Post-Fed primary ignites, led by upsized Alcoa, Targa megadeals; funds lose $273.5 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 22 – Benign news from the Federal Reserve on interest rates was seen as the catalyst for a renewed high-yield primary market surge as fall got under way on Thursday.

Syndicate sources cited the central bank’s decision to not boost rates at this time as a key factor in reporting that three issuers brought a total of $2.6 billion of new U.S. dollar-denominated and fully junk-rated paper to market during the session.

That was up from single-issue totals on Monday, Tuesday and Wednesday of $1.5 billion, $600 million $425 million, respectively, according to data compiled by Prospect News.

A pair of upsized two-part megadeals led the parade on Thursday.

Aluminum giant Alcoa Inc. did $1.25 billion of new paper in a regularly scheduled forward-calendar offering consisting of $750 million of eight-year notes and $500 million of 10-year paper. The new notes were quoted better in the gray market.

Earlier, energy operator Targa Resources Corp. brought a quickly shopped $1 billion of new bonds to market, in equally-sized $500 million tranches of slightly longer than eight- and 10-year notes. Traders saw those bonds modestly higher.

One offering was downsized before pricing – JDA Software Group Inc.’s $350 million scheduled eight-year transaction – but it was seen up more than 2 points in the aftermarket.

Traders saw brisk activity, at generally higher levels, for such recently priced credits as Ziggo Group Holding BV, Cheniere Energy Partners, LP, Callon Petroleum Co. and, going back a little further, Novelis Inc.

Among existing names, Frontier Communications Corp. was doing well on Thursday.

Statistical market performance measures remained firmer across the board on Thursday, their second straight upside session. They had turned stronger all around on Wednesday, after having been mixed on Tuesday. Thursday was the indicators’ third winning session in the last four trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – was in negative territory for a second straight week, although the size of this week’s net outflow from those funds was far smaller than last week’s big cash bleed. Some $273.555 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the reporting week ended Wednesday – but a small fraction of the $2.453 billion outflow reported last Thursday.

The two outflows, totaling nearly $2.727 billion, follow the most recent net inflow the funds have seen – the $610 million cash addition during the week ended Sept. 7 (see related story elsewhere in this issue).

Alcoa a blowout

In the wake of the FOMC’s decision to leave the Fed Funds rate alone for the time being, an already hot high-yield primary market has become red hot, sources say.

The Thursday session saw three issuers bring a combined five tranches.

Only one of the three issuers came with a drive-by.

Two of the three issuers upsized their deals while the third downsized.

Executions tended to reflect the temperature of the market, as one tranche came inside of talk, two came on top of downwardly revised talk and the remaining two came in the middle of talk.

In the day’s biggest sale, Alcoa priced an upsized $1.25 billion two-part offering of senior notes (Ba3/BB-).

The deal included $750 million of eight-year notes that priced at par to yield 6¾%. The yield printed on top of final yield talk which was revised from earlier talk of 7% to 7¼%.

In addition Alcoa priced $500 million of 10-year notes at par to yield 7%. The yield printed on top of final yield talk; earlier talk was 7¼% to 7½%.

Alcoa’s two tranches were said to be playing to more than $9 billion of orders, according to a trader who added that $9 billion was the number available before lunch and it probably grew.

Both tranches were up two points in gray-market trading, said the trader, who was awaiting final terms late Thursday.

The overall deal size was increased from $1 billion, with the 10-year tranche added in a late restructuring.

Morgan Stanley, J.P. Morgan, Citigroup and Credit Suisse were joint lead bookrunners for the spinoff deal.

Targa sees reverse inquiry

Targa Resources priced $1 billion of senior notes (Ba3/BB-) in a two-part deal that was upsized from $800 million.

The quick-to-market transaction included $500 million of 8.3-year notes that priced at par to yield 5 1/8%. The yield printed in the middle of the 5% to 5¼% yield talk.

In addition the company priced $500 million of 10.3-year notes at par to yield 5 3/8%. The yield printed on top of yield talk that specified a 25 basis points spread to the 8.3-year notes.

The deal was oversubscribed and played to a significant amount of reverse inquiry, sources said.

Wells Fargo was the left bookrunner.

The Houston-based energy company plans to use the proceeds to fund tender offers for its 5% senior notes due 2018, 6 5/8% senior notes due 2020 and 6 7/8% senior notes due 2021.

Additional proceeds resulting from the $200 million upsizing of the deal will be used for general partnership purposes which may include redemptions or repurchases of tendered notes, repayment of the company’s senior secured credit facility and/or other debt, working capital, capital expenditures and acquisitions.

JDA Software inside talk

JDA Software priced a downsized $350 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 7 3/8%.

The issue size was decreased from $400 million and the proceeds were shifted to the concurrent term loan.

The yield printed 12.5 basis points below the tight end of the 7½% to 7¾% yield talk. Initial guidance was 8% to 8¼%.

The deal was said to be playing to $2 billion of orders on Wednesday.

BofA Merrill Lynch, J.P. Morgan, Credit Suisse and Goldman Sachs were the joint bookrunners for the debt refinancing.

AMN talk at 5¼% area

AMN Healthcare, Inc. is on deck for Friday with a $300 million offering of eight-year senior notes (B+).

Yield talk in the 5¼% area surfaced on Thursday.

SunTrust is the left bookrunner for the debt refinancing.

Elsewhere Confie Seguros Holding II Co. disclosed details on a $350 million offering of six-year senior notes (Caa2/CCC+) that it intends to market and price in the week ahead.

RBC is the left lead bookrunner for the debt refinancing deal.

Sarens tapping 5 1/8% notes

In Europe, Sarens Bestuur NV announced plans to start a roadshow on Monday in Brussels for a €125 million add-on to its 5 1/8% senior notes due Feb. 5, 2022 (BB-).

ING, BNP Paribas and Degroof Petercam are the joint bookrunners.

The Wolvertem, Belgium-based provider of heavy lifting and specialized transport equipment plans to use the proceeds to refinance debt including its subordinated bonds due December 2016, as well as to repay its revolver and short-term borrowings, and for general corporate purposes.

Mixed Wednesday flows

Although dedicated high-yield bond funds saw $274 million of outflows on the week to Wednesday’s close, the daily flows were mixed on Wednesday, a portfolio manager said.

High-yield ETFs saw $290 million of inflows on the day. Since the Tuesday Fed decision – a two-day period encompassing Tuesday and Wednesday – the ETFs have seen a healthy $373 million of inflows.

Actively managed funds sustained $40 million of outflows on Wednesday.

Dedicated bank loan funds saw $90 million of inflows on the day Wednesday.

Targa trades up

In the aftermarket, a trader quoted the new bonds from Targa Resources Partners LP and co-issuer Targa Resources Partners Finance Corp. at “a generic par to 101 on both” tranches – its 5 1/8% notes due February 2025 and its 5 3/8% notes due February 2027.

At another shop, a trader pegged both issues in a 100 3/8 to 100¾ bid context.

Also among the day’s issues, Scottsdale, Ariz.-based business services company JDA Software Group’s 7 3/8% notes were seen trading between 102 and 102½ bid, although not on much volume.

The new Alcoa Nederland Holding BV megadeal was said to have been quoted up 2 points in gray market dealings.

Recent deals trade actively firmer

Among other recently priced names, the new Ziggo Secured Finance BV 5½% senior secured notes due January 2027 were among the most actively traded Junkbondland credits on the day, with over $37 million changing hands.

A trader saw the Dutch telecommunications and cable service provider’s bonds trading at par, calling them up ¼ point on the session.

He also saw the company’s Ziggo Bond Finance BV 6% notes due 2027 at par, up ½ point on the day on volume of over $11 million.

Ziggo priced $2 billion of the secured ’27 notes and $625 million of the unsecured ’27s at par last Friday.

Cheniere Energy Partners’ new Sabine Pass Liquefaction LLC 5% senior secured notes due 2027 gained 7/8 point on the session, a market source said, locating the Houston-based liquefied natural gas company’s paper at 102¼ bid, with over $28 million traded.

The company had priced that $1.5 billion split-rated (Ba2/BBB-) issue at par on Monday.

Callon, Novelis climb

Callon Petroleum’s 6 1/8% notes due 2024 were seen gaining better than 1 full point on Thursday, rising to 101 13/16 bid, with over $11 million changing hands.

The Natchez, Miss.-based independent oil and natural gas exploration and production company’s regularly scheduled $400 million issue priced at par last Thursday after upsizing from an originally announced $350 million

Going back a little further, a trader saw the Novelis 5 7/8% notes due 2026 also up better than 1 point on the day at 100¾ bid on more than $26 million of turnover.

The Atlanta-based aluminum products manufacturer had priced $1.5 billion of those bonds at par in a quick-to-market transaction back on Sept. 7

Landry’s, Versum steady

Back among the more recently priced paper, one of the traders said that Versum Materials, Inc.’s 5½% notes due 2024 “were pretty much unchanged on the day from where they were” at the close on Wednesday around 102 to 102½ bid.

That’s where the Lehigh Valley, Pa.-based industrial materials company’s $425 million forward calendar issue had ended up after pricing at par earlier Wednesday.

And he likewise saw Landry’s Inc.’s 6¾% notes due 2024 in that same “pretty tight” 102 to 102½ bid range, about where they had finished on Wednesday.

The Houston-based restaurant, gaming and lodging company priced a regularly scheduled $600 million of those notes at par on Tuesday after upsizing the deal from $575 million.

Frontier bonds firm

Away from the new deals, a trader said “the go-go names” were among the bonds trading better in the wake of the Fed’s decision to leave interest rates alone.

He saw Frontier Communications’ 11% notes due 2025 up 1¾ points to close at 106½ bid. More than $36 million of the Stamford, Conn.-based telecom company’s paper changed hands.

Its 10½% notes due 2022 gained 1¼ points to end at 108¼ bid, with over $22 million traded.

Indicators stay firmer

Statistical market performance measures remained firmer across the board on Thursday, their second straight upside session. They had turned stronger all around on Wednesday after being mixed on Tuesday. Thursday was the indicators’ third winning session in the last four trading days.

The KDP High Yield Index jumped by 41 basis points on Thursday to close at 70.56, its fourth straight gain; it had edged up by just 1 bp on Wednesday. The recent gains follow six consecutive losses before that.

Its yield tightened by 12 bps to 5.29%, its third successive narrowing after seven straight sessions before that on the rise. The yield had come in by 1 bp on both Tuesday and Wednesday.

The Markit Series 26 CDX Index rose by almost 13/32 on Thursday to 104 13/16 bid, 104 7/8 offered, its second gain in a row and third in the last four sessions. On Wednesday, the index had zoomed by ¾ point.

And the Merrill Lynch High Yield Index rose by 0.553%, its fourth straight upturn. On Wednesday, it had improved by 0.146%. In contrast, the index had posted losses most days of last week.

The latest advance lifted its year-to-date return to 14.818% from 14.186% on Wednesday.

That left its return for the year not far off from the 14.992% cumulative return set on Sept. 8, its peak level for 2016 so far.

© 2015 Prospect News.
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