New York, Jan. 9 – The high-yield market saw its first dollar-denominated pricings of the new year on Friday, two tranches that totaled $450 million of new junk-rated paper.

High-yield syndicate sources said that NCI Building Systems, Inc., a Houston-based maker of metal products for the nonresidential construction industry in North America, priced $250 million of eight-year notes in a scheduled forward calendar offering. Allocations were very sparse amid brisk demand, pushing the bonds up when they were finally freed to trade.

Traders said the new bonds jumped by 2 to 3 points in the aftermarket.

Centene Corp., a St. Louis-based managed care and specialty healthcare services provider, did a quick-to-market $200 million add-on to its existing 2022 notes.

Those notes firmed modestly when they began to trade.

With the ice having finally been broken after the recent new-issuance drought – these were the first dollar-denominated junk bonds to price since Dec. 23 – primaryside players were looking forward to a continuation of new deal activity in the upcoming week, including Monday’s likely pricing of a restructured $600 million offering of eight-year notes from software provider Open Text Corp.

In the secondary market, traders said that oil and natural gas names like SandRidge Energy Inc. continued to do better – even though crude oil prices finished on the downside after several straight sessions of having firmed.

The overall market was seen generally firmer, including gains in such non-energy credits as Sprint Corp. and Ally Financial Inc.

However, statistical measures of market performance were mixed on the session, after having been higher across the board on Wednesday and Thursday, and were mixed versus where they had finished the previous Friday for a second consecutive week.

NCI debuts

The Friday session in the new issue market saw the new year’s first dollar-denominated junk deals clear the market.

Two issuers, one bringing a drive-by add-on, raised a combined total of $450 million.

Both executions were tight, with first-time issuer NCI Building Systems finishing its notes sale at the tight end of yield talk, while Centene priced its add-on at the rich end of talk.

NCI Building Systems priced a $250 million issue of eight-year senior notes (B3/B+) at par to yield 8¼%, versus yield talk of 8¼% to 8½%.

The new 8¼% notes shot to 103 bid, then settled in to close up a couple of points, according to a trader.

Credit Suisse, Citigroup, RBC and UBS were the joint bookrunners for the acquisition financing.

Centene prices rich

Centene priced a $200 million add-on to its 4¾% senior notes due May 15, 2022 (Ba2/BB) at par to yield 4¾%.

Price talk was 99.5 to par.

Citigroup, Barclays, SunTrust and Wells Fargo were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Open Text talk is 5½% to 5¾%

Looking to Monday’s session, Open Text talked a restructured $600 million offering of eight-year senior notes (Ba2/BB) to yield 5½% to 5¾%.

The tenor of the notes was decreased to eight years from 10 years.

Call protection was decreased to three years from five years. The first call premium is increased to 75% of the coupon from 50%; the notes become callable after three years at par plus 75% of the coupon.

Books close at 10:30 a.m. ET on Monday and the deal is set to price thereafter.

Joint bookrunner Barclays will bill and deliver. Morgan Stanley, RBC and Citigroup are also joint bookrunners.

Primary market activity is expected to ramp up in the week ahead, sources say.

Altice International and Altice SA could show up with $6 billion equivalent of junk bonds as early as Tuesday, following a shareholder vote set for Monday, according to a portfolio manager.

Also Angus Chemical Co. is expected to sell $225 million of high-yield notes in a Morgan Stanley-led deal that could appear in the market as early as the week ahead.

In addition to those, look for a $4 billion deal to possibly emerge next week from the packaging sector.

New notes move up

With the junk bond market finally seeing its first dollar-denominated and fully high-yield rated deals of the new year – unlike Wednesday’s split-rated three-part offering from General Motors Financial Co. Inc. and Thursday’s single-tranche euro-denominated issue from ArcelorMittal – pent-up demand for new paper lifted the new NCI Building Systems bonds smartly when they were freed for aftermarket dealings, with the Centene add-on also seen better.

A trader saw NCI’s 8¼% notes due 2023 firming to 102½ bid, 103 offered, well up from the par level at which the building products manufacturer’s new paper had priced.

“It’s a $250 million deal,” he noted, adding that he thought “it was allocated to just a small amount of guys,” creating demand among those who had not received allocations.

“And it’s an 8¼% coupon for a single-B industrial name – that was probably looked at pretty favorably, and that being the first deal, basically, that we’ve seen this year, it was going to be very difficult to find – a lot of guys got shut out that put in allocations for it.”

The market had some new bonds to trade, “for a change,” laughed a second trader, adding that “it did well. People were looking for a new name.”

He saw the bonds left bid at 102½.

“It was only a $250 million deal, with a nice big 8¼% coupon, so it did well.”

Yet another trader saw the bonds changing hands between 102½ and 103½ bid.

A trader initially saw Centene’s add-on to its 4¾% notes due 2022 bid around 100¼, up from the par level at which the healthcare company’s $200 million quickly-shopped tack-on deal had come to market, but later saw it in a 100¾ to 101 bid context.

At another shop, those notes were seen going home somewhere in a 100¾ to 101¼ bid context.

Oil debt up, though crude down

Away from the new-deal arena, one of the traders said that “energy-related names, the E&P [exploration and production] space, had a bid to them, even in the face of crude being down.”

At one point earlier in the day, he said, West Texas Intermediate, the benchmark U.S. crude grade, had been down by as much as $1.80 per barrel from the highs it had reached over the previous two sessions. Crude bounced off that bottom and partially came back, but still ended down by 47 cents on the day, at $48.32 per barrel.

Even so, he said, “crude may go lower – but we’re kind of seeing a bottoming in the energy space names for the most part, and accounts starting to pick their spots to step in.”

Among the oil and gas credits seen doing better was SandRidge Energy, whose 7½% notes due 2021 gained ½ point to end at 66 bid, while MarkWest Energy Partners LP’s 4½% notes due 2023 ended at 97 bid, up ¼ point.

Halcon Resources Corp.’s 8 7/8% notes due 2021 were up 1½ points, ending at 78 bid after the company announced plans to cut production capital expenditures, in line with reduced energy prices.

Overall market better

“The entire market did well,” another trader said, “even energy, with oil prices down on the day.”

“There was a firmer tone to the market today,” the first trader agreed, “with definitely better buyers than sellers. The sellers are waiting for their price [to go a little higher], the buyers are stepping in and looking to capture some of the lower levels. So there’s a kind of dance going on.”

Among the non-energy names seen doing better, wireless provider Sprint Corp.’s 6% notes due 2016 ended 1½ points better at 104¾ bid, while automotive lender and on-line banking concern Ally Financial’s 8% bonds due 2031 gained 1¼ points to end at 127¾ bid.

Indicators mixed on day, week

Statistical indicators of junk market performance turned mixed on Friday, after having been higher across the board for two consecutive sessions before that.

They were also mixed versus where they had ended up the previous Friday, Jan. 2, their second straight mixed week after two straight weeks before that of having been higher all around week over week.

The KDP High Yield Daily Index rose by 2 basis points to 70.75, its third straight gain. On Thursday, it had jumped by 34 bps.

Its yield came in by 2 bps to 5.59%, its third consecutive narrowing. On Thursday, it had tightened by 11 bps.

But while modestly better on the session, those levels compare unfavorably with the 70.82 index reading and 5.56% yield recorded last Friday.

The Markit Series 23 CDX North American High Yield Index was down 3/32 point on the day Friday to finish at 105 19/32 bid, 105 5/8 offered, its first loss after two straight gains before that. On Thursday, it had risen by 7/32 point.

The CDX index was down from the previous Friday’s 106 1/32 bid, 106 1/16 offered.

However, the Merrill Lynch U.S. High Yield Master II Index posted its third successive advance on Friday, gaining 0.125%, on top of Thursday’s 0.407% rise.

That raised its year-to-date return to 0.234%, its high point for the year so far, from Thursday’s 0.108%.

It was also well up from its low for the year – a 0.59% cumulative loss, the biggest since October of 2011 – which had been recorded on Tuesday.

In 2014, the index had finished out having returned 2.503% on the year – well below its peak level for the year of 5.847%, recorded on Sept. 1.

For the week, the index rose by 0.212%- its fourth straight weekly gain.

During the week ended Jan. 2, it had risen by 0.123%, finishing with a year-to-date return of 0.022%

The Finra/Bloomberg U.S .High Yield Index volume fell to $3.731 billion on Friday from $4.752 billion at the close on Thursday.

© 2015 Prospect News.
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