T-Mobile megadeal, Greystar add-on drive by; giant-sized Western Digital deal on tap

By Paul Deckelman and Paul A. Harris

New York, March 29 – The high yield primary market continued to churn out new deals on Tuesday, with syndicate sources reporting the arrival of two quickly shopped offerings – with another huge deal expected to price off the forward calendar on Wednesday.

Wireless operator T-Mobile USA, Inc. had the big deal of the day – $1 billion of eight-year notes.

There was also a smallish add-on by Greystar Real Estate Partners LLC to its existing 2022 secured notes.

Both of those deals priced fairly late in the session, with no traders reporting any immediate aftermarket activity.

The traders meanwhile reported heavy trading in Monday’s megadeal from industrial building and maintenance supply company HD Supply, Inc. The bonds moved up modestly, building on the gains notched in initial aftermarket dealings after the issue was priced.

They also saw a modest rise, though on considerably less volume, in the new five-year notes from healthcare operator Surgery Center Holdings Inc., which also came to market on Monday.

Apart from the issues which have already priced, syndicate sources said that price talk emerged on Western Digital Corp.’s pending $5.6 billion two-part offering of seven- and eight-year paper. The computer hard disk drive manufacturer’s huge deal is expected to price on Wednesday.

Statistical market performance measures remained lower for a fifth consecutive session on Tuesday, their sixth lower session in the last 10 trading days.

T-Mobile 4x oversubscribed

The Tuesday new issue market saw a pair of issuers bring single-tranche junk deals, raising a total of $1.07 billion.

Both deals came as drive-bys.

Neither was upsized.

Executions were tight, as one deal priced at the tight end of ratcheted down price talk while the other priced at the rich end.

T-Mobile USA, Inc. priced a $1 billion issue of eight-year senior notes (Ba3/BB) at par to yield 6%.

The yield printed at the tight end of yield talk in the 6 1/8% area, according to market sources who added that initial guidance came in the 6¼% area.

Interest in the bonds built quickly, according to sources who added that the book ballooned to 2.5-times deal-size shortly after the announcement.

Ultimately the T-Mobile deal was four-times oversubscribed, according to a portfolio manager.

Pricing ultimately reflected that outsized demand, sources said.

Deutsche Bank, Citigroup, J.P. Morgan, Barclays and Goldman Sachs were the joint bookrunners.

The Bellevue, Wash.-based wireless communications provider plans to use the proceeds for the purchase of 700 MHz A-block spectrum and other spectrum purchases.

Greystar taps 8¼% notes

Greystar Real Estate Partners LLC priced a $70 million add-on to its 8¼% senior secured notes due Dec. 1, 2022 (B2/BB-) at 102.25 to yield 7.66%.

The reoffer price came at the rich end of the 102 to 102.25 price talk.

J.P. Morgan and Capital One were the joint bookrunners.

The Charleston S.C.-based provider of multifamily property management, development, and investment services plans to use the proceeds to refinance debt and for general corporate purposes.

Western Digital talk/timing

Western Digital Corp. set price talk in its $5.6 billion two-part bond deal.

A $1.5 billion tranche of split-rated seven-year senior secured notes (Ba1/BBB-/BBB-) is talked to yield in the 7½% area. That talk widened from 7% during the course of Tuesday's session, according to sources who added that prior to Tuesday the secured tranche was being shopped in the low 6% yield context.

A $4.1 billion tranche of straight speculative-grade eight-year senior unsecured notes (Ba2/BB+/BB+) is talked in the 10½% area. That talk widened from 10% during the course of the Tuesday session. In the run-up to Tuesday the unsecured tranche was being guided in the 9% area.

Books close at 11 a.m. ET on Wednesday.

The market anticipates a shift of $700 million to the secured tranche from the unsecured tranche, which would increase the secured offer to $2.2 billion and decrease the unsecured tranche to $3.4 billion, sources said late Tuesday.

However, there were no official announcements on tranche sizes, they added.

Pricing on the deal widened dramatically due in part to negative headlines in the technology sector, sources say.

A portfolio manager, speaking on background, said that Micron Technology is scheduled to report numbers for its fiscal second quarter after Wednesday's close, and added that it would behoove Western Digital to price its bond deal beforehand.

Should the yield on its double B rated unsecured tranche come on top of talk it would join an exceptional, and perhaps unenviable, class of higher rated speculative grade issuers.

Among junk issuers rated BB+ by Standard & Poor's, just 3.3% have priced deals yielding in the double digits since 2001, according to Prospect News data.

Bank of America, J.P. Morgan, Credit Suisse, RBC and HSBC are the joint bookrunners for the deal to help fund the acquisition of SanDisk Corp. and to refinance existing debt at both companies.

Beyond Western Digital the active forward calendar is empty.

However the pipeline is building, sources say.

Look for Credit Suisse to bring a trio of deals in the coming two weeks, one each from the health care, financial and foods sectors, a buyside source said.

Mixed flows

The cash flows of the dedicated high yield funds were mixed on Monday, the most recent session for which data was available at press time, a portfolio manager said.

The flows of the high yield ETFs were relatively flat at positive $20 million on the day.

However, actively managed funds sustained $35 million of outflows on Monday.

Dedicated bank loan funds, meanwhile, were also negative on the day. The loan funds saw $45 million of outflows.

Day’s deals not seen

In the secondary market, traders did not report any immediate aftermarket activity in either the new T-Mobile 6% notes due 2024, or in Greystar Real Estate’s fungible add-on to its existing 8¼% senior secured notes due in December of 2022.

However, they did see considerable activity in T-Mobile’s 6½% notes due 2026.

Those bonds were down 5/8 point at the close, ending at 102 5/8 bid, with over $13 million traded.

HD Supply moves up

Monday’s offering from HD Supply was the most actively traded issue in Junkbondland on Tuesday, with over $59 million of the new notes seen having changed hands by the end of the day.

During the morning, a market source saw the notes trading at 100¾ bid, 101¼ offered.

By the afternoon, a source at another shop said, the bonds had moved up to around the 101 bid mark.

Yet another trader saw them even better than that, pegging the new notes at 101 3/8 bid, calling them up 3/8 point on the day.

HD Supply, an Atlanta-based distributor of building and maintenance tools and supplies, had priced $1 billion of notes at par in a quick-to-market deal on Monday.

Traders saw the bonds initially moving around in a 100½ to 101 context.

Surgery Partners steady

A trader said that he had not “seen anything in the Street” going on with Monday’s other deal, the 8 7/8% notes due 2021 from Surgery Center Holdings Inc.

“He saw “just a couple of trades” Tuesday, in a par to 100¼ bid context.

At another desk, a trader said that there had been perhaps three or four round-lot trades, with the bonds going home at 100¼ bid, unchanged on the day.

Surgery Center, a unit of Nashville-based Surgery Partners, Inc., a provider of surgery and related healthcare services, priced $400 million of the notes at par in a regularly scheduled forward calendar offering.

The bonds were seen having crept up ¼ point after pricing, to 100¼ bid, on initial aftermarket volume of around $10 million.

Softer market seen

Away from those recently priced offerings, and Tuesday’s new deals, a trader said that “the market was a little softer prior to [Federal Reserve chairperson Janet] Yellen speaking.”

The Fed boss told the Economic Club of New York that the central bank should proceed only cautiously as it looks to raise interest rates.

Observers took this as something of a rebuke to some of Yellen’s Fed colleagues who have suggested another move upward may happen sooner rather than later.

“But during her speech, or after her speech, when the [equity] market turned around, things did improve,” the trader declared.

Indicators remain lower

However, statistical market performance measures remained lower for a fifth consecutive session on Tuesday, their sixth lower session in the last 10 trading days.

The KDP High Yield Daily index lost 22 basis points on Tuesday to end at 65.23, after having plunged by 17 bps on Monday and by 25 bps on Thursday. The index was not published on Friday due to the market close in observance of the Good Friday-Easter holiday.

Tuesday marked the index’s fifth straight loss after four straight upside sessions, and its sixth loss in the last 10 trading days.

The index’s yield rose by 8 bps on Tuesday to end at 6.76% – its fourth straight widening out after five consecutive narrowings and its sixth widening in the last 10 sessions. It had also widened out by 5 bps on Monday and by 6 bps on Thursday.

The Merrill Lynch North American High Yield Master II index suffered its fifth consecutive loss on Tuesday, after having posted three successive improvements before that, and its seventh loss in the last nine sessions.

It was down by 0.305%, on top of Monday’s 0.084% setback.

Tuesday’s fall softened the index’s year-to-date return to 2.485% from Monday’s 2.798% reading.

The Markit Series 26 CDX North American High Yield index closed the day at 102 bid, 102 1/16 offered.

That was up from its Series 25 index finish on Monday at 101 11/16 bid, 101 23/32 offered, when it had retreated by 7/32 point.

The two readings are not directly comparable, since Tuesday marked the first day of trading for the new Series 26 index, following the regular semi-annual series “roll” that Markit does each spring and fall, when it switches over to a new series having a somewhat different composition of bond issues being tracked.

Monday’s loss had been its fourth straight setback after one gain and its fifth in the previous six trading sessions.

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