Sterigenics deal caps nearly $10 billion week, heads higher; recent deals busy, market firmer

By Paul A. Harris and Paul Deckelman

New York, May 8 – The high-yield market closed out the first full trading week in May on an upbeat note on Friday, with traders reporting anecdotally that the market was looking better, while key performance indicators were stronger on the session.

There was just one pricing in Junkbondland - Sterigenics-Nordion Holdings LLC’s $450 million of eight-year notes, a regularly scheduled forward calendar offering.

The day’s relatively relaxed pace stood in stark contrast with the hectic pace seen on Thursday, when five deals totaling $2.73 billion of new dollar-denominated junk-rated paper from domestic or industrialized-country borrowers had come to market, and especially versus Wednesday’s session, when $3.95 billion of such paper got done in six tranches, according to data compiled by Prospect News.

Friday’s issuance lifted the week’s total to $9.96 billion in 16 tranches, according to the data – more than double the $3.83 billion priced in nine tranches the week before, ended May 1.

The week’s activity, in turn pushed year-to-date issuance up to $138.80 billion in 213 tranches, running about 16.8% ahead of the pace seen last year, when $118.81 billion had been priced in 201 tranches by this point on the calendar.

The new Sterigenics deal – which played to a solidly oversubscribed order book, according to syndicate sources – generated brisk demand once it hit the aftermarket, gaining more than a full point from its issue price, with the bonds finishing near the top of the day’s Most Actives list.

There meanwhile was considerable activity in recently priced issues, including Thursday’s offerings from Boyd Gaming Corp., SM Energy Co. and Range Resources Corp., as well as the megadeals that priced earlier in the week from HCA Inc. and Chemours Co.

With the new and recent deals leading the way, traders said Friday’s market was considerably firmer than Thursday’s, as borne out by the statistical market performance indicators, which were higher across the board after three consecutive sessions on the downside.

The indicators were mixed versus where they had finished out the previous Friday, after having been lower across the board last week. It was the indicators’ third mixed week in the last four.

Sterigenics oversubscribed

Sterigenics-Nordion priced the only deal to clear the high-yield primary market on Friday.

The Oak Brook, Ill.-based sterilization services provider priced a $450 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 6½%.

The yield printed at the tight end of yield talk that had been set in the 6 5/8% area.

The deal, which was led by joint bookrunners J.P. Morgan, Barclays, Jefferies and RBC, played to $2 billion of orders, a sellside source said.

The company plans to use the proceeds to help fund its recapitalization with Warburg Pincus and GTCR.

Bellatrix lines up roadshow

Bellatrix Exploration Ltd. plans to start a roadshow on Monday for a $250 million offering of five-year senior notes (B3/B-).

The roadshow wraps up on Friday.

Early guidance has the debt refinancing deal shaping up to yield 8½% to 8¾%, according to a trader.

J.P. Morgan and BMO Securities are the joint bookrunners.

World Acceptance to price

World Acceptance Corp. plans to price a $250 million offering of five-year senior notes (expected B3/confirmed B) in the week ahead.

Early guidance is in the 9% area, the trader said.

Wells Fargo is the left bookrunner for the debt refinancing. BMO is the joint bookrunner.

The week ahead

The week ahead should see a substantial build-up in the active new issue calendar, a debt capital markets banker said on Friday.

The source expects announcements of roadshow deals and drive-bys.

In the latter category, watch for some activity from the energy/power sector, the banker advised.

Friday’s report from the U.S. Bureau of Labor Statistics, that non-farm payrolls grew over the past month but not as vigorously as was expected could hardly have been better for the junk bond market, sources said on Friday afternoon.

On the one hand the employment news was not terrible, a trader explained.

On the other hand growth is not so robust that the Federal Reserve might be prompted to cool things off with a quick boost to the Fed Funds rate.

“The report was just weak enough,” the trader said.

“The consensus seems to be building that the rate increase that people had been expecting in June will now be pushed off until later in the year.”

As to the fund flows situation, Thursday’s news that dedicated high-yield funds saw $2.745 billion of outflows for the week to Wednesday has the sellside scratching its head, a syndicate official said on Friday.

There is a sense that there is still a good deal of cash to be put to work, the source added.

The lion’s share of the weekly outflows reported on Thursday – 79% – came from ETFs, sources said.

ETFS were negative throughout the week until Friday, when they turned into buyers, a trader said.

Quiet in Europe

Volatility related to the ongoing economic difficulties in Greece, deflation fears in the euro zone and elections in the United Kingdom served to quell activity in the European new issue market during the past week, and may continue to do so in the week ahead, a source said.

During the latter part of the May 4 week the only primary market news out of Europe was negative: Italian construction company Societa Italiana per Condotte d’Acqua SpA postponed its downsized €200 million offering of seven-year senior notes, the source recounted.

The sense is that at present the European market is open only to well-known issuers with good credit ratings.

And those issuers will almost certainly remain on the sidelines for the time being.

Sterigenics shows strength

In the secondary realm, when the new Sterigenics 6½% notes due 2023 came to market late in the session, a trader said that he had seen “small pieces” trading wrapped around 101 bid – up from their par issue price. He quoted them going out at 100¾ bid, 101¼ offered.

A second trader also saw them in that context.

A little later on, a third trader said there had been considerable activity in the new bonds, even given the relative lateness on the hour at which they had priced on a Friday afternoon characterized by superb weather in New York and other parts of the Northeast.

He said that when all was said and done, more than $45 million of the bonds had changed hands, shooting the issue to near the top of the day’s Most Actives list. He saw the bonds finishing at 101¼ bid.

Thursday deals trade busily

A trader said that “just about all of the secondary focus seems to be on the new issues,” with issues such as Thursday’s deal from Boyd Gaming as Exhibit Number One.

The Las Vegas-based casino operator’s new 6 7/8% notes due 2023 were ½ better on Friday, up to around the 101 bid mark after having finished Thursday in a par to 100½ bid range, with offers as high as 101 3/8.

A second trader saw the bonds at 101¼ bid, 101½ offered, while a third called them up by 1 point at 101 3/8 bid; volume of over $60 million was tops among junk issues.

Boyd had priced its quickly shopped deal at par Thursday after the offering was upsized to $750 million from the originally announced $500 million.

Among the other Thursday deals seen trading around, SM Energy’s 5 5/8% notes due 2025 stood at 100 5/8 bid, 101 1/8 offered, which he called unchanged on the day.

A trader at another shop quoted the bonds about ¼ point higher at 100 7/8 bid, with over $25 million traded.

The Denver-based oil and natural gas exploration and production company priced its quick-to-market $500 million offering at par after an upsizing from the initially planned $400 million.

Also in the energy space, Range Resources’ 4 7/8% notes due 2025 was seen by a trader having gotten as good as 100¾ bid, a 5/16 point improvement, with over $25 million traded.

The Fort Worth, Texas-based energy company’s drive-by deal priced at par after it was upsized to $750 million from $500 million originally.

Earlier deals seen active

Going back a little further, a trader saw Wednesday’s 5 3/8% notes due 2025 from HCA Inc. up ½ point at 103 3/8 bid on volume of more than $45 million.

A second trader put the Nashville-based hospital operator’s drive-by megadeal at 103¼ bid, 103 5/8 offered.

HCA had priced the $1.6 billion of notes as an add-on to its existing bonds.

Tuesday’s 6 5/8% notes due 2023 from Chemours Co. up ¾ point on the session, ending at 100¼ bid, on volume of more than $17 million.

The Wilmington, Del.-based performance chemical company – in the process of being spun off from chemical industry behemoth E.I. du Pont de Nemours & Co. – concocted the biggest deal of the week, a $2.5 billion equivalent three-part offering of dollar- and euro-denominated notes, which came to market on Tuesday as a regularly scheduled forward calendar offering.

It included $1.35 billion of the 6 5/8% notes, which had priced at par after the tranche was upsized from an originally planned $1.125 billion, plus $750 million of 7% notes due 2025, which also priced at par after that tranche was downsized from $1 billion.

The third tranche was €360 million of 6 1/8% notes due 2023, which also priced at par, after upsizing from €350 million.

Indicators firm on day, mixed on week

A trader said that “generically speaking, everything was ½ to ¾ point better.”

Statistical market performance indicators were higher across the board on Friday after three consecutive sessions before that on the downside.

The indicators were meanwhile mixed versus where they had finished out the previous Friday, after having been lower across the board last week. It was the indicators’ third mixed week in the last four.

The KDP High Yield Daily Index gained 10 basis points Friday to finish at 74.56, after having dropped by 12 bps on Thursday, their second consecutive loss.

Its yield came in by 3 bps to 5.24%, after having risen by 5 bps on Thursday, its second straight widening.

But even the improved Friday numbers compared unfavorably with the 71.79% index reading and 5.13% yield recorded the previous Friday, May 1.

The Markit Series 24 CDX North American High Yield Index firmed by 21/32 point on Thursday to end at 107¼ bid, 107 9/32 offered, versus Thursday’s 1/16 point retreat, its third straight loss.

Friday’s Markit levels were unchanged from the previous Friday’s.

The Merrill Lynch North American Master II high yield index saw its first gain Friday after three straight lower sessions before that, rising by 0.239%, versus Thursday’s 0.07% easing.

Friday’s advance lifted its year-to-date return to 3.872% from 3.624% on Thursday, although it remained below its peak level for the year, 3.952%, set on April 27.

For the week, the index gained 0.079%, its first weekly gain after the previous week’s 0.102% loss, which had been its first weekly loss after six straight weeks of improvement. That loss had left its year-to-date return last Friday at 3.791%

So far this year, the index has finished higher on a Friday-to-Friday basis in 14 weeks out of the 18 since the start of the year, against four weekly downturns during that time.

© 2015 Prospect News.
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