CGG, Drax on tap; Targa dominates; American Greetings spikes; Albertsons up

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 6 – The new high-yield paper that priced late Thursday was among the major volume movers in the secondary market on Friday, although with mixed results.

After a week that saw $4.90 billion price, the calendar began to fill up for the coming week with two European issuers setting roadshows for dollar-denominated notes.

France-based CGG Holding (US) Inc. began a roadshow on Friday for a $650 million equivalent offering of five-year senior secured notes (B2/B) coming in dollar- and euro-denominated tranches.

England-based Drax Group Co. starts a roadshow on Monday for a $300 million offering of 7.5-year senior secured notes (current ratings BB+//BB+).

In the secondary, Hovnanian Enterprises, Inc. began an exchange offer in which it is offering new 3% senior notes due 2047 for its 10% senior secured notes due 2022 and 10½% senior secured notes due 2024.

Sources questioned why anyone would want to participate in the exchange.

Targa Resources Partners LP’s new 5 7/8% senior notes due 2026 (Ba3/BB-) were the main volume movers of Friday’s session with the notes seen trading ¼ to 1 point above their issue price.

While struggling during the subscription process, American Greetings Corp.’s 8¾% senior notes due 2025 (Caa1/CCC+) were seen trading Friday at levels 4 points higher than their deeply discounted issue price of 87.

Resolute Energy Corp.’s $75 million add-on to its 8½% senior notes due May 1, 2020 (Caa1/B-/B+) was seen trading just above its issue price of 99.51 in small intra-dealer trading activity.

However, Compass Diversified Holdings LLC’s new 8% senior notes due 2026 were seen trading below issue on Friday.

While still seen trading well above their issue price, McDermott International Inc.’s recently priced 10 5/8% senior notes due May 2024 (B2/B-) were down on Friday.

Although trading volume remained light in the secondary space outside of the new paper, Albertsons Cos. LLC’s 6 5/8% senior notes due 2024 (B3/B) and 5¾% senior notes due 2025 (B3/B) each saw more than a 2 point gain in active trading after the grocery company withdrew its plans to go public.

CGG starts roadshow

France-based CGG Holding began a roadshow on Friday for a $650 million equivalent offering of five-year senior secured notes (B2/B) coming in dollar- and euro-denominated tranches.

The dollar-denominated notes come with initial price talk in the high 9% area. The euro-denominated notes come with initial talk in the high 8% area to 9%.

The roadshow wraps up on Wednesday.

Global coordinator Credit Suisse will bill and deliver for the dollar-denominated notes. Global coordinator JP Morgan will bill and deliver for the euro-denominated notes.

Drax starts Monday

Meanwhile, England-based Drax Group starts a roadshow on Monday for a $300 million offering of 7.5-year senior secured notes (current ratings BB+//BB+) via its Drax Finco plc subsidiary.

Global coordinator Barclays will bill and deliver. BofA Merrill Lynch is also a global coordinator. Deutsche Bank is a joint bookrunner.

The week ahead should see primary market news in the euro-denominated junk bond market, as well, a London-based sell side source said.

Save-the-date memos from BNP Paribas and JP Morgan circulated the market on Friday.

Hovnanian’s exchange

Hovnanian Enterprises launched an exchange offer on Friday, although sources questioned why anyone would want to participate in it.

Hovnanian subsidiary K. Hovnanian Enterprises, Inc. is offering new 3% senior notes due 2047 for all of its $440 million of 10% senior secured notes due 2022 and $400 million of 10½% senior secured notes due 2024.

For each $1,000 principal amount of existing notes, Hovnanian is offering $1,250 principal amount of new notes, according to a news release.

The company will also pay accrued interest up to but excluding the settlement date.

“You’d have to really love the company to want to do that,” a market source said, noting the high coupon, short duration to maturity and security offered by the 10% and 10½% notes, all attractive features.

Targa dominates

Targa Resources 5 7/8% senior notes due 2026 were the focus of the secondary space on Friday outpacing all other trading activity by almost 5 to 1.

The notes, which priced at par, were up slightly in the high-volume trading, which saw more than $148 million bonds in play.

The notes were seen at par 5/8 bid, par 7/8 offered early Friday morning and traded in a range of par ¼ to 101 throughout the session, market sources said.

The deal from Targa was “a pretty straightforward energy deal,” a market source said.

In a drive-by on Thursday, Targa priced an upsized $1 billion issue of eight-year senior notes (existing ratings Ba3/BB-) at par to yield 5 7/8%. The issue size was increased from $750 million.

The yield printed in the middle of the 5¾% to 6% yield talk and at the tight end of early guidance for a yield in the 6% area.

Resolute trades light

In limited intra-dealer trading activity on Friday, Resolute Energy’s add-on to its 8½% senior notes due May 1, 2020 was seen trading in the 99½ to 99 5/8 range, a market source said.

In a deal, like Targa brought as a drive-by on Thursday, Resolute Energy priced the add-on at 99.51 to yield 8.76%.

The reoffer price came on top of final price talk and rich to initial talk of 98.5 to 99.

American Greetings gains

While they struggled during the subscription process, American Greetings’ new 8 ¾% senior notes due 2025 (Caa1/CCC+) were “doing really well” in active trading in the secondary market, a market source said.

The new notes were seen trading in a range of 89½ to 91¼ on Friday after pricing at 87 on Thursday.

The twice-downsized and restructured $282.5 million issue priced at 87 to yield 11.499%.

It was Happy Easter when the Cleveland-based greeting card company set out with $325 million of eight-year notes, initially guided in the low-to-mid 8% range.

However, by the time the roadshow wrapped up it was Get Well Soon, as guidance blew out to 10½% to 11%, proceeds were shifted to the term loan and one year was lopped off the maturity of the bond.

However, the deeply discounted issue price came higher than talk for a price of 85.

While investors were iffy about the greeting card company, enough got involved in the deal that the underwriters were able to move the issue price up a bit, a market source said.

Compass trades down

While most of Thursday’s deals were seen trading above their issue price in the secondary market, Compass Diversified’s new 8% senior notes due 2026 were seen trading down.

The notes were seen changing hands in a range of 99 7/8 to par ½ on Friday with about $20 million of bonds in play, a market source said.

The 8% notes reached a high of par ½ in a dealer buy early in Friday’s session but most prints were below that as the day progressed.

The majority of trades were seen at par or just above par.

“Anything with any hair on it doesn’t trade too well,” a market source said, noting how wide the deal priced.

Compass Diversified priced the $400 million issue at par on Thursday at the wide end of the 7¾% to 8% yield talk. Yield talk was well wide of the 7¼% to 7½% initial guidance.

McDermott weakens

While still well above their issue price of 94.75, McDermott’s 10 5/8% senior notes due May 2024 (B2/B-) lost some ground on Friday.

The notes were seen at 96 3/8 bid, 96 7/8 offer early Friday after they were seen at 97 1/8 bid, 97 5/8 offer on Thursday.

They were trading at 96.5 Friday afternoon.

McDermott priced its downsized $1.3 billion issue of 10 5/8% six-year senior notes at 94.75 to yield 11.865% on Wednesday.

The amount was decreased from $1.5 billion.

The yield came 136.5 basis points beyond the midpoint of yield talk in the 10½% area.

There were also changes to the offering document, some of them bearing upon how the company may disburse cash and incur additional debt.

Initial price talk on the six-year notes had them coming with an 8%-handle yield, sources said.

While the deal struggled during the subscription process, it was in high demand in active trading on Thursday, which sources attributed to the yield.

Albertsons up

New paper was the focus of the secondary space on Friday.

However, Albertsons’ 6 5/8% senior notes due 2024 and 5¾% senior notes due 2025 saw large gains in active trading during Friday’s session.

The 6 5/8% notes were seen up more than 2.6 points to trade just south of 93 late Friday, a market source said. The 5¾% notes were up 2 points to trade just north of 88.

The notes gained strength as the Boise, Idaho-based grocery store chain withdrew its application for an initial public offering on Friday.

MarketWatch reported the withdrawal was due to Albertsons’ merger with Rite Aid Corp. However, there has been no public comment from the company.

Rite Aid’s 6 1/8% senior notes due 2023 (B3/B-) also gained on Friday. The notes were seen up about ¼ point to trade at 101.

Mixed Thursday flows

Daily cash flows for dedicated high yield bond funds were mixed on Thursday, a buyside source said.

High-yield ETFs saw $417 million of inflows on Thursday while asset managers sustained $110 million of outflows.

Those daily fund flow numbers follow a Thursday report from Lipper US Fund Flows that the dedicated junk funds sustained $573 million of aggregate outflows in the seven-day period ending on April 4.

It was the ninth negative flow in the past 10 weeks, extending the funds’ year-to-date cumulative cash loss to $16.08 billion, according to a Prospect News analysis of the data.

$4.90 billion week

With no deals pricing, the week ended with $4.90 billion in seven dollar-denominated tranches pricing in the U.S. market.

The total was almost identical to the previous week’s $4.81 billion.

High yield’s year-to-date total is now $65.19 billion in 121 tranches, according to data compiled by Prospect News.

The year continues to lag well behind the 2017 issuance pace. At this point in the calendar last year, volume was $89.01 billion, meaning that 2018 is running 26.8% lower.

Indexes

The KDP High Yield index was again up on Friday after a large climb on Thursday. The index was up 3 basis points to 70.38 after climbing 19 basis points to 70.35 on Thursday.

The yield decreased 1 bps to 5.84% after shedding 6 bps on Thursday.

The Merrill Lynch High Yield index again saw gains on Friday although to a lesser degree than Thursday’s bump. The index was up 2 bps shaving the negative year-to-date return to 0.602%.

The index was up 35 bps on Thursday and was up 35 bps cutting the negative year-to-date return to 0.622%. The negative year-to-date return was 0.972% on Wednesday.

The CDX high yield 30 index saw losses on Friday and was down 49 bps after climbing 26 bps on Thursday.

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