StandardAero prices at discount, rises, new SS&C issue gains; approaching holiday quiets market

By Paul A. Harris and Paul Deckelman

New York, June 30 – The high-yield primary market closed out the month of June, the second quarter and the first half of the year on a relatively quiet note, with just one deal pricing during the session – aircraft engine repair and maintenance company StandardAero’s $485 million issue of eight-year notes. After that regularly scheduled forward-calendar deal priced at a discount to par traders saw the new bonds up a little in initial aftermarket dealings.

StandardAero’s offering – priced via indirect corporate parent DAE Aviation Holdings, Inc. – brought the month’s tally of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country issuers up to $21.05 billion in 41 tranches, according to data compiled by Prospect News. That was well down from the $35.44 billion that had priced in 65 tranches during May, and down as well from the $39.66 billion which had come to market in March, this year’s busiest new-issue month. June’s total was just a little bit more than the $19.18 billion that got done in January, this year’s slowest primary month so far.

June’s total also lagged the $31.59 billion which had come to market in 63 tranches in June 2014.

At the six-month mark, total new-issuance for this year so far stood at $183.83 billion in 299 tranches, according to the Prospect News data, running nearly 4.1% ahead of the pace seen last year, when $176.64 billion of new junk bonds had priced in 330 tranches by this point on the calendar.

Monday’s issue of eight-year notes from software company SS&C Technologies Holdings Inc. was seen having firmed smartly in busy trading on Tuesday.

But overall, traders said the market tended to be on the quiet side, with not much focus. They said the combination of financial market nervousness over the worsening Greek debt situation – the nation failed to make a scheduled €1.6 billion payment to the International Monetary Fund – along with the approaching three-day Independence Day holiday break in the United States starting on Friday kept many market participants hugging the sidelines.

Statistical market-performance measures turned mixed on Tuesday after having been lower across the board for three consecutive sessions and for a fourth session in the last five on Monday.

StandardAero at a discount

StandardAero generated Tuesday’s only primary market news.

DAE Aviation Holdings, Inc., the indirect parent of StandardAero, priced a $485 million issue of 10% eight-year senior notes (Caa2/CCC) at 98.65 to yield 10¼%.

The yield printed on top of yield talk. The reoffer price came slightly rich to discount talk of approximately 1.5 points.

Official talk, which surfaced Tuesday, came well wide of the high 8% to low 9% guidance heard around the market last week, sources said.

Jefferies was the left bookrunner. KKR and MCS were the joint bookrunners.

Proceeds will be used to help fund the buyout of StandardAero by Veritas Capital from Dubai Aerospace Enterprise Ltd.

The initial borrowing under the company’s new ABL facility will be increased by $6.5 million to fund the original issue discount on the notes.

Quiet ahead

Although StandardAero did not clear the active calendar, an expectation has taken hold in the market that it could be the last deal to price before the three-day Independence Day holiday weekend which gets underway following Thursday’s close.

There could be one or two high-grade deals on Wednesday, but high yield may be done for the week, a syndicate official said early Tuesday evening.

Several deals remain on the active calendar.

Georgia Renewable Power, Inc. is selling $225 million first-lien senior secured notes due 2022 (Ba3) via Seaport Global.

My Alarm Center, LLC is selling $265 million senior secured notes due 2020 (B3) via Imperial Capital.

And Globo plc is in the market with $180 million of five-year senior secured notes (B2), also via Imperial Capital.

Meanwhile the post-Independence Day week could see a pickup in new issue activity, sources say.

“It could come down to what happens with the referendum in Greece, on the ECB’s bailout terms,” a debt capital banker said late Tuesday.

According to news reports, Greek prime minister Alexis Tsipras is pledging a July 5 referendum on those terms.

Outflow from ETFs

Cash flows for dedicated high-yield bond funds were mixed on Monday, the most recent session for which data was available at press time on Tuesday, according to a market source.

High-yield ETFs saw a substantial $617 million outflow on Monday.

Asset managers, meanwhile saw inflows of $85 million.

Subdued market seen

In the secondary realm, a trader declared that “it was a little on the quiet side – everyone’s waiting on Greece.”

That country was supposed to make a scheduled €1.6 billion loan payment to the IMF but said that it would not be able to do so as talks with European creditors on a €7.2 billion bailout plan remained stalemated.

Back in Junkbondland, the trader said that “there was some dealer-to-dealer activity – but I didn’t see a lot of customer activity.

“It’s a holiday week here so things aren’t as busy as they normally would be.”

Fixed income markets in the United States are scheduled to be shut on Friday in observance of Independence Day, which this year falls out on a Saturday.

At another desk, a trader agreed that the market was quiet, adding that “it feels like most people are already gearing up for the holiday weekend.”

Although there was some volatility on Monday in response to the worsening Greek situation and the prospect of the U.S. Commonwealth of Puerto Rico’s similar inability to repay debt obligations, he said that “high yield kind of held in there despite the swings in equities the last [few] days or so – we’re kind of back to almost unchanged from where we went out last week.

“So it feels like our market has kind of absorbed some of this Greek news in stride and has not seen the selling we would have thought [on Monday] with equities.”

Tuesday, he said, “was rather tepid and quiet.”

StandardAero trades up

Among specific credits, a trader saw the new DAE Aviation Holdings 10% notes due 2023 in a 99½ to par bid context, up from the 98.65 level at which the indirect parent of Scottsdale, Ariz.-based aircraft engine repair and maintenance services provider StandardAero had priced its $485 million offering.

A second trader also said that 99½ to par level sounded about right.

SS&C solidly firmer

Monday’s new issue of 5 7/8% notes due 2023 from SS&C Technologies Holdings as seen to have moved up solidly in busy trading on Tuesday.

The Windsor, Conn.-based provider of financial services software and software-enabled services had priced its $600 million regularly scheduled forward calendar deal at par after the issue was upsized from an originally announced $500 million.

Those new bonds had initially traded on Monday in a 100½ to 101 bid context.

On Tuesday, a trader quoted the bonds in a 100½ to 100¾ bid range.

But at another desk, the bonds were seen having opened better, in a 101 to 101½ neighborhood.

By later in the afternoon, they had moved up a little to 101 1/8 to 101½, a 5/8 point gain on the day.

A market source at another desk pegged the bonds going out at 101 5/8 bid, calling that a 7/8 point rise on the session on volume of more than $24 million.

GM volume leader

A trader noted that the Trace system’s high yield most actives list “was dominated” by the various bond issues of Detroit-based automotive giant General Motors Co., and its General Motors Financial Co. Inc. subsidiary, such as the former’s 4 7/8% notes due 2023 and the latter’s 4% notes due 2025.

However, he noted the bonds’ split rating – Moody’s Investors Service rates those credits at Ba1, technically still a junk bond, while Standard & Poor’s and Fitch Ratings both have them at BBB-.

He said that much, if not most of the activity came from high-grade investors not barred from owning split-rated paper, rather than from purely traditional junk accounts.

Indicators turn mixed

Statistical market-performance measures turned mixed on Tuesday after having been lower across the board for three consecutive sessions and for a fourth session in the last five on Monday.

The KDP High Yield Daily Index remained a loser, sliding by 14 basis points on Tuesday to go home at 70.18, its fifth consecutive loss. On Monday, the index had plunged by 20 bps.

Its yield, meanwhile, widened for a fourth straight session, rising 1 bp to end at 5.74. It had jumped by 8 bps on Monday.

However, the Markit Series 24 CDX North American High Yield Index saw its first gain after two straight losses, ending Tuesday at 106 7/32 bid, 106¼ offered, a gain of 15/32 point. That stood in contrast to Monday’s massive 1 3/32 nosedive.

The Merrill Lynch North American Master II High Yield Index also broke a losing streak on Tuesday, edging up by 0.044%, its first gain after five successive setbacks, including Monday’s 0.44% retreat.

That improvement, however slight, raised its year-to-date return to 2.494% from 2.449% on Monday, although those returns remain well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 2015 Prospect News.
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