Frontier moves up timing, Lyon sells small deal; XPO falls on Con-Way bid; Basic Energy declines

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, Sept. 10 – Frontier Communications Corp.’s giant $6.6 billion offering of new notes will come to market sooner than expected after spending the entire summer waiting in the wings. The company brought its roadshow to an early end and will now price the bonds on Friday as demand reached a sufficient level to ensure oversubscription.

The only other news in the primary was a small add on from William Lyon Homes, Inc.

The secondary high-yield bond market had a firm tone again on Thursday, though topical names ended fairly mixed.

XPO Logistics Inc. saw its debt falling a couple of points – or more – following news the company had made a $3 billion play for trucking company Con-Way Inc.

“They took a little hit,” a trader said.

Meanwhile, Avon Products Inc. was mixed as it was reported that the struggling cosmetics company was in talks with private-equity firms in regards to the sale of a stake.

In the energy space, Basic Energy Services Inc. paper was down a considerable amount – as much as 5 points, according to one trader – as the oil well services company released its August operations update.

Also, Chesapeake Energy Corp. continued to be active. The name has been busy – and better – since announcing a new gas gathering agreement with Williams Cos. on Tuesday.

William Lyon taps 7% notes

William Lyon Homes came with Thursday’s sole new issue, a $50 million tack-on to its 7% senior notes due August 15, 2022 (B3/B-) that priced at 102 to yield 6.412% in a drive-by.

The reoffer price came on top of price talk.

Credit Suisse was the bookrunner for the debt refinancing.

Frontier shortens roadshow

Frontier Communications cut short its roadshow as it set tranche sizes and price talk for its mammoth $6.6 billion three-part offering of senior bullet notes (Ba3/BB-).

A $1 billion tranche of five-year notes is talked to yield in the 9¼% area, on top of earlier whispers.

A $2 billion tranche of seven-year notes is talked to yield in the 10 7/8% area, also on top of earlier talk.

A $3.6 billion tranche of 10-year notes is talked to yield 11¼% to 11½%. Talk on the long maturity tranche comes tight to earlier whispers in the 11½% area, according to a trader.

Books close at noon ET Friday and the deal is set to price Friday afternoon.

A schedule announced when the deal kicked off on Tuesday had the roadshow running into the week ahead, with pricing anticipated late this coming Tuesday or early Wednesday.

J.P. Morgan, BofA Merrill Lynch and Citigroup are joint bookrunners.

Proceeds will be used to help fund the acquisition of Verizon’s wireline operations in California, Florida and Texas.

Frontier priced to move

The Frontier deal is priced to move, market sources said on Thursday.

However price talk on the Frontier deal is by no means off the map, an investor asserted late Thursday.

“The rates are wide, but not crazy wide,” said the investor, who added that Frontier is a large issuer bringing a lot of debt to the market.

And although there are large orders it’s not going to be five-times oversubscribed or anything like that, the investor said.

“The dealer has to price this deal to move because they want it to trade well,” the source said.

“If they were to price it on the screws, and somebody leaned on it, it could go down. So you have to price it so that it remains above new issue price.

“No dealer is big enough to stand in the way of something like this.”

Demand for the Frontier bullet tranches increased throughout the Thursday session, sources said.

Early Thursday the buzz in the market was that the order book was near the deal size.

It exceeded the deal size by midday, a trader said, adding that demand was said to be $2 billion apiece for the five-year and seven-year notes, and $3.5 billion for the 10-year notes.

By 3:30 p.m. ET Thursday the order book stood at $13 billion, a portfolio manager said.

The size and price talk of the long-maturity tranche, $3.6 billion at 11¼% to 11½%, is a reflection of the outsized demand for those notes, sources said. Earlier that debt had been whispered in the 11½% area.

As to the foreshortened roadshow, “I don’t blame them,” a trader said.

“As volatile as the market has been, if the book is done why would you wait?”

Apart from the William Lyon Homes tack-on, and the news on Frontier, the primary market remained quiet on Thursday.

German dialysis company Fresenius SE & Co KGaA plans to participate in a non-deal roadshow that will take it to Boston on Monday and to New York City on Tuesday.

Goldman Sachs is arranging the presentations.

And apart from Frontier Communications – which at $6.6 billion is certainly big enough to command attention – the Friday session figures to be relatively quiet, as well.

Friday is never a great day for a drive-by, an investor said.

And given the recent volatility companies are unlikely to want to announce a roadshow deal ahead of the weekend.

Market in the black

Market indicators were positive in Thursday trading as the equity markets also moved higher.

The KDP High Yield Index rose to 68.3, with a 6.25% yield, by the end of the day’s session. That compared to Wednesday’s reading of 68.25, with a 6.23% yield.

The CDX North American Series 24 Index meantime inched up nearly a quarter-point to 104.6 bid, 104.7 offered, according to a market source.

XPO bids for Con-Way

A trader said XPO Logistics’ bonds “took a little hit” after the company “put a bid out for Con-Way.”

The trader saw the 6½% notes due 2021 falling almost 2 points to 95½, while the 7 7/8% notes due 2019 retreated 2½ points to 103½.

The company’s stock (NYSE: XPO) fell $3.75, or 11.03%, to $30.24.

Late Wednesday, XPO said it was buying Con-Way in a deal valued at $3 billion, or about $47.60 per share. The latest acquisition is one of about a dozen done since 2011 – including a $3.5 billion purchase of Norbert Dentressangle SA in June – as XPO looks to hit $23 billion in annual revenue by 2019.

With the Con-Way purchase, annual revenue is expected to reach $15 billion. Annual revenue for 2014 was reported as $2.4 billion.

Avon’s stake sale

Avon Products is reportedly in talks with such private-equity firms as Cerberus Capital Management and Platinum Equity about a private equity investment, The Wall Street Journal reported Thursday.

On the heels of the news, Avon’s bonds were given mixed reviews.

At one desk, a trader said the 7.7% notes due 2043 were “unchanged, maybe up a tick” at 76¼. However, he said the 5.35% notes due 2020 were “down a ½ point from a week ago,” trading at 83.

Another trader said the 7.7% notes due 2043 were “about unchanged,” trading “around 76.”

Avon’s equity (NYSE: AVP) meantime dropped 43 cents, or 9.49%, to $4.10.

Avon is currently soliciting bids for participation in a PIPE. It has not been disclosed how much the company is seeking to raise.

The New York-based company has been attempting to turn itself around as its U.S. sales have dwindled. In June, the company inked a new five-year $400 million credit line, but that came with stricter covenants.

At the end of June, the company had $697 million in cash and equivalents, which compared to $961 million at the end of 2014.

Basic backs up

Fort Worth-based Basic Energy issued an operations update for August late Wednesday. Come Thursday, the company’s bonds were sliding.

A trader said the 7¾% notes due 2022 dropped 5 points to 58, while the 7¾% notes due 2019 lost nearly 3½ points to end at 60 5/8.

Basic Energy reported that its well servicing rig count held steady in August at 421. A rig utilization rate of 53% was better than the 52% seen in July but well below the 74% mark of August 2014.

Drilling rig days were also better month over month, but less than year-ago comparables.

Additionally, the company said that “due to the recent volatility we experienced in August and our outlook for September, we now expect that our third quarter 2015 revenues will be 3% to 5% lower sequentially.”

Chesapeake rallies on

Chesapeake Energy remained on the radar on Thursday as investors continued to push the paper higher.

A trader said the 5¾% notes due 2023 were “pretty active,” inching up almost ½ point to 77 7/8. The 4 7/8% notes due 2022 were just over ½ point better at 76.

The bonds began to improve on Tuesday as the company announced a new gas-gathering agreement with Williams Cos. and some of its subsidiaries.

Under the new agreement with Williams and its units, Chesapeake will move to a fixed fee on both its Haynesville shale operating unit and at its dry gas Utica Shale asset in 2016. Fees at the Haynesville property will also be reduced, allowing existing minimum volume obligations to be met.

Chesapeake will also be obligated to increase the number of online wells at Haynesville by 140 over the next two years.

Chesapeake is an Oklahoma City-based oil and gas company.

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