Lennar, KB Home, Northwest Hardwoods lead more relaxed primary; Wynn brings split-rated deal

By Paul A. Harris and Paul Deckelman

New York, Feb. 11 – After three consecutive hectic sessions during which the high-yield primary market churned out new issues at a hefty $3.5 billion-plus pace – though aided by several multi-tranche megadeals – the new-deal realm saw a more moderate level of activity on Wednesday.

Syndicate sources said some $628 million of new dollar-denominated, fully junk-rated paper had priced in three tranches – quite a comedown from the $3.89 billion that had come to market on Tuesday in eight tranches from six issuers. And that busy day, in turn, had followed issuance of $4.69 billion in five tranches on Monday and $3.55 billion in three tranches last Friday.

Homebuilders were the driving force behind Wednesday’s activity, with KB Home and Lennar Corp. each doing a quickly shopped $250 million offering, with Lennar’s an upsized add-on to its existing 2019 notes.

Lumber producer Northwest Hardwoods, Inc. also did an add-on, to its 2021 secured notes, downsized to $135 million.

Gaming giant Wynn Resorts Ltd., meantime, brought a giant-sized split-rated offering of 10-year notes through a pair of subsidiaries, attracting some junk investor interest.

For yet another day, secondary market activity was largely dominated by heavy trading in recently priced issues, including Tuesday’s offerings from Ally Financial Inc. and Univision Communications Inc.

Statistical market performance measures turned mixed on Wednesday after having been higher across the board on Tuesday.

KB Home drives through

Three issuers brought single-tranche dollar-denominated deals on Wednesday, raising a combined total of $628 million.

Two of the three came as drive-bys.

One deal was upsized. Another was downsized.

One came on top of talk. One came in the middle. And one came at the wide end.

KB Home priced a $250 million issue of non-callable senior notes due May 15, 2023 (B2/B) at par to yield 7 5/8% in a quick-to-market transaction.

The yield printed at the wide end of the 7½% to 7 5/8% yield talk.

Credit Suisse, Citigroup, BofA Merrill Lynch and Deutsche Bank were joint bookrunners.

The Los Angeles-based homebuilder plans to use the proceeds to refinance its 6¼% senior notes due 2015 and for general corporate purposes.

Lennar upsizes

Lennar priced an upsized $250 million add-on to its non-callable 4½% senior notes due May 15, 2019 (expected ratings Ba3/BB/BB+) at 100.25 to yield 4.44%.

The deal was upsized from $100 million.

The reoffer price came in the middle of the 100 to 100.5 price talk, according to market sources.

J.P. Morgan was the sole bookrunner.

The Miami-based homebuilder plans to use the proceeds for working capital and general corporate purposes.

Northwest Hardwoods downsizes

Northwest Hardwoods priced a downsized, $135 million non-fungible add-on to its 7½% senior secured notes due Aug. 1, 2021 (B3/B) at 94 to yield 8.737%.

The deal was downsized from $150 million.

The reoffer price came on top of price talk and cheap to earlier guidance of 94 to 95, according to a trader.

Morgan Stanley was the bookrunner.

Proceeds will be used to fund the acquisition of ITL and for general corporate purposes. With the $15 million downsizing the company will no longer make a planned paydown of its ABL facility.

Smurfit Kappa 10-year bullet

Smurfit Kappa Acquisitions, a wholly owned subsidiary of Smurfit Kappa Group plc, priced a €250 million issue of non-callable 10-year senior notes (Ba1/BB+/BB+) at par to yield 2¾%.

The quick-to-market debt refinancing deal was talked at a 210-basis-point spread to mid-swaps.

Citigroup and JPMorgan were the joint global coordinators. Credit Agricole, Danske, HSBC and Royal Bank of Scotland were the joint bookrunners.

Smurfit Kappa became the second European junk issuer in two days to print a two-handle yield.

On Tuesday, Sunrise Communications Holdings SA priced a CHF 500 million issue of seven-year senior secured notes (Ba2/BB+/BBB-) at par to yield 2 1/8%.

KB Homes higher

In the secondary arena, traders saw the new 7 5/8% notes due 2023 from KB Home modestly higher when the new deal moved into the aftermarket.

Two separately put the notes between 100½ and 101 bid, while a third located them in a 100¼-to-100¾ bid context.

The traders did not see any aftermarket activity in the junk market’s other two issues of the day – KB Home sector peer Lennar’s upsized $250 million add-on to its existing 4½% notes due 2019 and Northwest Hardwood’s downsized $135 million add-on to its existing 7½% senior secured notes due 2021.

Wynn not a winner

The day also saw Wynn Resorts bring a slightly upsized $1.8 billion of 5½% notes due 2025, which priced at par via the company’s Wynn Las Vegas LLC and Wynn Capital Corp. subsidiaries after upsizing from $1.75 billion originally.

Although the issue carried a split rating (Ba2/BBB-/BB), traders saw some junk market interest.

However, they reported that the new bonds eased after pricing, with two independently seeing them in a 99¾-to-par context. One called the issue “a dog.”

Another trader was a little more generous, seeing the bonds straddling their par issue price at 99 7/8 bid, 100 1/8 offered.

And at the independent investment advisory service Gimme Credit, senior analyst Kim Noland likes the company, saying in a research note that “operating results in Las Vegas are improving, and recent performance at Wynn's casinos both there and in Macau are maintaining good credit quality.”

Noland acknowledged that leverage at the Las Vegas subsidiary remains high, but noted that the service now views the company on a consolidated basis, so “credit measures on that basis are strong despite continued capex spending for new development.”

Recent deals busy

For yet another session, a trader said that “everybody’s focus was on the new issues” and recently priced credits, crowding out traditional secondary names.

Tuesday’s big two-part offering from Univision Communications topped the Junkbondland Most Actives list, with a market source seeing more than $52 million of its 5 1/8% senior secured notes due 2025 having traded, along with over $50 million of its add-on 5 1/8% senior secured notes due 2023. He saw the former finishing at 100½ bid, about unchanged from where he had seen them going out after Tuesday’s initial post-pricing dealings, while the latter lost 3/8 point to end at 103 1/8 bid.

“There was good volume, but not a lot of movement,” said a second trader, who saw the 2025 notes at 100½ bid.

Yet another trader put the 2023 add-on bonds at 103 bid, 103¼ offered, while the stand-alone 2025 notes traded between 100 5/8 and 101.

The Los Angeles-based Spanish-language media company priced a quick-to-market $1.25 billion deal on Tuesday after upsizing it from an originally planned $600 million. It consisted of the $500 million add-on, which priced at 103 to yield 4.682%, while the $750 million stand-alone 10-year piece priced at par.

Ally Financial’s 4 1/8% notes due 2022 were quoted at 98 5/16 bid, down 3/16 point, with more than $49 million traded.

Its 3¼% notes due 2018 gained 1/8 to end at 99 5/8 bid, a market source said, with over $20 million traded.

The Detroit-based automotive lender and online banking concern priced $600 million of the 3¼% notes on Tuesday at 99.294 to yield 3½%, while its $650 million of 4 1/8% notes priced at 98.506 to yield 4 3/8%.

A trader said that Monday’s Gtech SpA bonds “haven’t been able to get out of their own way. They’ve been struggling.”

He quoted the Rome-based gaming technology company’s 6¼% senior secured notes due 2022 trading into a 99 3/8 bid, while its 6½%senior secured notes due 2025 were “wrapped around” 99 7/8 bid.

It had priced $1.5 billion of the former and $1.1 billion of the latter at par on Monday, along with $600 million 5 5/8% senior secured notes due 2020, plus two euro-denominated tranches.

Indicators turn mixed

Statistical indicators of junk performance were mixed for the third time in four sessions on Wednesday, a stretch broken only by Tuesday’s across-the-board higher finish.

The KDP High Yield Daily index lost 1 bp to end at 71.54 after having edged up by 1 bp on Tuesday.

Its yield rose by 1 bp to 5.3% after having been unchanged at 5.29% on Tuesday after six straight sessions in which it had narrowed.

The Markit Series 23 CDX North American High Yield index lost 3/32 bid to end at 106 5/16 bid, 106 3/8 offered, after having gained 1/8 point on Tuesday. It was the third loss in four sessions.

But the Merrill Lynch U.S. High Yield Master II index saw its 18th consecutive gain on Wednesday, edging up by 0.001% after improving by 0.039% Tuesday.

The latest gain lifted its year-to-date return to 1.71, its 14th consecutive new peak level for 2015, up from the previous high point, 1.709%, on Tuesday.

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