Month opens quietly in primary; KCI slates deal; Centene busy; Freeport McMoRan rebound continues

By Paul Deckelman and Paul A. Harris

New York, Feb. 1 – The month of February began in Junkbondland on Monday much the same way that January had wrapped up the session before.

For a second consecutive session, no new U.S. dollar-denominated and fully junk-rated offerings were priced, after a six-session bond binge that had seen some $4.7 billion of such paper brought to market by domestic and industrialized-country borrowers.

However, while there were no pricings, the forward calendar continued to build, in this case with Kinetic Concepts Inc. heard by syndicate sources to have hit the road with a $400 million offering of five-year secured notes, on top of the pair of deals, announced on Friday, from crane and industrial lifting equipment maker Manitowoc Co. Inc. and its soon-to-be-spun-off food-service equipment making unit.

Both halves of Thursday’s megadeal from Centene Corp. were among the day’s busier bonds, continuing to firm from their issue price, although volume was greatly reduced from Friday’s heavy levels.

Away from the new or recently priced deals, Freeport McMoRan Inc.’s bonds were among the most active junk credits, their third straight session in the spotlight, but as had been the case on Friday, they were up across the board, rebounding from the battering they took on Thursday in response to the news that Moody’s Investors Service had slashed the natural resources company’s senior unsecured rating by a hefty four notches.

However, in a change from Friday, statistical measures of junk market performance were lower across the board on Monday, after having pushed higher all around for a second straight session on Friday.

No new issues priced during the opening session of February in the primary market.

However there were deal announcements in both the European and North American markets.

Kinetic Concepts Inc. and KCI USA, Inc. started a roadshow on Monday in New York for a $400 million offering of five-year first lien senior secured notes (expected ratings Ba3/BB-).

The roadshow moves to New Jersey and Boston on Tuesday.

BofA Merrill Lynch is the left bookrunner for the debt refinancing deal. Credit Suisse, SunTrust, Goldman Sachs, Nomura and RBC are the joint bookrunners.

Moby secured deal

In Europe, Onorato Armatori SpA, the holding company for Italian ferry boat operator Moby SpA, began a roadshow on Monday for a €300 million offering of seven-year senior secured notes (Ba2/expected BB-).

Goldman Sachs, JPMorgan and UniCredit are the joint physical bookrunners for the debt refinancing deal.

Banca IMI, Banca Akros, Jefferies, Gruppo Bipiemme and Banca Popolare di Milano are the joint bookrunners.

WFS in two tranches

WFS Global Holding SAS plans to start a roadshow on Tuesday for a €240 million two-part offering of high yield notes.

A secured tranche features a €90 million add-on to the 9½% senior secured notes due July 15, 2022 (expected ratings B2/B). An unsecured tranche features €150 million of new seven-year senior notes (expected ratings Caa1/CCC+).

Global coordinator BofA Merrill Lynch will bill and deliver for the acquisition financing deal. ING is the joint bookrunner.

Looking forward to Manitowoc

A secondary market trader noted the recently better tone seen throughout the high yield market, as evidenced by issuers’ success in bringing in a series of well-received new deals over several sessions last week and the week before.

He observed that “maybe we’ll start to see the calendar pick up, as guys are able to get some stuff off.”

He specifically mentioned the twin offering from Manitowoc Co., which was announced on Friday and which began roadshowing on Monday.

The maker of cranes and other industrial lifting equipment, which is based in the eponymous lakefront Wisconsin city about 85 miles north of Milwaukee, is shopping around a $250 million offering of eight-year senior secured second-lien notes, planning to use the proceeds, along with an expected $1.388 billion cash dividend from its Manitowoc Food Service, Inc. unit, to repay its existing 8½% notes due 2020 and 5 7/8% notes due 2022, as well as its existing revolver and term loan debt.

The trader said that Manitowoc “is a name that we’ve been involved in before.”

Noting the plans for debt repayment, he “said “they’re going to take out those 8½’s – we’ve got a lot of guys [i.e., customers] on those,” who might be looking to move over into the new paper.

“That’s an issue we’ve been pretty active in. It’s been callable for a while.”

At the same time the Wisconsin parent company is shopping its deal, Manitowoc Food Service, a New Port Richey, Fla.-based maker of commercial stoves, ovens, refrigeration and beverage dispensing equipment, will be looking to sell $425 million of eight-year senior notes, with the proceeds, together with the proceeds from a concurrent term loan B, to be used to fund the $1.388 billion cash dividend to the parent in connection with the food service equipment maker’s pending spin-off from the parent.

A trader said that on Friday, the Manitowoc 5 7/8% notes due 2022 gained nearly 2 points on the session to go home at 106¼ bid, with over $20 million traded. However, on Monday, the bonds gave back around 3/8 point of those gains, easing to 105 7/8 bid, with around $13 million changing hands.

The 8½% notes due 2020 meantime were unchanged over the course of the two days, at 104¼ bid, on just a handful of large-sized trades.

Centene bonds keep firming

Elsewhere, another trader said that while there were no new deals coming to market during the session, “everything continues to trade well.”

He saw “a fair amount of the new CNC bonds were trading today” – Centene Corp.’s 5 5/8% notes due 2021 and 6 1/8% notes due 2024.

He saw the five-year notes at 101¾ bid, and the eight-year paper at 102¾ bid.

Another market source also saw those bonds around those levels, calling them both up 1/8 point on the day.

He said that the about $14 million of the five-year notes and $17 million of the eight-year notes had traded.

While that was busy enough to place both issues high up on the day’s Most Actives list, it was nowhere near the activity level seen on Friday, when Centene had easily been the busiest name in the junk bond world, with more than $152 million of the 6 1/8% notes and over $128 million of the 5 5/8% notes having changed hands.

Centene, a St. Louis-based healthcare company, had priced $1.4 billion of the 5 5/8% notes and $1 billion of the 6 1/8% notes late in the session on Thursday in what primaryside sources widely called “a blowout.”

The regularly scheduled forward calendar offering was upsized from an originally announced $2.27 billion, and both halves of the solidly oversubscribed issue – the biggest high yield issue of the year so far – ended up pricing almost 1 full point tighter than initial price talk, a reflection of avid investor interest.

While there had actually been several large-sized trades in the 5 5/8% notes late Thursday after pricing, with the bonds shooting up from their par issue price to a 101¾ to 102 bid context, the vast bulk of the trading happened Friday, with the notes seen going home around a 101 5/8 bid level.

There meantime had been no initial trading Thursday in the 6 1/8% notes, with all of the activity happening Friday and the bonds finishing around 102 5/8 bid.

Recent deals stay firm

Other recently priced issues were seen continuing to trade well above their respective issue prices, although on not much volume.

A trader saw Lamar Advertising Co.’s new 5¾% notes due 2026 at 103 3/8 bid, up 3/8 on the day, although he only saw one large-sized trade and a couple of smaller transactions.

Lamar, a Baton Rouge, La.-based outdoor advertising company, priced $400 million of the notes at par in a quick-to-market deal last Monday, Jan. 25. They initially firmed to around 101 5/8 to 102 1/8, and then continued to gradually move up, with the most active dealings on Tuesday and Wednesday and lessened activity after that.

GFL Environmental Corp.’s new 9 7/8% notes due 2021 were quoted Monday at 100¾ bid, on just a couple of trades.

GFL, a Vaughn, Ont.-based solid and liquid waste management company, priced $300 million of the notes at par this past Wednesday, a day after the planned new issue was announced. The offering was upsized from the originally planned $250 million.

The bonds initially moved up to a 101 to 101¼ bid context in active trading later Wednesday, with activity tapering off and the bonds coming down from their peak trading levels after that.

Freeport McMoRan rebound

Away from the new or recently priced issues, traders saw a second straight day of firming levels Monday in the battered bonds of Freeport McMoRan, which had gotten hammered down by several points pretty much across the board on Thursday after Moody’s Investors Service slashed the Phoenix-based metals mining and oil and natural gas company’s senior unsecured debt rating down four notches to B1 from Baa3 previously.

“Freeport McMoRan’s whole structure is kind of leading the charge as far as volumes go,” one of the traders said.

“They were up anywhere from ¼ point to 1¼ points, depending where on the curve they were,” continuing to bounce back from their oversold condition.

“I think some guys are starting to step in here a little bit and start to trade these,” he added.

At another desk, a trader said that probably the busiest bond in the capital structure was Freeport’s 3 7/8% notes due 2023, which were seen up 1½ point at 42¾, on volume of more than $52 million. On Friday, they had gained 2 full points, with over $34 million having moved around. That helped to recoup some of the 3¾ points those bonds had lost on Thursday, following the downgrade, when they sank to 39¼ bid, with over $40 million traded that day.

More than $27 million of Freeport’s 6½% notes due 2020 traded on Monday, with the bonds moving up by 1 ½ points, to 52 bid.

On Thursday, those bonds had slid more than 2¼ points, to an even 50, with over $13 million traded. But they got ½ point of that back on Friday, with over $31 million traded.

Energy issues off

In the energy sector, a trader saw some weakness on the session, which he attributed in part to a drop in oil prices.

He quoted Oasis Petroleum Corp.’s 6 7/8% notes due 2022 trading between 58½ and 58¾ bid, down from levels around 60 bid on Friday, “so there was some weakness – but not like what we had seen previously” when oil prices fell.

Crude oil prices saw a big drop on Monday, their first loss after four straight days on the rise before that. West Texas Intermediate for March delivery was down $2 per barrel on the New York Mercantile Exchange, ending at $31.62.

Indicators on the slide

Statistical measures of junk market performance were lower across the board on Monday, after having pushed higher all around for a second straight session on Friday.

It was the first lower session that those market gauges had seen since back on Jan. 20; in the sessions since then, the market measures had been either all higher or else, at worst, mixed on the day

The KDP High Yield Daily Index fell back by 4 basis points on Monday to end at 63.11 – its first decline after seven straight gains, including Friday’s 16 bps advance.

Those seven upside sessions, in turn, had followed a seven-session losing streak before that.

Its yield, meanwhile, moved up by 2 bps on Monday, to 7.21%.

It was the first such widening after seven consecutive sessions during which the yield had come in, including identical reductions of 5 bps each on Thursday and again on Friday.

The Markit Series 25 CDX North American High Yield Index lost 5/32 point on Monday to end at 99 9/16 bid, 99 5/8 offered, its first loss after two straight gains and its second loss in the last four sessions. On Friday, the index had risen by 15/32 point.

And the Merrill Lynch North American High Yield Master II Index finally turned south on Monday after having posted seven successive successes, easing by 0.19%, versus Friday’s 0.329% advance.

The setback raised the index’s year-to-date loss to 1.768% from Friday’s 1.602%, although the cumulative loss remains well down from the index’s worst red-ink level for the year so far, the 4.095% deficit seen on Jan. 20.

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