Morning Commentary: Power Solutions megadeal eyed; new Par Pharma notes post gains

By Paul A. Harris

Portland, Ore., March 15 – The high-yield bond market was poised for the Friday execution of the Power Solutions megadeal, which has been winding its way along the international high-yield road for the past fortnight.

The final size of the euro-denominated tranche of seven-year senior secured notes (Ba3/B+/BB) was set at €700 million on Friday morning. It was announced at €660 million minimum on Thursday and is not considered to be upsized, but rather adjusted to represent foreign exchange rates, a syndicate source said, adding that there is no change in the price talk.

To recap, on Thursday the issuer upsized its term loan and downsized its bonds, while making some concessions on covenants but applying further torque to the pricing screws.

Specifically, Power Solutions downsized its high-yield notes offering to $3.7 billion equivalent from $4.7 billion equivalent.

The revised bond deal now features a downsized $1 billion tranche of seven-year senior secured notes (Ba3/B+/BB). The tranche is downsized from $2 billion, with the shift of $1 billion of proceeds to the term loan, increasing the loan size to $4.2 billion from $3.2 billion. Talk tightened to 6¼% from earlier talk of 6½% to 6¾%. Initial guidance was in the 7% area.

Talk on the above-mentioned €700 million tranche of seven-year senior secured notes tightened to 4 3/8% from earlier talk of 4½% to 4¾%. Initial guidance was in the 5% area.

Talk on the sole unsecured tranche, $1.95 billion of eight-year senior notes (B3/B/B-), remains unchanged, in the 225 basis points area behind the dollar-denominated secured notes.

The tightened pricing came as investors gained some ground on covenant protection on the bonds and the loan, market sources say, adding that the issuer made concessions on the most-favored-nation clause, the restricted payments buildup basket rules, asset sales, EBITDA add-backs and change-of-control language.

However, those covenant changes fall well short of being monumental, a high-yield investor, eyeing the deal, remarked late Thursday.

The Power Solutions bond deal is massively oversubscribed, with books across all three tranches said to contain orders in excess of $12 billion equivalent, the investor added.

Proceeds will be used to fund Brookfield Business Partners’ acquisition of Johnson Controls’ Power Solutions business.

Neon Holdings roadshow

In other Friday primary market news Neon Holdings, Inc. disclosed plans to start a roadshow on Monday for a $410 million offering of seven-year senior secured notes.

That roadshow is expected to wrap up at the end of the March 18 week, with the deal set to price thereafter.

Goldman Sachs is the left bookrunner. Jefferies and Mizuho are the joint bookrunners.

Proceeds will be used to finance the acquisition of the plastics business of Nexeo Solutions, Inc. by certain investment funds managed by One Rock Capital Partners, LLC.

Modest gains for Par Pharma

Bonds priced Thursday in an upsized placement by Endo Pharmaceutical subsidiary Par Pharmaceutical Cos., Inc. were up ¼ point to ½ point on Friday morning, according to a New York-based trader.

The $1.5 billion of eight-year secured paper (Ba3/B+) came at par, upsized from $1 billion.

Meanwhile the new SS&C Technologies, Inc. 5½% senior notes due September 2027 (B2/B+) were hanging around new issue price on Friday morning, the trader said.

The massively upsized $2 billion issue (from $750 million) priced at par on Thursday.

Away from recent issues, the bonds of MDC Partners Inc. were up 4 points in active trading on news that private equity firm Stagwell Group announced that its fund, Stagwell Media LP, has invested $100 million in MDC Partners through the purchase of $50 million in common shares and $50 million non-voting convertible preference shares.

The broad market was essentially flat on Friday morning, according to a hedge fund manager tracking the CDX HY 31 contract, which was 106.33 bid, 106.42 offered, basically unchanged at mid-morning.

Thursday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, according to a trader.

High-yield ETFs saw $153 million of inflows on the day.

Actively managed high-yield funds saw $80 million of inflows on Thursday, the trader said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined high-yield bond funds saw net inflows of $1.04 billion in the week to Wednesday's close, according to Lipper US Fund Flows.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.