Michaels Stores, Talen Energy price; LSC Communications tanks; Sprint trades down

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 21 – The domestic high-yield primary market rounded out an active week with two new deals pricing.

Michaels Stores, Inc. priced a $500 million issue of eight-year senior notes (B1/B) at par to yield 8%.

The deal was heard to be facing headwinds but was able to clear the market after widening price talk and revising covenants.

Talen Energy Supply, LLC priced a $470 million issue of 8.5-year senior secured notes (Ba3/BB) at par to yield 6 5/8% in a Friday drive-by.

Despite an active week that saw more than $7 billion price, the calendar remained robust heading into the June 24 week.

Hexion Inc., Sirius Computer Solutions, Inc., Allied Universal Holdco LLC, and Avon Products, Inc. are all expected to price offerings in the coming week.

Meanwhile, trading volume in the secondary space slowed down as the market cooled after a midweek rally that buoyed the overall market.

The deals to price over the past week faded from focus as headlines pushed outstanding issuances into the spotlight.

The theme in the headlines that moved the market on Friday – the U.S. Department of Justice and its decisions, or lack thereof, on mergers and acquisitions – explained the day’s trading.

LSC Communications Inc.’s 8¾% senior notes due 2023 tanked in high-volume activity on Friday after the DOJ filed suit to block Quad/Graphics Inc.’s acquisition of the commercial printing company.

Sprint Corp.’s junk bonds were trading down as the Department of Justice’s decision regarding its merger with T-Mobile, which was expected by Friday, was delayed until next week.

Sprint’s bonds were trading up throughout the week in anticipation of the decision.

Michaels Stores prices

On Friday, Michaels Stores priced a $500 million issue of eight-year senior notes (B1/B) at par to yield 8%.

The yield printed in the middle of yield talk in the 8% area but well wide of initial talk in the low 7% area. There were also covenant changes.

BofA Securities Inc., Barclays, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC are the joint bookrunners.

The Irving, Tex.-based craft store chain plans to use the proceeds, together with cash on hand, to redeem its 5 7/8% senior subordinated notes due 2020.

Talen Energy drives through

In Friday drive-by action, Talen Energy Supply priced a $470 million issue of 8.5-year senior secured notes (Ba3/BB) at par to yield 6 5/8%.

Initial guidance had the debt refinancing deal coming with a yield in the high 6% to 7% area.

JPMorgan was the lead.

The week ahead

The June 24 week is apt to be a busy one, according to market sources.

JPMorgan could bring as many as four drive-by deals on Monday, an investor said.

The week will also get underway with a substantial active calendar.

Hexion is in the market with a $450 million offering of eight-year senior notes (Ba3/B-). The roadshow runs through Monday. Initial talk is 8% to 8¼%.

Sirius Computer Solutions is on the road with an offering for $300 million eight-year notes (Caa1/CCC+) through Tuesday. Early talk is in the 10% area.

Allied Universal Holdco is in the market with $1.55 billion of notes in two tranches.

The deal features $500 million seven-year secured notes with early guidance of 6¾% to 7%, and $1.05 billion eight-year unsecured notes guided to come 250 to 300 basis points behind the secured notes.

The roadshow is scheduled to conclude on Wednesday.

Avon Products is expected to price a $350 million add-on to its 7 7/8% senior secured notes due Aug. 15, 2022 during the June 24 week.

Details, including syndicate names, remain to be announced. Early guidance is for a yield of 6¾% to 7%.

LSC tanks

LSC Communications’ 8¾% senior notes due 2023 tanked on Friday after the DOJ filed an antitrust lawsuit to block Quad/Graphics’ acquisition of the company.

The 8¾% bonds dropped 11 points to 94 in the midafternoon with more than $36 million in reported volume.

The bonds were previously trading in the 105 range, a range they had been in since November when the acquisition was announced.

The 8¾% notes had leveled off at their takeout price, a source said.

However, now that the acquisition is in jeopardy, the notes were trading down to their previous level.

The DOJ filed an antitrust lawsuit claiming Quad/Graphics’ acquisition of LSC Communications would stifle competition in magazine, catalog, and book printing services, of which the two companies are the primary providers.

The $1.4 billion all-stock acquisition was scheduled to close in mid-2019.

Quad announced its intention to fight the DOJ’s decision.

Sprint trades down

Sprint’s junk bonds were again in focus.

However, this time they were trading down as the DOJ was reported to have delayed its decision on the wireless telecommunications service provider’s merger with T-Mobile.

The capital structure was, in general, down between 1 and 3 points.

Sprint’s 7 1/8% senior notes due 2024 dropped 1 point to 106 1/8, according to a market source.

More than $13 million of the bonds were on the tape by the late afternoon.

The 7 7/8% senior notes due 2023 were down 1 1/8 points to 108 7/8.

The 7 5/8% senior notes due 2026 were down 2¾ points to 106½.

The notes were steadily making gains throughout the week with headlines reporting that a DOJ decision regarding the merger was near at hand.

However, the notes gave back the majority of those gains on Friday.

In addition to the DOJ delaying its decision, the attorneys general of four more states joined the lawsuit attempting to block the Sprint/T-Mobile merger.

The attorneys general of nine states and the District of Columbia filed a lawsuit in mid-June to block the merger claiming it would stifle competition and cause consumer costs to surge.

Big ETF inflows continue

In another indication of a vigorous appetite for risk among junk bond investors, high-yield ETFs saw another massive daily inflow of cash, $1.165 billion, on Thursday, according to a market source.

That daily inflow follows the slightly more modest, but nevertheless massive, $872 million of inflows which the high-yield ETFs saw on Wednesday.

Actively managed high-yield funds saw $35 million of inflows on Thursday, the source said.

News of Thursday's daily flows trails a late Thursday afternoon report that the combined funds saw $602 million net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

Indexes mixed

Indexes were mixed at Friday’s close although all posted cumulative gains on the week.

The KDP High Yield Daily index gained another 6 basis points to close Friday at 70.85 with the yield now 5.46%.

The index was up 40 bps on Thursday, 10 bps on Wednesday and 8 bps on Tuesday but shaved off 1 bp on Monday. The index was up 63 bps on the week.

The ICE BofAML US High Yield index rose another 10.5 bps with the year-to-date return now 10.137%.

The index gained 54.9 bps on Thursday, 16.3 bps on Wednesday, and 34.1 bps on Tuesday after shaving off 2.1 bps on Monday.

The index saw cumulative gains of 113.7 bps on the week.

The index shot past 10% returns on Thursday after crossing the 9% threshold as recently as Tuesday.

The index initially crossed the 9% threshold on June 11 only to fall below it the following day.

The CDX High Yield 30 index dropped 16 bps to close Friday at 107.64.

The index gained 41 bps on Thursday, 50 bps on Wednesday and 70 bps on Tuesday after dropping 8 bps on Monday.

The index gained 153 bps on the week.

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