Scotts ends pricing drought, but SunOpta scrubbed; bonds up broadly; Chemours off on verdict

By Paul Deckelman and Paul A. Harris

New York, Oct. 7 – The high-yield market saw another day of strong gains on Wednesday, its third in a row on that score.

And the primary arena came back to life as lawn-care products maker Scotts Miracle-Gro Co. came to market with an upsized $400 million offering of eight-year notes. That drive-by transaction was the first such pricing seen in Junkbondland since Sept. 25, when Altice NV and Cablevision Systems Corp. did a $6.6 billion three-part behemoth of a bond deal to finance the latter company’s pending acquisition by the former and Olin Corp. joined in with its own $1.22 billion two-part megadeal.

But while the opportunistically timed and quickly shopped Scotts deal successfully took advantage of this week’s so far improved tone in the junk precincts, another would-be issuer remained wary. Syndicate sources said late in the day that SunOpta Foods Inc. had pulled its $330 million offering of seven-year secured notes, which had been expected to price on Wednesday.

But that negative note was of not much interest to most junk market participants on Wednesday, as traders saw a broad range of bonds riding the solid momentum generated over the past two sessions and mostly moving higher.

These included recently priced offerings such as the aforementioned Cablevision and Olin bonds and Frontier Communications Corp.’s three-part offering from earlier in September as well as established telecommunications credits like Sprint Corp. and energy names such as California Resources Corp.

One notable exception to the day’s bond bonanza was Chemours Co. Bonds of that chemical company, which was spun off into an independent entity earlier this year by industry giant DuPont, retreated in active trading on the news that a federal jury had ruled against DuPont in a suit brought by a woman who claimed that its dumping of a toxic chemical into the Ohio River had given her kidney cancer, the first of what is expected to be over 3,000 such lawsuits. Chemours is legally on the hook for the damages because it now owns the plant where the chemical was produced.

Statistical measures of junk market performance turned higher across the board on Wednesday after having been mixed on Tuesday. It was the second higher session in the last three and the third higher session in the last six trading days.

Scotts upsized and tight

Wednesday's primary market session saw the first dollar-denominated junk deal in eight sessions clear the market.

And although the primary market has, for all practical purposes, been shuttered in the interim, Wednesday's deal appeared to go very well, sources say.

Scotts Miracle-Gro priced an upsized $400 million issue of eight-year senior notes (B1/B+) at par to yield 6% in a Wednesday drive-by.

The deal size was increased from $300 million.

The yield printed at the tight end of the 6% to 6¼% yield talk.

At the close of books the deal was heard to be playing to $2.5 billion of orders, according to a trader.

BofA Merrill Lynch was the left bookrunner for the debt refinancing deal. J.P. Morgan Securities LLC and Wells Fargo Securities LLC were the joint bookrunners.

Will there be follow-through?

In the wake of Wednesday's successful Scotts Miracle-Gro deal expectations were taking shape that the primary market would return to action, sources said.

Dealers might not want to announce roadshow deals on Thursday or Friday ahead of the extended Columbus Day holiday weekend, which gets underway following Friday's close, a trader said.

Nevertheless, junk’s performance has been respectable or better through the first half of the present week.

In addition, there are some deals in the pipeline that need to get done. And dealers are expected to take advantage of any window of stability that opens, sources say.

One such deal is Concordia Healthcare Corp.'s expected $890 million of senior notes to help fund its acquisition of Amdipharm Mercury Ltd. from Cinven.

However, the bond deal, to be led by Goldman Sachs & Co., is facing some headwinds because it is bridged with a loan that is capped at 9½%, according to a portfolio manager.

It is not likely that Concordia could get a deal done at or below that cap at present, seeing as how its 7% senior notes due April 2023 were trading at 84¾ bid, 85¾ offered on Wednesday, the manager said, adding that the price implied a 10% yield.

Part of Concordia’s problem is the hammering that biotechnology has taken with respect to possible pricing standards that could arise from the Trans-Pacific Partnership trade agreement and threats from the U.S. Congress to investigate recent conspicuous drug price increases, a trader said on Wednesday.

The Concordia 7% notes were trading around par in the middle of September, the trader said.

GM Financial split-rated deal

In crossover action, General Motors Financial Co., Inc. sold $1.75 billion of senior notes (Ba1/BBB-/BBB-) on Wednesday in fixed- and floating-rate tranches due 2019.

There was $1.5 billion of 3.1% notes due 2019 sold at 99.954 to yield 3.116%, or Treasuries plus 220 basis points.

Pricing was in line with guidance set at Treasuries plus 220 bps, tightened from talk in the Treasuries plus 240 bps area.

A $250 million floating-rate tranche sold at par to yield Libor plus 206 bps.

The notes sold on top of guidance. Initial talk was set at the Libor equivalent to the fixed-rate tranche.

BofA Merrill Lynch, Deutsche Bank Securities Inc., JPMorgan, Lloyds Securities and Societe Generale CIB ran the books.

SunOpta postpones

Elsewhere in the Wednesday new issue market, SunOpta Foods pulled its $330 million offering of senior secured second-lien notes due 2022 (B3/B) due to market conditions.

The acquisition deal was talked at a discount to yield 10% on Tuesday. (See related story in this issue.)

When the rumors that the prospective new deal had been spiked began making the rounds of the market, a trader said, “I wouldn’t be totally surprised, being that that sort of thing has been happening.

“So it wouldn’t be a shock in the environment that we’ve seen recently.”

Fund flows

High-yield exchange-traded funds saw a whopping $1.02 billion of inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

However, the Tuesday flows of the dedicated high-yield funds were mixed, with asset managers sustaining $35 million of outflows on the session.

One of the secondary traders, meanwhile, said that “money had been going out of the market late last week, and definitely yesterday [Tuesday] and today, money’s been coming back in to the market.”

He suggested that assuming the flows hold up, “it should be a fairly decent positive number [Thursday] night. We’ll see.”

Scotts bonds unseen

Traders did not report any initial aftermarket activity in the new Scotts Miracle-Gro 6% notes due 2023, given the relative lateness of the hour at which the Marysville, Ohio-based lawn-care products manufacturer’s upsized quick-to-market offering priced.

A trader, looking over the particulars of the Scotts deal, suggested that “it should be a safer deal and should be well-received.”

Recent deals keep climbing

Turning to the recently strong performance of new deals that had just priced a couple of weeks ago in September, one of the traders agreed with the assessment that those deals lately had been “going great guns. They’ve been up points every day.”

For instance, he saw the 10 7/8% notes due 2025 issued by Neptune Finco Corp. and CSC Holdings LLC, financing vehicles for Luxembourg-based cable operator Altice’s more than $17 billion acquisition of Bethpage, N.Y.-based sector peer Cablevision, having pushed up to 105¾ bid from 104½ on Tuesday.

“The whole [Cablevision capital] structure was better.”

At another desk, a trader said that those bonds were the busiest bonds of the day, with over $66 million having changed hands. He saw those bonds going home at 105½ bid, up 1 point on the day.

Its 10 1/8% notes due 2023 gained more than ½ point to end at 104½ bid, on volume of over $47 million. And its 6 5/8% senior guaranteed 10-year bonds firmed to 103 bid, up 1/8 point, on volume of more than $21 million having changed hands.

The first trader said that “it was the same thing” with Stamford, Conn.-based wireline telecom company Frontier Communications’ 11% notes due 2025, trading at 100¾, up from Tuesday’s late par-to-100¼ bid level, although he had seen them at one point Wednesday trading around 102 bid, “so they kind of pulled back a little bit.”

Another trader saw those bonds finishing just under 101, calling that a gain of nearly 1 point, with over $62 million traded.

Clayton, Mo.-based chemical and ammunition manufacturer Olin’s 9¾% notes due 2023 pushed up by nearly 1 5/8 points on Wednesday, ending at 106 3/8 bid, on volume of over $21 million.

Broader market does well

Away from the new deals, a trader declared that “the telecom space has been outperforming, and it did that again today.”

For instance, Overland Park, Kan.-based wireless operator Sprint’s 7 7/8% notes due 2023 gained 1¼ points on the day to end at 88¼ bid, with over $27 million of those bonds having traded, while its 7 5/8% notes due 2025 went home 1 point better at 85¼ bid, on volume of over $24 million.

He said that “for the most part, the chemical space was up today as well,” notably Oklahoma City-based pigments manufacturer Tronox, Ltd.’s 7½% notes due 2022, which soared by 5½ point to end at 64½ bid, with over $27 million traded.

In the energy exploration and production space, he said, “I saw names printing 2 to 3 points higher when oil was rallying,” although he saw those credits give back at least some of those gains and “pull back a little” later in the day as oil prices came off their peak levels.

At another desk, a second trader agreed that “the market was like a bubble today – a lot of it went up” but gave some of that back later on.

For example, he said, Energy XXI (Bermuda) Ltd.’s bonds “were up big time.”

He saw the oil and natural gas company’s 11% notes due 2020 “up big time.”

Noting that those bonds had finished at around 52 bid on Tuesday, he saw them push as high as 59½ bid on Wednesday, “though then they deflated,” going back down to around the 54-55½ bid level, before finally trading last around 57½ bid. Over $36 million of those notes traded.

California Resources’ 6% notes due 2024 were seen up around 66¾ bid early in the day before pulling back to end at 66¼ bid – still up nearly 2 points on the day – on volume of over $24 million.

“Today was a very tricky day because a lot of the higher-beta names were up and everything inflated and then it got softer later in the day,” the second trader opined.

He suggested that “before, they were covering shorts, and then some guys decided to take profits.”

However, he said, “from last week to today, bonds are 3 to 5 points [better] across the board.”

Chemours gets clobbered

One of the day’s few downsiders was Wilmington, Del.-based specialty chemicals manufacturing company Chemours.

Its 6 5/8% notes due 2023, which had closed around 69 bid on Tuesday, opened better –at 73 bid – but then things went south, with the bonds ending down 1¼ points from the Tuesday close at 67¾ bid, with over $16 million having traded.

Its 7% notes fell from 68 bid on Tuesday to 65 at Wednesday’s open and from there plunged as low as a 54½-55½ bid context, a trader said, while a second saw them drop to around the 57 level before finally coming off those lows to end at 65½ bid, down 2½ points from the previous close, with over $10 million having traded.

The notes slid after a federal jury in Ohio delivered a $1.6 million verdict against giant chemical manufacturer DuPont, which until July of this year was Chemours’ parent company, in a case revolving around allegations that DuPont had dumped a toxic chemical known as C-8, a key ingredient in making Teflon coatings for cookware and other uses, into the Ohio River from one of its plants in West Virginia, causing a number of people to develop crippling illnesses. The case is one of about 3,500 similar cases filed against DuPont by people claiming to have been sickened by the chemical.

A trader explained that “DuPont was found liable, but the spinoff Chemours,” which now owns the factory where the alleged chemical dumping took place, “will have to bear any cost from the verdict, so Chemours could be facing issues from this class-action suit.”

Indicators improve

Statistical measures of junk market performance turned higher across the board on Wednesday after having been mixed on Tuesday. It was the second higher session in the last three and the third higher session in the last six trading days.

The KDP High Yield Daily index jumped by 58 basis points on Wednesday to finish at 66.80 – its third straight gain and its fourth in the last six session. On Tuesday, the index had shot up by 31 bps.

Its yield narrowed for a third consecutive session and for the fourth time in the last six sessions, coming in by 18 bps to end at 6.66%. On Tuesday, the yield had declined by 8 bps.

The Markit Series 25 CDX North American High Yield index bounced back from Tuesday’s slight (1/32 point) loss, zooming by 29/32 point on Wednesday to end at 101 15/16 bid, 102 1/16 offered. It was the index’s fifth advance in the last six sessions.

The Merrill Lynch North American Master II High Yield index notched its third upturn in a row and its fourth in the last six sessions, gaining 0.774%. It was the biggest single-session gain seen so far this year, surpassing the previous mark of 0.712%, set on Monday. The index had also risen by 0.491% on Tuesday.

Wednesday’s improvement cut its year-to-date loss to 1.14% from 1.899% on Tuesday and from 3.069% on Friday – its biggest cumulative loss for the year so far and its lowest level since Oct. 5, 2011, when the index had shown a 3.834% year-to-date deficit.

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