Building Materials megadeal, Carrizo add-on drive by; M/I Homes drops out; overall market dull

By Paul Deckelman and Paul A. Harris

New York, Oct. 27 – The high-yield primary sphere kicked off the final week in October on Monday by pricing a pair of opportunistically timed drive-by issues, but a third such quickly shopped deal was heard by syndicate sources to have bit the dust just hours after it had been announced.

The day’s big deal was construction supplies provider Building Materials Corp. of America’s $1.1 billion of 10-year notes, while its other offering was energy operator Carrizo Oil & Gas Inc.’s upsized $300 million add-on to its existing 2020 notes.

Traders said they did not see any initial aftermarket dealings in either credit, each of which came to market fairly late in the session.

What was to have been the day’s third such quick-to-market offering was being shopped around by developer and builder M/I Homes, Inc., but pricing terms for that proposed two-part transaction was not heard by the time market activity wound down. Monday evening, the Columbus, Ohio-based company announced that it had withdrawn that previously announced $350 million bond deal, citing market conditions.

The company also terminated a cash tender offer and a concurrent solicitation of consents for all of its 8 5/8% notes due 2018, which was to have been funded using the proceeds from the new bond deal.

Among recently priced bond deals, traders saw a fair amount of activity in Friday’s two-part offering from Fresenius Medical Care, as well as Thursday’s issue from midstream natural gas and NGL services company Targa Resources Partners LP.

But in general, traders said that market activity was dull, with most levels unchanged to slightly up or down and on smaller total volume than Friday’s market saw.

Away from the new deals, traders said that oil and gas issues, such as Chesapeake Energy Corp. and Halcon Resources Corp., and oilfield services companies like Hercules Offshore, Inc. remained under pressure, in line with lower oil prices, which have been sliding ahead of the release of latest U.S. oil stockpiles data.

Statistical indicators of junk market performance meanwhile eased across the board on Monday, after having been higher on Friday for a second straight session and for a sixth time in seven sessions.

Building Materials Corp. offer

The Monday high-yield primary market saw only two dollar-denominated junk tranches price for an overall total of $1.4 billion proceeds.

Both deals came as drive-bys.

One of the two was upsized, and one priced in the middle of talk while the other priced at the cheap end of talk in an upsized amount.

Building Materials Corp. priced a $1.1 billion issue of 10-year senior notes (Ba3/BB+) at par to yield 5 3/8%.

The yield printed in the middle of the 5¼% to 5½% yield talk.

Deutsche Bank, Citigroup and BofA Merrill Lynch were the joint bookrunners for the debt refinancing deal.

Carrizo upsizes add-on

Carrizo Oil & Gas priced an upsized $300 million add-on to its 7½% senior notes due Sept. 15, 2020 (B2/B) at 100.5 to yield 7.346%.

The deal was upsized from $250 million.

The reoffer price came at the cheap end of the 100.5 to 101 price talk.

Wells Fargo was the left bookrunner for the acquisition financing. RBC, Citigroup, Credit Suisse, BBVA, Capital One nd Credit Agricole were the joint bookrunners.

Evraz NA Canada roadshow

Evraz Inc. NA Canada began a roadshow on Monday in New York and New Jersey for its $500 million offering of five-year senior secured notes.

The roadshow is scheduled to run through the present week.

Joint bookrunner Citigroup will bill and deliver. Goldman Sachs is also a joint bookrunner.

The Regina, Saskatchewan-based steel producer plans to use the proceeds to repay a portion of the subordinated related party loan from an affiliate of Evraz Group SA.

Optima sets investor call

Optima Specialty Steel, Inc. plans to hold an investor conference call at 12:40 p.m. ET on Tuesday in order to roll out its $300 million offering of five-year senior secured notes.

The deal is set to price in the early part of the Nov. 3 week.

Deutsche Bank is the left bookrunner. Jefferies is the joint bookrunner.

The Miami, Fla.-based specialty steel manufacturer plans to use the proceeds to refinance debt and for general corporate purposes.

Abengoa Yield starts roadshow

There was news on Monday in the European high-yield primary market as Abengoa Yield plc began a roadshow on Monday for a €200 million offering of unrated, non-callable five-year senior notes.

The roadshow wraps up Thursday, and the acquisition financing deal is set to price thereafter.

Joint bookrunner BofA Merrill Lynch will bill and deliver. Citigroup, HSBC and Santander are also joint bookrunners.

Elsewhere, Arrow Global plc announced plans to sell €220 million senior secured floating rate notes to fund an acquisition and refinance bank debt.

Inflows continue

News on the flow of cash in and out of the dedicated high-yield funds remained positive during the early part of the present five-session reporting period that wraps up at Wednesday's close, according to a trader.

Last Friday, the most recent day for which data was available at press time, saw actively managed funds post $515 million of daily net inflows, the source said.

Exchange-traded funds saw a much more modest $21 million of daily inflows on Friday.

Tallying the week to date, combined funds have seen $1.23 billion of net inflows with last Thursday and Friday now in the book.

The situation for ETFs is unlikely to have changed much on Monday, said the trader who tracks ETFs closely.

In general, the market was unchanged to a slightly weaker and quiet during the Monday session, the source said, adding that the news driving North American capital markets during the Monday session was the re-election of leftist Brazilian President Dilma Rousseff – reportedly by a narrow margin – an event to which the markets reacted negatively.

New deals unseen

In the secondary arena, traders said they did not see any initial aftermarket activity in the big Building Materials Corp. 10-year megadeal, owing to the advanced hour at which the Wayne, N.J.-based building products supplier’s offering came to market.

They, likewise, did not see energy exploration and production operator Carrizo Oil & Gas’s upsized add-on to its existing 2020 notes.

Market quiets down

Several traders agreed that Monday’s market was extremely lackluster.

“There was not a hell of a lot going on,” one said. “It was pretty boring.”

He said that there were “a lot of quotes,” but that the junk market “was really unchanged.”

A second agreed that “things were kind of unchanged for the most part.”

He added that “the volume was okay – it wasn’t great.”

He characterized the day’s dealings as “a stagnant market.”

Against that backdrop of quieter activity, Friday’s two-part new deal from Fresenius Medical Care US Finance II and Thursday’s issue from Targa Resources were among the volume leaders.

A trader saw the Fresenius 4 1/8% notes due 2020 and its 4¾% notes due 2024 trading in “a 100½ to 101 context on both, kind of unchanged versus Friday.”

Another trader pegged the 4 1/8% notes at 100½ bid, 100¾ offered, while the 4¾s traded between 100 5/8 and 100 7/8 bid.

At another shop, a market source called the 4 1/8s down ½ of a point at 100½ bid, on volume of around $11 million – active enough to put it among the day’s busiest Junkbondland issues, but well down from the more than $31 million that had changed hands on Friday at around 101 bid.

He saw about $10 million of the 4¾% notes trading, seeing those bonds going out at 101 bid, which he called up ½ of a point.

Fresenius SE & Co. KGaA, a Bad Homburg, Germany-based provider of kidney dialysis services worldwide, priced $500 million of the 4 1/8% notes and $400 million of the 4¾% notes on Friday via its Fresenius Medical Care unit, with both tranches coming at par.

One of the traders also saw Targa Resources’s 4 1/8% notes due 2019 at 100½ bid, down 1/8 of a point, on volume of around $9 million.

That was well down from the most than $44 million of those notes that had traded around on Friday at about the 100 5/8 bid level.

Houston-based midstream natural gas operator Targa, along with its Targa Resources Finance Corp. subsidiary, had priced its quick-to-market $800 million issue of those bonds at par on Thursday, after having upsized the deal from an originally announced $550 million.

Other recent deals quiet

Among other recently priced issues, a trader said that he did “not see much going on” in Graphic Packaging International Inc.’s 4 7/8% notes due 2022, some $250 million of which had priced at par on Thursday in a quickly shopped transaction.

“There wasn’t much flow in the name.”

Another trader quoted those notes around 100¾ bid, 101 1/8 offered, up a little from Friday’s levels around 100½ bid.

The trader saw Tesoro Logistics LP’s 5½% notes due 2019 at 101½ bid, 102¼ offered, calling them down 5/8 point from where they had finished last week, while the 6¼% notes due 2022 ended off by 7/8 point at 102¼ bid, 103 offered.

Another trader, though, who saw the bonds at similar levels, said that they were essentially unchanged.

The San Antonio, Texas-based owner-operator of energy pipelines and other transportation and storage infrastructure, along with its Tesoro Logistics Finance Corp. subsidiary, had priced $500 million of the 5½% notes and $800 million of the 6¼% notes at par on Wednesday. Both had seen more than $80 million of trading at higher levels on Thursday.

German ball-bearing manufacturer Schaeffler AG’s 6¼% senior secured PIK toggle notes due 2019 traded at 102½ bid, 103 offered, a market source said, while its 6¾% senior secured toggle notes due 2022 ended at 103 5/8 bid, 104 1/8 offered, which he called a 5/8 of a point gain.

The company’s Schaeffler HoldingFinance BV funding unit priced $475 million of the 6¼% notes and $675 million of the 6¾% notes at par last Tuesday as part of a larger €1.2 billion three-part offering that also included a euro-denominated tranche.

The bonds had traded actively when they were first freed, but activity had dwindled by Friday and remained quiet on Monday.

Oil names on the slide

Elsewhere, a trader said that “with the price of oil off again, the oil names were under pressure and underperformed.”

He called Houston-based oilfield services company Hercules Offshore’s bonds “off a couple of points, probably one of the bigger movers.”

The 10¼% notes due 2019 were being quoted down 4¼ points on the day at 73¼ bid.

Another big loser in that sector was Houston-based exploration and production operator Halcon Resources, whose 8 7/8% notes due 2021 dropped to 85 3/8 bid, off some 3 5/8 points on the day.

Oklahoma City-based Chesapeake Energy’s 5¾% notes due 2023 finished off 5/8 of a point, at 109 1/8, a market source said, on relatively busy volume of around $10 million.

One of the factors greasing the skids under the oil names has been the continued fall of world oil prices.

The benchmark West Texas Intermediate crude fell for a third straight day, sliding by as much as 39 cents per barrel to $80.61 on the New York Mercantile Exchange on Monday.

Prices have been driven down by speculation that crude inventories stockpiles in the United States – the world’s biggest oil consumer – may have expanded by as much as 3.8 million barrels in the most recent week, to their highest level in almost four months. The American Petroleum Institute will release its figures on Tuesday, with government figures due out on Wednesday.

Meanwhile, a senior Iranian oil official was quoted in news reports on Monday as saying that OPEC was unlikely to reduce its production ceiling when the cartel’s oil ministers meet in November.

Indicators back off gains

Statistical indicators of junk market performance eased across the board on Monday after having been higher on Friday for a second straight session and for a sixth time in seven sessions.

The KDP High Yield Daily index saw its first decline on Monday after seven successive advance, edging off by 2 basis points to end at 72.5, after having risen by 1 bp on Friday.

The yield meanwhile rose by 1 bp to 5.33% – its first widening in nine sessions. Its last previous increase had been a 13 bps jump on Oct. 15, its sixth consecutive rise. Since then, it had mostly been lower, or else unchanged on the day, as was the case on Friday.

A trader saw the Markit CDX North American High Yield Series 23 index off by 1/16 of a point, at 106 13/16 bid, 106 7/8 offered. The index had been up by ¼ if a point on Friday, its second straight advance.

The Merrill Lynch High Yield Master II index suffered its first loss after seven straight advances on Monday, falling by 0.035%. On Friday, it had inched up by 0.005%.

Monday’s decline left its year-to-date return at 4.673%, down from 4.71% on Friday.

The year-to-date return also remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

According to the Finra-Bloomberg Active US High Yield Bond index, Monday’s junk market volume fell to $2.218 billion from Friday’s $2.409 billion.

© 2015 Prospect News.
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