Junk primary returns with nearly $8 billion session, including giant-sized Sprint two-part deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 4. - If there were any doubt that the high-yield primary market was all the way back after a long absence, it was put to rest on Wednesday as almost $8 billion of new dollar-denominated, junk-rated paper came to market in five quickly shopped tranches - including one of the biggest junk deals on record.

Sprint Corp. - the successor entity to the old Sprint Nextel Corp., following its sale of majority control to Japanese wireless company Softbank Corp. in July - came to market with a hugely upsized $6.5 billion two-part issue of eight- and 10-year notes.

The behemoth of a bond deal was easily the biggest transaction seen so far this year in Junkbondland, eclipsing the $3.5 billion multi-tranche deals that priced on March 8 from MetroPCS Wireless, Inc. and on March 20 from Intelsat (Luxembourg) SA, a subsidiary of Intelsat SA. In fact, it was the single-biggest junk deal since the latter's predecessor company, Intelsat Ltd., did a $7.08 billion multi-part deal in June 2008.

The Sprint megadeal on steroids overshadowed the day's other issues, all of which also emerged as opportunistically timed quick-to-market transactions by issuers sensing that the time to get their deals done - finally - was right.

These included automotive and residential lender and online banking firm Ally Financial Inc., which brought $750 million of five-year guaranteed notes; natural gas processor and transporter Regency Energy Partners LP, doing a downsized $400 million of seven-year paper; and packaging maker Silgan Holdings Inc. got the ball rolling with a $300 million issue of 8.5-year notes.

Only the Silgan and the Ally deals were priced in time for any kind of aftermarket activity, and traders saw both pretty much staying around their respective issue prices.

Overall, traders saw a generally firmer high-yield market, with accounts looking to put stockpiled cash to work.

Statistical indicators of market performance were seen higher across the board for a second consecutive session.

Sprint prints $6.5 billion junk

A roaring Wednesday primary market session saw four issuers raise $7.6 billion with a combined five junk tranches.

Of that amount, $6.5 billion came in a massively upsized two-part senior notes deal (B1/BB-/B+) from Sprint Corp.

The deal included $2.25 billion of eight-year notes which priced at par to yield 7¼%, on top of yield talk.

The long tranche came as a $4.25 billion issue of 10-year notes which priced at par to yield 7 7/8%, on top of final price talk. Initial guidance on the 10-year notes was 7¾%.

Early Wednesday morning the market heard of a $2 billion deal split evenly between the two tranches. By mid-afternoon those tranche sizes had doubled, before increasing to the final $6.5 billion deal size.

It was the biggest deal to clear the market since Intelsat priced $7.1 billion in three tranches in 2008, according to a sell-side source.

J.P. Morgan Securities LLC, Deutshe Bank Securities Inc., BofA Merrill Lynch, Citigroup Global Markets, Credit Agricole, Credit Suisse (USA) LLC, Goldman Sachs & Co. and RBC Capital Markets were the joint bookrunners for the quick-to-market deal.

The telecommunications company plans to use the proceeds for general corporate purposes.

Ally at a discount

Ally Financial priced an upsized $750 million issue of 4 ¾% non-callable five-year senior guaranteed notes (B1/B+/BB-) at 99.123 to yield 4.95%.

The yield came slightly lower that yield talk that had been set at 5%. The deal was increased from $500 million.

BofA Merrill Lynch, Citigroup Global Markets, Deutsche Bank Securities Inc. and RBC Capital Markets were the joint bookrunners for the public offering which was run on the investment-grade desks.

The financial services company plans to use the proceeds to repay debt.

Regency Energy downsizes

Regency Energy Partners priced a downsized $400 million issue of non-callable seven-year senior notes (B1/BB) at par to yield 5¾% on Wednesday, according to a market source.

The quick-to-market deal was reduced from $500 million.

The yield printed at the wide end of yield talk set in the 5 5/8% area.

RBS Securities, BBVA, Comerica, Deutsche Bank Securities Inc., Morgan Stanley & Co., Natixis, RBC Capital Markets, and Scotia Capital were the joint bookrunners.

The Dallas-based master limited partnership plans to use the proceeds to repay revolver debt.

Regency Energy Partners is engaged in the gathering and processing, compression, treating and transportation of natural gas and the transportation, fractionation and storage of natural gas liquids. Its general partner is owned by Energy Transfer Equity, LP.

Silgan comes on top talk

Silgan Holdings priced a $300 million issue of senior notes due Feb. 1, 2022 (Ba2/BB-) at par to yield 5½% on Wednesday, according to a syndicate source.

The yield printed on top of yield talk.

BofA Merrill Lynch was the left bookrunner for the quick-to-market deal. Wells Fargo Securities LLC, Citigroup Global Markets, Goldman Sachs & Co. and Deutsche Bank Securities Inc. were the joint bookrunners.

The Stamford, Conn.-based manufacturer of packaging for folds and consumer goods plans to use the proceeds to repay debt under its revolver.

The ice is broken

A trader noted that Wednesday was "the first time in a while" that the junk market had seen any new paper - for all intents and purposes, the last actual deal that had gotten done and had circulated around the market was the upsized $600 million issue from St. Louis-based thermal coal operator Foresight Energy LLC, which had priced at 99.276 to yield 8% all the way back on Aug. 16.

In the interim, junk denizens had only seen a handful of deals from European issuers - a Norwegian kroner-denominated offing last Tuesday from energy marine transportation provider Teekay LNG Partners LP, a dollar-denominated offering of hybrid Tier 1 notes from French banking firm Societe Generale last Thursday, and Tuesday's smallish euro-denominated issue from Dutch sporting goods and apparel manufacturer Head NV. None of those issues traded in the regular domestic junk market.

Silgan, Ally deals near issue

Among the deals which priced on Wednesday, two different traders said they had only seen levels in the Silgan Holdings and Ally Financial transactions.

One saw Silgan's 5½% notes due 2022 trading at 99¾ bid, 100¼ offered, after having priced at par, while the second noted the new issue at 99 7/8 bid 100 1/8 offered.

The new 4¾% notes due 2018 from Detroit-based lender and online banking concern Ally Financial - the company formerly known as GMAC - were seen by one of the traders at 99 1/8 bid, 99 3/8 offered, while the other pegged them at 98 7/8 bid, 99 1/8 offered, little changed from their discounted 99.123 issue price.

The new deals from Regency Energy Partners and from Overland Park, Kan.-based Sprint, the third-largest U.S. wireless provider, appeared too late in the session for any kind of aftermarket activity.

Market heats up

After a two-week hiatus during which the primary market was essentially comatose and the secondary not much better unless it came to news-related activity in a specific name, a trader said that things were starting to pick up, activity-wise.

"We saw some decent activity out of the ETFs [exchange-traded funds]. There were offers wanted early in the day, and there was one ETF that was blowing out of some paper, so it was a kind of back-and-forth thing. Late in the afternoon, there were buyers and sellers

"It was a pretty active day after 1 o'clock [ET]. The last three hours have been active. Until then, it was dead.

"Generally, the market feels okay."

Syria a factor?

One of the factors which had been overhanging the financial markets generally, including junk, has been the worsening situation in Syria, including the possibility of Western military action, led by the United States.

One trader called the situation "ridiculous, overall, with the tension rising on Syria," although he noted that those global jitters were pushing the world price of oil up, "and that's been good for the E&Ps" - the oil and natural gas exploration and production companies, which benefit from any spike in oil prices.

The first trader, however opined that "we're getting the sense that this Syrian thing is a non-event - they're not going to ever come to any consensus [in Congress] on this, and maybe that was the president's plan all along - throw it to Congress and let them turn it into hash, and nothing's going to happen."

But he allowed that Syria could still turn into "a wild card. If they decide they will bomb Syria, - all bets are off."

He further said that one Washington development that could be a real factor in market behavior would be the August job-creation figures the Labor Department is scheduled to release on Friday, which could signal which way the Federal Reserve will move on finally beginning the long-feared tapering off of its quantitative easing program. A strong number would probably set the tapering into motion later this year, while a weak number might cause the central bank to hold off so as not to further weaken the still-fragile economy, the trader concluded.

Market indicators turn mixed

Statistical junk market performance indicators turned mixed on Wednesday, after having been higher across the board on Tuesday.

The Markit Series 20 CDX North American High Yield Index gained 3/32 point on Wednesday to close at 103 4 1/8 bid, 104 3/16 offered, its second consecutive gain. On Tuesday, it was up by 3/16 point.

The KDP High Yield Daily index was up by 1 basis point on Wednesday to finish at 73.20, its fourth straight gain. It had advanced by 4 bps on Tuesday.

Its yield meanwhile came in by 1 bp on Wednesday to 6.28%, its fourth consecutive decline. The yield had also gone down by 1 bp on both Friday and Tuesday.

And the widely followed Merrill Lynch High Yield Master II index lost 0.048% on Wednesday, after having risen by 0.094% on Tuesday, which had been its fourth consecutive gain.

The loss dropped the index's year-to-date return to 2.857% from Tuesday's level of 2.906%. Those returns remained well down from the index's peak level for the year so far of 5.835%, recorded on May 9, though they were still up solidly from its 2013 low point of 0.384%, set on June 25.

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