No pricings; Hill-Rom shops eight-year offering; market awaits likely KIK Custom, Oneok deals

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 – The high-yield primary market saw its third consecutive session without any new dollar-denominated, fully junk-rated offerings from domestic or industrialized-country borrowers being priced.

But syndicate sources on Monday said that as many as three pricings might potentially take place during Tuesday’s session.

They noted the rollout on Monday of Chicago-based medical technology company Hill-Rom Holdings Inc.’s $425 million eight-year offering, which was shopped to investors via a conference call, with whispers about its likely yield level subsequently heard.

Besides that relatively quick deal, two other potential transactions already on the forward calendar from last week were also expected to get done during Tuesday’s session.

Price talk emerged on Canadian pool maintenance, household and personal care products provider KIK Custom Products Inc.’s $390 million offering of eight-year notes, which will come to market via a special-purpose financing vehicle, Kronos Acquisition Holdings Inc.

Meanwhile, Oneok Inc., a Tulsa, Okla.-based natural gas company, is expected to wrap up its roadshow for its $500 million of eight-year notes on Tuesday, with pricing expected any time thereafter.

The syndicate sources and other observers, while acknowledging the possibility that an opportunistically timed drive-by offering could always get slipped in, were mostly convinced that the going will be slow from here on during the market’s run-up to the Labor Day holiday break – three weeks from now.

In the secondary market, flows were again described as light.

Recent issues such as cereal maker Post Holdings, Inc.’s $1.2 billion two-part offering were seen continuing to hold around the levels at which they had finished on Friday.

Traders saw energy names such as California Resources Corp.’s paper lower amid the continued slide in crude oil prices, which neared their six-and-a-half-year low during the session.

Statistical measures of junk market performance were mixed for a third straight session.

Hill-Rom whispered 5¾% to 6%

No new issues priced during the quiet Monday session.

News volume in the primary market came in a trickle.

Hill-Rom Holdings is whispering its $425 million offering of eight-year senior notes (B1/BB-) to yield 5¾% to 6%, according to a market source.

That whisper comes slightly tight to earlier guidance in the high 5% to low 6% context.

The acquisition financing deal rolled out on a late Monday morning investor call and is expected to price on Tuesday.

Goldman Sachs & Co. is the left bookrunner. J.P. Morgan Securities LLC, BofA Merrill Lynch and PNC Capital Markets are the joint bookrunners.

KIK talk, covenant tweaks

Meanwhile KIK Custom Products talked its $390 million offering of eight-year senior notes (Caa2/CCC) to price at a discount with an all-in yield of 10½%.

Talk comes 100 basis points wide of initial guidance in the mid-9% context, market sources say.

Books are scheduled to close at 2 p.m. ET Tuesday.

The buyout deal ran an investor roadshow that wrapped up Friday.

In addition to price talk, covenant changes also surfaced on Monday.

These changes include revisions to the restricted payments and permitted liens covenants in addition to changes in the covenant package's definitions of total consolidated debt, secured debt and fixed charge coverage ratio. Also, language in the change-of-control provision was broadened.

Joint bookrunner Barclays will bill and deliver. BMO Securities, Nomura and Macquarie Capital are also joint bookrunners.

Only one other deal is on the active forward calendar: Oneok is scheduled to wrap up its roadshow and price its $500 million eight-year senior bullet notes (Ba1/BB+) on Tuesday. Citigroup Global Markets Inc. has the books.

Sources continue to forecast slow going in the primary market during the run-up to the Labor Day holiday weekend in the United States, which starts following the Friday, Sept. 4 close.

Mixed flows

The daily cash flows of the dedicated high-yield funds were mixed on Friday, the most recent session for which data was available at press time, according to a trader.

High-yield exchange-traded funds saw $96 million of inflows on the day.

Asset managers sustained $90 million of outflows on Friday.

Quiet week seen

A trader noted that with only a little over $1 billion expected to be priced either Tuesday or the rest of the week – barring an opportunistically timed and quickly marketed drive-by deal – “it’s really not a big calendar.”

That was having a carryover effect into the secondary realm, he said, remarking on the “pretty quiet” level of activity.

Post, other recent deals steady

Among recently priced offerings, Post’s 7¾% notes due March 2024 were seen by a trader during the morning around 102½ bid, 102¾ offered, while its 8% notes due 2025 were at 102 3/8 bid, 103 1/8 offered, which he called down slightly on both halves of that deal.

Later on in the day, a trader saw both tranches “relatively unchanged” at 102½ bid on the 8.5-year notes and 102½ bid, 102¾ offered on the 10-year paper.

Another trader quoted the 7¾% notes at 102½ bid, which he called down 3/8 point. With over $13 million traded, those bonds were around the busiest purely junk credit of the day.

The St. Louis-based breakfast cereal producer had priced $800 million of the 8.5-year notes and $400 million of the 10-year notes, each at par, in a regularly scheduled $1.2 billion forward calendar transaction on Wednesday. Due to having hit the tape late in the day, little initial aftermarket action was seen on Wednesday, with the heavy trading held off till Thursday, when both tranches had shot up to around the 102½ bid level, with over $78 million of the 7¾% notes and over $35 million of the 8% notes having changed hands at that time. Friday’s activity had been considerably more muted with neither credit on the Junkbondland list of most active issues.

Among other recently priced new deals, New York-based business software provider Infor (US), Inc.’s 5¾% first-lien senior secured notes due 2020 edged up by 1/8 point on the day, a trader said, seeing the bonds at 100 1/8 bid, 100 5/8 offered

That quickly shopped $500 million deal had priced last Tuesday at 99 to yield 5.986% after the issue was upsized from an originally planned $400 million.

Traders saw the bonds having moved up to around a 99 5/8-to-100 1/8 level around the middle of the week, continuing to firm to around par bid, 100½ offered as the week came to a close.

Both halves of last week’s other megadeal, Owens-Illinois, Inc.’s two tranches of paper totaling $1 billion, were trading north of the 101 bid level on Monday.

A trader pegged its 5 7/8% notes due 2023 at 101 bid, 102 offered and its 6 3/8% notes due 2025 at 101¼ bid, 102¼ offered.

Both had gone home on Friday around 101 bid.

The Perrysburg, Ohio-based glass bottle maker’s billion-dollar two-part offering last Tuesday consisted of $700 million of the 5 7/8% notes, which priced at 99.219 to yield 6%, and $300 million of the 6 3/8% notes, which priced at par in a quick-to-market transaction via the company’s Owens-Brockway Glass Container Inc. subsidiary.

When the bonds were freed for aftermarket dealings on Wednesday, a trader saw both tranches around a 100 3/8-to-100 7/8 bid context, with over $40 million of the 10-years changing hands. They had stayed around those levels on Thursday but were being quoted better by Friday and again on Monday.

Energy weakness continues

Away from the new-deal world, a trader said that “the energy E&P space was weaker on the heels of oil trading below $42.”

Front-month West Texas Intermediate crude oil, the benchmark U.S. grade, slid by 63 cents per barrel, or 1.5%, on the day to settle at $41.87 per barrel on the New York Mercantile Exchange and touched an intraday low of $41.64; that was just a little above Friday’s intraday low of $41.35, the lowest level seen since March 2009.

Commodities traders noted the continued economic slowdown in China as well as signs of slowing demand in Japan, the world’s No. 2 and No. 3 consumers of oil, respectively, behind the United States.

Among the energy names seen off on the day was sector bellwether California Resources’ 6% notes due 2024. The trader said that the Los Angeles-based exploration and production company’s notes had slipped to a 74-to-74½ context on Monday, calling that down 1 point from Friday’s levels.

At another desk, a trader located those bonds at 73¾ bid, 74¾ offered, calling them down ¾ point from Friday’s better levels.

A trader saw Oklahoma City-based oiler SandRidge Energy, Inc.’s 8¾% notes due 2020 at 67¼ bid, calling them down 1¼ point, on busy volume of around $10 million.

Those notes, and other paper in the company’s capital structure, had jumped on Friday – the 8¾% notes by as much as 2 points on heavy trading of over $43 million – after the company said that it was repurchasing $250 million of bond debt and would exchange new convertible notes for another $275 million of outstanding bonds.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a third straight session. They had turned mixed on Thursday and stayed there Friday and again on Monday after having been lower across the board last Tuesday and again on Wednesday.

The KDP High Yield Daily index was unchanged at 68.38 on Monday after having posted gains of 9 basis points on Thursday and 7 bps on Friday; before that, it had suffered six straight losses and eight losses out of the prior nine sessions.

Its yield, meanwhile, rose by 1 bp on Monday, ending at 6.23%, after having tightened by 3 bps on both Thursday and on Friday, which had been its first such narrowings after two straight sessions before that in which the yield had risen and four such widenings in the previous five sessions.

The Markit Series 24 CDX North American High Yield index dipped by 3/32 point on the day Monday to close at 104 7/8 bid, 104 15/16 offered; on Friday, it had edged up by 1/32 point on the day following three straight downturns before that. The index has now been on the downside in four sessions out of the last five and seven sessions out of the last 10.

But the Merrill Lynch North American Master II High Yield index moved up by 0.008% on Monday after having ended down 0.025% on Friday. The rise was its second in the last three sessions, although over the longer term, it still has now been down nine times in the past 11 sessions.

Monday’s gain raised the index’s year-to-date return a bit to 0.452% from 0.444% on Friday, though it remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 2015 Prospect News.
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