No pricings seen; Alliant hits road; new Builders FirstSource busy; Toys topples

By Paul Deckelman and Paul A. Harris

New York, July 27 – The last week in July opened quietly in the high-yield primary arena on Monday amid continued investor concern about volatility in the global financial markets, seen putting a damper on new issuance.

Syndicate sources reported no pricings of any new dollar-denominated and fully junk-rated bonds by domestic or industrialized country borrowers, in contrast to Friday, when one deal worth $700 million, from Builders FirstSource, Inc., got done.

Traders saw active dealings in that Dallas-based building products provider’s new paper, mostly at or slightly below its par issue price.

The syndicate sources meantime said that specialty insurance brokerage firm Alliant Holdings I, LP had begun marketing a $535 million offering of eight-year notes to potential investors via a roadshow.

Elsewhere in the primary, players continued to await the pricing of hospital operator Prime Healthcare Services, Inc.’s $700 million of eight-year notes – a deal originally expected to have gotten done last week but which remains in the market at this point.

Away from the new issues, oil and natural gas credits like California Resources Corp. and the recently priced new issue from WPX Energy, Inc. remained under pressure.

And there was volatile trading in Toys ‘R’ Us, Inc. bonds, following news reports that companies that provide business insurance to the troubled specialty retailer’s vendors are refusing to provide coverage in some cases due to Toys’ continued and mounting losses.

Statistical indicators of junk market performance were lower across the board for a seventh successive session on Monday.

Alliant starts roadshow

The primary market put up a goose egg on Monday, as no issues were priced.

Volatility in the global financial markets is hampering the high-yield primary market, sources said.

Overall, junk was somewhat weaker during a relatively quiet Monday session, a trader remarked, noting that bonds from the oil, metals and mining sectors remained under pressure as they have been over the past couple of weeks.

High-yield exchange-traded funds were doing some selling on Monday, although it was not too heavy, said the trader, who closely tracks the activities of the ETFs.

One dollar-denominated issuer rolled out a deal during the session.

Alliant Holdings started a roadshow in New York for a $535 million offering of eight-year senior notes (Caa2/CCC+).

UBS is the lead left physical bookrunner for the acquisition financing. Morgan Stanley is the joint physical bookrunner. Jefferies, KKR, Macquarie, MCS and Nomura are joint bookrunners.

With respect to the single deal that was carried across the past weekend, there was no news on – nor were there changes to – the Prime Healthcare Services $700 million offering of senior notes due 2023 (B3/B+), an informed source said shortly after Monday's close.

The deal, which was talked in the 7½% area late last week, remains in the market, the source said.

Cognita starts Tuesday

The European high-yield primary market, which put up its biggest numbers ever last week – $7.65 billion equivalent in 17 tranches, according to Prospect News data – continued to generate the lion's share of news on Monday.

There was news on a pair of sterling-denominated deals announced, both of which are set to price before the end of this week.

Cognita Financing plc disclosed plans to start a roadshow on Tuesday in London for a £280 million offering of six-year senior secured notes.

Joint global coordinator Morgan Stanley will bill and deliver for the debt refinancing deal set to price late this week. KKR and Barclays are also joint global coordinators. Commerzbank and HSBC are joint bookrunners.

House of Fraser’s floaters

House of Fraser (Funding) plc began a roadshow on Monday for a £175 million offering of five-year floating-rate senior secured notes (B3/B).

The roadshow wraps up on Tuesday, and the deal is set to price thereafter.

HSBC is the sole bookrunner.

The London-based department store group plans to use the proceeds to refinance its existing senior secured notes and its revolver and for general corporate purposes.

Busy Builders FirstSource

In the secondary realm, traders reported brisk activity in the new Builders FirstSource 10¾% notes due 2023. The building supplies distributor had priced its $700 million issue at par on Friday in a regularly scheduled forward calendar offering that had been downsized from an originally shopped $750 million.

While the new notes had traded around or slightly above their issue price in initial aftermarket activity, they were seen having retreated a little in Monday’s dealings.

A trader said that the notes had traded in a 99-to-99½ bid context, about ½ point down from where he had seen them late Friday.

A second trader pegged them down 1/8 point, around 99 3/8 bid, 99 5/8 offered.

Another market source said that the bonds had traded in a 99-to-99½ bid range “for much of the day” before going out somewhere between 99¼ and 99¾ bid.

And at another shop, a trader called the new bonds among the most actively traded junk credits of the day, with over $23 million having changed hands on a round-lot basis. He located the bonds at par – but said that was down around ¼ to ½ point from where they had finished on Friday.

Kenan off slightly

Among other recently priced offerings, a trader was quoting Kenan Advantage Group Inc.’s new 7 7/8% notes due 2023 around a par bid level on Monday. He said that was off a little from the 100½-to-101 bid range at which the notes had been seen on Friday.

A second market source had seen them having gone home on Friday around the 100¾ bid range.

The North Canton, Ohio-based provider of liquid bulk transportation services priced a regularly scheduled $405 million offering of those notes at par on Thursday, when no initial aftermarket dealings were seen.

The bonds were brought to market via OPE KAG Finance Sub Inc., a special-purpose vehicle formed in connection with the pending buyout of Kenan by Omers Private Equity from Goldman Sachs Capital Partners and Centerbridge Partners.

SoftBank seen below par

A trader said that both dollar-denominated halves of last week’s big deal from Japanese telecommunications company SoftBank Group Corp. were trading slightly below par on Monday; he estimated that its 5 3/8% notes due 2022 were hovering around 99 7/8 bid, while its 6% notes due 2025 were a little above the 99 5/8 bid level.

The Tokyo-based company – since 2013 the 78% owner of familiar high-yield issuer Sprint Corp., the Overland Park, Kan.-based Number-Three U.S. wireless operator – priced $1 billion of each tranche of bonds at par in a scheduled forward calendar deal last Wednesday, along with three tranches of euro-denominated notes totaling €2.25 billion.

Caleres holds steady

Also among the recently priced deals, Caleres Inc.’s 6¼% notes due 2023 were seen by a trader on Monday around the 100¾ bid mark.

That was just a little off from the levels between 100¾ and 101 bid seen late Friday, which in turn were off from around a 101-to-101¼ bid context on Thursday.

The St. Louis-based footwear company – long-known as Brown Shoe Co. before a name change earlier this year – priced $200 million of the notes at par on Tuesday in a scheduled forward calendar transaction.

Energy names pressured

A trader said Monday that “everything” among energy-related credits “is going straight down.”

One of the most active names in that space was California Resources’ 6% notes due 2024; the Los Angeles-based exploration and production company’s bellwether issue was seen down 1¾ points on the day, at 78½ bid, on over $23 million of volume.

Another sector credit on the downside was WPX Energy’s 8¼% notes due 2023, off 5/16 point on the day to end at par – right at the level where the Tulsa, Okla.-based exploration and production company priced $500 million of those notes on July 17 as part of a two-part offering totaling $1 billion.

In the coal space, a trader said, Arch Coal Inc.’s 7¼% notes due 2021 “have been drifting lower,” with the St. Louis-based mining company’s paper in an 11-to-13 context, although he allowed that he “did not see a lot of activity in them.”

He saw the 7 7/8% notes due 2021 from Arch’s cross-town rival, Peabody Energy Corp., trading down a point on the day.

“The market is between 24 and 26, and 25 is where most of the trades are happening, down a point.”

Toys does terribly

Away from the energy and natural resources segment, traders noted the sharp slide in Toys ‘R’ Us paper, against the backdrop of news reports indicating that several insurance companies that sell credit insurance to the struggling Wayne, N.J.-based specialty retailer’s vendors – the toy and game companies and other children’s product manufacturers and distributors that keep its store shelves stocked – are removing Toys ‘R’ Us from some policies and declining to renew coverage in other cases.

Its 10 3/8% notes due 2017 were seen by one trader down 6 1/8 points at 76½ bid, with over $22 million traded.

He saw Toys’ 8½% first-lien notes due 2017 slipping by 2¼ points to 98 bid, with over $10 million having changed hands.

Indicators’ slide continues

Statistical measures of junk market performance were lower across the board for a seventh consecutive session on Monday.

The KDP High Yield Daily index slid by 25 basis points on Monday to close at 68.78, establishing a new 52-week low for the index. It broke the old mark of 69.01, which had been set on Dec. 16, 2014. It was the index’s lowest close since Oct. 5, 2011, when the index had ended at 68.53.

Monday’s level was the index’s seventh straight loss and eighth downturn in the last 10 sessions. On Friday it had fallen by 9 bps.

Its yield, meanwhile, gained 7 bps on Monday to end at 6.08%, its seventh straight widening. On Friday, the yield had risen by 5 bps to 6.01%, its first time above the psychologically significant 6% mark this year.

The Markit Series 24 CDX North American High Yield index retreated by 5/16 point on Monday to end at 105 15/32 bid, 105½ offered. That was its seventh straight downturn and eighth in the last nine sessions. It had lost 11/32 point on Friday.

The Merrill Lynch North American Master II High Yield index posted its seventh consecutive loss on Monday, dropping by 0.379%, on top of Friday’s 0.131% easing.

That brought its year-to-date return down to 1.033% from 1.418% on Friday. It was the index’s lowest closing level since Feb. 3, when it had ended at 1.027%.

The year-to-date figure meantime remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

One of the index’s components, its yield, rose to 7.076% on Monday, its second consecutive new high point for the year, surpassing the former mark of 6.946% set on Friday. It was the first time the yield had topped the 7% mark this year, and was the highest yield the index had seen since Dec. 17, 2014, when it reached 7.096%.

Another index component, its spread to worst over comparable Treasuries, also established a new mark for the year, widening to 558 bps from Friday’s 542 bps and, in the process, surpassing its previous wide point for the year, 550 bps, set back on Jan. 15.

Christine Van Dusen contributed to this review.

© 2015 Prospect News.
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