Primary quiet to close out $770 million week; UCP slates deal; Lions Gate, Warner continue rise

By Paul Deckelman and Paul A. Harris

New York, Oct. 14 – The high-yield primary sphere reverted back to its quiet mode on Friday, with no new issues pricing during the session, in contrast to Thursday, which saw a pair of new issues getting done – the only issues to come to market during the whole week.

Those two new deals – from movie and television production company Lions Gate Entertainment Corp. and recording and music publishing company Warner Music Group Corp. – continued to trade on Friday, with both deals firming from the levels reached in Thursday’s aftermarket action.

High-yield syndicate sources meantime said that homebuilder UCP, Inc. has hit the road to market a $200 million five-year deal to potential investors.

They also said that interest is mounting in wireless operator Sprint Corp.’s $3.5 billion three-part securitization deal – expected to be investment-grade rated but still being marketed to junk accounts, along with high-grade and structured products investors.

Those two deals, plus biotechnology company Horizon Pharma plc’s $300 million eight-year deal, now on the road, pretty much constitute the forward calendar that junk investors will be looking at in the coming week.

Statistical market performance measures turned higher across the board on Friday, in contrast with Thursday’s session, when those indicators all headed south for the first time in almost a month, after being mixed over the previous two sessions.

Those indicators were meantime mixed versus where they had finished last Friday- the second straight week of mixed Friday-over-Friday performances, following two consecutive weeks on the upside.

UCP starts roadshow

The primary market generated a thin news flow on Friday.

UCP began a roadshow for a $200 million offering of five-year senior notes (expected ratings B3/B).

The Citigroup-led deal is in the market with initial yield guidance of 8¼% to 8½%, sources say.

The San Jose, Calif.-based developer and homebuilder plans to use the proceeds to repurchase or repay substantially all of the outstanding debt of UCP, Inc. and its subsidiaries, including UCP’s 8½% senior notes due 2017, and for general corporate purposes including the acquisition and development of land, and home construction.

All eyes on Sprint

Meantime all eyes are on Sprint’s big $3.5 billion three-part securitization deal, sources said on Friday.

Although the offer is set to run a full roadshow, it was already playing to $15 billion of orders at midmorning on Friday, according to a portfolio manager who expects that, given the demand, the roadshow could be shortened.

Although the secured amortizing notes are expected to be rated Baa2 by Moody’s and BBB by Fitch, the deal is being jointly run on the high yield, investment grade and structured products syndicate desks.

High yield accounts appear to be piling in, a trader said, early Friday afternoon,

The class A-1 five-year notes are being whispered in the high 4% to 5% context, the portfolio manager said. The class A-2 seven-year notes are whispered in the low 5% area. And the class A-3 10-year notes are whispered in the mid-to-high 5% area.

Those levels will tighten, the portfolio manager forecasted.

Goldman Sachs is the global coordinator and lead left bookrunner for the deal.

Quiet week ahead

The primary market, now in the throes of an earnings blackout, is apt to remain quiet in the week ahead, a syndicate banker said.

Aside from the aforementioned UCP and Sprint deals, Horizon Pharma is roadshowing a $300 million offering of eight-year senior notes with 8½% initial yield guidance.

There are transactions set to go late in the month, the banker said.

However the footing of the market is going to be tricky, with the global capital markets facing a headline-related triple whammy: the U.S. presidential election, a possible Fed Funds rate hike and the execution of Brexit, the United Kingdom’s pullout from the European Union.

The week ahead in Europe is expected to be slow as well, according to a London-based debt capital markets banker.

Medical Properties Trust, Inc. plans to meet with investors on a Monday-to-Wednesday roadshow.

Pending the results of that roadshow, a euro-denominated offering of notes could follow.

The deal, should it materialize, is expected to be split-rated, with an expected Ba1 rating from Moody's and a BBB- from Standard & Poor's.

It would be transacted on the investment-grade syndicate desk.

Credit Agricole and Goldman Sachs are the bookrunners.

Also there could be a sterling-denominated deal in the offing in the week ahead, the banker said.

Mixed daily flows on Thursday

Dedicated high-yield bond funds saw mixed cash flows on Thursday, the most recent session for which data was available at press time, a buyside source said.

High-yield ETFs sustained $514 million of outflows on the day (although generally quiet on Friday, the ETFs were small buyers on the day, a trader said).

Asset managers saw $20 million of inflows on Thursday.

The news follows a late Thursday afternoon report from Lipper US Fund Flows that the dedicated junk bond funds saw $72 million of outflows on the week to Wednesday’s close.

Dedicated bank loan funds saw $100 million of daily inflows on Thursday, the buysider said.

Week’s issuance slides

The week just completed a mere $770 million of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers price in two tranches, according to data compiled by Prospect News.

That was down from the $3.49 billion which had priced in eight tranches last week, ended Oct. 7, and the $3.18 billion that came to market in six tranches the week before that, ended Sept. 30.

This week was the quietest that the primary had seen since the week ended Sept. 2, when no deals were priced at all.

Among the factors hindering prospective issuance was holidays – this week was one day shorter than usual, with junk bonds and the other fixed-income markets in the United States closed this past Monday in observance of Columbus Day.

Also quieting things down somewhat and thinning attendance was the Jewish Yom Kippur holiday, which began at sundown on Tuesday and continued into Wednesday.

This week’s pair of new deals nudged the year-to-date issuance total up to $182.58 billion in 279 tranches.

That was running some 18.9% behind the new-deal pace seen at this time last year, when $225.36 billion had priced in 355 tranches by this point on the calendar, the Prospect News data indicated.

That was a narrowing from the 19.8% gap between this year’s and last year’s issuance seen last week.

Thursday deals continue firming

Thursday’s new deals were trading around on Friday, although not quite on the same volume that they did immediately after pricing.

Both were somewhat firmer on the day.

The Lions Gate Entertainment 5 7/8% senior notes due 2024 were seen by a pair of traders having reached the 101 bid level by Friday afternoon.

At another shop, a trader said that the bonds had gotten as good as 101¼ bid.

Friday volume was $17 million – a shadow of the more than $126 million which had changed hands on Thursday after the Santa Monica, Calif.-based movie and television production company’s $520 million regularly scheduled forward calendar offering had priced at par.

Thursday’s activity in the more than four times oversubscribed Lions Gate issue was the heaviest of any high-yield credit that session.

The new notes were seen in a 100½ to 100¾ bid context in initial aftermarket activity.

Thursday’s other transaction – Warner Music Group’s 4 7/8% senior secured notes due 2024 – had moved up to 101 bid by Friday afternoon, a trader said, on volume of around $7 million.

That was down from the more than $18 million that traded on Thursday in a 100¼ to 100¾ context after the giant New York-based recording and music publishing company priced $250 million of those notes at par in a scheduled deal off the calendar.

That tranche of dollar-denominated Warner Music Group bonds was part of a $630 million equivalent two-part transaction that also included €345 million of 4 1/8% senior secured notes due 2024, which also priced at par.

Those euro-denominated notes shot up above the 101 level in morning trading and were seen going home later in the day at 101½ bid, 102¼ offered.

Recent deals quiet down

Traders reported relatively little activity on Friday in issues which had priced last week.

For instance, one said that only about $2 million in round-lot trades took place in Transocean Ltd.’s 7¾% senior secured notes due 2024. He saw the bonds unchanged 104½ bid.

The Zug, Switzerland-based marine drilling company had priced $600 million of those notes last Friday at 98.5 in a quickly shopped transaction that yielded 8%.

The bonds initially jumped to a 102 bid range from their deeply discounted pricing level and continued to add to those gains in subsequent days.

Indicators turn better

Statistical market performance measures turned higher across the board on Friday in contrast with Thursday’s session when those indicators all headed south for the first time in almost a month, after having been mixed over the previous two sessions.

The last time previously that the indicators all moved down in tandem was back on Sept. 16.

The indicators were meantime mixed versus where they had finished last Friday, the second straight week of mixed Friday-over-Friday performances, following two consecutive weeks on the upside before that.

The KDP High Yield Index gained 2 basis points on Friday to end at 71.24, its first gain after two consecutive losses, including Thursday’s 9 bps retreat.

Its yield was unchanged on Friday at 5.43% after having come in by 8 bps on Thursday despite the lower index reading.

The index reading compared unfavorably with last Friday’s 71.34, although the yield was in from 5.47% last Friday.

The Markit Series 27 CDX Index improved by 3/16 point on Friday to close at 104 1/8 bid, 104 3/16 offered, after losing 7/32 point on Thursday.

However, it was down from last Friday’s 104 11/32 bid, 104 3/8 offered finish.

The Merrill Lynch High Yield Index rose by 0.177% on Friday, its first gain after three straight losses, including Thursday’s 0.11% setback.

That gain raised the index’s year-to-date return to 15.921% on Friday from Thursday’s 15.717%, and established a new peak cumulative return for the year surpassing the old mark of 15.893%, seen on Monday.

For the week, the index was up by 0.078%, its fourth straight weekly improvement and ninth weekly rise in the last 11 weeks.

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