Morning Commentary: CIT subordinated paper soars into secondary; Teva launches upsized $4.5 billion

By Paul A. Harris

Portland, Ore., March 7 – Amid a slight amount of market softness on the heels of a winter storm warning for New York City, and deepening political intrigue in Washington, D.C., a modest bid for junk appeared to be taking hold at mid-morning on Wednesday, a bond trader said.

The SPDR Blmbg Barclays High Yield Bd ETF (JNK) was down 0.15%, or 6 cents, selling for $35.97 per share at mid-morning.

New CIT Group Inc. 6 1/8% senior subordinated notes (Ba2/BB-) due 2028, which priced Tuesday at par, were soaring in the Wednesday morning secondary market at 104 bid, 104½ offered, traders said.

A $400 million tranche of the 6 1/8% subordinated notes came in an overall $1.4 billion three-part deal that also featured a pair of $500 million senior unsecured tranches (Ba2/BB+), both of which came Tuesday at par.

All were turning in notable secondary market performances.

The new CIT 4 1/8% notes due 2021 were up 7/8 point Wednesday morning, while the new 5¼% notes due 2025 were up 2 5/8 points, a trader said.

Upsized Teva on deck

Israel’s Teva Pharmaceutical Industries Ltd. upsized its dual-currency, four-tranche offering of non-callable senior notes (Ba2/BB/BB) to $4.5 billion equivalent from $3.5 billion equivalent on Wednesday.

The deal has a wide following that includes high-yield accounts, investment-grade accounts and emerging markets investors, sources say.

Three of the four tranches launched at the tight ends of price talk while the fourth, a $1.25 billion tranche of 10-year notes, launched through the talk.

The launched, upsized transaction includes $2.5 billion of notes in two tranches from Teva Pharmaceutical Finance Netherlands III BV, the dollar-denominated issuing entity, upsized from $2.25 billion. They include:

• $1.25 billion six-year notes launched at 6%; price talk was 6% to 6¼%, and

• $1.25 billion 10-year notes launched at 6¾%; price talk was 7% to 7¼%.

The deal also includes €1.6 billion of notes in two tranches from Teva Pharmaceutical Finance Netherlands II BV, the euro-denominated issuing entity, upsized from €1 billion. They include:

• €700 million four-year notes launched at 3¼%; price talk was 3¼% to 3½%, and

• €900 million seven-year notes launched at 4½%; price talk was 4½% to 4¾%.

With the upsizing, order books were scheduled to remain open an extra half hour, with the final close set for 10:30 a.m. ET on Wednesday.

Also on deck for Wednesday is Basic Energy Services, Inc. with $300 million of five-year senior secured notes (B3/B), sources say.

Whisper was 9% to 9½% heading into Wednesday, according to a trader, who added that the dealer claimed to be running an order book that was twice the size of the deal.

The latest buzz in the market has Basic Energy's new paper coming with a coupon of 8½% to 8¾%, at a discount, to yield 9¼% to 9½%, according to another trader.

With a nod to the weather in New York, pricing is expected sooner than later on Wednesday, sources said.

Upsized Arrow Global prices

In the European market Arrow Global Finance plc priced two tranches of secured notes (Ba3/BB).

The debt refinancing deal included an upsized €285 million amount of Euribor plus 375 basis points eight-year senior secured floating-rate notes, which priced at par. The tranche size was increased from €150 million. The spread came at the wide end of the 350 bps to 375 bps spread talk.

Arrow Global also priced a downsized £100 million add-on to its 5 1/8% senior secured notes due Sept. 15, 2024 at 99.5 to yield 5.216%. The add-on was downsized from £120 million. The reoffer price came at the cheap end of the 99.5 to 99.75 price talk.

HSBC and JPMorgan were the joint global coordinators and physical bookrunners.

Tuesday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Tuesday, a trader said.

High-yield ETFs sustained $168 million of outflows on the day.

Actively managed funds saw $86 million of outflows on Tuesday.

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