Upsized Ardagh megadeal, Allegiant price to cap $5.9 billion week; First Data remains busy

By Paul Deckelman and Paul A. Harris

New York, June 20 – After a relatively slow start earlier in the week, the high-yield market picked up steam and closed out the week on Friday on a busy note, with Irish glass and metal container producer Ardagh Group bringing a greatly upsized $1.55 billion two-part issue of fixed- and floating-rate notes to market, along with a third tranche of bonds denominated in euros.

Traders said that the upsized $1.1 billion of 5.5-year floaters strengthened markedly when they hit the secondary market late in the day, while the $440 million of fixed-rate seven-year paper was modestly higher.

The day also saw low-cost airline operator Allegiant Travel Co. do a $300 million issue of five-year notes, which gained some aftermarket altitude.

The day’s $1.85 billion of new paper, all of it in regularly scheduled deals off the forward calendar, raised the week’s total issuance of new dollar-denominated, fully junk-rated bonds to just under $5.88 billion in 12 tranches, according to data compiled by Prospect News – although that was a considerable comedown from the $10.42 billion that got done in 22 tranches the previous week, ended Friday, June 13.

However, market sources indicated that the coming week is likely to be busier, as issuers and underwriters alike try to get their deals done ahead of the looming end of the month, the year’s second quarter and its first half, not to mention the July 4th holiday break, just around the corner.

The week’s issuance, in turn, brought the year-to-date tally of new junk bonds up to $166.42 billion in 318 tranches, according to the data – with 2014 finally drawing even and pulling slightly ahead of the new-deal pace seen at this time last year.

This year’s issuance had lagged last year’s frantic pace almost from the start of the year – some weeks by as much as 20% or more – largely because of a slowdown in refinancing transactions, most of which had been gotten out of the way last year, but is now running about 1.7% ahead of the pace seen in 2013, when $163.64 billion had priced in 369 tranches by this point on the calendar, according to the data.

Traders saw continued activity Friday in some of the bigger deals that had priced earlier in the week, including the two-part offering from Cenveo Corp. and West Corp.’s megadeal, with the latter bonds seen continuing to trade below their issue price.

Away from the new deals, there was also continued action in First Data Corp.’s bonds, riding a wave of momentum following Thursday’s announcement that owner KKR and other investors will pump $3.5 billion of fresh cash into the electronic transaction processor’s corporate coffers, allowing it to chop away at its massive debt load.

Statistical market performance indicators were higher across the board for a second straight session on Friday, after having been mixed over the prior six sessions before that. They remained mixed versus where they had been the previous Friday, though, for a third consecutive week.

Ardagh massively upsizes

Two issuers brought a combined three tranches of dollar-denominated notes to raise an overall total of $1.85 billion during a busy Friday session in the primary market.

All three tranches came at the tight or rich end of price talk.

Ardagh Group priced $1.55 billion and €1,155,000,000 of notes in a three-part transaction that saw the dollar portion of the deal grow from $870 million.

It included a massively upsized $1.11 billion tranche of senior secured floating-rate notes (Ba3/B+) that priced at par to yield three-month Libor plus 300 basis points.

The tranche was increased from $430 million. The spread came on top of spread talk while the reoffer price came at the rich end of the 99.75 to par price talk.

In addition the company priced €1,155,000,000 of senior secured fixed-rate notes (Ba3/B+) at par to yield 4¼%. The yield printed at the tight end of yield talk that had been set in the 4 3/8% area.

The transaction also included a $440 million tranche of senior unsecured fixed-rate notes (Caa1/CCC+) which priced at par to yield 6%, at the tight end of the 6% to 6¼% yield talk.

The market understood that there was a significant amount of reverse inquiry that helped to drive the debt refinancing deal, a trader said.

Joint bookrunner Citigroup will bill and deliver. Deutsche Bank was also a joint bookrunner.

Allegiant prices at tight end

Allegiant Travel priced a $300 million issue of non-callable five-year senior notes (B1/BB-/) at par to yield 5½%, at the tight end of yield talk that had been fixed in the 5 5/8% area.

Goldman Sachs was the bookrunner.

The Las Vegas-based low-cost airline plans to use the proceeds to pay for ownership interests in special-purpose companies owning 12 Airbus A320 series aircraft on lease to a European carrier currently under contract and, along with cash on hand, for the purchase of 11 Airbus A320 series aircraft under contract or letter of intent for purchase during 2014 and 2015.

Evertec withdraws

Evertec withdrew its $400 million offering of non-callable eight-year senior secured notes (B1/BB-) from the market, according to a Friday press release from the company.

The deal had been talked at 5% to 5¼%, and set to price on Friday.

J.P. Morgan Securities LLC and BofA Merrill Lynch were the joint bookrunners (see related story in this issue).

BUT at the tight end

The European primary market generated a steady news volume, with one deal pricing and several roadshow deals coming into view.

French home equipment retailer BUT SAS priced an upsized €180 million issue of five-year senior secured notes (/B/) at par to yield 7 3/8% on Friday, according to a syndicate source.

The deal was increased from €170 million.

The yield printed at the tight end of talk for a yield in the 7½% area.

Bookrunner Goldman Sachs will bill and deliver for the debt refinancing transaction. Barclays was the lead manager.

Debenhams’ sterling offer

Debenhams plc plans to start a roadshow on Monday in London for a £200 million offering of non-callable seven-year senior notes.

Physical bookrunner Barclays will bill and deliver. Royal Bank of Scotland and Lloyds are also physical bookrunners.

The London-based department store chain plans to use the proceeds to refinance debt.

Motherson roadshow Monday

Samvardhana Motherson Automotive Systems Group BV plans to start a roadshow on Monday in London for a €500 million offering of seven-year senior secured notes.

Joint bookrunner Deutsche Bank will bill and deliver. HSBC, ING, JPMorgan, Standard Chartered and State Bank of India are also joint bookrunners.

The Noida, India-based supplier of automobile components plans to use the proceeds to refinance debt.

Plfeiderer to sell secureds

Pfleiderer AG plans to start a roadshow on Monday for a €320 million offering of five-year senior secured notes, according to a market source.

Deutsche Bank will bill and deliver, and is leading a syndicate of banks that includes Commerzbank, Goldman Sachs and BNP Paribas.

The Dusseldorf, Germany-based wood products supplier plans to use the proceeds to refinance debt.

Ardagh seen improved

In the secondary market, the big deal from Ardagh Group – priced via the Dublin-based container maker’s Ardagh Packaging Finance plc and Ardagh Holdings USA, Inc. subsidiaries after a short net roadshow – came fairly late in the session, and at least two traders said they had not seen any trace of it in the aftermarket.

However, at another shop, a market source said that the company’s new floating-rate notes due in December 2019 had risen to 101 bid, 101½ offered after having priced at par.

He saw its 6% notes due 2021 going out at 100½ bid, 101 offered, also up from par.

Allegiant bonds aloft

The trader also saw Allegiant Travel’s 5½% notes due 2019 get as good as 101¾ bid, 102¼ offered, after the low-cost airline’s paper had priced at par.

Cenveo seen around

Among the deals which priced earlier in the week, both tranches of Thursday’s $790 million two-part offering from Cenveo Corp. were seen trading around on Friday.

A market source said that the Stamford, Conn.-based commercial printer and communications solutions provider’s new 6% senior-priority notes due 2019 “were wrapped around 100½” going home, after having traded during the session in a 100 3/8 to 100½ context.

Cenveo had priced $540 million of those notes at par to yield 6.002% on Thursday.

He meantime saw the other half of that scheduled forward calendar deal, the $250 million of 8½% junior-priority notes due in September 2022, trading around 99¾ bid, down from the par level at which they had priced to yield 8.504%.

The trader opined that he was “surprised that Cenveo did as well as it did.”

Another trader meantime saw the 6% notes in a 100½ to 101 context, with the 8½% paper trading at bid levels between 100 and 100¼. He called both tranches down 1/8 point on the day.

Cenveo’s established 11½% notes due 2017 were seen up by ¼ point at 105¾ bid.

Williams notes tighten

One of the junk traders said that the split-rated (Baa3/BB+/BBB-) Williams Cos. Inc. bonds that priced on Thursday were trading a little better.

He quoted the company’s new 4.55% notes due 2024 at par bid, 100¼ offered, versus the 99.738 price at which that $1.25 billion tranche of paper had come to market, yielding 4.583%.

He said that activity was brisk, with over $85 million having changed hands.

He also saw the other half of that $1.9 billion deal, the $650 million of 5¾% long bonds due 2044, at 100½ bid, on volume of over $50 million.

That paper had priced 99.773 to yield 5.766%.

The deal had actually come off the investment-grade desks of the various banks involved, with the 10-year pricing at a spread versus comparable Treasuries of 195 basis points; a trader on Friday said that these had tightened to around 191 bps to 188 bps.

The 30-year bonds had priced at 230 bps over Treasuries, and were quoted Friday at 231 bps to 228 bps.

The Williams deal generated some interest in Junkbondland, despite its mostly still-investment-grade rating – S&P was the sole ratings agency to break ranks and reclassify the debt as junk – because it’s part of the financing for the Tulsa, Okla.-based natural gas pipeline company’s recently announced planned acquisition of junk energy credit Access Midstream Partners LP.

West continues to struggle

Back among the purely junk issues, Omaha-based communications services provider West Corp.’s 5 3/8% notes due 2022 continued to flail around at levels below the $1 billion deal’s par issue price.

Two different traders pegged the bonds at 99¾ bid, par offered. One of them, noting that the bonds had been trading below par ever since their pricing on Wednesday, dismissed the transaction as “just a crummy deal – it priced super-tight,” he said, and investors were pushing back.

At another desk, a trader quoted the trading between 99 5/8 and 100 1/8 bid – but said that actually represented a 3/8 point gain over the 99¼ to 99¾ context at which he had seen those bonds on Thursday.

Busy week ahead?

Traders uniformly described Friday’s session as quite slow and uneventful, with people mostly sitting around waiting for the late-breaking Ardagh deal to price but otherwise not doing much.

“It’s almost like the dog days are already here,” one said, referring to the traditional mid-summer lull in junk-bond activity.

However, he suggested that the upcoming week might be surprisingly busy, with the looming end of the calendar second quarter and first half a likely catalyst for issuers tried to get deals done.

“Then the following week is July 4th week,” he said, when everything grinds to a half – making next week a more likely time for doing those last-minute deals.

First Data busy again

Away from the new deals, First Data’s bonds were again active, though volume dwindled markedly from the levels seen on Thursday. That was when the Atlanta-based credit card and electronic transaction processor’s 11¾% notes due 2021 and its 12 5/8% notes due 2021 had each jumped in heavy trading, reacting to the news that the company’s owner, KKR & Co. LP, and other investors will pump a total of $3.5 billion of fresh cash into First Data, which plans to use at least a good chunk of that money, or maybe even all of it, to pay down some of its more than $23 billion of debt.

The 11¾s had risen by 2½ points to 116¼ on volume of more than $106 million on Thursday. On Friday, a market source saw the bonds up by another 3½ points on a round-lot basis to 119¾ bid, though volume had shrank markedly to just over $7 million. There were a few odd-lot trades later in the day that took the bonds off those peaks and back down into a 117 context, still up more than 1 point on the day.

The 12 5/8% notes were more active, with over $12 million having changed hands, although the bonds were up just marginally on the day, to about the 124 3/8 level.

On Thursday, those bonds had soared by 2 7/8 points to 124¼ on volume of over $46 million.

Market indicators up on day

Statistical indicators of junk market performance were higher across the board for a second consecutive day on Friday, after having been mixed over the previous six sessions.

They were also mixed for a third straight week versus where they had closed out the previous Friday.

The KDP High Yield Daily Index edged up by 1 basis point to close at an even 75.00 on Friday, its second straight session on the upside. On Thursday, it had gained 4 bps, after having fallen by those same 4 bps on Wednesday.

Its yield was unchanged, after having come in by 2 bps on Thursday to close at 4.97%, its second straight decline and its fifth narrowing out of the previous six.

The index reading was down from the 75.03 level at which it had closed out the previous week on Friday, June 13 – but its yield, which moves inversely to the index levels and which would normally rise as the index falls, was also down from the prior week’s 5.07%.

The Markit CDX Series 22 Index was unchanged on Friday at 109 bid, 109 1/8 offered, after having risen by 5/32 point to finish on Thursday, its second straight advance, having also added on ½ point on Wednesday to break out of a recent losing pattern.

For the week, it was up solidly from the previous Friday’s 108 15/32 bid, 108 17/32 level.

Meanwhile the widely followed Merrill Lynch High Yield Master II Index scoffed at superstition and posted its 13th straight advance on Friday, rising by 0.086%, on the heels of Thursday’s robust 0.138% improvement.

The latest gain lifted its year-to-date return to 5.641% its 12th straight new peak level for 2014, eclipsing the old mark of 5.55% that had been set on Thursday.

Several other index components also hit new milestones for the year on Friday.

Its average issue price rose to a second consecutive new high for the year of 105.9435, up from the prior high of 105.8707, set on Thursday.

Its yield to worst declined to 4.859%, its second straight new low for the year and in fact, a new all-time low as well. It declined from 4.887% on Thursday, its previous 2014 and all-time low.

And its spread to worst over comparable Treasury issues narrowed to 354 bps on Friday, a new tight spread for the year, down from the previous tight point of 358 bps, first set this past Tuesday and matched on Thursday.

However, even though junk bond yields are currently at their all-time lows, high yield average spreads remain up by more than 100 bps from their historical tight levels around 250 bps over comparable Treasuries, first set back in 1997 and then matched in 2007.

© 2015 Prospect News.
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