Upsized Sealed Air drive-by, Blue Racer, Essar price to close $8 billion week; new Omnicare higher

By Paul Deckelman and Paul A. Harris

New York, Nov. 7 – The first week of November came to a close in Junkbondland with a flurry of activity the brought $1.775 billion of new paper to market in four tranches.

That was up from the $1.17 billion of new dollar-denominated, fully junk-rated bonds from domestic or developed-country issuers that got done on Thursday, according to data compiled by Prospect News.

Sealed Air Corp., an Elmwood Park, N.J.-based producer of specialty packaging for the food processing and medical products industries, priced a quickly shopped, upsized $850 million two-part issue consisting of eight-year and 10-year notes, high-yield syndicate sources said. Traders saw both tranches of the new notes having firmed when they hit the aftermarket.

There was also a pair of scheduled forward calendar transactions. Earlier in the day, Blue Racer Midstream, LLC, a Dallas-based midstream energy company, came to market with an upsized $550 million of eight-year notes. That paper was seen firmer in secondary dealings.

Then later on, Canadian metals producer Essar Steel Algoma did an upsized $375 million of five-year senior secured notes, which were not seen in any immediate aftermarket activity.

The day’s deals capped off a week in which $8.01 billion of new paper priced in 17 tranches, according to the Prospect News data, up from the $6.8 billion that got done in nine tranches the week before, ended Oct. 31.

The week’s new issuance, in turn, raised the year-to-date tally of new junk bonds to $286.13 billion in 531 tranches, running just under 3% ahead of the pace seen in 2013, a near-record year for new issuance. Some $277.88 billion of new junk paper had priced in 584 tranches by this point on the calendar last year.

Traders meantime said that Thursday’s two-part offering from pharmaceutical services provider Omnicare, Inc. was doing well in the aftermarket, with both its eight-year and 10-year notes heard to have firmed smartly, in heavy trading.

Away from the deals that have actually priced, primaryside sources said that Greystar Real Estate Partners, LLC began shopping a new $250 million offering of eight-year bonds around, with pricing expected later next week.

Away from the new deals, traders said that the market tone was generally better, buoyed by sizable cash inflows reported on Thursday, although the beleaguered energy sector remains under pressure.

Statistical market performance measures ended mixed for a second consecutive session on Friday, and they ended mixed versus where they had finished out the previous Friday for a second consecutive week.

Sealed Air upsizes

Three issuers priced a total of four dollar-denominated tranches of junk bonds on Friday to raise $1.78 billion.

All of Friday’s issuers upsized their deals.

Executions appeared tight, with one of Friday’s four tranches pricing inside of talk, two pricing at the tight end of talk and the fourth coming on top of talk.

Sealed Air priced an upsized $850 million two-part offering of non-callable senior notes (B1/BB) in the day’s only drive-by.

The debt refinancing deal was increased from $750 million.

It included $425 million of eight-year notes that priced at par to yield 4 7/8%, at the tight end of the 4 7/8% to 5% yield talk.

In addition Sealed Air priced $425 million of 10-year notes that priced at par to yield 5 1/8%. The yield printed at the tight end of the 5 1/8% to 5¼% yield talk.

J.P. Morgan and BofA Merrill Lynch were the lead bookrunners for both tranches.

Joint bookrunners for the eight-year notes are Morgan Stanley, SunTrust and Wells Fargo.

Joint bookrunners for the 10-year notes are HSBC, Morgan Stanley and RBS.

Upsized Blue Racer beats talk

Blue Racer Midstream launched and priced an upsized $550 million issue of 6 1/8% eight-year senior notes (B3/B) at 98.451 to yield 6 3/8%.

The deal was increased from $400 million.

The yield printed 12.5 basis points below the tight end of the 6½% to 6¾% yield talk.

Wells Fargo, RBS, Barclays, Comerica, RBC, SunTrust and U.S. Bancorp were the joint bookrunners.

The company, a Dallas-based midstream energy company, will use the deal proceeds to repay existing revolving credit facility borrowings, to fund continued expansion and for general corporate purposes.

Essar Steel upsizes

Essar Steel Algoma priced an upsized $375 million issue of five-year senior secured notes (Ba3/B+) at par to yield 9½%, according to a market source who added that the notes were 101 ½ bid, 102 offered at the dealer.

The issue came at a bigger size than the $350 million originally announced.

The yield printed on top of yield talk. The reoffer price came rich to price talk which had specified a discount.

Deutsche Bank was the left bookrunner. Goldman Sachs and Jefferies LLC were the joint bookrunners.

The issuer also placed $249 million of 14% junior secured PIK notes due 2021 (B3/B-) with holders of the company’s existing unsecured notes. That tranche was reduced from $275 million. No further terms on the PIK notes had been circulated on by press time on Friday.

Greystar to bring notes

In the week ahead, Greystar Real Estate Partners is expected to price a $250 million offering of eight-year senior notes on Thursday.

An investor conference call was held on Friday.

J.P. Morgan is leading the deal.

The Charleston S.C.-based provider of multifamily property management, development, and investment services plans to use the proceeds to refinance debt, fund equity recapitalization and for general corporate purposes.

Greystar was Friday’s sole new deal announcement.

However the coming week figures to be a busy one, with a $4.5 billion calendar of deals expected to clear by Friday’s close

Scientific Games Corp. is in the market with the biggest offering: $2.9 billion in two tranches.

The acquisition deal features $700 million of seven-year senior secured notes (Ba3/BB-) and $2.2 billion of eight-year senior unsecured notes (Caa1/B).

An investor who took a look – and will pass – said that the secured notes were being discussed in a 7% to 7¼% yield context while the unsecured notes were discussed in a 9½% to 10% yield context. The deal is expected to price late in the week.

There are also deals which earlier in the Nov. 3 week had been expected to clear the market before Friday’s close, although neither terms nor official price talk had circulated, sources said.

These include Canbriam Energy Inc.’s $250 million of seven-year senior notes (CCC+/) via Credit Suisse, BMO, RBC and Barclays.

Presently it is not particularly easy going for issuers with exposure to energy and commodities, an investor remarked Friday, adding that yield discussions on Canbriam had taken place at 10% to 10½%.

Kemet Corp. is marketing $400 million of five-year senior secured notes (existing: Caa1/B) via BofA Merrill Lynch.

Yield discussions have ranged from the mid-8% range to 9%-plus, according to a buyside source who added that the dealer may still be in the process of building a book.

Also Optima Specialty Steel, Inc. is in the market with a $300 million offering of five-year senior secured notes (B3/B), via left bookrunner Deutsche Bank and joint bookrunner Jefferies.

Alliance Automotive talk

In the European primary market Alliance Automotive Group talked the floating-rate tranche of its €325 million two-part offering of seven-year senior secured notes (expected ratings B2/B+) with a 550 basis points spread to Euribor including a 1% Euribor floor.

Talk on the fixed-rate notes is expected in the week ahead.

The roadshow wraps up on Wednesday and the deal is set to price after.

Joint bookrunner Credit Suisse will bill and deliver. UBS and Royal Bank of Scotland are also joint bookrunners.

Robust flows

The market appears to be in good shape, at least as far as the technical picture goes, a buyside source said on Friday.

Thursday’s news that dedicated high-yield funds saw $2.224 billion of net inflows for the week to Wednesday’s close is an indicator, the source added.

That figure included a whopping $1.75 billion inflow to actively managed funds on Wednesday, the final day of the reporting period, according to the source who added that it was the year’s biggest daily inflow.

Cash flows remained net positive on Thursday, the first day of the new reporting period, with actively managed funds seeing $350 million of inflows.

However high-yield exchange-traded funds saw $110 million of outflows on Thursday, the source added.

Sealed Air solid

In the secondary market, traders saw the new Sealed Air notes having firmed after pricing at par.

One saw both the 4 7/8% notes due 2022 and the 5 1/8% notes due 2024 in a context of 100 1/8 to 100¼, while a second pegged the 4 7/8s around 100 1/8 bid, while seeing the 5 1/8s at par bid, 100¼ offered.

But at another desk, a trader saw both new issues having moved up to between 100½ and 101½.

In a Friday research note, senior analyst Kim Noland of the independent advisory service Gimme Credit said that the company “is working its way back from two unfortunate acquisitions” – its 1998 acquisition of the Cryovac food packaging division from W.R. Grace for $4.9 billion and its 2011 purchase of Diversey Holdings, Inc., a maker of cleaning and hygiene products, for $4.3 billion.

Noland said that the company had made the last settlement payment of almost $1 billion on the Cryovac transaction, and “is finally turning around the Diversey business. We look for stable to slowly improving margins and credit measures.”

Blue Racer runs up

A trader saw Blue Racer Midstream’s 6 1/8% notes due 2022 firmer at 100¾ bid, 101¼ offered, well up from the 98.451 level at which the midstream energy operator’s upsized offering had priced earlier in the session.

A second trader saw the bonds as good as 101¼ bid, 101¾ offered.

Traders meantime said they did not see any immediate aftermarket dealings in Sault Ste. Marie, Ont.-based metals manufacturer Essar Steel Algoma’s new 9½% senior secured notes due 2019 after their par pricing.

Omnicare busy and better

The busiest junk name on Friday was Omnicare, after the Cincinnati-based pharmaceutical services company’s $700 million two-part pricing during Thursday’s session.

“Omni did really well,” one junk trader enthused,” quoting both tranches of the paper trading between 101¼ and 101½ bid.

Another market source estimated that at mid-afternoon Friday, more than $60 million of its new 4¾% notes due 2022 had traded, with the bonds firming 101 bid, up from the par level at which that $400 million tranche had priced.

He saw its 5% notes due 2024 101½ bid, on mid-afternoon volume of more than $49 million. That $300 million tranche of bonds had priced at par. Both tranches came to market too late in the session Thursday for any real aftermarket dealings at that time, a trader said.

DISH holds gains

A trader said that “DISH was hanging on,” quoting Englewood, Colo.-based satellite broadcaster DISH DBS Corp.’s 5 7/8% notes due 2024 at 100 7/8 bid, 101 1/8 offered.

That $2 billion drive-by issue had priced at par late in the day on Wednesday and was freed for secondary dealings on Thursday when it zoomed to a 101 to 101 3/8 bid context on very heavy volume in excess of $185 million.

On Friday, the bonds remained busy, a market source said, although nowhere near the trading pace set on Thursday. He saw about $25 million had changed hands, with the notes going home around 101, off about 1/8 point on the day.

Market better, except for energy

Away from the new or recent issues, a trader said that Friday’s session was characterized by “pretty light flows – but the market had a good tone.”

But he said that “the energy credits continue to struggle.”

However, he noted that recently hard-hit oil prices “were starting to even out, so we did see some of the energy names improve,” such as Houston-based oil and gas operator Halcon Resources, whose 9¾% notes due 2020 gained 2½ points on the day to end at 83½ bid.

Nonetheless, he said, “the sector is still pretty beat up.”

A second trader agreed that the exploration and production sector “remains negative – but that’s the way the world is.”

Overall, though, he said that “the market feels like it’s turning around” after several recent weekly inflows of fresh cash from investors.

“People want to get back into the game.”

Apart from the still underperforming oils “everything else is looking up.”

Indicators stay mixed

Statistical indicators of junk market performance were mixed for a second consecutive session on Friday. They had turned mixed on Thursday after having been stronger across the board on Wednesday and lower all around on Tuesday.

The market signposts meanwhile were mixed versus where they had closed at the end of the previous week on Friday, Oct. 31, their second successive mixed week.

The KDP High Yield Daily Index eased by 1 basis point on Friday to end at 72.47, after having risen by 8 bps on Thursday, its second straight gain.

Its yield rose by 3 bps on Friday to 5.32%, after having come in by 2 bps on Thursday, its second consecutive decline.

Friday’s levels compare unfavorably with the 72.48 index reading and 5.28% yield recorded last Friday.

The Markit CDX North American High Yield Series 23 index ended off by 1/32 point on Friday at 107 bid, 107 1/32 offered, after having improved by 1/8 point on Thursday, its second straight rise.

But the index closed the week up slightly from the previous Friday’s 106 31/32 bid, 107 offered reading.

The Merrill Lynch U.S. High Yield Master II Index advanced by 0.013% on Friday, versus Thursday’s 0.02% downturn. On Wednesday, it had risen by 0.079%, part of a recently choppy pattern of alternating gains and losses.

The latest rise lifted the index’s year-to-date return to 4.637% from Thursday’s 4.624% close, although it remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

The index lost 0.142% on the week, its first weekly loss after three straight weeks before that on the upside, including the 0.073% gain seen in the Oct. 31 week, which had left the year-to-date return at 4.786%.

The index has now finished higher in 32 weeks out of the 45 since the beginning of the year, with 13 weeks on the downside.

According to the FINRA-Bloomberg Active US High Yield Bond Index, Friday’s junk market volume slid to $2.352 billion from $3.506 billion on Thursday.

© 2015 Prospect News.
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