Giant Sprint deal prices, bonds move up; Diamondback, Enviva also price; funds lose $160 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 21 – The high-yield primary market saw a pair of deals totaling $800 million price on Thursday – but those transactions were overshadowed by an eagerly awaited $3.5 billion offering of five-year secured paper from subsidiaries of wireless service provider Sprint Corp., a week after word of the giant-sized offering first hit the market.

Although the issue is nominally investment-grade rated, it was priced jointly off the junk, investment-grade and structured products desks of the underwriting banks, and traders saw considerable junk activity in the new credit, boosting the notes firmly when they hit the aftermarket.

Elsewhere in Junkbondland were pricings from a pair of more conventional high-yield issuers.

Oil and natural gas operator Diamondback Energy, Inc. did a quick-to-market $500 million of eight-year paper, which was seen trading solidly higher on heavy volume, topping the day’s Most Actives list

Enviva Partners, LP, a producer of wood pellets, rounded out the day’s new-deal activity by pricing $300 million of five-year notes.

Among other recently priced deals, traders saw brisk volume, if not necessarily much price movement, in the new issues from NGLEnergy Partners LP and CNH Industrial NV.

Away from the primary realm, traders said that CF Industries, Inc.’s bonds were attracting more junk investor interest after two out of the three major ratings agencies dropped their ratings on that paper to junk in recent days.

Statistical market performance measures turned mixed on Thursday following two sessions when they were higher across the board on Tuesday and Wednesday. Thursday marked their second mixed session in the last four trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – stayed in negative territory for a second week, again registering a modest net outflow after posting two straight large weekly net inflows before that.

Some $160.056 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the reporting week ended Wednesday, on top of the $72 million cash loss reported last Thursday for the seven-day period ended Oct. 12 (see related story elsewhere in this issue).

Massive demand for Sprint

Although it came with investment-grade ratings, Sprint Spectrum’s $3.5 billion issue of 3.36% five-year senior secured notes (expected ratings Baa2//BBB) cut the highest profile during Thursday’s session in the high-yield primary market.

The deal, which priced at 99.99834 to yield 3 3/8%, played to 400-plus accounts which placed orders for in excess of $30 billion of bonds, sources said.

High-yield and investment-grade accounts were highly active in the name, a New York trader said, as the dust cleared.

Earlier in the day another trader said that some investment-grade accounts backed away because the notes are not expected to be listed in the investment-grade index, possibly for reasons including the “asset-backed-style” structure and the expectation that the deal won’t be rated by Standard & Poor’s.

Allocations were expected to fall short of 20% of order sizes, a high-yield portfolio manager said, shortly after the deal launched.

Some accounts were “expected to get a bullet, meaning zero,” an investment-grade bond trader said.

The deal was launched early Thursday with a 3 3/8% yield and a target price of par.

The yield printed at the tight end of yield talk that had been set in the 3½% area. Early guidance was in the 4% area.

The notes were priced off a $7 billion shelf and came in a joint effort on the part of the high-yield, investment-grade and structured products syndicate desks.

Earlier in the week Sprint consolidated the securitization deal into a single tranche, withdrawing contemplated tranches of seven-year notes and 10-year notes.

Timing was accelerated, as the initial schedule had the roadshow running through the entire Oct. 17 week.

Goldman Sachs was the global coordinator and left lead bookrunner. J.P. Morgan and Mizuho were the joint lead bookrunners.

The issuing entities are Sprint Spectrum Co. LLC, Sprint Spectrum Co. II LLC and Sprint Spectrum Co. III LLC.

Diamondback prices tight

Among Thursday’s speculative grade-rated deals, Diamondback Energy priced a $500 million issue of eight-year senior notes (B2/BB-) at par to yield 4¾%.

The yield printed at the tight end of the 4¾% to 5% yield talk.

JP Morgan ran the books.

The Midland, Texas-based independent oil and natural gas company plans to use the proceeds to repurchase all its outstanding 7 5/8% senior notes due 2021 via a tender offer and/or a redemption and for general corporate purposes which may include funding a portion of its capital development plans.

Enviva atop talk

Enviva Partners priced a $300 million issue of five-year senior notes (B2/B+) at par to yield 8½%.

The yield printed on top of yield talk.

J.P. Morgan, Citigroup, Barclays, Goldman Sachs and RBC were the bookrunners.

The Bethesda, Md.-based wood pellet producer plans to use the proceeds, together with cash on hand and proceeds from any issuances of additional equity, to fund the acquisition of a wood pellet plant in Sampson County, N.C. and to repay bank debt.

Daisy roadshow

Daisy Group is expected to market its £385 million two-part offering of five-year senior secured notes (expected ratings B2/B) on a roadshow set to continue into Friday.

The debt refinancing deal was scheduled to roadshow in Paris on Thursday and will be in Amsterdam on Friday. It will possibly price on Friday, a portfolio manager said.

The two-part offer features fixed-rate notes and floating-rate notes.

Joint bookrunner Goldman Sachs will bill and deliver. HSBC and Lloyds are also joint bookrunners.

New Sprint notes run up

In the secondary sphere, traders saw the new Sprint 3.36% senior secured notes firm smartly after the Overland Park, Kan.-based wireless service provider’s behemoth of a bond deal priced just under par, at 99.99834.

They said that junk investors were getting into the bonds, despite the debt’s nominally investment-grade rating and relatively sparse coupon, by usual junk standards.

One quoted the notes at 101¼ bid, 101½ offered.

A second pegged them in a 101 1/8 to 101 3/8 bid context

And at another shop, the paper was seen going home trading between 101 5/16 and 101 7/16 bid.

Existing Sprint paper busy

Traders also saw some activity in the company’s existing paper, which unlike the new issues, is clearly junk-rated all around.

Its Sprint Capital Corp. 6 5/8% bonds due 2028 gained 5/8 point on the day to end at 95 bid on volume of more than $12 million.

Parent Sprint Corp.’s 7 5/8% notes due 2023 were likewise 5/8 point better at 102 5/8 bid, with over $10 million traded, while the company’s legacy Sprint Nextel Corp. 8 3/8% notes due 2017 were unchanged at 104¼ bid, with around $10 million changing hands.

Sprint is expected to use the proceeds from the securitization deal to pay off a big chunk of the roughly $5.6 billion of debt, capital leases and financing obligations that it has coming due within the next 12 months, out of its total capital structure of more than $36 billion.

Diamondback leads active list

The new Diamondback Energy 4¾% notes were trading at solidly higher levels late Thursday and on very active volume.

A market source said that more than $91 million of those notes changed hands, pushing up to 101 3/8 bid after the quickly shopped deal had priced at par earlier in the day.

A second trader located the notes between 101¼ and 101 3/8 bid, while yet another estimated them in a 101¼ to 101½ bid trading range.

Traders meantime did not report seeing initial aftermarket activity in the day’s other transaction, Enviva Partners’ 8½% notes due 2021.

NGL, CNH paper trades around

Among the new issues which have come to market in the last few sessions, a trader said that the new NGL Energy Partners 7½% notes due 2023 saw a fair amount of activity on Thursday with one estimating volume in the new paper at more than $28 million, putting it high up on the day’s Most Actives list.

He quoted the bonds unchanged at 102 1/8 bid.

Earlier in the day, a trader saw them at 102 and locked.

The Tulsa, Okla.-based midstream energy and propane retailer priced $700 million of those notes at par on Wednesday as a regularly scheduled forward calendar offering, after the deal was upsized from an originally shopped $400 million.

When they hit the aftermarket on Wednesday, the bonds were an instant hit, pushing up to around the 102 bid mark with more than $24 million traded.

There were also more than just a few transactions in CNH Industrial Capital LLC’s new 3 7/8% notes due 2021, although the notes did not move much, going home at 100 1/8 bid, up more than 1/8 point on the day, with about $13 million traded.

The company – the London-based captive financing arm of heavy equipment maker CNH Industrial – priced a quickly shopped $400 million of the notes on Tuesday at 99.441 to yield 4%.

The bonds firmed slightly to around the 99½ bid area in initial aftermarket dealings later Tuesday of around $4 million; more than $37 million changed hands on Wednesday, edging up to around a 99¾ to par bid context.

CF suddenly popular

Away from the new deals, a trader said that fallen angel CF Industries’ various issues “have been active.

“Some high-yield desks are trading them,” even though Moody’s Investors Service continues to rate the bonds Baa3.

In contrast, both Standard & Poor’s and Fitch Ratings this week cut the company’s paper to BB+ from BBB- and BBB, respectively, which caused some high-grade accounts to get out of the Deerfield, Ill.-based nitrogen products company’s paper.

On Thursday, CF’s 5 3/8% long bonds due 2044 fell more than ¾ point to end at 90¾ bid, with over $39 million traded.

However, its 3.45% notes due 2023 gained 7/8 point to finish at 96 bid. More than $34 million moved around.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday after having been higher across the board on both Tuesday and Wednesday. Thursday marked their second mixed session in the last four trading days.

The KDP High Yield Index climbed by 11 basis points on Thursday to end at 71.70, its fifth straight gain after two successive losses and its third consecutive new year-to-date and 52-week high. On Wednesday, the index had jumped up by 21 bps.

Its yield came in by 3 bps on Thursday to 5.28% after having tightened by 5 bps on both Tuesday and again on Wednesday. Thursday marked its fourth straight narrowing after one unchanged session and the fifth such tightening in the last six trading days.

But the Markit Series 27 CDX Index eased by around 1/16 point on Thursday, finishing at 104 7/16 bid, 104 15/32 offered, versus Wednesday’s nearly ¼ point improvement, which had been its second consecutive rise.

The Merrill Lynch High Yield Index, though, firmed by 0.127%, on top of Wednesday’s 0.221% advance, its fifth straight gain after three consecutive downturns.

That upturn raised the index’s year-to-date return to 16.647% on Thursday, its fifth consecutive new peak cumulative return for the year, surpassing the previous mark of 16.499%, set on Wednesday.

© 2015 Prospect News.
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