Junk primary calms as Virgin Australia, HC2 Holdings price; recent deals active; market easier

By Paul Deckelman and Paul A. Harris

New York, Nov. 13 – The high-yield primary market calmed down considerably on Thursday following Wednesday’s frenetic multi-billion-dollar session.

Syndicate sources reported that there were just two small-to-medium-sized pricings on the day, both of them regularly scheduled forward-calendar offerings.

Airline operator Virgin Australia Holdings Ltd. came to market with a $300 million issue of five-year notes, which were quoted a little higher when they reached the aftermarket.

HC2 Holdings, Inc., a diversified holding company, did a $250 million issue of five-year secured notes that were seen having moved up after pricing at a discount to par.

The day’s $550 million of new dollar-denominated, fully junk-rated paper in two tranches was a marked comedown from Wednesday, when some $2.7 billion of new high-yield notes had come to market in six tranches, all of them quickly shopped drive-by transactions.

Several of Wednesday’s offerings were seen by traders to have been among the most active Junkbondland credits, including SM Energy Co., Ally Financial Inc. and Solera Holdings, Inc.

There was also brisk trading in other recently priced offerings, including SuperValu, Inc., DISH DBS Corp. and Sealed Air Corp.

Overall, traders said the market seemed listless. Energy names came under renewed pressure amid continued weak oil prices.

Statistical indicators of junk market performance were meantime lower for a second consecutive session on Thursday. They had turned southward on Wednesday after having been mixed over the previous four sessions.

But another statistical measure – high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – saw a fourth consecutive week of sizable inflows of investor cash. Some $890 million more came into those funds than left them during the week ended Wednesday, pushing the year-to-date net inflow total to just over $1 billion.

Virgin Australia bullet

A comparatively quiet Thursday session saw two single-tranche deals clear the dollar-denominated market. The combined take was $550 million.

Both deals came at the conclusions of roadshows.

Virgin Australia Holdings priced a $300 million issue of non-callable five-year senior notes (B3/B-/) at par to yield 8½%, on top of yield talk.

Goldman Sachs was the sole bookrunner.

The Brisbane, Australia-based airline plans to use the proceeds to build additional dollar-denominated liquidity and meet its dollar-denominated financing obligations.

HC2 at a discount

HC2 Holdings priced a $250 million issue of 11% five-year senior secured notes (Caa1/B) at 99.05 to yield 11¼%.

The yield printed 12.5 basis points beyond the wide end of yield talk in the 11% area.

Jefferies was the bookrunner.

The Herndon, Va., diversified holding company plans to use the proceeds to refinance debt issued in connection with the purchases of shares in Global Marine, Schuff and Novatel.

Scientific Games sets talk

Looking to the Friday session, Scientific Games International Inc. set price talk in its $2.9 billion two-part offering of notes on Thursday.

A $700 million tranche of seven-year senior secured notes (Ba3/BB-) is talked to yield 7% to 7¼%, on top of early guidance, sources said.

A $2.2 billion tranche of eight-year senior unsecured notes (Caa1/B) is talked with a 10% coupon at a discount to yield 11¾% to 12%. Yield talk on the unsecured tranche comes dramatically wider than early guidance of 9½% to 10%, according to sources.

The unsecured tranche widened so dramatically due to selling in the Scientific Games existing 6 5/8% senior subordinated notes due May 15, 2021 and the 6¼% senior subordinated notes due Sept. 1, 2020, sources said Thursday.

The 6 5/8% notes were lately seen at 74 bid, and the 6¼% notes were 78 bid, according to a buyside source who looked at the new deal and passed.

The existing notes sustained price drops because they will take a back seat to the new senior unsecured notes on the company's capital structure, said the buysider, who added that the prices on the subordinated notes imply yields in the 11½% to 12½% range.

As prices on the existing subordinated notes dropped, talk on the proposed senior unsecured notes widened, the source added.

Books on the new Scientific Games two-part deal close at 11 a.m. ET on Friday, and the deal is set to price on Friday afternoon.

J.P. Morgan, BofA Merrill Lynch, Deutsche Bank, Fifth Third Bank, HSBC and PNC are the joint bookrunners.

Proceeds will be used to help fund the acquisition of Bally Technologies Inc.

Multi-Color starts roadshow

Multi-Color Corp. began a roadshow on Thursday for a $250 million offering of eight-year senior notes (B2/B+).

The debt refinancing deal is expected to price in the week ahead.

BofA Merrill Lynch, JPMorgan and BMO Securities are the joint bookrunners.

Waste Italia atop revised talk

In the European primary market, Waste Italia SpA priced a €200 million issue of 10½% five-year senior secured notes (B2//B-) at 92.294 to yield 12 5/8%.

The coupon, price and yield came in line with revised talk that set out a 10½% coupon at 92.29 to yield 12 5/8%. Earlier talk also specified a 10½% coupon at an issue price of 94.5.

Jefferies ran the books.

Proceeds will be used to repay debt, to fund acquisitions and for general corporate purposes.

HC2, Virgin deals seen firmer

In the secondary market, traders saw some activity in the day’s new dollar-denominated deals from HC2 Holdings and Virgin Australia Holdings.

A trader called HC2’s 11% senior secured notes due 2019 “a small deal” at $250 million.

“Just a couple of million [dollars of bonds] traded,” he said, quoting the notes at 99¼ bid, par offered.

That was up marginally from their issue price at 99.05, yielding 11¼%.

The trader also saw the Virgin Australia 8½% notes due 2019 at 100½ bid, 101 offered, up from the par price at which that $300 million of paper had priced.

A second trader meantime pegged the airline operator’s bonds in a 100¼-to-101 context.

Wednesday deals trade actively

Several of the new issues that priced on Wednesday were seen among the more actively traded high-yield credits on Thursday.

SM Energy’s 6 1/8% notes due 2022 racked up more than $56 million in trades on Thursday, a market source said, quoting the Denver-based oil and natural gas exploration and production company’s notes at 100 3/8 bid, calling them down 1/8 point. A second trader saw the bonds at 100¼ bid, 100½ offered.

The company had priced $600 million of the notes at par after having upsized the deal from an originally announced $400 million.

Ally Financial’s 3¾% notes due 2019 were 1/8 point easier, one of the traders said, seeing the bonds at 99 7/8 bid. He saw more than $46 million of the notes having been traded.

A second trader saw them at 98 7/8 bid, 99 1/8 offered.

At another desk, the bonds were being quoted as low as 98¾ bid, 99 1/8 offered, with a trader quoting them down ¾ point.

Ally, a Detroit-based automotive lender and online banking operator, priced $800 million of the notes on Wednesday at 99.1 to yield 3.95%. The notes initially traded up around 99½ to 99¾ when they were freed for secondary activity but had come off those highs by Thursday.

More than $14 million of Solera Holdings’ 6 1/8% notes due 2023 were seen having traded on Thursday, around 105 bid.

Another trader saw the bonds at 105 bid, 105 3/8 offered, up from the 104.5 level at which the $225 million of notes had priced as an add-on to the company’s existing notes.

The Westlake, Texas-based provider of software and services to the automotive insurance claims industry also priced a $175 million add-on to its existing 6% notes due 2021 on Wednesday. Those bonds came to market at 104.5 to yield 5.18%. A trader saw them at 105 bid, while another sent them home at 105 bid, 105 3/8 offered.

A trader looking over a list of Wednesday’s bond pricings said that “the first couple of companies [a reference to SM Holdings and Ally] traded about $40 to $50 million, while the others were knocking down $5-to-$10 million.”

Recent deals busy

Among some of the deals that priced earlier in the week, SuperValu’s 7¾% notes due 2022 were the most active, with a market source seeing more than $24 million of those bonds trading.

He quoted them down about ½ point, at just over 99½ bid.

A second trader located the bonds at 99¼ bid, 99¾ offered, calling then down ¾ point on the day.

The Eden Prairie, Minn.-based supermarket chain operator and wholesale grocery distributor priced a quickly shopped $350 million of the notes at par on Monday; they initially traded up to 100¾ bid, 101¼ offered before coming off those highs later in the week.

DISH DBS’s 5 7/8% notes due 2024were seen off by 3/8 point at 100 1/8 bid on volume of more than $15 million.

A second trader also saw the Englewood, Colo.-based satellite television broadcasting company’s notes off 3/8 point, estimating them at 99 5/8 bid, 100 1/8 offered.

But another trader had them unchanged at 100¼ bid, 100 5/8 offered.

DISH priced $2 billion of those notes in a radically upsized quick-to-market transaction last Wednesday. The bonds came to market at par after the deal was upsized from an originally announced $1.25 billion.

Another busy recently priced name was Sealed Air, whose 4 7/8% notes due 2022 traded at 99 7/8 bid, down 3/8 point on the day, a market source said, on volume of over $11 million.

The Elmwood Park, N.J.-based manufacturer of plastic packaging products for the food, pharmaceutical and medical products industries priced $425 million of those notes at par last Friday, along with a $425 million tranche of 5 1/8% notes due 2024, which also priced at par.

Both tranches traded above that par issue price on Friday and again earlier this week before starting to soften after that to current levels.

Energy names pressured

Away from the new deals, traders saw energy names remaining under pressure linked to weak oil prices.

The day’s most actively traded junk credit – Los Angeles-based energy E&P operator California Resources Corp.’s 6% notes due 2024 – lost 2½ points on the session to close at 97½ bid on volume of more than $82 million.

Its 5½% notes due 2021 were likewise down a deuce at 97 3/8 bid, with more than $15 million having changed hands.

A trader said that “we continued to watch oil [prices] go down. If it gets down to the $60 [per barrel] area, it could have an impact on a good part of the high-yield market.”

Indicators are lower

Statistical indicators of junk market performance were meantime lower for a second consecutive session on Thursday. They had turned southward on Wednesday after having been mixed over the previous four sessions.

The KDP High Yield Daily index was unchanged on the day, closing at 72.34; on Wednesday it had fallen by 12 bps after having eased by 1 bp on Friday and again on Monday. The index was not published on Tuesday due to the Veterans Day holiday observance.

Its yield rose by 2 bps to 5.3% after two consecutive sessions of having narrowed – by 1 bp on Wednesday and by 3 bps on Monday – even though the overall index was lower both of those days, which would normally push the yield higher rather than lower.

The Markit CDX North American High Yield Series 23 index posted its third consecutive loss on Thursday, declining by 5/32 point to close at 106 15/16 bid, 107 offered. It had eased by 1/16 point on Wednesday and was also marginally lower on Tuesday, when it was published despite the holiday, after having risen by 3/16 on Monday.

The Merrill Lynch U.S. High Yield Master II index was off for a second successive session on Thursday, edging downward by 0.08%; on Wednesday, it had dropped by 0.017%, its first loss after three straight gains.

The loss lowered its year-to-date return to 4.582% from Wednesday’s 4.666%. It also remained well down from its peak level for the year of 5.847%, recorded on Sept. 1.

According to the FINRA-Bloomberg Active US High Yield Bond index, Thursday’s junk market volume fell to $3.261 billion from Wednesday’s $3.64 billion total.

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