Schaeffler brings three-part deal, IHS drives by; recent deals gain, Peabody up again

By Paul Deckelman and Paul A. Harris

New York, Oct. 21 – The high-yield market continued to shrug off its recent weakness like a bad dream on Tuesday, as primaryside activity volume picked up and new and recent issues were seen having firmed smartly in brisk trading.

The $1.95 billion session’s big deal was a three-part dollar- and euro-denominated offering from a financing subsidiary of German automotive and industrial bearing manufacturer Schaeffler AG. It priced dollar-denominated tranches of five-and eight-year senior secured PIK toggle notes, as well as a seven-year euro-denominated piece.

Traders said that after pricing, both of the dollar-denominated tranches jumped multiple points, and were among the most actively traded notes of the day.

Business information and analytics company IHS Inc. meantime did an upsized $750 million of eight-year notes.

There was also a small add-on offering from chemical components company TPC Group Inc., which gained about a point in the aftermarket.

Traders saw active dealings at higher levels in other recent deals, including Monday’s two-part offering from alcoholic beverage company Constellation Brands Inc. and Friday’s transaction from Nova Chemicals Corp.

Apart from the deals that have already priced, primaryside players were anticipating that a sizable two-part deal from energy transportation and storage company Tesoro Logistics LP will come to market on Wednesday.

Away from the new deals, existing issues were seen mostly stronger; among the standout names, for a second straight session, was Peabody Energy Corp., after the coal producer’s report of a narrower-than-expected third-quarter loss.

Statistical indicators of junk market performance improved across the board for a fourth consecutive session on Tuesday.

Schaeffler prices tight

The primary market appeared poised to regain its late-summer stride on Tuesday as three companies issued a combined four tranches of dollar-denominated notes, raising a total of $1.95 billion.

Tight executions were the rule.

Of the four dollar-denominated tranches, three came at the tight end of talk and the other came on top of talk.

One of the four came as a drive-by. And one was upsized.

Schaeffler Holding Finance BV priced €1.25 billion equivalent of senior secured PIK toggle notes (B1/B) in three tranches.

In order of maturities, the deal included a $475 million tranche of five-year notes which priced at par to yield 6¼%, at the tight end of the 6¼% to 6½% yield talk.

Schaeffler also priced an upsized €350 million tranche of 5¾% seven-year notes at 98.576 to yield 6%. The tranche was increased from €350 million. The yield printed at the tight end of the 6% to 6¼% yield talk.

The long-dated paper came in a $675 million tranche of eight-year notes which priced at par to yield 6¾%, at the tight end of the 6¾% to 7% yield talk.

Global coordinator and joint bookrunner Deutsche Bank will bill and deliver for the dollar-denominated notes.

Global coordinator and joint bookrunner HSBC will bill and deliver for the euro-denominated notes.

Citigroup was also a global coordinator and joint bookrunner.

Commerzbank, JPMorgan and UniCredit were also joint bookrunners.

The issuer, a Herzogenaurach, Germany-based manufacturer of bearings for autos and industrial OEMs, plans to use the proceeds to repay bank debt.

IHS upsized and tight

In a drive-by offering, IHS Inc. priced an upsized $750 million issue of non-callable eight-year senior notes (Ba1/BB+/BBB) at par to yield 5%.

The quick-to-market deal was increased from $500 million.

The yield printed at the tight end of the 5% to 5¼% yield talk.

J.P. Morgan, BofA Merrill Lynch, Wells Fargo, RBC and Goldman Sachs were the joint bookrunners for the debt refinancing.

TPC taps 8¾% notes

TPC Group priced a $50 million add-on to its 8¾% senior secured notes due Dec. 15, 2020 (B3/B) at 103.5 to yield 7.741%.

The reoffer price came on top of price talk.

BofA Merrill Lynch was the bookrunner for the debt refinancing deal.

Tesoro Logistics for Wednesday

The Wednesday session appears set to get under way with a single, sizable deal expected to clear before the close.

Tesoro Logistics LP and Tesoro Logistics Finance Corp. set price talk for a $1.3 billion two-part offering of senior notes (Ba3/BB) on Tuesday.

The deal features a tranche of five-year notes talked to yield in the 5¾% area and a tranche of eight-year notes talked in the 6½% area.

BofA Merrill Lynch, RBS, Barclays, Citigroup, J.P. Morgan, MUFG, RBC, UBS and Wells Fargo are the joint bookrunners for the debt refinancing and general corporate purposes deal.

New Schaeffler bonds better

In the secondary market, a trader quipped that German ball-bearing manufacturer Schaeffler’s new dollar-denominated senior secured PIK toggle bonds “were really going around,” seeing both of those tranches higher in heavy trading.

He said that the company’s 6¾% notes due 2019 having firmed to a 102¼ to 102½ context, while its 6¾% notes due 2022 were going home trading between 103 and 103¼.

A second trader pegged the 6¼% notes at 102 3/8 bid, 102 7/8 offered and had the 6¾s at 102 7/8 bid, 103 3/8 offered.

The new Schaefflers, another market source said, were among the most heavily traded Junkbondland credits on Tuesday, seeing the 2022 notes topping the Most Actives list with over $49 million traded by the close, with the 2019s not very far behind, with over $32 million having changed hands.

He quoted the new issues at 103 1/8 bid and 102 5/8 bid, respectively.

TPC add-on firmer

A trader saw Houston-based chemical components manufacturer TPC Group’s 8¾% senior secured notes due 2020 at 104 bid, 104½ offered.

That was up from the 103.5 level at which its $50 million add-on issue had priced.

A trader meantime said that he had seen no immediate aftermarket activity seen in the new IHS notes due 2022, noting that the Englewood Colo.-based business information and analytics services provider’s deal had priced fairly late in the session.

However, at another desk, a market source said that the bonds had, in fact, moved up to 101 7/8 bid in late trading, and called activity in the credit fairly busy.

Constellation toast of the town

Both halves of Monday’s two-part offering from Constellation Brands were seen having moved up when they were freed for aftermarket dealings on Tuesday.

The Victor, N.Y.-based manufacturer and importer of such well-known potent potables as Robert Mondavi wines, Svedka vodka and Mexico’s Corona beer priced a quickly shopped $400 million of 3 7/8% notes due 2019 and $400 million of 4¾% notes due 2024 at par on Monday; there was little immediate aftermarket action in them that day because they priced late in the session.

On Tuesday, a trader saw the 3 7/8% notes “right up there” in a 101½ bid range, while seeing the 4¾% paper trading in a 102 1/8 to 102¼ bid range.

A second trader said that the 4¾s had moved up to 102 1/8 bid, with more than $22 million having traded. He saw the 3 7/8% notes at 101½ bid, on turnover of more than $16 million.

Nova notes a star

There was continued strength seen in Friday’s quick-to-market 10.5-year offering from Nova Chemicals, with a trader seeing the new 5% notes due May 1, 2025 having tacked on another 1½ points to its already solid gains, moving up to the 102¾ to 103 bid range.

At another desk, the Nova notes were also quoted at 102¾ bid, calling them up 1 3/8 points. More than $23 million of the bonds traded.

The Calgary, Alta.-based plastics and chemicals producer had priced its $500 million issue at par on Friday; the paper gained 1 point in initial late-session aftermarket trading, and then continued to move up by about another ¼ to ½ point on Monday, when over $34 million had changed hands.

Dynegy deal still busy

Among other recent offerings, a market participant saw Dynegy Inc.’s 6¾% notes due 2019 having gained 1 1/8 points to end at 103 bid, on volume of more than $20 million.

The Houston-based power generating company had priced $2.1 billion of the notes at par on Oct. 10 as part of a $5 billion three-part offering that also included $1.75 billion of 7 3/8% notes due 2022 and $1 billion of 7 5/8% notes due 2024, both of which also priced at par and were recently seen trading above the 102 bid level.

Peabody climb continues

Away from the new deals, Peabody Energy’s 6¼% notes due 2021 were seen having moved up solidly for a second straight session, in the wake of better-than-expected quarterly results from the St. Louis-based coal producer.

A trader said that the notes had risen to around 95¼ bid on over $37 million of volume.

Another trader who saw them at that level estimated that they were up by more than 1 point on the day.

Those bonds – which had gotten hammered down to as low as 88 last week, amid a general retreat by the energy names on sagging commodity prices – had fought their way back to around 90-91 by the end of last week, and then jumped around 3 points on Monday to the 94 level on over $29 million of volume.

The bonds took off after the company reported a third-quarter net loss of $150.6 million, or 56 cents per share.

While that was wider than the previous year’s loss of $26.1 million, or 10 cents per share, the loss was still smaller than Wall Street estimates of between 63 cents and 69 cents per share.

Total revenue decreased 4.2% to $1.72 billion – but that too beat analysts’ estimates of about $1.65 billion.

Steel Dynamics quietly higher

Elsewhere, traders saw firmer levels in some of the bonds of Steel Dynamics Inc., though on not much volume, after the Fort Wayne, Ind.-based integrated steel producer and metals recycling company reported better third-quarter earnings.

A market source saw its 6 1/8% notes due 2019 up ¾ point at 107½ bid but with only about $2 million having changed hands.

That was also about the activity level on its 5¼% notes due 2023, although those bonds were up by some 4 points from where they had closed last week.

The company reported that net sales rose sequentially during the latest quarter to $2.34 billion from $2.07 billion in the second quarter and were also up on a year-over-year basis versus $1.91 billion in the year-earlier period.

Net income rose to $91 million, or 38 cents per diluted share, versus $72 million, or 31 cents per share in the second quarter and $57 million, or 25 cents per share, a year ago.

Company executives also said that its credit measures were strong, even after having sold $1.2 billion of new junk bonds last month to help finance its acquisition of Russian steelmaker OAO Severstal’s plant in Columbus, Miss., and said liquidity was more than ample to fund any potential future growth (see related story elsewhere in this issue).

Indicators extend gains

Statistical indicators of junk market performance improved across the board for a fourth consecutive session on Tuesday.

The KDP High Yield Daily Index saw its fourth successive gain, rising by 44 basis points to close at 72.32, on top Monday’s 12 bps rise.

Its yield meantime came in by 17 bps on Tuesday, to 5.38%, after having tightened by 10 bps on Monday, its fourth straight narrowing.

The Markit CDX Series 23 index was up for a fifth session in a row on Tuesday, gaining 5/8 point to end at 106 11/16 bid, 106 23/32 offered. On Monday, it had advanced by 7/16 bps.

The Merrill Lynch High Yield Master II Index posted its fourth consecutive gain on Tuesday, climbing by 0.614% – one of its strongest one-day performances so far this year, second only to Friday’s 1.066% jump. On Monday, it had finished up by 0.118%.

The latest gain lifted its year-to-date return back above the psychologically significant 4% milestone, to 4.492%, up from Monday’s 3.855%. However, the year-to-date return remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

According to the FINRA-Bloomberg Active US High Yield Bond Index, Tuesday’s junk market volume was $5.22 billion, up from Monday’s $4.03 billion.

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