Service Corp. add-on, upsized MSCI drive by to open week; energy names mixed; quiet market seen

By Paul Deckelman and Paul A. Harris

New York, Aug. 10 – The high-yield primary opened the new week on Monday with a pair of opportunistically timed and quickly marketed pricings that totaled $1.1 billion.

There had been no new dollar-denominated, fully junk-rated issues priced by domestic or industrialized country issuers on Friday, while Thursday had seen $437 million of such paper get done in two tranches.

The big deal of the day came from financial research services provider MSCI Inc., which did an upsized $800 million of new 10-year notes.

Also during the session, there was a $300 million add-on deal from Service Corp. International, the giant death-care company that investment guru Peter Lynch once waggishly dubbed “McBurial,” likening it to the ubiquitous McDonald’s.

Both of those offerings priced fairly late in the day, and traders reported no immediate aftermarket activity.

They also said that in a generally quiet overall session, there wasn’t too much going on, volume-wise, in issues that had priced last week such as First Data Corp., Vista Outdoor, Inc. and Party City Holdings, Inc.

Away from the new-issue front, a solid rise in crude oil prices on increased Chinese demand did not prove to be of much help to some energy credits, including California Resources Corp. and Linn Energy LLC, but did prove positive for others, such as maritime driller Transocean Ltd., which was also helped by an upgrade in its equity.

Statistical measures of junk market performance turned mixed on Monday after having been lower across the board on both Thursday and Friday; they had been mixed for two straight sessions before that.

MSCI sees big upsize

The drive-by market in the high-yield primary, which resumed last week after being shuttered for half a month, picked up again on Monday with two quick-to-market issuers bringing single tranches to raise a combined total of $1.11 billion.

One deal was upsized, and it priced on top of yield talk. The other, an add-on, priced rich to price talk.

MSCI priced an upsized $800 million issue of 10-year senior notes (Ba2/BB+) at par to yield 5¾%.

The deal size was increased from $500 million.

The yield printed on top of yield talk, according to a trader, who added that early guidance had the notes pricing with a yield in the high 5% context.

J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Goldman Sachs & Co. were joint bookrunners.

The New York-based financial research services provider plans to use the proceeds for general corporate purposes, including the previously announced buybacks of its common stock.

Service taps 5 3/8% notes

Service Corp. International priced a $300 million add-on to its 5 3/8% senior notes due May 15, 2024 at 103.75 to yield 4.719%.

The reoffer price came rich to price talk in the 103.5 area.

Initial price talk was 103 to 103.5, according to a market source.

BofA Merrill Lynch, JPMorgan and Wells Fargo Securities LLC were the joint bookrunners for the debt refinancing deal.

Post plans $1.2 billion

Two brief roadshows were also announced on Monday.

Post Holdings, Inc. plans to participate in investor conference calls on Tuesday and Wednesday.

The St. Louis-based ready-to-eat cereal company is selling $1.2 billion of senior notes (B3/B) in two tranches.

The deal includes $600 million of 8.5-year notes and $600 million of 10-year notes.

Barclays is the lead left bookrunner. Credit Suisse Securities (USA) LLC, Nomura, BMO Securities, Goldman Sachs and SunTrust Robinson Humphrey Inc. are the joint bookrunners.

Proceeds, in conjunction with proceeds from $275 million of new equity, will be used to refinance a portion of Post's existing term loan and for general corporate purposes, which may include potential future acquisitions, working capital and capital expenditures.

In a Monday press release, Post stated that it is taking advantage of current market conditions to increase secured debt capacity, provide flexibility for strategic acquisitions and investment in the business as well as extend its maturity profile and lock in long-term debt with a favorable fixed rate of interest.

Midcontinent dividend deal

Midcontinent Communications began a short roadshow on Monday for a $300 million offering of eight-year senior notes, which is scheduled to price on Tuesday afternoon.

The deal is coming with initial guidance in the high 6% yield context, according to a high-yield bond trader.

SunTrust is the left bookrunner. Wells Fargo and RBC are the joint bookrunners.

The Minneapolis-based company plans to use the proceeds to support a distribution to its shareholders.

Quiet session seen

In the secondary realm, a trader characterized Monday as “a very quiet day.”

After having been whacked around on Friday, he said that the market tried to do a little better, but “the only guys looking for offers were the ETF guys. The traditional [high-yield] guys were sitting on the sidelines. They weren’t necessarily selling – but they weren’t really buying either.”

He said that he “hadn’t really seen any trading at all” in recently priced issues.

For instance, he quoted Vista Outdoor’s 5 7/8% notes due 2023 around 100½ bid, around where the issue had gone home on Friday.

The Clearfield, Utah-based provider of outdoor sports and recreation equipment and supplies priced its regularly scheduled forward calendar offering at par on Thursday after the deal was upsized to $350 million from an original $300 million.

The bonds had firmed solidly to a 100¾-to-101½ context late Thursday on volume of over $17 million but had come off those levels a little in quiet trading on Friday and stayed there on Monday.

The trader also saw First Data’s 5 3/8% first-lien senior secured notes due 2023 around 101 bid, 101½ offered, up around ¼ from the levels where the bonds had traded on Friday.

The Atlanta-based electronic transaction processing company’s massively upsized $1.21 billion, quick-to-market offering priced at par on Wednesday after nearly doubling in size from the originally shopped $675 million. The notes came too late in the day to trade Wednesday, but over $48 million changed hands Thursday, pushing as high as 100¾ bid during the session, levels that the bonds had held on Friday and then had firmed from on Monday.

And he saw Party City’s 6 1/8% notes due 2023 in a 101¼-to-101¾ bid context.

The Elmsford, N.Y.-based party supplies retailing chain had driven by the market on Wednesday with $350 million of those notes, which priced at par and then began firming smartly almost as soon as they began trading, pushing up to 101½ bid as soon as the issue was cleared for aftermarket dealings. More than $38 million traded on Wednesday and over $34 million on Thursday, with the bonds adding a little more to their initial gains and then hanging in around those levels on Friday and again on Monday.

At another desk, a trader saw Party City’s bonds at around 101 bid, 101½ offered, about unchanged on the day.

But he quoted the new Vista Outdoor bonds as having done better, seeing them having gotten as good as 101½ bid during the session.

The second trader also saw continued gains in the new add-on to Mohegan Tribal Gaming Authority’s existing 9¾% notes due 2021, seeing the notes up ¾ point on the session at 104¼ bid, 105 offered.

The Uncasville, Conn.-based Native American tribal operator of the Mohegan Sun gaming resort brought a quickly shopped $85 million add-on to its existing notes to market Thursday at 102.5, yielding 8.977%. No aftermarket was seen at that time, but a trader quoted the bonds around 103½ to 104 on Friday.

Oil hot, but bonds not

Away from the new issues, traders noted the solid gains in oil prices on Monday, helped by a report indicating that Chinese oil purchases will pick up.

The September contract for the benchmark U.S. crude grade, West Texas Intermediate, jumped by $1.09 per barrel in trading on the New York Mercantile Exchange on Monday, ending at $44.96.

However, that solid surge failed to give a lift to many oil and gas industry bonds.

For instance, Los Angeles-based exploration and production operator California Resources’ 6% notes due 2024 were seen going home at 75¾ bid, down ¾ point on the day, a market source said, on volume of over $10 million – relatively quiet for such a normally actively traded issue.

A second trader saw the notes at 75¼ bid, 76¼ offered, which he said was off ½ point on the day.

Houston-based oil and gas name Linn Energy’s 8 5/8% notes due 2020 went home at 49½ bid, down 1 5/8 point on the day.

Fort Worth-based oiler Range Resources Corp.’s 5% notes due 2022 eased by ¼ point to 93¾ bid, with about $10 million of the notes traded.

Its 5¾% notes due 2021 backtracked nearly three points, ending at 97½ bid.

RIG wins big

Amidst the general downturn in energy-related credits, maritime oil and gas driller Transocean’s bonds showed strength on Monday. Its 6 7/8% notes due 2021 were seen having gained more than ½ point to close at 83 bid, a trader said, on volume of more than $16 million.

He said the company’s 5.55% notes due 2016 gained 3/8 point to end at 101 7/8 bid, on volume of some $12 million.

The Switzerland-based company got a vote of confidence on Monday from Jefferies & Co., which upgraded its shares to “hold” from “underperform” while also raising its price target for the shares to $13 from $12.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Monday after having been lower across the board on both Thursday and Friday; they had been mixed for two straight sessions before that.

The KDP High Yield Daily index eased by 1 basis point to end at 68.84, its fourth successive loss and its sixth such downturn in the last seven sessions. The index had plunged by 25 bps on Friday on top of Thursday’s 19-bps slide.

Its yield, meanwhile, was unchanged on Monday at 6.07% after having risen by 7 bps on Thursday and then another 9 bps on Friday.

But the Markit Series 24 CDX North American High Yield index finished up by 9/32 point on Monday at 105½ bid, 105 17/32 offered – its first gain coming off of two straight losses and three losses in the last five sessions, including Friday’s 11/32 point downturn.

However, the Merrill Lynch North American Master II High Yield index suffered its sixth straight loss on Monday, dropping by 0.04% on top of Friday’s 0.34% retreat.

Monday’s loss lowered the index’s year-to-date return to 1.006% from 1.046% on Friday. It was the index’s lowest level since Feb. 2, when it closed at 0.723%.

Those levels also remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Several other index components also posted setbacks, bringing them to their worst levels of the year so far.

The index’s yield to worst rose to a new 2015 high of 7.139% on Monday, its second straight rise, from the previous zenith of 7.118%, set just last Friday.

Its spread to worst versus comparable Treasury issues tightened by 1 bp to 559 bps after having widened by 11 bps on Friday to a new high point for the year of 560 bps, up from the previous wide of 558 bps seen on July 27.

And its average price of the components listed within fell to a second consecutive new low for the year of 96.171.54, down from 96.26659 on Friday, which in turn was down from the prior low of 96.28829, also set on July 27.

© 2015 Prospect News.
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