Smaller, restructured Meritage caps $3.49 billion primary week; New Enterprise notes busy

By Paul Deckelman and Paul A. Harris

New York, March 2 – The high-yield primary market closed out the week on Friday by taking half a step backwards after Thursday’s brisk session, which saw $2.58 billion of new dollar-denominated and fully junk-rated paper price in six tranches brought by five issuers.

Syndicate sources saw just one new issue get done on Friday, as builder Meritage Homes Corp. did a $200 million add-on to its existing 2025 notes. However, that offering was downsized and was priced after a little tinkering around with what was originally supposed to be a new 10-year note issue.

The Meritage deal capped off a week which saw $3.49 billion of new junk paper pricing – down from the more than $5 billion which got done the week before, ended Feb. 23, but still an improvement from recent relatively inactive levels. However, according to data compiled by Prospect News, this year’s new issuance pace lags solidly behind issuance at this time last year.

Among recently priced deals, secondary market traders saw sizable turnover for a relatively slow day from the likes of New Enterprise Stone & Lime Co., Inc., Fortescue Metals Group Ltd. and Sprint Corp.

Away from the new or recently priced issues, there was also considerable trading – and price movement – in the bonds of Team Health Holdings Inc. and Monitronics International Inc., though with no fresh news seen out on either company.

Elsewhere, J. C. Penney Co., Inc.’s paper dropped after the retailer’s announcement of disappointing fourth-quarter numbers and plans to lay off about 360 employees.

Statistical market performance measures turned mixed on Friday after being lower all around on Wednesday and again on Thursday.

Those indicators were meantime lower across the board versus where they had closed last Friday, Feb. 23 – their first such negative week after having been mixed the previous week and higher the week before that.

Meritage reduced, overhauled

In Friday’s primary market Meritage Homes Corp. priced a $200 million add-on to its 6% senior notes due June 1, 2025 at 103.

The reoffer price came at the cheap end of the 103 to 104 talk.

The deal represented a downsizing and restructuring relative to the $300 million offering of new 10-year bullet notes which the company announced Thursday and which was expected to price Thursday as a quick-to-market trade.

As with the 10-year bullet, JP Morgan Securities LLC, RBC Capital Markets LLC, Citigroup Global Markets Inc., BofA Merrill Lynch, Mizuho Securities, PNC Capital Markets, SunTrust Robinson Humphrey and US Bancorp were the joint bookrunners for the revamped add-on deal.

The Scottsdale, Ariz.-based real estate developer plans to use the proceeds to repay its 4½% notes due 2018 and for general corporate purposes.

The week ahead

With turbulence revisiting the global capital markets on Friday – this time sparked by president Donald Trump’s Twitter assertion that “trade wars are good,” sources said – the March 5 week is something of a question mark.

Teva Pharmaceutical Industries Ltd. is conducting a two-team international roadshow for a $3.5 billion equivalent four-part offering of non-callable senior notes in tranches of dollar- and euro-denominated debt.

The roadshow ran in the United States during the past week and heads to Europe in the week ahead.

Barclays, BofA Merrill Lynch, BNP Paribas, Citigroup, Credit Suisse and HSBC are the active bookrunners for the debt refinancing deal.

Also in the week ahead, Basic Energy Services, Inc. is expected to price a $300 million offering of five-year senior secured notes.

BofA Merrill Lynch, Morgan Stanley & Co. and UBS Investment Bank are leading the debt refinancing and general corporate purposes deal.

In Europe, JP Morgan circulated a save-the-date memo for Monday regarding a potential issuer in the financial sector, a London-based debt capital markets banker said.

The March 5 week had been shaping up to be an active one in the European market, the banker said.

However with the chop in the global markets that followed the Trump tariff talk it’s anybody’s guess how the new issue market will operate in the week ahead, the source added.

Modest Thursday inflows

On the heels of a report that dedicated high-yield bond funds sustained their seventh consecutive weekly outflow in the week to Wednesday, Feb. 28, losing $703 million, daily cash flows turned positive on Thursday, according to a market source.

The funds, encompassing both ETFs and asset managers, saw a modest but positive $153 million of inflows on the day.

However, even factoring in that modest Thursday inflow, dedicated high-yield bond funds are negative $13 billion year-to-date heading into Friday’s close, the source added.

Volume off from previous week

Friday’s one new deal, from Meritage Homes, raised to $3.49 billion the amount of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers which priced in 10 tranches during the week just completed, according to data compiled by Prospect News.

That was down from the $5.18 billion which had priced in eight tranches during the previous week, ended Feb. 23 – which in turn had been a sharp improvement over the $591 million which had priced in just two tranches the week before that, ended Feb. 16.

The Feb. 23 week had broken a string of four consecutive weeks in which issuance had dwindled from the previous week’s new deal volume.

Junkbondland new deal activity has been on the slide ever since peaking at the $8.31 billion which got done in 14 tranches during the week ended Jan. 19.

As of the close on Friday, year-to-date issuance has pushed up to $38.27 billion in 74 tranches, the data indicated – but that was running about 16.8% behind the $46 billion which had gotten done in 83 tranches by this point on the calendar last year.

That represented a widening of the year-over-year gap from the previous week’s 9.5% difference.

Earlier this year, the 2018 primary pricing pace was seen up by as much as 30% from that seen the year before. The gap was closed due to the recent slide in this year’s issuance combined with a pick up in issuance which occurred during the corresponding period in 2017.

New Enterprise active

In the secondary market, a trader said that he saw “a decent amount” of volume in the new issue from New Enterprise Stone & Lime on an otherwise relatively sleepy day, estimating that over $20 million of those 6¼% notes due 2026 changed hands.

He saw the paper trading between 99 15/16 and 100 ½ bid, with most of the prints going off between 100¼ and 100 3/8 bid.

A second trader saw the notes finishing at 100½ bid, calling that down ¼ point from initial aftermarket gains posted on Thursday.

The New Enterprise, Pa.-based supplier of gravel, stone and other construction materials priced $450 million of those notes at par Thursday in a forward calendar transaction.

Fortescue off slightly

Australian iron-ore mining company Fortescue Metals Group’s new 5 1/8% notes due 2023 were seen by a trader down ¼ point on the day, trading at exactly par bid.

A second trader saw them in a 99 7/8 to 100 3/8 bid context.

More than $13 million of the notes traded on Friday.

The company priced $500 million of those notes at par Thursday in a quick-to-market transaction.

Sprint stays busy

Going back a little further, a trader said that Sprint Corp.’s recently priced 7 5/8% notes due 2026 were down nearly ½ point on the day, trading just above 98 bid, with over $13 million moving around.

The Overland Park, Kan.-based wireless company’s $1.5 billion quick-to-market offering – upsized from an originally announced $1 billion – had priced at par back on Feb. 20 and was about the only recent new deal to consistently show up on the Most Actives list.

Team, Monitronics active

A trader pointed out that Team Health’s 6 3/8% notes due 2025 fell to around 90 bid, down 2½ points on the day, on volume of nearly $40 million Friday, easily the most active credit.

He saw no fresh news out on the Knoxville, Tenn.-based physician services organization that might explain that activity.

And he saw Monitronics International’s 9 1/8% notes due 2020 up 2½ points on the day to end at 83 bid, with about $17 million of turnover.

Again, he saw no fresh news out on the Dallas-based home security alarm monitoring company to explain the bond moves.

J. C. Penney reports

Bonds of Plano, Texas-based department store chain J. C. Penney were active as the company announced fourth quarter numbers on Friday, a market source confirmed. It reported earnings for the period of $254 million while also announcing about 360 layoffs at multiple levels of the company, which one trader described as a positive sign.

“They seem to be doing their best to turn things around,” a trader said. “Apparently there was a lot of stuff on that call that gave investors some confidence. But their growth guidance is something to be concerned about.”

The 7.4% bonds due 2037 cratered about 3¾ points to close at just below 68 bid. Penney’s 5.65% notes due 2020 were down ½ point, at 99¾ bid.

Indicators mixed on day

Statistical market performance measures turned mixed on Friday after being lower all around on Wednesday and again on Thursday. The indicators had also been mixed on Tuesday.

Those indicators were meantime lower across the board versus where they had closed last Friday, Feb. 23 – their first such negative week after being mixed the previous week and higher the week before that.

The KDP High Yield Daily Index slid by 17 basis points on Friday to end at 70.56, its third consecutive loss; it had also lost 2 bps on Thursday.

Its yield meanwhile rose by 7 bps to 5.72, its third straight widening out. It had moved up by 1 bp on Thursday.

Those levels compared unfavorably with last Friday’s 70.67 index reading and 5.66% yield.

But the Markit CDX Series 29 High Yield Index moved up by 5/32 point on Friday to 106 19/32 bid, 106 21/32 offered, its first gain after three straight losses before that. On Thursday, the index was off by 5/16 point.

For the week, though, the index finished down from last Friday’s 106 15/16 bid, 107 offered level.

The Merrill Lynch High Yield Index was off for a fourth session in a row, falling back by 0.335% on Friday, following Thursday’s 0.025% decline.

Friday’s setback widened the index’s year-to-date deficit to 0.83% from 0.497% on Thursday, although those loss levels were in from the 1.248% cumulative loss posted on Feb. 9, its second straight new widest deficit level for the year.

Its peak cumulative gain for the year so far was 0.936%, established on Jan. 26.

For the week, the index lost 0.25%, its second straight weekly loss, and fourth such loss in the last five weeks.

For 2018 so far, there have been seven weeks of losses on the index versus just three weeks of gains.

-James McCandless contributed to this review

© 2015 Prospect News.
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