GFL pulls offering; three deals on tap; United Rentals improves; funds see outflows of $2.36 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 25 – Volatility in capital markets moderated on Thursday, but the turmoil took its toll on the deals in the market.

GFL Environmental Inc. withdrew a $400 million offering of senior unsecured notes (Caa2/CCC+) and shifted the proceeds to its concurrent bank loan.

INTL FCStone Inc., KLX Energy Services Holdings, Inc. and GEP Haynesville LLC are expected to price on Friday although pricing widened due to market conditions, sources said.

Meanwhile, the tone in the secondary space improved on Thursday with the market firming. However, with Google and Amazon missing analyst expectations in their earnings reports and futures dropping, sources were pessimistic about Friday’s session.

United Rentals (North America) Inc.’s newly priced 6½% senior notes due 2026 (Ba3/BB) dominated activity in the secondary space.

The notes improved during Thursday’s session after barely holding par after breaking for trade on Wednesday.

Hexion Inc.’s junk bonds continued their downward spiral as creditors gear up for a fight and the chemical sector in general remains under pressure.

Tesla Inc.’s 5.3% senior notes due 2025 were major volume movers with the notes jumping 2½ points after the electric car manufacturer crushed analyst expectations in its third-quarter report.

While the tone improved on Thursday, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall liquidity trends in the junk market – saw another multibillion dollar outflow for the week ended on Wednesday.

Funds saw $2.364 billion of outflows for the week ended Oct. 24, according to fund-flow statistics generated by AMG Data Services Inc.

The cumulative outflow for the year now totals $24.43 billion, according to a Prospect News analysis of the reports by the Arcata, Calif.-based unit of Thomson Reuters Corp.’s Lipper analytics division.

INTL FCStone talks

On Thursday, INTL FCStone talked its $350 million offering of five-year senior secured notes (Ba3/BB-) to yield 8½% to 8¾%, including an original issue discount.

Official talk comes tight to initial guidance in the mid-to-high 8% area, a trader said.

BMO, BofA Merrill Lynch, Jefferies and Capital One are the joint bookrunners.

Pricing widens

Despite the moderation of volatility on Thursday, away from INTL FCStone, damage to deals in the market – in terms of wider pricing – had already been done, sources said.

KLX Energy Services Holdings is expected to price a $250 million offering of seven-year senior secured notes (B3/B) on Friday.

The deal, which is being led by JP Morgan, came with initial guidance in the mid-to-high 9% area. However, pricing is now expected to come above 10%, a trader said.

“It's tough to say what kind of book they have, because orders are probably tiered,” the trader said, referencing an investor tactic of placing an order that is contingent on a specific price level.

It is not likely that the offer had a deal-size book at the initial guidance, the trader remarked.

Elsewhere, GEP Haynesville is expected to price a $600 million offering of five-year senior notes (B3/B) on Friday, also via JP Morgan.

Initial talk had the deal coming to yield 8½% to 8¾%. However, pricing is likely to have moved into the 9% context, the trader said.

The book on GEP Haynesville is heard to be in better shape than the book for KLX Energy Services, the source said.

GFL Environmental withdraws bonds

In addition to widening price talk, one company pulled its bond deal on Thursday.

GFL Environmental withdrew a $400 million offering of senior unsecured notes (Caa2/CCC+) and shifted the proceeds to its concurrent bank loan, lifting the size of the incremental term loan to $1.71 billion from $1.31 billion.

The bond deal, which was originally announced as Thursday business, came with initial guidance in the low-to-mid 8% area, sources said.

No official price talk was announced.

Barclays was lead left bookrunner on the bonds.

The shift in proceeds to the loan from the bonds impacted the pricing of the loan and its credit ratings, sources said (see related story in this issue).

United Rentals improves

United Rentals’ 6½% notes were improved in high-volume activity on Thursday after barely holding par after breaking for trade late Wednesday.

The 6½% notes were seen at par ½ bid, par 5/8 offered on Thursday. More than $188 million of bonds were on the tape by the late afternoon.

The 6½% notes were barely holding at par on Wednesday and at times lagged their issue price at 99 7/8, a market source said.

Some sources questioned how the deal was able to get done on Wednesday given the tone of the market.

United Rentals equity also tanked after the company reported third-quarter earnings earlier in the month.

United Rentals priced a $1.1 billion issue of the 6½% notes at par in a Wednesday drive-by.

The yield printed in the middle of yield talk that was set in the 6½% area. Initial guidance was also announced in the 6½% area.

Hexion’s hex

Hexion’s bonds remained under pressure on Thursday with the chemical manufacturer’s capital structure moving lower as second-lien noteholders prepare for negotiations and competitors report lackluster earnings.

The 9% second-lien notes due 2020 continued to “get destroyed,” a market source said. The notes dropped more than 6 points to a 60 handle on Thursday.

They closed Wednesday at 66½.

The 6 5/8% first-lien notes due 2020 dropped another point on Thursday to trade around 90.

Hexion’s 13¾% first-lien notes due 2022 were down to 67¾, a 20 point drop since the sell-off in Hexion’s notes began last week, a market source said.

The sell-off was triggered after 9% second-lien noteholders hired law firm Milbank, Tweed, Hadley & McCloy in anticipation of upcoming negotiations regarding the 2020 bonds last week.

The second-lien noteholders were preparing to fight first-lien noteholders with the 2020 maturity wall approaching, a market source said.

“Based on the way the seconds are trading, it doesn’t seem like people think they’re owed anything,” the source said.

In addition to the brewing battle, the chemical sector as a whole has been under pressure with competitors reporting disappointing earnings, a source said.

Mixed Wednesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $275 million of inflows on the day.

However, actively managed high-yield funds sustained $75 million of outflows on Wednesday.

The combined funds sustained $2,364,000,000 of outflows on the week to Wednesday's close, according to the Lipper US Fund Flows report.

Indexes mixed

Indexes were again mixed on Thursday after a mixed day on Wednesday which broke a losing streak that had extended for five consecutive trading days.

The KDP High Yield Daily index slid 6 basis points to close Thursday at 69.41, with the yield now 6.23%.

The index dropped 15 bps on Wednesday, 12 bps on Tuesday and 10 bps on Monday.

The ICE BofAML US High Yield index was again down on Thursday after posting a slight rebound. The index dropped 20.3 bps with the year-to-date return now 1.018%.

The index climbed 6.2 bps on Wednesday after a 33.8 bps drop on Tuesday and a 1 bp slide on Monday.

The CDX High Yield 30 index gained 7 bps to close Thursday at 105.1. The index was closed Wednesday at 105.03.

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