Quiet primary closes out year’s first week, new Lennar notes busy; Ruby Tuesday retreats

By Paul Deckelman and Paul A. Harris

New York, Jan. 6 – The high-yield primary arena was quiet on Friday with no new deals pricing, as Junkbondland closed out the first week of trading for the new year on a generally firm note.

While nothing priced, syndicate sources said that the forward calendar grew, with a pair of issuers heard to be hitting the road to market new deals – packaging company Novolex Holdings Inc. and aircraft leasing entity Avolon Holdings Ltd.

Other companies expected to bring new deals to market included casino and racetrack operator Penn National Gaming, Inc., communications infrastructure company Zayo Group Holdings Inc. and physician services organization TeamHealth Holdings Inc.

In the secondary sphere, traders saw fairly busy dealings in homebuilder Lennar Corp.’s new five-year notes, which priced on Thursday; that paper continued to trade at just a slight premium to its par issue price.

Lennar was one of two deals that came to market during the holiday-shortened first week of the new year, with some $800 million of new junk-rated and U.S. dollar-denominated paper having priced – nearly double the primary volume seen in the year-ago week, according to data compiled by Prospect News.

Away from the new deals, Ruby Tuesday, Inc.’s bonds fell by several points – though on limited volume – in line with a slide in the company’s shares after the restaurant chain operator reported a wider fiscal second-quarter loss and lower revenues versus its year-earlier performance.

Statistical market performance measures were mixed for a second straight session on Friday. Those indicators had turned mixed on Thursday after being stronger across the board over the previous four trading days.

The indicators meantime closed out the week higher across the board versus where they had been last week, when they were mixed. It was the second higher week in the last three.

Novolex starts Monday

Novolex Holdings (Flex Acquisition Co., Inc.) plans to start a roadshow on Monday for a $625 million offering of eight-year senior notes.

The offering, via joint bookrunners Credit Suisse, Deutsche Bank, Morgan Stanley and Jefferies, is also set to price during the week ahead.

Proceeds will be used as permanent financing for the leveraged buyout of the company by Carlyle.

Avolon sets roadshow

Avolon Holdings (Park Aerospace Holdings Ltd.) plans to start a roadshow on Jan. 17 for a two-part dollar-denominated offering of senior notes.

Announcements as to the overall size of the offering and the tranche sizes are pending.

The all-bullet deal will include 5.5-year notes and seven-year notes.

UBS and Morgan Stanley are the joint physical bookrunners.

Proceeds will be used to help fund the acquisition of C2 Aviation Capital LLC, the commercial aircraft leasing business of CIT Group, Inc., for $10 billion.

The company will also hold a bank meeting on Monday to launch a $5.5 billion senior secured first-lien term loan B.

Morgan Stanley Senior Funding Inc., UBS Investment Bank, Barclays, J.P. Morgan Securities LLC, BNP Paribas Securities Corp., Credit Agricole CIB and SunTrust Robinson Humphrey Inc. are the leads on that part of the financing.

Zayo on the horizon

Zayo Group Holdings is expected to show up in the primary market with an $800 million offering of senior notes (B3) in the near term.

The Boulder, Colo.-based provider of communications infrastructure services plans to use the proceeds to help fund its acquisition of Electric Lightwave, formerly known as Integra Telecom.

The financing also includes a $650 million term loan which launched on Friday via Morgan Stanley, Barclays, SunTrust, RBC, Citigroup, Goldman Sachs and J.P. Morgan. Price talk is Libor plus 275 basis points with a 1% Libor floor and an original issue discount of 99.75.

Meanwhile Penn National Gaming disclosed in a Friday press release that it intends to use proceeds from a new senior unsecured debt offering to help fund a tender offer for $300 million of its 5 7/8% senior notes due 2021. In addition the gaming company also plans to use $1.5 billion of amended senior secured credit facilities, and cash on hand, to refinance existing credit facilities and for general corporate purposes.

J.P. Morgan is the dealer manager for the tender that expires on Jan. 19.

Bank of America Merrill Lynch and J.P. Morgan Securities LLC are the lead banks on the credit facility, which launches at a meeting on Monday.

Elsewhere in the week ahead

The primary market is expected to get up and running in earnest during the second week of 2017, sources said on Friday.

Look for some drive-by deals, a sell-sider advised.

One deal that is expected to appear in the week ahead is TeamHealth Holdings’ $1.015 billion of high-yield bonds, an LBO deal expected to be led by Barclays.

The bond deal is expected to price after a roadshow.

TeamHealth held a bank meeting on Thursday to launch a proposed $2.6 billion seven-year term loan B. JP Morgan is the left lead on the bank deal.

Positive flows

Cash flows for dedicated high-yield bond funds were strongly positive on Thursday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs saw $501 million of inflows on the day.

Actively managed funds saw $155 million of inflows.

Cash flows to dedicated bank loan funds continued to be strongly positive on Thursday, the trader said.

The loan funds saw $410 million of inflows on the day, $202 million of which flowed into the bank loan ETFs.

Lennar bonds hold small gains

In the secondary market, traders said that Thursday’s new deal from Miami-based homebuilder Lennar was fairly active on the day, with over $22 million of those 4 1/8% senior notes due 2022 seen changing hands, around $15 million of that in big round-lot transactions of $1 million or more.

One trader said that the issue “held to a tight range” in a par to 100½ bid area.

A second saw the bonds trading at levels between 100 1/8 and 100¾, noting that “a sucker” had paid the latter price for the notes while “the market for this one was really between 100 1/8 and 100½.”

Lennar had priced $600 million of the notes at par in a quick-to-market transaction on Thursday that was upsized from an originally announced $350 million.

More than $13 million of the notes had traded in initial aftermarket dealings on Thursday, moving up to around 100 5/16 bid.

Week’s issuance tops 2016

Lennar’s deal was one of two that priced this week, totaling some $800 million of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers (the week’s other deal was a quickly shopped $200 million add-on offering of 6 3/8% senior notes due June 1, 2024 from Euless, Texas-based cement products company U.S. Concrete, Inc., which priced on Wednesday).

According to data compiled by Prospect News, the previous week, ended Dec. 30, saw no new deals at all price, while $198 million of new bonds had gotten done in two tranches the week before that, ended Dec. 23.

However, all of those totals were well down from the $7.33 billion which had priced in 16 tranches during the week ended Dec. 16, the last “normal” week of trading for 2016 before the onset of the traditional end-of-December holiday-time lull.

This week’s primary activity, such as it was, also brought year-to-date issuance for 2017 so far up to $800 million in two tranches, racing some 89.12% ahead of the new-deal pace seen at this time last year, when just $423 million had priced in one tranche by this point on the calendar to open 2016 primary market activity, the Prospect News data indicated.

Full-year issuance in 2016 finished at $226.78 billion in 359 tranches – which ran 12.9% behind the $260.02 billion which had gotten done in 408 tranches in 2015.

The record full-year junk bond new-issuance total of $324.96 billion in 674 tranches was set in 2012.

Ruby Tuesday trades off

Away from the new deals, traders noted that Ruby Tuesday’s 7 5/8% notes due 2020 were down around 2 points on the session, finishing at 96¾ bid.

The bonds fell after the Maryville, Tenn.-based restaurant chain operator had reported a wider adjusted second-quarter loss of 18 cents a share late Thursday, compared with 4 cents a share of red ink in the year-ago quarter.

Second-quarter revenue fell to $214.7 million, down nearly 18% from the year-ago quarter.

A trader said the company’s stock “was off by 24% but the bonds were only down around 2 points.”

Another trader said that “there were just a couple of round-lot prints,” totaling about only $4 million and the rest in smaller odd-lot trades.

“It’s not a huge issue” – the company has $212.5 million outstanding, according to its latest 10-Q – “so it really doesn’t trade around a lot.”

The first trader meantime noted that the bonds had traded “for the longest time” in a 95½ to 97½ range, “but then they ran up to around 98-99 at the end of December,” setting the stage for Friday’s precipitous drop.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Friday; those indicators had turned mixed on Thursday after having been stronger across the board over the previous four trading days.

The indicators meantime closed out the week higher across the board versus where they had been last week, when they were mixed. It was the second higher week in the last three.

The KDP High Yield Index firmed by 7 basis points on Friday to end at 72.15, its seventh consecutive gain and 10th upturn in the last 11 sessions. It had jumped by 23 bps on Wednesday and another 20 bps on Thursday.

Its yield came in by 2 bps to 5.12%, its fourth successive narrowing, which included Thursday’s tightening by 16 bps.

Those levels compare favorably with last Friday’s 71.55 index reading and 5.41% yield.

But the Markit Series 27 CDX Index remained on the downside for a second day in a row, ending down more than 1/8 point on the session at 106 21/32 bid, 106 23/32 offered. It lost nearly 3/32 point on Thursday, while before that, the index had risen over two straight sessions and in four days out of the previous five.

For the week, however, the Markit index was up from last Friday’s finish at 106 5/32 bid, 106 7/32 offered.

The Merrill Lynch High Yield Index meantime continued to roll unstoppably on, improving on Friday by 0.062%, its 13th straight gain. On Thursday, it had moved up by 0.229%, on top of gains of 0.268% on Tuesday, the first trading session of the year, and 0.365% on Wednesday.

Friday’s advance raised its year-to-date return to 0.927%, a third consecutive new high for the new year, eclipsing the prior cumulative mark of 0.865%, set on Thursday.

The index was also up by 0.928% on the week, its third straight weekly gain. The index had risen by 0.3% during the previous week, ended Dec. 30.

The index had closed out 2016 with a total return of 17.489% – its best showing since 2009’s record-setting 57.512% jump. In 2015, the index had lost 4.643% on the year.

© 2015 Prospect News.
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