Tullow, Husky lead busy primary; Mattel trades on Toys shutdown; Teva still trades under par

By James McCandless and Paul A. Harris

San Antonio, March 16 – An active primary session Friday wrapped up the biggest week for dollar-denominated high-yield issuance of the year so far.

Tullow Oil plc priced an upsized $800 million issue of seven-year senior notes at the tight end of talk in a deal that drew both high-yield and emerging markets buyers.

On the other hand, Husky Injection Molding Systems priced a downsized $650 million issue of eight-year senior notes at the wide end of talk that had already moved out from initial guidance.

Also pricing during the session were Parkland Fuel Corp. and Iridium Communications Inc. along with the day’s single drive-by, a deal from Prestige Brands, Inc.

Against that backdrop, the high-yield secondary market capped the week Friday with newer issues dominating, traders confirmed.

Mattel, Inc.’s latest issue was in focus – but gained ground even as major buyer Toys “R” Us, Inc. began the liquidation process and a rating agency gave it a downgrade.

A newer issue from Teva Pharmaceutical Industries Ltd. has become somewhat of an enigma in secondary trading, consistently trading under par.

Valeant Pharmaceuticals International, Inc added to the day’s volume with its recent eight-year senior unsecured notes.

Sprint Corp. and its recent $1 billion pricing has consistently seen heavy trading. On Friday the bonds were lower.

Telecom favorites Frontier Communications Corp. and Intelsat SA added to the day’s volume.

Tullow upsized and tight

In a busy Friday primary market, Tullow Oil plc priced an upsized $800 million issue of seven-year senior notes (B3/B) at par to yield 7%.

The deal was increased from $650 million.

The yield printed at the tight end of the 7% to 7¼% yield talk.

The debt refinancing deal was marketed to both high-yield accounts and emerging markets accounts, the source said.

The bookrunners included active global coordinators Credit Agricole CIB, JPMorgan and Standard Chartered, passive global coordinators BNP Paribas and Lloyds, as well as Barclays, Deutsche Bank, DNB, ING, Natixis, SG, SMBC Nikko and Standard Bank.

Husky downsized

Husky Injection Molding Systems priced a downsized $650 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 7¾%.

The offering was reduced from $750 million, with $100 million shifted to the concurrent term loan, increasing its size to $2.1 billion from $2 billion.

The yield printed at the wide end of the 7½% to 7¾% yield talk. That official talk widened from initial guidance of 7¼% to 7½% as the deal was being marketed, sources say.

BofA Merrill Lynch was the left bookrunner. Deutsche Bank, Goldman Sachs, Barclays and BMO were the joint bookrunners.

Proceeds are being used to help fund the leveraged buyout of the Bolton, Ont.-based supplier of injection molding equipment and services to the plastics industry by Platinum Equity from Berkshire Partners and Omers Private Equity.

Parkland Fuel at wide end

Parkland Fuel Corp. priced a $500 million issue of eight-year senior notes (B1/BB-) at par to yield 6%.

The yield printed at the wide end of the 5¾% to 6% yield talk.

The dealer had the new 6% notes due 2026 at par 3/8 bid, par 7/8 offered late Friday afternoon, according to an investor.

Left bookrunner BofA Merrill Lynch will bill and deliver. RBC, JP Morgan and Wells Fargo were the joint bookrunners.

The Calgary, Alta. marketer of fuel and petroleum products plans to use the proceeds to repay bank debt.

Iridium five-year at 10¼%

Iridium Communications Inc. priced a $360 million issue of five-year senior notes (Caa1/CCC) at par to yield 10¼%.

The yield printed at the tight end of the 10¼% to 10½% yield talk, which was also the early guidance on the deal.

Deutsche Bank managed the debt refinancing deal.

Prestige tap prices rich

All of the above deals came at the conclusions of investor roadshows.

Friday’s sole drive-by deal came from Prestige Brands, Inc., which priced an upsized $250 million add-on to its 6 3/8% senior notes due March 1, 2024 (Caa1/B-) at 101 to yield 6.171%.

The transaction was increased from $200 million.

The reoffer price came at the rich end of the par ½ to 101 price talk.

Morgan Stanley, Barclays, Citigroup, Deutsche Bank and RBC were the joint bookrunners.

The Tarrytown, N.Y.-based marketer and distributor of brand name over-the-counter health care and household cleaning products plans to use the proceeds, including the additional proceeds resulting from the $50 million upsizing of the deal, to pay down its term loan B.

Friday’s new issue business might have included two additional deals announced on Thursday and subsequently postponed, sources say.

CNX Resources Corp. announced a $500 million offering of eight-year senior notes (confirmed B3/expected B-) as a drive-by on Thursday. It was subsequently talked in the 6½% area, at the wide end of initial guidance in the low to mid 6% area.

However the company thought its rate ought to be in the 6% to 6¼% context and declined to pay more, a trader said.

Elsewhere Brookfield Residential Properties Inc. was expected to price a $600 million offering of eight-year senior notes (B1/B+) in a quick-to-market Thursday trade. Initial price talk had the deal coming with a yield in the 6½% area.

Brookfield ultimately had a deal at 6¾%, a trader said, but ended up declining that higher rate.

Both deals were thought to be playing to full order books, an investor said late Friday.

It’s questionable, at best, as to whether time will improve the rate-scenario for these prospective issuers, sources said.

The week ahead

The active forward calendar was empty heading into Friday’s close.

In the March 19 week McDermott International Inc. is expected to bring $1.5 billion of senior notes (B2/B-), possibly in two tranches, according to a high-yield bond investor.

Barclays will lead the bridged deal.

The bonds, along with a $2.15 billion term loan now in the market, are coming in connection with the merger of McDermott and Chicago Bridge & Iron Co. NV (CB&I).

Proceeds will be used to pay CB&I debt as well as McDermott debt.

Thursday outflows

Daily cash flows for dedicated high-yield bond funds were negative on Thursday.

High-yield ETFs sustained $451 million of outflows on the day. Actively managed funds saw $5 million of outflows.

Those numbers follow a Thursday afternoon report that for the first time in nine weeks the dedicated junk funds saw modest positive flows ... extremely modest: $11 million of new cash in the week to the Wednesday, March 14 close.

However that inflow pales in comparison to the eight consecutive weekly outflows, totaling $16.5 billion, that had preceded it.

Year’s busiest week

Friday’s busy session helped make the week completed the biggest in terms of new issue volume for the year so far.

Friday itself saw $2.56 billion of dollar-denominated high-yield issuance, bringing the week’s total to $8.84 billion in 15 tranches, up from $8.27 billion in 14 tranches the previous week and more than double the $3.49 billion in 10 tranches for the Feb. 25 week. It also surpassed the previous busiest week, the period starting Jan. 14, when there was $8.31 billion in 14 tranches.

Year-to-date dollar-denominated high-yield issuance now totals $55.37 billion in 103 tranches, still way behind the $71.87 billion in 125 tranches at the same point in the 2017 calendar.

Mattel active

El Segundo, Calif.-based toy manufacturer Mattel, a major supplier to bankrupt toy retailer Toys “R” Us, saw activity in its recent issues, a market source confirmed.

Reports surfaced throughout the week that the retailer had skipped out on payments to Mattel and other vendors. Friday, Moody’s Investors Service issued a downgrade of the company’s corporate family rating and its probability of default rating (see related story elsewhere in this issue).

“All of this news has really turned a lot of attention to these tranches,” a trader said.

Still, the company’s 2.35% notes due 2019 rose about 1 point to close just above 98¾ bid.

The 4.35% notes due 2020 traded up about 1 point to close near 98¼ bid.

And the 6¾% notes due 2025 jumped about 2 points to close at around 100¼ bid.

Teva trades

Israel-based pharmaceutical name Teva saw some activity in its newer issues, which a trader confirmed continue to trade below par.

It has turned out to be a “weird name,” the trader remarked, adding that since it is not in the high-yield index no one has to buy it, although some high-yield portfolio managers inherited Teva from their high-grade counterparts.

The 6% senior notes due 2024 traded down to 98½ bid. The Teva Pharmaceutical Finance Netherlands III BV 6¾% senior notes due March 1, 2028 were at 99¾ bid, par ¼ offered on Friday after trading as high as 101½ bid, 102 offered since they were priced at par in a $1.25 billion tranche, also on March 7.

The overall $4.5 billion four-part deal, Teva’s first since becoming a fallen angel, also included €700 million of 3¼% notes due 2022 and €900 million of 4½% notes due 2025.

Valeant adds volume

The $1.5 billion Monday issue of eight-year senior notes by Canada-based pharmaceutical name Valeant ended the week with another day of high activity.

Traders confirmed seeing the 9¼% notes due 2026 ending at 100¾ bid.

That matched reported levels at Thursday’s close.

Sprint leads in activity

Overland Park, Kan.-based wireless company Sprint’s recent $1 billion new issue ended the week trending downward, traders confirmed, as the company prepares to lay off 500 employees from its headquarters.

The 7 5/8% notes due 2026 eased to 99½ bid.

On Thursday those notes had added more than ½ point.

Telecom names trade

Telecom names continued to add volume on Friday.

Norwalk, Conn.-based wireline telecom name Frontier Communications’ recent pricing of new issues and its ending of a quarterly dividend in favor of focusing on debt service has put its notes further in the spotlight.

In trading Friday, the 7 5/8% notes due 2024 dropped about ½ point to close above 59½ bid. The 10½% notes due 2022 jumped up about 1½ points to close above 88½ bid. The 11% notes due 2025 fell about ¾ point to close at around 80¾ bid.

Luxembourg-based satellite communications company Intelsat ended the week heavily traded.

The Intelsat Jackson Holdings SA 5½% notes due 2023 traded down about ¼ point to close at around 81½ bid. The 7 ¼% issues due 2020 lost about ½ point to close at above 59½ bid.

Indexes better

The KDP High Yield Daily Index rose by 2 basis points to end at 70.45 while its yield remained level at 5.83%, shying away from its 52-week low of 70.17.

The Merrill Lynch High yield Index gained 25 basis points to end at negative 0.647% for the year to date. That more than reversed the previous session’s loss of 10.8 bps.

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