Gibson Energy add-on prices; iStar, Gates Global, Chesapeake oilfield services unit slate deals

By Paul Deckelman and Paul A. Harris

New York, June 9 – The new week opened on a quiet note on Monday with just one smallish dollar-denominated junk bond offer coming to market during the session – a quickly shopped add-on to an existing Gibson Energy Inc. issue, part of a larger two-part transaction that also included a Canadian-dollar tranche.

However, high-yield syndicate sources said that that Junkbondland’s forward calendar was shaping up notably on Monday, with a trio of new dollar deals being shopped around, including megadeal-sized offerings from New York-based real estate finance and investment company iStar Financial Inc. and from Gates Global LLC, the latter deal in support of the pending leveraged buyout of the Denver-based industrial manufacturer by the Blackstone Group LP.

Sources also heard that Chesapeake Energy Corp.’s soon-to-be spun off oilfield services unit will be offering an eight-year deal, expected to price later in the week.

Traders said there was just a little bit of aftermarket activity going on in recently priced new deals, including Friday’s offering from alternative financial services provider DFC Global Corp. and Thursday’s issues from paper packaging manufacturer Cascades Inc. and natural gas pipeline operator Southern Star Central Corp.

And they saw little real conviction in dealings in the non-new-deal segment of the market.

However, statistical market performance indicators were higher for a third straight session on Monday. They had also firmed on Thursday and Friday, after having turned mixed last Tuesday and Wednesday.

Gibson dual-currency deal

Gibson Energy priced $350 million equivalent of senior notes (Ba3/BB) in a quick-to-market two-part transaction.

The deal included a $50 million add-on to the company's 6¾% senior notes due July 15, 2021, which priced at 108.00 to yield 4.942%. The reoffer price came on top of price talk.

In addition, Gibson Energy priced a C$300 million tranche of 5 3/8% eight-year notes at par to yield 5.374%. The yield printed in the middle of the 5¼% to 5½% yield talk.

Global coordinator RBC will bill and deliver. BMO was also a global coordinator, J.P. Morgan and Citigroup were joint bookrunners.

The Calgary, Alta.-based independent midstream operator plans to use the proceeds to fully repay its revolver, excluding its letters of credit, as well as to fund capital expenditures and for general corporate purposes.

iStar $1.23 billion

The forward calendar saw a sizable buildup on Monday. iStar Financial plans to price $1.32 billion of senior notes (expected ratings B3/B+) in two tranches on Wednesday

The public offer is comprised of 3.5-year notes and five-year notes. Tranche sizes remain to be determined.

BofA Merrill Lynch, Barclays and J.P. Morgan are the joint bookrunners for the debt refinancing.

Gates Global $1.37 billion

Gates Global LLC and Gates Global Co. began a roadshow on Monday in New York for a $1,365,000,000 equivalent offering of eight-year senior notes (Caa2/B).

The deal is coming in a $1.04 billion dollar-denominated tranche and a $325 million equivalent (approximately €235 million) euro-denominated tranche.

Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS and Macquarie are the joint bookrunners for the acquisition financing.

Seventy Seven eight-years

Seventy Seven Energy Inc., the entity created by the spinoff of Chesapeake Oilfield Operating, LLC's oilfield services business, plans to price a $500 million offering of eight-year senior notes (expected B2).

BofA Merrill Lynch, Morgan Stanley and Wells Fargo are the joint bookrunners.

The Oklahoma City-based oilfield services company plans to use the proceeds to make a cash distribution to COS Holdings, LLC, the direct parent, repay all debt outstanding under the new revolver to be entered into in connection with the spinoff and for general corporate purposes.

Selecta starts roadshow

There was also news from the European primary market on Monday.

Selecta Group BV plans to start a roadshow on Tuesday for a €550 million-equivalent offering of senior secured notes due 2020 (expected ratings B2/B+).

The two-part deal is expected to come in the form of a €350 million minimum tranche and a Swiss franc-denominated tranche, the size of which remains to be determined.

The roadshow wraps up on Friday, and the deal is set to price thereafter.

Joint bookrunner Goldman Sachs International will bill and deliver. BNP Paribas is also a joint bookrunner.

The Cham, Switzerland-based provider of vending equipment and services plans to use the proceeds to refinance debt.

Bibby Offshore sterling deal

Bibby Offshore Holdings Ltd. plans to price a £175 million offering of seven-year senior secured notes (B2/B+) on Friday.

The deal comes with preliminary guidance in mid-7% to 8% yield range.

Credit Suisse is the bookrunner.

Proceeds will used to repay debt, fund a dividend to the parent company, fund capital expenditures and provide working capital.

The prospective issuer is a Westhill, Aberdeenshire, United Kingdom-based provider of subsea construction, repair and maintenance services to the international oil and gas industry.

Recent bonds little seen

In the secondary market, traders reported a generally quiet day, with several saying that they had not even seen much activity in recently priced new issues.

One, for instance, opined: “It looks like we haven’t seen anything since Friday” in the most recent junk bond deal to come to market. The upsized $800 million offering from Berwyn, Pa.-based alternative financial services provider DFC Global, which priced those 10½% senior secured notes due 2020 at par on Friday via its DFC Finance Corp. subsidiary, upsized the issue from an originally announced $500 million and dropping a planned sterling-denominated tranche.

The bonds had firmed to levels above 101 bid in their initial aftermarket dealings later Friday.

A second trader also said that there was “little to no secondary” in recently priced issues, including the DFC issue.

However, at another desk, a trader did quote those bonds ¼ of a point higher on the day, at 101 3/8 bid, 10 7/8 offered, while a market source at yet another shop pegged the bonds in a 101 to 101½ context.

The first trader also said that he saw no activity in several other new deals he listed, such as

• Irving, Texas based arts and crafts supply retailer Michaels Stores Inc.’s quick-to-market $250 million add-on to its existing 5 7/8% senior subordinated notes due 2020, which priced on Thursday at 102 to yield 5.505%;

• Quebec-based paper packaging and tissue products producer Cascades’ 5½% notes due 2022, an upsized $550 million of which came to market Thursday at par in a drive-by deal which then barely managed to stay above their issue price; and

• Owensboro, Ky.-based interstate natural gas pipeline operator Southern Star Central, whose $450 million of 5 1/8% notes due 2022 priced at par on Thursday off the forward calendar and then traded up to a 101¼ –to-101½ bid context in the aftermarket.

“It looked like nothing was going on in anything,” he declared.

Yet another trader, though, did quote the Southern Star bonds at 101½ bid, 102 offered, which he called a ¼-point gain. He saw the Cascades paper at 100¼ bid, 100½ offered, considering that toe be about unchanged.

A trader said that he had potential buyers interested in the new Ardagh Finance Holdings SA 8 5/8% notes due 2019, which he quoted as being “stuck” in a 101 7/8 to 102 1/8 context, but lamented that while “everybody says that they’re too rich, nobody will sell.”

The company, a financial subsidiary of Dublin, Ireland-based metal and glass packaging products maker Ardagh Group, priced $710 million of those notes on Thursday at 99, with the new paper quickly moving to levels above 101½ bid when they were freed for aftermarket activity.

Going back a little further, a market source saw Advanced Micro Devices, Inc.’s new 7% notes due 2024 down¾ point, at 101 bid, 102 offered. The Sunnyvale, Calif.-based semiconductor manufacturer priced $500 million of the notes at par in a quick-to-market transaction last Monday, after the deal was upsized from an originally announced $400 million.

The new bonds got as good as a 101¾ to 102 bid context in dealings late last week.

New deal-linked bonds active

While the recent new deals themselves didn’t seem to be moving around much in the view of the traders, there was some activity sighted in the bonds of companies that are bringing new deals, or which have recently priced them.

For instance, a trader noted that DFC’s existing 10 3/8% notes due 2016 were trading around a 105¾ to 105 7/8 bid range, about unchanged, on volume of over $10 million, making them one of the more active junk issues of the day.

He surmised that the bonds were trading as yield-to-call paper, noting that the bonds are being taken out as part of the pending acquisition of the company by an affiliate of Lone Star Funds – a transaction partially financed by the new bond issue.

Another relatively active name was Hillman Group Inc.’s 10 7/8% notes due 2018. A market source said that about $9 million of those bonds changed hands on Monday just a touch below the 106 bid level.

The Cincinnati-based supplier of fasteners, key duplication systems, engraved tags and related hardware items is currently shopping a proposed $270 million issue of eight-year notes around to potential investors via a roadshow that started Monday, with pricing expected on or about Thursday.

Proceeds are slated to help fund the leveraged buyout of the company by CCMP Capital Advisors LLC from Oak Hill Capital Partners, as well as to repay bank debt and redeem the existing 10 7/8% paper.

Chesapeake Energy’s existing 6 5/8% notes due 2020 were seen up ¼ of a point on Monday, at 116 bid, even as its oilfield services unit began marketing its $5000 million bond deal to investors to help finance the coming spinoff.

Meanwhile, that planned spinoff transaction received the approval on Monday of Chesapeake’s board of directors, who said that current Chesapeake shareholders as of the June 19 record date will receive one share of the new Seventy Seven Energy for every 14 Chesapeake shares they hold, with the distribution slated to take place after the close of business on June 30.

Michaels Stores’ 7¾% notes due 2018 gained ¼ of a point, to 106¼ bid.

Crossover deals dominate

But other high-yield activity was mostly pretty spotty during Monday’s quiet session.

A trader said that among the few junk bonds moving around, Fort Worth, Texas-based energy operator Quicksilver Resources Inc.’s 9 1/8% notes due 2019 were down by ½ of a point at 94 ¼ bid, on volume of over $11 million, while New York-based media company IAC/Interactive Corp.’s 4 7/8% notes due 2022 lost 3/8 of a point to end at 98½ bid, also on volume of over $11 million.

Heinz Group Inc.’s 4¼% notes due 2020 traded around 100½ bid, little changed on the day, with over $11 million having changed hands.

“They’ve started buying Heinz again,” a trader said, noting that the Pittsburgh-based food company’s bonds “hadn’t seen par since their issue.”

But apart from such relatively active junk credits, the first trader said, “It was all pretty much crossover names” dominating the most-actives list.

A second trader agreed, noting the heavy presence on the actives list of subordinated notes and preferred issues from nominally investment-grade-rated financial powerhouses like J.P Morgan, Goldman Sachs and Lloyds, all of whose 2049 paper traded briskly, on volume of over $23 million, or $9 million and $19 million, respectively.

Almost all of the dealings in such paper, he said came from “I-G guys and crossover guys,” lured into “dropping down the capital structure” into BB territory.

“This stuff is all yielding anywhere between 4% and 6¼%, so they’re not worried about the duration – they’re just putting the stuff on their books and trying to keep on going.”

Indicators up on day

Statistical junk performance indicators were seen by market sources as mostly higher for a third consecutive session on Monday.

The Markit Series 22 index was virtually unchanged on Monday at 109 bid, 109 1/16 offered, after having risen by 11/32 of a point on Friday, its second straight gain.

The KDP High Yield Daily index firmed by 5 basis points on the day to close at 74.96, its second rise in a row, after having edged upward by 1 bp on Friday. Its yield at Monday’s close was 5.06% after having come in by 2 bps for a second consecutive session. Before that, it had been unchanged for two successive sessions.

The widely followed Merrill Lynch High Yield Master II index saw its fourth consecutive gain on Monday, improving by 0.121%, on top of the 0.148% rise recorded on Friday.

Monday’s advance lifted the index’s year-to-date return to 5.162%, its third straight new 2014 peak level, surpassing the previous high point of 5.035%, which had been seen on Friday, the first time the index had finished above the psychologically significant 5% mark this year. It had ended 2013 at 7.419%.

Several index components set new marks for the year on Monday. The average price for issues covered by the index rose to a third consecutive new high for the year of 105.6719, up from the old mark of 105.6011 set on Friday.

The yield fell to a second straight new low for the year at 5.002%, down from the previous nadir the year of 5.031%, set on Friday.

And its spread to worst narrowed to 369 basis points over comparable Treasury issues, a second successive new tight level for the year, versus the previous tight level of 373 bps, set on Friday.

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