Upsized Level 3 drives by, trades busily, active GameStop retreats; energy, iron-ore credits lower

By Paul Deckelman and Paul A. Harris

New York, March 8 – After a one-day break, the high yield primary sphere saw a sizable new deal from a familiar junk bond issuer get done on Tuesday, as telecommunications network operator Level 3 priced an upsized $775 million issue of 10-year notes.

Traders saw the new bonds quickly shoot right to the top of the day’s Most Actives list, although it was up only modestly from its issue price.

Among other recently priced offerings, there was brisk trading volume in the new deals from GameStop Corp., Solera LLC and HCA Inc., with the GameStop issue seen notably lower.

Away from the issues which have actually priced, syndicate sources heard TRAC Intermodal LLC’s $485 million secured deal hitting the road for marketing to potential investors, with pricing likely later in the week.

Outside of the new-deal world, oil and natural gas issues such as Continental Resources, Inc. and Chesapeake Energy Corp. gave up the hefty gains they posted on Monday, as did iron-ore miner FMG Resources.

Statistical market performance measures turned lower all around on Tuesday – their first negative session after having been higher across the board for eight consecutive trading days before that.

Oversubscribed Level 3 upsizes

Again the high yield primary market paid out news in mean amounts on Tuesday.

One deal from an on-the-run issuer priced as a drive-by, in a substantially upsized amount.

Level 3 Financing, Inc. priced $775 million of 10-year senior notes (B1/B/BB) at par to yield 5¼%.

The deal size was increased from $500 million.

The yield printed on top of yield talk and in the middle of the 5 1/8% to 5 3/8% initial guidance.

The buzz in the market was that the deal played to $2.7 billion of orders and was the subject of a significant amount of reverse inquiry.

The new Level 3 Financing 5¼% notes due 2026 were well bid when they broke, but later were hanging either side of par, a trader said.

The Broomfield, Colo.-based provider of communications services plans to use the cash to repay or retire its 7% senior notes due 2020. Prior to the upsize the company planned to take out just $500 million of that issue.

Citigroup was the left bookrunner. BofA Merrill Lynch, Morgan Stanley, Barclays, Credit Suisse, Goldman Sachs and JP Morgan were the joint bookrunners.

Elsewhere the primary market was quiet on Tuesday, with just one deal on the road.

TRAC Intermodal LLC and TRAC Intermodal Corp. were scheduled to start a roadshow on Tuesday for a $485 million offering of second lien notes due 2021 (Caa1/B-).

The initial price guidance is in the 10% area, a trader said.

The debt refinancing and dividend funding deal, via joint bookrunners Morgan Stanley, BofA Merrill Lynch, Citigroup, Deutsche Bank, ING, MUFG and Wells Fargo, is expected to price on Friday.

Inflows on Monday

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

High yield ETFs saw $116 million of inflows on the day.

Actively managed funds saw a hefty $450 million of daily inflows on Monday.

The cash flows of the dedicated bank loan funds were also positive. The loan funds saw $50 million of inflows on Monday, the trader said.

Level 3 tops Actives list

In the secondary arena, traders saw heavy volume – but only on slight gains – in the new Level 3 5¼% notes due 2026.

One trader quoted the notes in a par to 100¼ bid context right out of the gate following the deal’s pricing.

A second saw them between 99¾ and 100¼ bid, with over $109 million traded, “so there are probably a lot of ‘flippers’ there.”

A third trader also saw the notes ending at 100¼ bid and said they easily dominated the day’s Most Actives list, with well over $100 million traded.

GameStop pulls back

Elsewhere among the new or recently priced issues, a trader said that GameStop’s 6¾% notes due 2021 “dropped sharply” on the day, having fallen back by 1¼ points on the day, to 98½ bid, on volume of more than $30 million.

In the secondary market, traders saw fairly active dealings – but not much price movement – in the new GameStop 6¾% senior notes due 2021.

A trader said that the notes stayed right around their par issue price and observed that “it didn’t really get any legs to it.”

A second trader quoted the bonds around 99½ to par, “or maybe 99¾ to 100¼.

“There were more sellers than buyers of those things,” he added.

At another desk, a market source pegged the deal at 99¾ bid, down ¼ point on the day, on volume of over $21 million, putting the credit high up on the day’s Most Actives list.

GameStop, a Grapevine, Texas-based video game, consumer electronics and wireless services retailer, priced $475 million of those notes in a regularly scheduled forward calendar offering on Friday, after the issue was upsized by $75 million from the $400 million originally announced on Wednesday.

The new bonds had held around their issue price on Monday, before Tuesday’s tumble.

HCA seen off

Also seen a little easier on Tuesday was HCA’s 5¼% senior secured notes due in June 2026, with a trader pegging the bonds down ¼ point to end at 101¾ bid, with over $11 million traded.

A second trader saw the notes at 101 5/8 bid, calling them off 3 points on the day.

HCA Holdings, Inc., a Nashville-based hospital operator, priced $1.5 billion of the notes in a quick-to-market transaction last Tuesday via its wholly owned HCA Inc. subsidiary.

The issue was upsized from an originally announced $1 billion.

The notes initially firmed modestly in aftermarket dealing following their pricing, then jumped by more than 1 full point to around the 102 level on Wednesday, when over $400 million of the new paper changed hands.

They continued to hold around that 102 level for the rest of last week, on continued active volume.

Solera holding steady

A trader saw busy dealings, but no price change, in Solera LLC’s 10½% notes due 2024, which had finished Monday up ¼ to ½ point at 99½, and which stayed at that level on Tuesday. Volume was a brisk $28 million.

Solera, a Westlake, Texas-based provider of automobile insurance claims software, along with its wholly owned Solera Finance Inc. subsidiary, had priced $1.73 billion of those notes last Monday at 95 to yield 11.47%.

After pricing late in the day on Monday, the bonds began moving up on Tuesday, and that firming trend continued all of last week and on into this week, as they topped the 99 mark.

The regularly scheduled forward calendar offering had actually finished its roadshow at the beginning of the previous week, when traders thought the deal was going to get done.

But it was delayed as investors pushed back, forcing a number of key changes.

First, the offering was reduced in size from an original $2.03 billion, with $300 million shifted to a term loan financing.

The deal was originally envisioned as a two-part offering of eight-year dollar- and euro-denominated senior notes, split after the initial downsizing into $1.28 billion of the dollar bonds and $450 million equivalent of the euro paper, but the latter tranche was later dropped and the entire amount was done in dollars, producing the $1.73 billion size.

The issue came wider than the initial price talk, and several covenant changes were made as well in order to get the deal done.

Energy, iron ore credits off

Away from the new issues, traders said that the big gains notched on Monday in the energy and iron-ore mining sectors faded on Tuesday, as China – a huge buyer of commodities such as oil and steel – reported disappointing trade figures on Tuesday, dashing hopes that the world’s second-largest economy might be a continued driver of a recent upturn in the process for those commodities.

Bejing reported that China’s February exports fell 25.4% on year – much worse than the 15% decline expected by analysts, the largest monthly drop since that country’s financial crisis began with its stock market crash last June. Chinese imports also fell by 13.8% in February, signaling cooling demand for commodities.

A Chinese official on Tuesday predicted that iron-ore prices – which on Monday had surged nearly $20 per ton to above $63 on hopes of renewed Chinese buying – could fall back down to around $40 per ton in the short term.

That took a toll on iron-ore credits such as Australia’s FMG Resources.

Its 9¾% notes due 2022, which on Monday had surged by nearly 6 points, on Tuesday gave that all back and then some. A trader quoted the notes at 99 5/8 bid, a loss of 6 1/8 points on the session, on volume of $25 million.

On the energy front, world crude prices were on the slide, hurt at least in part by the China trade news, and that, in turn, pulled high yield oil and gas credits lower.

Denver-based Continental Resources’ 5% notes due 2022 slid by 3 5/8 points on Tuesday, to 84¾ bid, on volume of more than $41 million. Those bonds had gained 1 3/8 points on Monday.

Chesapeake Energy’s 8% notes due 2022 dropped by 3¼ points, to 50¾ bid, with over $21 million traded. That more than offset the Oklahoma City-based oiler’s 2¼ point gain.

West Texas Intermediate crude of April delivery lost $1.40 per barrel, settling in at $36.50, its first loss after two straight days of gains.

Brent crude for May delivery lost $1.19 per barrel, settling at $39.65– its first loss after six straight sessions on the upside.

Indicators slam on the brakes

Statistical market performance measures turned lower all around on Tuesday – their first negative session after having been higher across the board for eight consecutive trading days before that.

The KDP High Yield Daily Index eased by 3 basis points on Tuesday to finish at 65.22, its first loss after eight straight gains and nine gains in the previous 11 sessions. On Monday, it had risen by 18 bps, on top of twin 26- bps jumps on Thursday and again on Friday.

Its yield edged upward by 1 bps, to 6.77%, after having come in by 3 bps on Monday.

Tuesday marked the first increase in the yield after eight straight sessions in which it narrowed.

The Markit Series 25 CDX North American High Yield Index was down by 17/32 point on Monday, ending at 100 19/32 bid, 10 5/8 offered – its first loss after eight sessions in a row on the upside, including Monday, when it was up by 5/32 point.

And the Merrill Lynch North American High Yield Master II Index also tumbled into the loss column for the first time after eight wins in a row, falling back by 0.092% after having advanced by 0.322% on Monday, its 10th gain in the prior 11 sessions.

Tuesday’s downturn dropped the index’s year-to-date return back to 1.581% from Monday’s 1.675%, which had been its fourth straight new peak level for the year.

© 2015 Prospect News.
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