Primary holiday continues, recent deals busier; Tronox up on price hike; Aleris quiet despite acquisition news

By Paul Deckelman and Paul A. Harris

New York, Aug. 29 – The high yield market opened the August-to-September crossover week on Monday – the final week before the Labor Day holiday – pretty much the same way it had closed out last week, with primary activity still in a holding pattern, and likely to remain so until after the holiday break.

There was a mild upturn seen in trading volumes in some of the recently priced new deals that have come to market, particularly in the cash-interest bonds that American Media, Inc. priced as part of its two-part private placement last week – the sole deal to have gotten done that week in Junkbondland.

There was also a fair amount of activity seen in names such as Novelis Corp. and Diamond Resorts International, Inc., which were among the transactions that got done the week before.

The recent deals were seen mostly firmer on the day, in line with an overall better tone in the market.

Away from the new-deal sphere, chemical pigments producer Tronox Ltd.’s bonds were among the more actively traded junk issues, moving up on the session perhaps on the back of its recent announcement of higher prices for its products.

There was merger and acquisition news out on Aleris Corp., which is being bought by China’s Zhongwang USA LLC entity in a $2.3 billion deal that includes debt assumption, but initial reaction in Aleris’ bonds was quiet.

There likewise was not much bond activity sparked by construction materials maker USG Corp.’s plans to sell one of its subsidiaries to ABC Supply for $670 million, although the transaction is seen as good for USG from a deleveraging standpoint.

Statistical market performance measures turned higher all around on Monday, after having been mixed over the previous three sessions. It was the second higher-across-the-board session in the last five trading days.

The new issue market remained shuttered on Monday and is almost certain to remain so until the end of the upcoming Labor Day holiday weekend, a trader said.

There should be some new issue supply post-Labor Day – a forecast for $25 billion of issuance in September was heard earlier – however specific issuer names have yet to surface, the trader said.

A possible September rate move on the part of the Federal Reserve could impact the vigor of the primary market the trader said.

Inflows continue

High yield investors are hoping for a post-Labor Day calendar as a means of putting cash to work, sources say.

There presently is a lot of cash looking for decent yield, they add.

And indications are that cash is continuing to come in.

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

High yield ETFs saw a substantial inflow of $224 million on the day.

Actively managed funds saw $70 million of inflows on Friday.

Meanwhile dedicated bank loan funds were also positive, with $15 million of inflow.

Recent deals more active

In the secondary market, with no new deals having come down the chute over the past few sessions and nothing expected this week – a trader opined that “nothing is doing until after Labor Day; I don’t think there’s anything on the calendar till then” – there was some focus on recent new issues, which were busier than they had been at the tail end of last week.

Most of those deals were firmer on the day.

American Media’s 5 ½% secured notes due 2021 were seen by a market source to have gained 1 3/8 point on Monday, getting as good as 78 bid on the day before going home at 77 7/8 bid, on volume of over $11 million.

Those bonds had gone home on Thursday at 76½ bid, with more than $9 million changing hands, but had been unseen on Friday.

The other half of that deal – the company’s zero-coupon notes due in March of 2022 – also improved by 1 3/8 points on the day, going out at 49 bid, up from Friday’s 47 5/8 bid. Monday’s volume was $3 million, a little improved from Friday’s $2 million of turnover.

The Boca Raton, Fla.-based newspaper and magazine publisher’s $670 million offering – done as a largely under-the-radar private placement but with Rule 144A formatting – had surfaced in the market around the middle of last week.

The company had priced $136 million of the 5½% notes at 73 bid, and $534 million of the zeros at 42.75, for total gross proceeds of $328 million.

Among other recently priced transactions seen in Monday’s market, Novelis Corp.’s 6¼% notes due 2024, were up by ¾ point on the day, at 103¾ bid, with over $10 million traded, after having lost 3/8 point on Friday, on $7 million of volume.

The Atlanta-based producer of rolled-aluminum products and recycler had prided $1.15 billion of the bonds at par on Aug. 15 in a quick-to-market transaction that was sharply upsized from an originally announced $525 million.

Diamond Resorts’ 10¾% senior unsecured notes due 2024 were seen ¾ point better on the session on Monday, at 97¾ bid, with over $6 million traded, a pickup from Friday’s low levels.

The company’s new 7¾% senior secured notes due 2023 were unchanged at 101¼ bid, with over $4 million traded.

The Las Vegas-based hospitality and vacation ownership company had priced $500 million of the secured notes and $600 million of the unsecured notes, both at par, in a regularly scheduled forward calendar deal on Aug. 17 via its Dakota Merger Sub Inc. subsidiary.

Tronox trades up

Away from the recent deals, a trader said that “those Tronox 6 3/8% notes due 2020 were active today,” although he added that he was “not sure what the driving force on these bonds were.”

He saw the notes up ¾ point to 90¾ on “pretty decent volume.”

Another market source, who also saw the bonds up ¾ point, estimated that volume at over $14 million – one of the busiest issues in a generally calm session.

The bonds rose after the Stamford, Conn.-based chemical producer announced last week that it had raised prices last week on its titanium dioxide pigment, which is used in a variety of products from paint to sunscreen.

Little response in Aleris

Elsewhere, a trader noted that “it looks like Aleris is being bought” – but said he had not seen any trading in the Beachwood, Ohio-based aluminum rolled products manufacturer’s Aleris International, Inc. 9 ½% senior secured notes due 2021, having seen the last trades in that issue on Friday, at 108 ¼ bid, and nothing doing on Monday.

At another desk, a trader said that the Aleris7 7/8% senior notes due 2020 had moved up to 102 ¼ bid from last week’s levels around 99½ – but noted that there were only two large-sized trades during the session.

Aleris International’s parent company, Aleris Corp., announced on Monday that it has entered into a definitive agreement to be acquired by Zhongwang USA LLC, a company majority-owned and led by Liu Zhongtian, founder of China Zhongwang Holdings Ltd., the second-largest aluminum extrusions product developer and manufacturer in the world.

The transaction, which is expected to close in early 2017, has an aggregate value of $2.33 billion, comprising $1.11 billion in cash for the equity to be paid by Zhongwang USA, plus $1.22 billion in net debt.

The first trader said that “I don’t know if it’s known what the situation is with the bonds – there was talk that the ½ s would be taken out, but the only way to do that would be via a make-whole at this point.”

The company sold $550 million of those notes earlier this year, pricing them at par on March 22, after the regularly scheduled forward calendar issue was upsized from an originally announced $450 million.

Those bonds are non-callable until April 1, 2018, and then can be called at 104.75 – well under their recent and current trading levels.

The trader estimated that taking out the 9½% notes via a make-whole call would carry a price of 117.

While there is a change-of-control provision allowing the company to buy the bonds back at 101 the trader acknowledged that the noteholders “would have to be crazy” to exercise that put option with the bonds already up around 108.

The $500 million of 7 7/8% notes due 2020, which the company sold in a scheduled forward calendar deal in October of 2012, are currently callable at 105.906, although that call price is scheduled to decline to 103.938 on Nov. 1.

Little USG bond impact

Chicago-based building products manufacturer USG Corp. announced that it had agreed to sell its L&W Supply subsidiary – a commercial distributor of gypsum wallboard and building materials – to ABC Supply of Beloit, Wis., in a $670 million transaction.

According to senior analyst Vicki Bryan at the Gimme Credit independent research agency, “cash netted from the sale is expected to reduce USG's already low leverage to near 2x.”

She also noted that USG’s profitability is “now poised for significant improvement following the close in late 2016 of chronically low margin L&W Supply commercial distribution business.

“Leverage is falling rapidly and tracking investment grade credit quality metrics.”

Despite those bullish factors, though, news of the sale “didn’t really do anything for their [USG’s] bonds.”

He said that its 5½% notes due 2025 “weren’t really much traded, maybe up ¼ or so at 108¾ bid,” but only with about $1 million changing hands.

Another trader said that there had been no round-lot trades Monday in any of the other bonds in USG’s capital structure – and no odd-lot trades, either, in some of those issues.

Indicators move higher

Statistical market performance measures turned higher all around on Monday, after having been mixed over the previous three sessions. It was the second higher-across-the-board session in the last five trading days.

The KDP High Yield index jumped by 15 basis points on Monday to close at 70.61, on top of Friday’s 3 bps gain, its fourth improvement in the last five sessions. Monday’s rise established a second consecutive high for the year to date and the past 52 weeks, eclipsing the old mark of 70.46 that had been set on Friday.

Its yield was unchanged at 5.23%, after having come in by 1 bp on Friday, its second narrowing in the previous three trading sessions.

The Markit Series 26 CDX index gained 3/16 point on Monday, ending at 104 11/16 bid, 104¾ offered, its second rise in the last three sessions. On Friday, the index had lost over 9/32 point.

And the Merrill Lynch High Yield index was up for a second successive session on Monday, improving by 0.066%, on top of Friday’s 0.057% rise, which stood in contrast to Thursday’s 0.024% loss. That setback had been the index’s first downturn since Aug. 2, snapping a 16-session winning streak.

The streak-prone index’s recent long string of gains, in turn had followed a six-session slump before that.

Monday’s move brought the index’s year-to-date return up to 14.542% – its second straight new year-to-date high for the year, surpassing the old zenith of 14.466% which had been set on Friday.

© 2015 Prospect News.
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