JBS, Uber deals eyed; Hexion in focus; Netflix mixed; DaVita drops

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 17 – The new issue market remained quiet on Wednesday, with much of the news coming in emerging markets, true private placement and investment grade executions.

High-yield accounts were eyeing Sao Paulo, Brazil-based JBS SA’s $500 million offering of eight-year senior notes (expected ratings Ba3/BB-/BB-), which may price on Thursday.

The market is also focused on Uber Technologies Inc.’s $2 billion two-part private placement, which was expected to be allocated on Wednesday and begin trading on Thursday.

Nine Energy Service, Inc.’s $400 million offering of five-year senior notes (B3/B) is currently the only deal on the forward calendar with pricing expected Friday.

However, United Rentals, Inc. is expected to bring $1.1 billion of senior notes (Ba3) to the market in a deal that may launch before the week is through.

While activity in the domestic primary market was muted, the European primary market remained active.

UGI Corp. set price talk for its €300 million offering of seven-year senior notes (Ba1//BB+) and Tesco plc (Ba1/BB+/BBB-) priced a split-rated €750 million issue of 1 3/8% five-year guaranteed senior notes.

Meanwhile, trading volume was light with no new paper entering the secondary space.

Hexion Inc.’s junk bonds remained in focus with creditors gearing up for negotiations over the second-lien notes maturing in 2020.

Netflix Inc.’s junk bonds were mixed in high-volume trading after the company reported a large earnings beat.

DaVita HealthCare Partners Inc.’s junk bonds were losing ground in active trading after competitor Fresenius Medical Care slashed its forward guidance due to decreased demand for dialysis services.

Quiet primary

The new issue market remained generally quiet on Wednesday.

Much of the news bore upon deals coming in emerging markets, true private placement and investment grade executions.

JBS is guiding a $500 million offering of senior notes due January 2026 (expected ratings Ba3/BB-/BB-) with initial price talk in the low to mid 7% area.

The deal, which is being followed by real-money high-yield accounts in addition to emerging markets investors, could price as early as Thursday.

Joint bookrunner Barclays will bill and deliver.

The remaining bookrunners, BB Securities, Bradesco BBI, BTG Pactual and Santander, have bigger footprints in emerging markets than in U.S. high yield.

The market is also focused on Uber Technologies’ $2 billion two-part private placement, upsized from $1.5 billion, sources say.

Documents bearing upon non-disclosure of Uber’s private financial information were expected to be put in front of a relatively small coterie of investors invited to take part in the deal for signatures on Wednesday.

The deal was expected to allocate Wednesday and begin trading under a Rule 144A Cusip number on Thursday, a trader said.

No deal terms were available.

However, the market anticipates that the structure will feature $500 million of 7½% five-year notes and $1.5 billion of 8% eight-year notes.

The long maturity tranche is upsized from $1 billion, which reflects the concentration of demand for the paper, sources say.

Morgan Stanley is the placement agent.

Slim calendar

Away from these exotic transactions, the active forward calendar is extremely thin.

The only dollar-denominated deal in the public market is Nine Energy Service’s $400 million offering of five-year senior notes (B3/B).

Initial talk is in the 9% area. As the market awaits official talk, the deal is on track to price Friday, a trader said.

Although official announcements remain pending, United Rentals is expected to bring $1.1 billion of senior notes (Ba3) in a deal that could launch before the end of the week, a trader said.

The Stamford, Conn.-based equipment rental company, which is seeking to raise cash to fund its acquisition of heavy equipment rental firm BlueLine Rental, from Platinum Equity, came out with quarterly earnings on Wednesday.

Earnings of $4.74 per share beat analysts’ estimates of $4.54 per share, the trader recounted.

A bookrunner for the bonds has not yet stepped forward, the source said.

UGI sets initial talk

There was news from the European primary market on Wednesday.

UGI International, a subsidiary of UGI Corp., set initial price talk for its €300 million offering of seven-year senior notes (Ba1//BB+) at 3¼% to 3½%.

The deal is set to price on Thursday.

Joint global coordinator and physical bookrunner BNP Paribas will bill and deliver. Joint bookrunner HSBC is also a joint global coordinator.

Credit Agricole, ING, Mediobanca, Natixis and SG are also joint bookrunners.

Tesco’s crossover

Tesco (Ba1/BB+/BBB-) priced a split-rated €750 million issue of 1 3/8% five-year guaranteed senior notes at a 110 basis points spread to mid-swaps on Wednesday.

The spread came on top of spread talk which had been revised from earlier guidance in the 115 bps area.

The deal, which came in an investment grade execution, played to €4.4 billion of orders, an informed source said.

Joint bookrunner MUFG will bill and deliver. BNP Paribas, Citigroup and Goldman Sachs International were also joint bookrunners.

Although rates in Europe have not risen in proportion to the dramatic moves seen in U.S. benchmark rates, they have risen, a London-based investment banker said on Wednesday.

The higher rates have triggered a migration of high grade and crossover accounts away from the high-yield new issue market where they had come in previous months seeking decent returns which were unavailable higher up on the credit spectrum.

That move is a technical negative, the banker said.

Nevertheless, there is no reason for euro issuers to be unduly apprehensive, the banker assured, and added that there is still money available at decent rates for eligible high-yield issuers.

However, such rates will not be as low as those to which the market became accustomed in the middle years of the present decade, the banker conceded.

Hexion in focus

Hexion’s junk bonds remained major volume movers in the secondary space for a third consecutive trading day as creditors prepared for negotiations surrounding the bonds that will mature in 2020.

Hexion’s 6 5/8% senior notes due 2020 were making gains in the high-volume activity after declining over the previous two sessions.

The 6 5/8% notes were up 1 point to close Wednesday at 90, a market source said.

With more than $28 million of the bonds on the tape by late afternoon, the senior notes remained one of the most actively traded issues in the secondary space.

The notes pared their losses from earlier in the week when they dropped about 1½ points.

However, Hexion’s 9% senior notes due 2020 continued their downward spiral dropping 3 points to 69 on Wednesday. More than $25 million of the notes were on the tape by late afternoon.

The notes were down 5 points over the past two sessions.

Some bond holders have hired law firm Milbank, Tweed, Hadley & McCloy in anticipation of upcoming negotiations regarding the 2020 bonds, a market source said.

There is currently $1.5 billion of the 6 5/8% notes and $574 million of the 9% notes outstanding, according to Trace data.

Hexion’s 2020 bonds have been in focus and trending downward for most of the week.

Netflix mixed

Netflix’s junk bonds were mixed in active trading on Wednesday after the streaming media service company reported a large earnings beat.

While the company’s 5 7/8% notes due 2028 were making gains, the 4 7/8% notes were losing ground, a market source said.

The 5 7/8% notes were up about 1 point to close Wednesday at 99½, a market source said. The notes were active with more than $16.5 million bonds traded during the session.

While less active, the 4 7/8% notes were down slightly to trade at 93.

Netflix reported earnings for the third quarter that were far ahead of expectations with earnings per share of 89 cents versus analyst estimates of 68 cents.

Moreover, Netflix subscriber growth crushed expectations with the addition of 6.96 million users.

DaVita drops

DaVita HealthCare’s junk bonds were losing ground in high-volume trading on Wednesday after a medical supplier for dialysis centers projected a decrease in demand for dialysis services.

DaVita’s 5% senior notes due 2025 and 5 1/8% senior notes due 2024 both dropped 1 point.

The 5% senior notes were seen at 93¾ bid and were changing hands around 93 7/8, sources said. More than $17 million of the bonds were in play during Wednesday’s session.

The 5 1/8% senior notes were seen changing hands at 94 7/8 in the late afternoon with $14 million of the bonds on the tape.

The junk bonds from one of the largest kidney care providers in the United States were moving down “in sympathy” with Fresenius Medical Care, a market source said.

Fresenius slashed its forward guidance in its third-quarter earnings report due to a projection of slow growth in dialysis services.

Mixed Tuesday flows

Daily cash flows for dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $269 million of inflows on the day.

However, actively managed high-yield funds sustained $165 million of outflows on Tuesday, the source said.

With four of the five sessions in the current reporting period in the book, the combined funds are tracking $200 million of inflows in the week since last Thursday’s open, the trader added.

Indexes slide

Three benchmarks for the high-yield market posted losses on Wednesday.

After remaining flat for most of the week, the KDP High Yield Daily index dipped slightly on Wednesday. The index slid 1 basis point to close the day at 69.94 with the yield now 6.02%.

While the index closed Monday and Tuesday flat at 69.95, the yield gained 2 bps to rise to 6.01% on Tuesday.

The ICE BofAML US High Yield index slid 5.7 bps with the year-to-date return now 1.786%. The index gained 17.6 bps on Tuesday and 9.1 bps on Monday.

The CDX High Yield 30 index dropped 13 bps to close Wednesday at 106.25. The index jumped 46 bps on Tuesday after a 29 bps drop on Monday.

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