Downsized Yum! prices, Wesco drives by, CVR on tap; short Weatherford paper up on tender

By Paul Deckelman and Paul A. Harris

New York, June 2 – The high-yield primary market saw its first new issues price in a week on Thursday as a pair of deals got done in three tranches.

Fast-food giant Yum! Brands, Inc. priced a downsized two-part offering totaling $2.1 billion as a regularly scheduled forward-calendar offering. The transaction consisted of tranches of eight- and 10-year notes, each sized at $1.05 billion.

Traders quoted both tranches of the new Yum! paper slightly higher.

The day’s other deal was a quick-to-market $350 million offering of eight-year notes from Wesco International, Inc., a provider of electrical, industrial, and communications products, building materials and supply chain and logistics services, via its Wesco Distribution, Inc. supply chain management services subsidiary.

They were the first dollar-denominated and fully junk-rated offerings to price in this holiday-shortened May-June crossover week, in sharp contrast to the $11.2 billion of junk deals that got done in a whopping 20 tranches last week, the heaviest-volume week for new issuance seen so far this year in Junkbondland.

While this week will not come anywhere close to matching last week’s totals, syndicate sources said that there would likely be some further issuance on Friday, when CVR Partners, LP, a nitrogen fertilizer producer, is expected to price a scheduled $625 million offering of seven-year secured notes

Trading in recently priced issues, which has recently dominated the junk bond Most Actives list, slackened off a little on Thursday, with more of a focus on established issues. However, there was still fairly active dealings in such recent credits as Hertz Equipment Rental Corp., United States Steel Corp. and, going back a little further, investor favorite Western Digital Corp.

Away from the new deals, Weatherford International plc’s nearest-maturity bonds pushed higher in active trading, helped by Wednesday’s announcement that the Swiss international oilfield services provider will tender for four soon-maturing series of its notes, and Thursday’s news that the company had sold $1.1 billion of new five-year exchangeable senior notes to fund that tender offer.

Chemours Co.’s bonds, and its shares, plunged during the day in busy trading after a short-seller firm, Citron Research, issued a scathingly critical report about the chemical company, which was spun off last year from industry giant DuPont. But the stock rallied and the bonds cut their losses after Chemours issued a strongly worded rebuttal.

Statistical market performance measures turned mixed on Thursday after having been lower across the board on Wednesday; they had also been mixed over the previous four straight days and thus, have been mixed in five out of the last six sessions.

Another statistical indicator – flows of investor funds into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – was back on the upside this week, the funds’ second such winning week out of the last three.

Some $145 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, in contrast to last week’s $562.3 million outflow (see related story elsewhere in this issue).

Yum! downsized

Two issuers brought a combined three tranches, raising a total of $2.35 billion on Thursday. They were the first deals to clear the dollar-denominated primary market after the Memorial Day holiday.

One of the two issuers came with a drive-by.

Although neither deal was upsized, one was downsized.

Executions appeared solid, with one tranche coming at the tight end of talk while the other two came atop talk.

Yum! Brands priced a downsized $2.1 billion two-part offering of senior notes (B1/BB).

The deal included $1.05 billion of eight-year notes which priced at par to yield 5%. The yield printed on top of yield talk, but at the wide end of the 4¾% to 5% initial guidance, market sources said.

Yum! also priced $1.05 billion of 10-year notes at par to yield 5¼%. The yield printed on top of yield talk as well as initial guidance which had the 10-year notes pricing 25 basis points behind the eight-year notes.

The deal, which was downsized from $2.3 billion on Thursday morning, was oversubscribed, with $5.25 billion of orders evenly split between both tranches, an investor said.

The company raised the $200 million downsize amount by upsizing its concurrent term loan.

Goldman Sachs was the left bookrunner. J.P. Morgan, Citigroup, Wells Fargo and Morgan Stanley were the joint bookrunners.

The Louisville, Ky.-based fast food company plans to use the proceeds to help finance a cash distribution to its parent which will use it to fund share repurchases and/or a special dividend and also to repay its existing credit facility and for general corporate purposes.

Wesco prices tight

Wesco Distribution priced a $350 million issue of eight-year senior notes (B1/BB-) at par to yield 5 3/8%.

The yield printed at the tight end of official yield talk and early guidance, both of which were in the 5½% area.

Left bookrunner Goldman Sachs will bill and deliver for the quick-to-market debt refinancing deal. BofA Merrill Lynch, Credit Suisse, JP Morgan and Morgan Stanley were joint bookrunners.

CRV talked at 9% to 9¼%

As of the Thursday close, one announced deal was on deck for Friday.

CVR Partners and CVR Nitrogen Finance Corp. talked a $625 million offering of seven-year senior secured notes (B1/B+) to yield 9% to 9¼%.

In addition to price talk there were covenant changes.

Books close at noon ET on Friday and the deal is expected to price thereafter.

Official talk blew out well beyond initial guidance which had the deal coming in the low-to-mid 8% yield context, market sources said.

In addition, the deal remains in the market a day longer than sources had expected when it launched early in the post-holiday week.

Credit Suisse and UBS are the joint bookrunners.

Beyond CVR, which is the only announced business on the active forward calendar, there is not a great deal of certainty with respect to the deal pipeline, sources said Thursday.

Dell Inc.’s expected $3.25 billion of speculative grade senior unsecured notes backing Dell’s acquisition of EMC Corp. should come soon, according to sources – one a trader, the other a portfolio manager.

It should be next week’s business, the portfolio manager said.

However a sellside source, pointing out that the Dell-ECM merger is not expected to close until the fall, does not believe there is any rush to bring the junk deal into the market.

Dell’s expected unsecured bonds, whenever they come, will do so on the heels of the mammoth $20 billion six-part investment grade-rated secured note sale (Baa3/BBB-/BBB-) which priced on May 17.

That deal played to $80 billion of orders, 20% of which came from high-yield accounts, sources said.

New deals less prominent

In the secondary market, a trader said on Thursday that things were “not that quiet – it was a normal day in terms of volume,” with over $2.6 billion trading, according to the Trace tracking system.

However, unlike recent sessions, which seemed largely dominated by trading in newly or recently priced credits, Thursday’s market seemed more focused on existing bonds, with just a small handful of recent issues making their way onto the Most Actives list.

Among these were the new Hertz Equipment Rental 7½% notes due 2022, seen up 1/16 point on the day, a market source said, ending at 100 3/16 bid, with about $12 million having traded.

The issuer’s 7¾% notes due 2024 were meantime off by 3/8 point at 99 5/8 bid, but with only a handful of large-sized trades seen.

HERC, a division of the giant Estero, Fla.-based vehicle and heavy equipment rental company Hertz Global Holdings, Inc., priced $1.235 billion of new paper in two tranches last Wednesday after upsizing the scheduled forward calendar offering from $1.1 billion.

That deal consisted of the $610 million of 7½% notes due 2022 as well as the $625 million of 7¾% notes due 2024, both of which priced at par and then hugged a par to 100¼ bid context throughout the following days.

U.S. Steel’s 8 3/8% senior secured notes due 2021 were unchanged on the day at 102 bid, a trader said, on volume of more than $13 million.

The Pittsburgh-based integrated steel manufacturer had priced $980 million of those notes at par on May 3, after the regularly scheduled deal was solidly upsized from an originally announced $500 million.

Traders also noted the continued presence, high up on the Most Actives list, of Western Digital’s big two-part deal, which priced all the way back on March 30 but which has frequently been among the most actively traded credits in many of the sessions since then.

Thursday was no exception.

“Those Western Diges continue to trade pretty actively,” one trader pronounced, with around $15 million of its purely junk-rated 10½% notes due 2024 and a roughly equal amount of its split-rated (Ba1/BBB-BBB-) 7 3/8% senior secured notes due 2023having traded around.

The 10½s were unchanged at 103 5/8 bid, while the 7 3/8s eased by around 1/8 point, ending at just under 104 bid.

The Irvine, Calif.-based computer disk drive maker priced a total of $5.255 billion of those notes, with the forward calendar offering having been downsized from $5.6 billion originally. It ended up being split into a $1.875 billion tranche of the secured notes, upsized from $1.5 billion, and $3.35 billion of the unsecured notes, downsized from $4.1 billion originally. Both halves of that big deal priced at par. They then moved up to around their current levels, the secured bonds quickly reaching those levels and the unsecureds experiencing a more gradual climb.

A trader said the two halves of the Teck Resources Ltd. issue “were down around ¼ point” versus where they had finished on Wednesday, when they were also down by the same amount. But he did not see much in the way of volume in those notes, unlike the case last Thursday and Friday and on Tuesday and Wednesday, when both of those issues were perennially among the active credits.

The Vancouver, B.C.-based miner of precious metals and industrial metals priced $1.25 billion of those bonds in a two-part offering off the forward calendar last Thursday. The $650 million of 8% notes due 2021 and $600 million of 8½% notes due 2024 both priced at par, after the transaction was upsized from $1 billion originally.

The bonds were quoted late Thursday with both tranches in a 102 to 102½ context.

New Yum! bonds seen higher

Among Thursday’s offerings, Yum! Brands’ new 5% notes due 2024 and 5¼% notes due 2026 were quoted by a trader at 100½ bid, 101 offered for both tranches, although he did not know how much volume there actually was.

Both tranches had priced at par late in the session.

Traders did not initially report any aftermarket levels on Wesco’s 5 3/8% notes due 2024, which priced at par.

Weatherford firms on refinance

Away from the new deals, Weatherford International’s shortest-duration bonds were the among the day’s busiest, trading at elevated levels in the wake of Wednesday’s announcement that the Baar, Switzerland-based international oilfield services provider will tender for four soon-maturing series of its notes and, on top of that, Thursday’s news that the company had sold $1.1 billion of new five-year exchangeable senior notes to fund that tender offer.

“The front-month ones were pretty active and up,” a trader declared, “while anything further out was probably lower.

“The bonds being tendered for were pretty active.”

“WFT was up,” another said, “especially the ’17 bonds, up 3½ or almost 4 points.”

The company’s Weatherford International LLC (Weatherford Delaware) 6.35% notes due 2017 were seen jumping to levels just above 105 bid from Wednesday’s close around 101 1/8 bid, with over $29 million having changed hands

Also higher were four series of notes issued by the company’s Weatherford International Ltd. (Weatherford Bermuda) subsidiary.

Its 6% notes due 2018 gained ¼ point on the day to 104 1/8 bid, with over $11 million having traded; those bonds had begun trading on Wednesday at 98¼ but had climbed to levels just under 104 just before Wednesday’s close on a couple of late trades on the tender offer news.

Its 9 5/8% notes due 2019 – which had firmed solidly to 103½ bid on one large-sized trade late Wednesday on the tender news after having earlier traded around the 98 mark – traded another ¼ point higher Thursday, ending at 103¾, with volume robust at more than $40 million.

Bermuda’s 5 1/8% notes due 2020 gained some 4¾ points in Thursday’s trading, finishing at 85¾ bid on more than $30 million of turnover.

Its 4½% notes due 2022 – which, alone among the five busiest Weatherford issues, are not being tendered for – were the only Weatherford paper actually trading easier, losing 1½ points to end at 79 bid. Over $13 million traded.

Investors were seen reacting to the Wednesday announcement that Weatherford had begun an offering to purchase, in order of priority, Weatherford Delaware’s 2017 notes and the Weatherford Bermuda 2018, 2019 and 2020 notes for a maximum aggregate purchase price, excluding accrued interest, of up to $1 billion, which it subsequently raised to $1.1 billion.

The company said it would purchase a maximum of $250 million of the 2019 notes, and a maximum of $100 million of the 2020 notes.

The tender offer will expire at midnight ET on June 28, with an early tender deadline of 5 p.m. ET on June 14.

The company meanwhile said on Thursday that Weatherford Bermuda had priced $1.1 billion of new 5 7/8% exchangeable senior notes due 2021, with the proceeds from the deal to be used to fund the tender offer for the four series of junk bonds.

Those new notes priced at par with an initial exchange premium of 40% after the registered, off-the-shelf deal was increased from its original $1 billion size. The greenshoe on the deal was upsized to $165 million from $150 million.

Chemours chopped down

Elsewhere, a trader said that “there was news out on Chemours – and they were down by 3 points.”

He saw the Wilmington, Del.-based chemical company’s 6 5/8% notes due 2023 ending at 86 bid, calling that a 3 point loss.

A second trader estimated the bonds 3¼ points lower on the session at 86, with over $20 million having moved around.

He noted that the bonds at one point were more than 5 points lower at 84 bid before bouncing off their lows late in the session to come back to the 86 mark.

That paralleled to a degree, the trajectory of the company’s New York Stock Exchange-traded shares, which plunged as much as 9% by around mid-day before bouncing off those lows to actually end the day up 6 cents, or 0.68%, at $8.86.

The volatility, a bond trader said was due to the fact that “Citron Research put out a report saying its shares would be virtually worthless.”

He noted that this was the same short-seller firm that that had issued a scathingly negative report last year on Valeant Pharmaceuticals International Inc., causing the Canadian drugmaker’s bonds and shares to trade massively lower.

In the case of Chemours, Citron’s Andrew Left tweeted out that “$CC is going to 0 BANKRUPT Toxic from the balance sheet to the courtroom. Citron releases its most important report since $VRX,” referring to its earlier negative call on Valeant.

Left said in his report on Chemours that the company – spun off from industry leader DuPont – “set up for bankruptcy,” structured so that its former parent company could dump all of its potential environmental liabilities into the new company to make itself judgement proof.

Late in the day, Chemours issued a strongly worded rebuttal to Left’s screed, causing its shares and bonds to bounce up from their lows.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday after having been lower across the board on Wednesday; they had also been mixed over the previous four straight days and thus have been mixed in five out of the last six sessions.

The KDP High Yield Daily Index dropped by 6 basis points on Thursday, closing at 67.46, its second straight loss and third in the last eight sessions, which included four straight gains at one point. The index had been off by 5 bps on Wednesday.

Its yield was unchanged at 6.16% on Thursday after having improbably come in by 2 bps on Wednesday, even though the index reading was lower; the yield typically moves inversely to the index reading, normally rising on a lower index reading. Wednesday had marked the yield’s first narrowing after one widening, which in turn had followed four straight narrowings before that.

The Markit Series 26 CDX North American High Yield Index suffered its sixth straight loss on Thursday and its ninth such downturn in the last 13 sessions, easing by 1/16 point to close at 102 19/32 bid, 102 5/8 offered. It had lost 3/32 point on Tuesday and again on Wednesday.

But the Merrill Lynch North American High Yield Master II Index got back on the winning track on Thursday, improving by 0.118% after having weakened by 0.199% on Wednesday – its first loss after eight straight stronger finishes before that.

Thursday’s rebound raised its year-to-date return back above the psychologically significant 8% mark, to 8.059%, from Wednesday’s 7.932%. The year-to-date return remained slightly below Tuesday’s 8.147%, which had been its sixth consecutive new peak level for the year and its highest closing level since Dec. 31, 2012, when it finished out that year at 15.583%.

-Rebecca Melvin contributed to this review

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