Level 3, Crescent price to open August; Jabil up but other new deals little moved; Boyd next

By Paul Deckelman and Paul A. Harris

New York, Aug. 1 - The high-yield market turned the calendar page on a new month on Wednesday, with some help from a very familiar name, as telecommunications and internet services provider Level 3 Communications, Inc. priced an upsized $775 million of eight-year notes via a subsidiary. That quick-to-market offering was seen little changed from its issue price when it moved into the aftermarket.

The session also saw an upsized $350 million pricing off the forward calendar from real estate operator Crescent Resources, LLC/Crescent Ventures, Inc. after that secured offering was restructured into a five-year deal from the original seven years. It came too late for any secondary trading.

There was a considerable amount of trading in Tuesday's big deal from CIT Financial Group Inc., which priced some $3 billion of new paper in a two-part transaction that was one of the biggest deals seen this year. But while interest was intense, traders said the commercial lender's new bonds were pretty much anchored to their issue price.

The sole new deal which seemed to be doing well was late Tuesday's $500 million issue from electronics manufacturer Jabil Circuit Inc., seen up more than a point once it broke.

High-yield syndicate sources meanwhile heard price talk on Boyd Acquisition Sub LLC/Boyd Acquisition Finance Corp.'s $350 million deal, which will be used to partially fund Boyd Gaming Corp.'s pending acquisition of sector peer Peninsula Gaming LLC. That deal could price on Thursday afternoon after the order books close.

Away from the new-deal world, traders said the junk market had a generally firm tone, quite in contrast with equities, which retreated in disappointment after the Federal Reserve announced no new measures to stimulate the economy. High yield statistical performance measures firmed across the board.

Among the issues seen doing better was embattled supermarket operator SuperValu Inc., whose bonds rose for a third consecutive session following the ouster of its chief executive officer.

Level 3 massively upsizes

The high-yield primary market saw two issuers raise a combined $1.125 billion on Wednesday.

Both companies came with single-tranche deals.

Level 3 Financing Inc. (FinCo/OpCo) priced a massively upsized $775 million issue of eight-year senior notes (B3/CCC) at par to yield 7%, on top of price talk. The amount was increased from $400 million.

Citigroup was the left bookrunner for the quick-to-market deal. Bank of America Merrill Lynch, Morgan Stanley, Credit Suisse, Deutsche Bank and J.P. Morgan were the joint bookrunners.

Level 3 plans to use the proceeds repay or retire all of its outstanding 8¾% senior notes due 2017. Previous to the upsizing the company had planned to take out only a portion of those notes.

Crescent shortens maturity

Crescent Resources, LLC and Crescent Ventures, Inc. priced an upsized, restructured $350 million issue of five-year senior secured notes (Caa2/B) at par to yield 10¼%.

The deal was increased from $325 million

The tenor of the notes was reduced to five years from seven.

The yield printed at the wide end of the 10% to 10¼% yield talk. However the execution ultimately came well inside of the 11% level where discussions had taken place late last week, according to a buyside source.

Jefferies, Credit Suisse and J.P. Morgan Securities LLC were the joint bookrunners.

Proceeds, together with $50 million of new equity from sponsors Anchorage Capital Master Offshore, Ltd. and MatlinPatterson Global Opportunities Partners III LP, will be used to repay existing debt and to fund general corporate purposes.

Entertainment Properties brings split-rated deal

The crossover market remained active on Wednesday.

Entertainment Properties Trust priced an upsized, split-rated $350 million issue of 5¾% 10-year senior notes (Baa3/BB+/BBB-) at a 424.6 basis points spread to Treasuries.

The deal, which was upsized from $250 million, had been talked in the Treasuries plus 450 bps area.

Active bookrunners for the debt refinancing deal were Citigroup and J.P. Morgan. Barclays was a passive bookrunner.

A mix of high-yield and investment-grade accounts signed up for the offering, filling the order book to $1.1 billion, according to a source close to the transaction.

Most investors stayed in the book despite the fact that the spread ultimately printed 25.5 bps tighter than the spread talk, the source added.

Talking the deals

Elsewhere dealers set the stage for Thursday's session.

A $350 million offering of 5.5-year senior notes (expected Caa1/confirmed CCC+) backing the acquisition of Peninsula Gaming by Boyd Gaming, is talked to yield 8 3/8% to 8½%.

Bank of America Merrill Lynch, J.P. Morgan, Deutsche Bank and UBS are the joint bookrunners.

In the Canadian primary market DirectCash Payments Inc.'s C$125 million offering of seven-year senior notes (B3/B/) was talked on Wednesday to yield 8¼%.

The deal, via bookrunner BMO, is also expected to price on Thursday.

Postmedia's five-year deal

Also in the Canadian market, Postmedia Network Canada Corp. subsidiary Postmedia Network Inc. plans to roadshow C$250 million of five-year senior secured first-lien notes (Ba3/B+/) in Canada and the United States through Aug. 8.

Scotia and Morgan Stanley are the bookrunners for the debt refinancing deal.

Level 3 little changed

When Level 3's new 7% notes due 2020 were freed for secondary dealings, traders saw the Broomfield, Colo.-based telecommunications and internet services provider's upsized issue little changed from its par pricing level.

A trader saw the bonds trading between par and 100¼ bid.

He said that "a lot of people were hoping that it would trade up - instantly, you saw a lot of paper come out at 1001/2, and the issue sat there [with people] hoping someone would buy it. But more offers came in and it tracked back down - we had a few trades back down at the par level, or the 100 1/8 area."

He quipped that Level 3 "went back down to level one."

"Level 3 stayed right at par," a second trader observed, "they didn't do anything."

At another desk, a trader said that Level 3's pricing announcement "came right on top of the Fed announcement," in which the central bank said it would continue carefully watching the behavior of the economy, but offered no new stimulus measures that many in the financial markets had been hoping for.

"After that, it never got any traction. There were a lot of trades at the par level."

He estimated the market between 99 7/8 and 100 1/8, and added "I'm sure the underwriters will pay par - for now - but it didn't seem to get out of its own way."

Crescent deal comes too late

Traders saw no aftermarket action in the Crescent Resources 10¼% senior secured notes due 2017 - a departure from the originally announced seven-year tenor of the bonds.

The Charlotte, N.C.-based real estate company's upsized $350 million issue, which priced at par, came too late in the session for any secondary dealings.

CIT a popular issue

Looking at Tuesday's issues, a trader said that CIT Group's big two-part deal was by far and away the most active name in Junkbondland, attracting considerable crossover buying interest for its 4¼% notes due 2017 and 5% notes due 2022.

He estimated that over $105 million of the five-year bonds traded - but he said that both that $1.75 billion issue, and the $1.25 billion of the 10-year bonds, were tethered to their par issue price, deviating from par by perhaps an eighth of a point.

Another trader, also seeing the New York-based commercial lender's mega-deal at that same level, said that the two-part deal "was very active - but they went nowhere."

"It looks like the underwriter was supporting them," yet another trader declared.

He said that "they traded a lot of bonds at 100¼ in the morning, then at 100 1/8 in the afternoon, and they went out bracketing par on both issues."

According to data compiled by Prospect News, CIT's drive-by mega-deal was the biggest junk bond offering since late March, when chemical maker LyondellBassel Industries NV also did a $3 billion two-part deal - and only CIT's own $3.25 billion two-parter back in early February was bigger.

Jabil jumps in trading

The sole exception to Wednesday's general trend of the new bonds staying around their par issue price was Jabil Circuit's 4.7% notes due 2022.

The St. Petersburg, Fla.-based electronics manufacturer's quickly-shopped $500 million offering had priced late Tuesday at 99.992 to yield 4.7%, too late in the session for any kind of aftermarket.

But when the bonds broke on Wednesday, a trader saw them get as good as 101 bid, 101 3/8 offered.

"They seemed to be able to hold their own," another trader said, also seeing the bonds in a 101¼ to 101½ context most of the day.

He said that the issue was "not at the top of the leaderboard as far as volume goes," certainly not in the same league as CIT and the more well known Level 3.

But he said that "it was more of a case of people looking to buy them, rather than move them."

He said that "we're still in a situation where a number of large accounts keep getting cash in and putting money to work because they have to," leading them to play in new issues like Jabil's even though its sub-5% coupon would normally be considered pretty skimpy by traditional junk market standards.

"It's difficult finding bonds. New Issues are getting put away pretty handily, and they're getting priced to perfection, in most cases, unless it's a real sort of museum-piece item."

He opined that "the JBLs are kind of always in demand and you never see them around. When they come - they go."

He said that CIT "is a perpetual issuer" - the big lender has done several mega-deals so far this year - "and so is Level 3 for that matter."

He said that investors' portfolios "are filled with different issues of CITs and Level 3s, but when JBL comes to market, it doesn't come that often, so it's more easily put away. It's the price, as well as the credit quality."

Overall market firms

Traders said that new issues remained the focus of most junk market activity on Wednesday; away from that, they saw a generally firm tone, with more issues trading up than down.

Junk diverged from equities, which were lower across the board for a third straight day after the Federal Reserve disappointed investors by not explicitly announcing any further measures to stimulate the economy, instead merely opting for a wait-and-see strategy.

Wall Street's bellwether Dow Jones Industrial Average lost 37.62 points, or 0.29%, to dip back below the magic 13,000 level and end at 12,971.06. The broader Standard & Poor's 500 and Nasdaq Composite indices were down by 0.30% and 0.66% respectively.

But back in the junk precincts, the statistical indicators told quite a different story, rising across the board for the first time after two previous sessions in which they were mixed.

The Markit Group CDX North American Series 18 High Yield Index rose by 7/16 point on Wednesday to end at 97 1/16 bid, 97 5/16 offered, after having fallen by ½ point Tuesday, its second straight retreat.

The KDP High Yield Daily Index meantime scored its fifth straight advance on Wednesday, gaining 6 bps to end at 73.75, after having risen by 9 bps on Tuesday.

Its yield contracted for a sixth straight session Wednesday, coming in by 3 bps to 6.23%, after having declined by 6 bps on Tuesday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index notched its fifth consecutive gain on Wednesday, adding 0.118%, on top of Tuesday's 0.23% advance.

The latest gain lifted its year-to-date return to 9.257% from Tuesday's 9.128%, which was the first time this year that the index has pushed above the 9% mark. Wednesday's reading established yet another new peak level for 2012, eclipsing the old mark, which had just been set on Tuesday. The index's recent levels are the strongest they've been in 19 months, since the end of 2010, when the market measure returned 15.19%.

SuperValu surge continues

Among specific non-new-deal junk names seen doing better, traders noted that the troubled Eden Prairie, Minn.-based supermarket chain operator SuperValu's bonds continued to firm for a third consecutive session, following the firing of its now-former president and chief executive officer, Craig R. Herkert.

Among the company's most active issues, a trader said, its 8% notes due 2016 gained a point to end at 87½ bid, its 7¾% notes due 2026 rose by 3 points to 62 bid, and its 8% bonds due 2031 were ¼ point better at 59¼ bid.

The trader said he saw little activity in the company's 7½% notes due 2014, which have most recently traded in the mid-90s.

At another desk, a market source also saw the 8% 2016 bonds up a point in the mid-87 range, on volume of over 412 million shares.

While the 71/2s were up marginally to about 95½ bid, he noted that most of the trading was in small and irregularly sized odd-lots, making them somewhat unrepresentative, while round-lot dealings were limited to one or two transactions.

Analysts were saying Wednesday that the company's decision to replace Herkert with its non-executive chairman, Wayne C. Sales, was being interpreted by both bond and stock investors as a sign that management will aggressively pursue potential strategic transactions including asset sales or perhaps even the outright sale of the whole company.

© 2015 Prospect News.
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