Morning Commentary: Zayo rolls out $3.08 billion as junk sags in early Thursday trading

By Paul A. Harris

Portland, Ore., Feb. 13 – Zayo Group Holdings Inc. plans to start a roadshow on Tuesday for a $3.08 billion two-part offering of notes.

The secured portion of the deal comes as a $1 billion tranche of seven-year senior secured notes (B1/B), while the unsecured portion comes as a $2.08 billion tranche of eight-year senior notes (Caa1/CCC+).

Initial guidance has the secured notes coming to yield in the mid-4% area and the unsecured paper coming to yield in the high 6% area, a trader said.

Given the recent blazing pace of the new issue market – the early part of the Feb. 10 week saw an $8 billion-plus burst of issuance – Zayo takes a place aboard a conspicuously thin active calendar.

Only one other deal is in the market, sources say.

Hecla Mining Co. has been marketing a $475 million offering of eight-year senior notes (Caa1/B), whispered at 7½% to 7¾%.

The Hecla deal is slated to price on Friday but might price before Thursday’s close, even though official price talk was still pending at press time, a trader said.

The secondary

Junk was off ¼ point to ½ point in the early going on Thursday amid weaker equities, according to a trader.

Among recent issues, some have been turning in stellar performances in the secondary market, the trader said.

For example, the Innophos Holdings Inc. 9 3/8% senior notes due February 2028 (Caa1/B-), which priced at par, were trading at 105 bid, 106 offered on Thursday morning.

The Builders FirstSource Inc. 5% senior notes due March 2030 (B3/BB-), which also priced at par, were 102½ bid, 103 offered on Thursday.

The Husky III Holding Ltd. 13%/13¾% PIK toggle notes due February 2025 (Caa2/CCC), bloodied in a market that demanded heavy concessions in pricing and covenants, were 103¼ offered on Thursday, according to the trader.

The Husky PIK toggle holdco notes, basically backing a dividend to sponsor Platinum Equity, priced at 98 in a $460 million issue on Tuesday.

Elsewhere, with respect to another of last Tuesday’s deals, it's a different story.

The HCA Inc. 3½% senior bullet notes due September 2030 (Ba2/BB-/BB) continued to lag issue price Thursday morning at 99 3/8 bid, 99 7/8 offered, the trader said.

The deal underwent a massive upsize, nearly tripling to $2.7 billion from $1 billion.

Although a big success for HCA, which, in addition to redeeming $1 billion of its 6¼% notes due 2021, managed to term out an additional $2 billion of 7½% notes due 2022, there were indications that investors who placed orders for the original $1 billion offer, expecting to be cut back when allocations came, ended up with higher-than-expected allocations after the deal was supersized, sources say.

Away from recent issues there was a glimmer of light in the oil patch Thursday morning.

The barrel price of West Texas Intermediate Crude oil for March 2020 delivery was up 19 cents, or 0.33%, at $51.36.

However, in addition to continued pressure resulting from the ongoing coronavirus epidemic, which is crimping global transportation in a variety of ways, sentiment in the crude oil sector soured further on Wednesday reports that Whiting Petroleum Corp. hired advisers to help the company find ways to refinance the $1.3 billion of debt coming due in Spring 2021, leading some to suspect that a distressed exchange might be in the offing.

The Whiting Petroleum 5¾% senior notes due March 2021 were down a point at 82½ bid, according to a trader, who added that the Whiting 6 5/8% senior notes due January 2026 traded Thursday morning at 52¼.

Wednesday inflows

The dedicated high-yield bond funds saw $445 million of net inflows on Wednesday, according to a market source.

High-yield ETFs saw $395 million of inflows on the day.

Actively managed high-yield funds saw $50 million of inflows on Wednesday, the source said.

As the market awaits an expected weekly report on capital markets fund flows from Lipper US Fund Flows for the week that ended with Wednesday's close, the combined high-yield funds are tracking $2.7 billion of inflows for that period, the market source added.

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