High-yield secondary trades off; new issues in fashion; AK Steel pushes higher on tender, new deal

By Stephanie N. Rotondo

Seattle, June 13 – The secondary high-yield market was on the weaker side in Monday trading.

“It felt like a lot of things backed up today,” a trader said.

The trader also noted that activity was muted, though new issues continued to be in focus.

Monday’s subdued trading comes ahead of the Federal Reserve’s policy meeting later this week. The market is waiting to see if the central bank will opt to raise interest rates this month, or if they will put the hike off until July or later.

The market is also waiting to see if the United Kingdom will opt to leave the European Union in an upcoming referendum vote on June 23. Chatter is that the so-called “Brexit” is troubling the markets more than the possible rate increase or even the looming U.S. presidential election.

As for the day’s high-yield dealings, AK Steel Holdings Corp.’s debt was again “pushing higher,” a trader said. The steelmaker announced a tender offer for its 8¾% notes due 2018 on Monday, which will be paid for by a $380 million offering of seven-year 7½% secured notes.

Pricing for the new issue was announced late on Monday.

Meanwhile, names like Chemours Co. and Intelsat SA were “definitely lower,” a trader said.

Chemours’ 7% notes due 2025 were seen falling a point to 81½. The name has been under pressure since earlier this month, when Citron Research said in a report that the chemical manufacturer spun-off from DuPont was facing an imminent bankruptcy.

Intelsat’s 8% senior secured notes due 2024 were meantime off about a point as well, trading in a par ½ to 101 context.

“Maybe they are weaker because [the company is] going to be coming to market at some point to fund that tender deal that’s out there,” a trader speculated.

Reynolds $2.9 billion drive-by

In Monday's primary market Reynolds Group Holdings Ltd. priced $2.9 billion of high yield notes in three tranches, according to an informed source.

The transaction included $750 million of senior secured floating-rate notes (B1/B+), which priced at 99.00 with a 350 basis points spread to Libor. The spread came at the tight end of the Libor plus 350 to 375 bps spread talk. The discount came at the cheap end of the 99 to 99.5 price talk.

The $2.1 billion overall amount of secured paper also included $1.35 billion of seven-year senior secured fixed-rate notes (B1/B+), which priced at par to yield 5 1/8%. The yield printed in the middle of the 5% to 5¼% yield talk.

Credit Suisse Securities (USA) LLC was the sole bookrunner for the secured notes tranches.

Reynolds also priced $800 million of eight-year senior unsecured notes (Caa2/CCC+) at par to yield 7%. The yield printed at the tight end of the 7% to 7¼% yield talk.

Credit Suisse and HSBC were the joint bookrunners for the unsecured tranche.

The issuing entities are Reynolds Group Issuer SA, Reynolds Group Issuer Inc. and Reynolds Group Issuer LLC, wholly owned subsidiaries of Reynolds Group Holdings.

The food and beverage packaging manufacturer plans to use the proceeds to refinance its existing notes, including the 7 1/8% senior secured notes, the 7 7/8% senior secured notes, the 8½% senior notes, the 9% senior notes the 9 7/8% senior notes and the 6% senior subordinated notes.

DirectChassisLink atop revised talk

Direct ChassisLink, Inc. priced a $325 million issue of seven-year senior secured second-lien notes (B3/BB-) at par to yield 10% on Monday, according to an informed source.

The yield printed on top of revised yield talk. Earlier talk was in the 9% area.

Initially the offer was in the market with guidance in the high 8% to 9% yield range, market sources said.

Goldman Sachs & Co. was the left bookrunner. BNP Paribas Securities Corp. was the joint bookrunner.

Proceeds, together with borrowings under the ABL facility and certain equity investments, will be used to finance the acquisition of Direct ChassisLink by EQT Infrastructure II Fund, as well as to repay or redeem existing third-party debt for borrowed money of Direct ChassisLink and its subsidiaries.

The issuing entity will be Deck Chassis Acquisition Inc., which is to be merged with and into LJ Chassis Holdings, Inc., the parent of Direct ChassisLink, a Charlotte, N.C.-based provider of equipment and asset management services to the U.S. intermodal industry.

L Brands 20-year notes

L Brands, Inc. priced a $700 million issue of 20-year non-callable senior notes (Ba1/BB+) at par to yield 6¾% on Monday, according to a market source.

The yield printed on top of yield talk.

BofA Merrill Lynch, Citigroup Global Markets and J.P. Morgan Securities LLC were the joint bookrunners for the public offer.

The Columbus, Ohio-based specialty retail company plans to use the proceeds to redeem its 6.9% notes due 2017 and for general corporate purposes.

The L Brands portfolio includes L Brands, through Victoria’s Secret, PINK, Bath & Body Works, La Senza and Henri Bendel.

AK Steel prices

AK Steel Holding Corp. priced a $380 million public offering of 7½% seven-year senior secured notes late on Monday, according to a press release.

Initial guidance had the note coming with a yield in the mid-to-high 7% range.

BofA Merrill Lynch, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Citigroup Global Markets, Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. are the joint bookrunners.

The West Chester, Ohio-based producer of flat-rolled carbon, stainless and electrical steel products plans to use the proceeds, together with cash on hand and/or borrowings under its revolver, to finance the tender for its 8¾% senior secured notes due 2018.

Cott roadshow

Cott Corp. plans to start a roadshow on Tuesday in London for a €450 million offering of eight-year senior notes (B3/B-), according to a market source.

The roadshow continues in London on Wednesday and wraps up on Thursday in Paris.

Joint bookrunner Deutsche Bank will bill and deliver for the Rule 144A and Regulation S offer. JP Morgan, Wells Fargo, BofA Merrill Lynch and SunTrust Robinson Humphrey are also joint bookrunners.

The notes become callable after three years at par plus 75% of the coupon.

Cott, a beverage company based in Toronto, Ont. and Tampa, plans to use the proceeds to finance a portion of the acquisition of Eden Springs (Hydra Dutch Holdings 1 BV) and to refinance certain debt of Eden Springs and its subsidiaries.

Mixed flows

The dedicated high yield bond funds saw mixed flows on Friday, the most recent session for which data was available at press time, according to a market source.

High yield ETFs saw a whopping $666 million of outflows on the day, the source said.

Actively managed funds, however, saw $15 million of inflows on Friday.

New issues in focus

New and recent high-yield issues continued to have investors’ attention on Monday.

From the day’s business, L Brands Inc.’s $700 million of 6¾% senior notes due 2036 were straddling par post-pricing, according to a market source.

The source pegged the issue at 99 7/8 bid, par 1/8 offered.

Also priced Monday, Direct ChassisLink Inc.’s $325 million of 10% senior secured second-lien notes due 2023 fared better than the L Brands deal, ending in a 101 to 102 context.

From Friday’s session, a trader said Weatherford International Ltd.’s $1.5 billion of notes – done in two tranches – were active.

However, he added that the debt was “not trading all that great,” seeing both the 7¾% notes due 2021 and 8¼% notes due 2023 in a range of 98¼ to 98¾.

AK Steel stays strong

AK Steel bonds remained on an upward track in Monday trading, according to market sources.

One trader called the 7 5/8% notes due 2020 up 2 to 3 points, trading “around 89.” At another shop, the issue was seen rising 3 points to 89¾ bid.

On Monday, the West Chester, Ohio-based company said it was tendering for its 8¾% senior secured notes due 2018. Holders who participate in the all-cash exchange will receive $1,047.50 for each $1,000 of notes.

Those who do not participate in the tender will have their holdings “promptly” redeemed, the company said.

But holders have a short turnaround in which to participate, as the offer expires at 5 p.m. ET on Friday.

AK Steel plans to fund the tender, at least in part, with proceeds from a $380 million offering of senior secured notes due 2023. Initial price talk placed the yield in a mid- to high-7% range.

The deal priced late on Monday.

Market treads lower

Market indicators appeared to confirm market players’ assertions that it was a soft trading day.

The KDP High Yield index fell to 67.95, as the yield widened to 6.03%. On Friday, the index reading was 68.11, with a 5.98% yield.

The CDX North American Series 26 High Yield index was meantime off almost half a point at 102.3 bid, 102.38 offered, according to one source.

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