Sunoco, Schaeffler, GCI price to cap $9.2 billion week; new bonds trade busily, better on week

By Paul A. Harris and Paul Deckelman

New York, March 27 – The high-yield primary sphere saw a busy session on Friday, with three new issues collectively worth $1.85 billion of junk-rated, dollar-denominated paper from domestic or industrialized-country borrowers coming to market.

Gasoline distributor Sunoco LP had the big deal of the day, an $800 million issue of eight-year notes that priced as a regularly scheduled offering off the forward calendar.

The day’s other two offerings were also scheduled deals: German ball-bearing manufacturer Schaeffler AG’s $600 million issue of eight-year notes, part of a three-tranche, dual-currency transaction that was priced via a financing subsidiary, and Alaskan telecommunications provider GCI, Inc.’s $450 million of 10-year notes, which priced at a discount to par.

The Schaeffler and GCI issues came to market earlier in the session and saw considerable secondary market activity, with both new deals moving up from their respective issue prices. Traders said the new Sunoco bonds, in contrast, arrived too late in the session for any real aftermarket activity.

There was also busy trading in several recently priced offerings, including both tranches of the new bonds from Ally Financial Inc. that came to market earlier in the week, as well as last week’s big deal from Rite Aid Corp.

This week’s bond total came to almost twice the $4.78 billion of such bonds that had come to market in six tranches last week, ended March 20, according to data compiled by Prospect News.

It brought year-to-date issuance up to $87.68 billion in 129 tranches, according to the data, running 34.4% ahead of the new-deal market’s pace a year ago, when some $65.24 billion of bonds had priced in 136 tranches by this point on the calendar, the data indicated.

That was a modest narrowing of the gap relative to last year; last week this year’s pace had been running about 40% ahead of a year ago.

Statistical market performance indicators were mixed for a fourth consecutive session versus where they had been the previous day.

But the indicators ended higher for the week versus last Friday’s levels, after having a mixed week last week and two weeks before that during which they had been lower across the board.

Sunoco comes atop talk

A busy Friday session saw three issuers price single dollar-denominated tranches to raise a combined total of $1.85 billion.

All three deals came at the conclusions of roadshows that kept them in the market at least overnight.

None of the three was upsized, although Schaeffler Finance BV completed the dollar-denominated tranche of its benchmark dual-currency three-part deal at the high end of its forecast $500 million to $600 million range.

Executions were solid, with one of Friday's three dollar tranches coming at the tight end of talk, while the other two came on top of talk.

Sunoco and Sunoco Finance Corp. priced an $800 million issue of eight-year senior notes (Ba3/BB/BB) at par to yield 6 3/8%.

The yield printed on top of yield talk.

Earlier talk had the deal coming with a yield in the low 6s, according to market sources.

And the Sunoco deal must have benefited from some late momentum, according to an investor, who added that as of Thursday morning the order book was at half the deal size.

BofA Merrill Lynch was the left bookrunner. Credit Suisse was the joint bookrunner.

The Houston-based master limited partnership plans to use the proceeds to fund the acquisition of a 31.58% membership interest in Sunoco, LLC from a wholly owned subsidiary of Energy Transfer Partners, LP and to repay revolver debt.

Schaeffler dual-currency benchmark

Germany's Schaeffler priced a benchmark dual-currency offering of senior secured notes (Ba2/BB) in three tranches.

The debt refinancing deal included €400 million of 2½% five-year notes that priced at 99.383 to yield 2 5/8%, at the tight end of yield talk in the 2¾% area.

Schaeffler also priced $600 million of eight-year notes at par to yield 4¾%, at the tight end of yield talk in the 4 7/8% area.

The long tranche was comprised of €600 million of 3¼% 10-year notes that priced at 98.92 to yield 3 3/8%, at the tight end of yield talk in the 3½% area.

Joint bookrunner BofA Merrill Lynch will bill and deliver for the dollar-denominated notes. Joint bookrunner Deutsche Bank will bill and deliver for the euro-denominated notes.

Barclays, BayernLB, BNP, Citigroup, Commerzbank, HSBC, JPMorgan and UniCredit are also joint bookrunners.

GCI 10-year deal

GCI priced a $450 million issue of 6 7/8% 10-year senior notes (B3/B+) at 99.105 to yield 7% on Friday.

The yield printed on top of yield talk.

SunTrust was the left bookrunner for the debt refinancing deal. BofA Merrill Lynch and Credit Agricole were the joint bookrunners.

Murray Energy’s $1.55 billion

The week ahead will get underway with a modest $2.38 billion of announced deals on the active calendar.

Three deals that were announced on Friday will start their roadshows on Monday.

One of those, Murray Energy Corp., is planning a $1.55 billion two-part offering of second-lien senior secured notes (B3/B-).

The debt refinancing deal, which is set to price on Thursday, is coming in tranches of five-year notes and eight-year notes.

Deutsche Bank and Goldman Sachs are the joint bookrunners.

Sabre starts Monday

Sabre GLBL Inc. plans to kick off a $530 million offering of eight-year senior secured notes (expected ratings Ba3/B+) at an investor meeting scheduled to get underway at 12:30 p.m. ET on Monday in New York City.

The deal is scheduled to price during the middle part of the week ahead.

Goldman Sachs is the left bookrunner. Morgan Stanley & Co., BofA Merrill Lynch, Deutsche Bank, Natixis, Mizuho, TPG and Lion Tree are joint bookrunners.

The Southlake, Texas-based travel services provider plans to use the proceeds to redeem all $480 million of its outstanding 8½% notes due May 15, 2019, with any excess proceeds to be used for general corporate purposes.

Interval Leisure roadshow

Interval Acquisition Corp., a wholly owned subsidiary of Interval Leisure Group, plans to start a roadshow on Monday for a $300 million offering of eight-year senior notes (expected ratings Ba3/BB-).

Wells Fargo is the left bookrunner for the debt refinancing. BofA Merrill Lynch, PNC and SunTrust are the joint bookrunners.

AA prices tight

Aside from the above-mentioned euro-denominated tranches priced on Friday by Schaeffler, there was news in the sterling-denominated market, as well.

Roadside assistance provider AA (Automobile Association) priced a £735 million issue of class B secured notes at par to yield 5½%.

The yield printed at the tight end of the 5½% to 5¾% yield talk.

The notes have an expected maturity of July 31, 2022 and a final maturity of July 31, 2043.

Credit Suisse was the lead left global coordinator for the debt refinancing deal. Royal Bank of Scotland and Lloyds were also global coordinators.

Barclays, JPMorgan, Morgan Stanley and Santander were joint bookrunners.

Elsewhere in the European market, Touax SCA announced that it will not move forward with its €200 million offering of senior secured notes due 2020 (B/BB-) at this time, and will continue using available alternative lower-cost financing options.

The week ahead might be quieter in the European high-yield primary, a debt capital markets banker said.

That's because a lot of market participants are expected to extend the Easter holidays into full-week vacations, the source said.

Positive flows on Thursday

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, an investor said.

High-yield exchange-traded funds saw $88 million of inflows on Thursday, while actively managed funds saw $85 million of inflows.

Those numbers come on the heels of the weekly high-yield fund flows data reported Thursday by Lipper-AMG, for the week to Wednesday's close.

The most recent week saw the funds snapping a two-week streak of negative flows with $856 million of net inflows.

However the ETFs, which saw $1.05 billion of inflows during the week to Wednesday's close, were the only component to see inflows, with actively managed junk bond funds and leverage loan funds sustaining outflows during the period.

A trader agreed, on Friday afternoon, that ETFs – often thought of as the “fast money” at play in junk – have been the most vigorous buyers of late.

“ETFs have consistently been buying, even on days when high yield does not feel very firm,” the trader said, adding that of late there is no overwhelming sponsorship from regular money accounts.

Schaeffler, GCI move up

In the secondary realm, a trader said that he was “just seeing wide markets” in the new Schaeffler 4¾% notes due 2023, pegging the issue in a par-to-101 context.

Another trader saw the bonds in a somewhat narrower par-to-100 3/8 bid range, while a third saw the bonds between par and 100¾, with the last trades between 100 1/8 and 100½ bid.

“What have we fallen to,” he mused. “4¾% for a BB name.”

“We can all rationalize all we want – 289 basis points off Treasuries, 200 bps to 350, that’s what a BB should be,” he said ironically.

At another desk, a market source saw the new Schaeffler issue up 3/8 point from its par pricing level on volume of more than $19 million.

As for GCI, the source said the 6 7/8% notes due 2025 had firmed smartly to 101 bid – well up from its 99.105 issue price – also on volume of about $19 million.

Another trader was a little more conservative in his estimate, seeing the Anchorage-based telecom company’s bonds at about a 100 3/8 bid level.

The day’s third issue – from Houston-based petroleum products distributor Sunoco – hit the market too late in the afternoon for any real dealings, one of the traders said.

Recent issues stay busy

There was active trading in several recently priced names, one such being Ally Financial.

The Detroit-based automotive lender and online banking company’s 4 1/8% notes due 2020 were seen up ½ point on the day at 99½ bid, while its 4 5/8% notes due 2025 were at 98½ bid, also up ½ point. Volume on both approached the $30 million mark on Friday.

Ally priced both tranches of bonds on Wednesday as a quickly marketed drive-by offering, with $750 million of the 4 1/8% notes having priced at 98.888 to yield 4 3/8%, and $500 million of the 4 5/8% paper having come to market at 98.04 to yield 4 7/8%.

Another active credit was Rite Aid’s 6 1/8% notes due 2023, seen by a market source at 102 1/8 bid, up 3/8 point on the day, with more than $18 million having changed hands.

The Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator priced $1.8 billion of those notes at par on March 19 following a short roadshow. The bonds quickly moved above 101 bid when they were freed for secondary trading and have continued to firm since then.

Indicators stay mixed

Overall, a trader said that Friday’s session “was kind of unchanged to 1/8 point better. Flows were kind of light, but the tone was okay.”

Statistical indicators of junk market performance were mixed for a fourth straight session on Friday versus their levels the session before. They had turned mixed on Tuesday after having been higher over the previous two sessions before that.

For the week, though, the indicators were higher versus where they were last Friday, when they ended mixed, following two weeks before that when they had been lower across the board.

The KDP High Yield Daily index dipped by 1 basis point Friday to 71.19, its first loss after having been higher for five straight sessions and for six sessions out of the prior seven, including Thursday, when it had risen by 2 bps.

Its yield was unchanged for a second straight session, staying at 5.38% after having narrowed for five successive sessions before that.

But those levels compared favorably with the 71.06 index reading and 5.44% yield seen last Friday.

The Markit Series 24 CDX North American High Yield index closed at 106 11/16 bid, 106 13/16 offered.

That reading is not directly comparable to Thursday’s level at 107¾ bid, 107 7/8 offered, since Thursday was the last session during which series 23 had traded; the company “rolls” its index twice a year, in late March and late September, dropping some credits and adding other to the mix.

For the same reason, Friday’s series 24 close is not directly comparable to last Friday’s series 23 finish.

The Merrill Lynch U.S. High Yield Master II index notched its first gain after having declined on Thursday, which had been its first setback after five consecutive gains.

The index rose by 0.074%, versus Thursday’s 0.087% drop.

Friday’s advance raised its year-to-date return to 2.377% from 2.301% on Thursday, although it remained down from its peak 2015 level of 3.125%, set on March 2.

The index rose by 0.279% on the week, its second consecutive weekly gain.

It had been up by 0.045% last week, ending with a 2.091% cumulative return on the year so far.

© 2015 Prospect News.
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