Railworks prices; junk PIK deal on deck; United Site outperforms; Asbury on 101-handle

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 5 – The domestic high-yield primary market had one deal price during Friday’s session.

However, the majority of news centered on the market's most aggressive structure – pay-if-you-can PIK toggle holdco notes backing shareholder dividends.

Angus Chemical Co.’s $200 million offering of five-year senior pay-if-you-can PIK toggle notes (Caa2/CCC/CCC) is on deck with the deal expected to price Monday.

In Europe, Italian gaming operator Lottomatica SpA priced a €400 million issue of 8 1/8%/8 7/8% five-year pay-if-you-can senior secured holdco PIK toggle notes (Caa1/CCC+).

It is unclear what the week ahead holds for new issuance. However, the record-breaking pace of the primary market is expected to slow in the coming weeks.

Meanwhile, the secondary space remained firm on Friday as the 10-year Treasury yield continued to decline, closing the day at 1.45%.

However, trading activity continued to focus on new and recent issues.

PECF Intermediate Holding III Corp.’s (United Site Services) 8% senior notes due 2029 (Caa2/CCC) outperformed in the aftermarket with the notes jumping to a 103-handle, despite reportedly struggling during bookbuilding.

Asbury Automotive Group, Inc.’s two tranches of senior notes were also putting in a strong performance with the notes trading on 101-handles.

However, DCP Midstream Operating, LP’s 3¼% senior notes due 2032 (Ba1/BB+/BB+) fell flat in the aftermarket with the notes stuck at par.

Friday’s primary

The domestic high-yield primary market saw one deal price during Friday’s session. However, the market was focused on a deal teed up for Monday.

Aruba Investments, Inc., which does business as Angus Chemical Co., is in the market with $200 million of five-year senior pay-if-you-can PIK toggle notes (Caa2/CCC/CCC) via issuing entity Kobe US Midco 2, Inc.

Initial price talk sets out a 9¼% to 9½% cash yield with a 75 basis points step-up for PIK interest payments, at OID 99.

The deal is expected to price on Monday.

Noting that Angus Chemical has bank loan debt outstanding, a trader said that there is likely a substantial amount of reverse inquiry at play in the notes offer.

Earlier Friday, in Europe, Italian gaming operator Lottomatica SpA priced a €400 million issue of Gamma Bondco Sarl 8 1/8%/8 7/8% five-year pay-if-you-can senior secured holdco PIK toggle notes (Caa1/CCC+) at par, at the tight end talk.

Proceeds from both these transactions go to fund shareholder dividends (see related stories in this issue).

The week ahead

Away from the above-mentioned Aruba/Kobe deal, there is limited visibility on what the dollar-denominated new issue market holds for the week ahead.

In Europe, a save-the-date memo went around concerning a potential euro- and dollar-denominated deal from an undisclosed issuer in the packaging sector, via BofA, for early in the Nov. 8 week.

It might be Philadelphia-based can manufacturer Crown Holdings, one market source offered.

Other names heard as possibilities in the dollar-denominated market were Colorado-based meat processing company JBS USA Holdings, Inc., and Canadian software firm OpenText Corp.

There are a couple of deals still on the active calendar which ran October roadshows, and subsequently went quiet.

One of them is LifeScan Global Corp., which ran an Oct. 18 through Oct. 28 roadshow for an $800 million two-part senior secured notes deal (B3/B).

Although the past week produced no updates on the notes, LifeScan, which faces a pending amortization on its existing term loan, might pull some or all of the bond deal and attempt to raise money by means of an incremental term loan, a trader said on Friday.

Whatever the week ahead holds, the odds are it won't be massive, in terms of issuance, a syndicate banker said.

A succession of $10 billion-plus weeks like those of the February to early-March period, and again in late-July into mid-August, is probably not in the cards during the run-up to 2022, the banker said, and added that $6 billion to $8 billion per week is a more likely range for the remaining weeks of 2021.

There are a couple of conspicuous reasons, the banker said: 1) issuers who intended to hit the late 2021 market with refinancing deals have mostly done so by now, and 2) investors have realized decent or better returns for the year, and are closing the books on 2021 in order to lock those returns in.

A look at the calendar shows that in terms of opportunities to issue in the high yield-bond market there are not so many calendar pages left to turn before 2021 winds to its conclusion.

That's because the pre-Thanksgiving week, which gets underway on Monday, Nov. 22, and the pre-Christmas/New Year week, which starts Monday, Dec. 20, typically see little if any primary market activity.

Subtracting those two typically dormant intervals leaves five full weeks for the hard-cranking, record-breaking year of 2021 to add to its historic issuance total.

That year-to-date issuance total, incidentally, was $456.3 billion at Friday's close, leaving the old record, 2020's $435.1 billion to lithify in the fossil record.

United Site outperforms

PECF Intermediate’s 8% senior notes due 2029 were outperforming in the secondary space with the notes climbing to a 103-handle, despite reportedly struggling during bookbuilding.

The 8% senior notes were marked at 103¼ bid 103¾ offered on Friday.

The large yield was driving the trading level of the notes, a source said.

However, the latest leveraged buyout deal backing Platinum Equity’s acquisition of United Site Services Co. saw pushback during bookbuilding.

After twice downsizing, PECF Intermediate Holding priced a $550 million issue of the 8% notes at par on Thursday.

Pricing came in the middle of yield talk in the 8% area.

The tranche was downsized from $750 million.

The offering was previously downsized from $1.3 billion, with a proposed $550 million tranche of senior secured notes canceled with proceeds shifted to the concurrent bank loan.

Asbury on a 101-handle

Asbury Automotive’s two tranches of senior notes were putting in strong performances in the secondary space with both trading up to 101-handles.

Asbury’s 4 5/8% senior notes due 2029 and 5% senior notes due 2032 were both trading in the 101 3/8 to 101 5/8 context throughout Friday’s session.

The car dealership operator priced an $800 million tranche of the 4 5/8% notes and a $600 million tranche of the 5% notes at par on Thursday.

The 4 5/8% notes priced tight to yield talk in the 4¾% area; the 5% notes priced tight to talk in the 5 1/8% area.

DCP Midstream flat

While the other deals to price during Thursday’s session were putting in solid performances in the secondary space, DCP Midstream’s 3¼% senior notes due 2032 fell flat.

The notes were changing hands in the par to par ¼ context throughout Friday’s session.

The notes fell flat despite strong demand during bookbuilding and a strong day for energy with WTI crude oil futures settling at $81.27, an increase of $2.46 or 3.12%.

DCP Midstream priced a $400 million issue of the 3¼% notes at par on Thursday. Pricing came at the tight end of the 3¼% to 3½% yield talk.

$620 million Thursday inflows

The dedicated high-yield bond funds saw $620 million of net daily inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $675 million of inflows on the day.

Actively managed funds were negative on Thursday, sustaining $55 million of outflow on the day, the source said.

News of Thursday's daily flows trails a Thursday afternoon report that the dedicated junk funds sustained $1.27 billion of net outflows in the week to the Wednesday, Nov. 3 close, according to Refinitiv Lipper.

Indexes

The KDP High Yield Daily index rose 19 points to close Friday at 69.86 with the yield now 3.8%.

The index gained 12 points on Thursday, shaved off 4 points on Wednesday, gained 2 points on Tuesday and fell 6 points on Monday.

The index posted a cumulative gain of 23 points on the week.

The CDX High Yield 30 index gained 29 bps to close Friday at 109.72. The index dropped 18 bps on Thursday, gained 23 bps on Wednesday and 21 bps on Tuesday after falling 6 bps on Monday.

The index posted a cumulative gain of 49 bps on the week.

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