Upsized Micron, Charter price, Western Digital off on Seagate numbers; funds gain $85 million

By Paul Deckelman and Paul A. Harris

New York, April 14 – The high-yield primary market saw a pair of new deals on Thursday, although only one of them, strictly speaking, is fully a junk bond.

That would be Charter Communications, Inc.’s $300 million fungible add-on via a pair of subsidiaries to the $1.2 billion 10-year offering that the cable and broadband service provider brought to market just a week ago.

Traders said there was brisk trading in the new Charters, though little movement from prior level.

The day’s other deal – high-tech manufacturer Micron Technology, Inc.’s upsized $1.2 billion of 6½-year secured notes – priced with investment-grade ratings and covenants, but will be traded off high-yield desks, a market source said. Those new bonds were quoted higher.

Also higher was Wednesday’s smallish fungible add-on to GFL Environmental Inc.’s existing 2021 notes.

But the busiest credits of the day, easily, were the twin halves of Western Digital Corp.’s big two-part offering that priced at the end of March; traders said the both tranches of the computer hard-disk drive manufacturer’s deal got hammered down after high-tech rival Seagate Technology reported preliminary earnings that were below its earlier guidance due to weak demand for its disk drives in servers and personal computers.

Statistical market performance measures were higher across the board for a fifth straight session on Thursday, their sixth rise in the last seven trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – posted its second consecutive net inflow this week. Some $84.6 million came into those funds during the latest reporting week.

Micron upsized and tight

In a deal that came with investment-grade ratings and covenants but will be traded on the high-yield desk, Micron Technology priced an upsized $1.25 billion issue of senior secured notes due Sept. 15, 2023 (Baa2/BBB-) at par to yield 7½% on Thursday.

The issue size was increased from $1 billion.

The yield printed at the tight end of the 7½% to 7¾% yield talk, and well inside initial guidance in the 8% area.

Micron was said to play to a $4 billion order book, according to a New York based junk bond trader.

Morgan Stanley, Citigroup, HSBC and JP Morgan were the joint bookrunners.

The Boise, Idaho-based semiconductor manufacturer plans to use the proceeds, as well as proceeds from a $500 million term loan B, for general corporate purposes including working capital and capital expenditures. The additional proceeds resulting from the $250 million upsizing of the deal will be used for general corporate purposes.

Charter tap prices rich

In the session’s sole junk-rated, dollar-denominated deal, Charter Communications priced a $300 million add-on to its 5½% senior notes due May 1, 2026 at 100.375.

The quick-to-market execution rendered a 5.441% yield to worst and a 5.451% yield to maturity.

The reoffer price came 12.5 basis points rich to the rich end of the 100 to 100.25 price talk, and went well, sources said. A trader spotted the new Charter add-on notes going out at 101½ bid, 102 offered.

BofA Merrill Lynch was the left bookrunner.

Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, UBS and Wells Fargo were the joint bookrunners for the debt refinancing deal.

Two sets of credit ratings bear upon the issue. Moody’s Investors Service has an existing rating of B1. The existing ratings from both Standard & Poor’s and Fitch Ratings are BB-. However pro forma ratings, pending the close of the acquisition of Time Warner Cable, are Ba3 from Moody’s, and BB+ from both Standard & Poor’s and Fitch.

Charter priced the original $1.2 billion issue at par on April 7.

Protection 1/ADT roadshow

The Thursday session also saw the launch of a megadeal backing the buyout of ADT Corp. and the merger of ADT with Protection 1.

Special purpose vehicle Prime Finance, Inc. started a roadshow on Thursday for $3.14 billion of second-priority senior secured notes due 2023 (B3/B-).

Early guidance has the deal shaping up with a yield of 9%, a trader said.

An investor call is scheduled for Monday.

The roadshow wraps up on Thursday, April 21.

Deutsche Bank is the left bookrunner. Barclays, Citigroup and RBC are the joint bookrunners.

Proceeds will be used in connection with the buyout of ADT by affiliates of Apollo Global Management, LLC and the merger of ADT with Protection 1.

The issuing entities are Prime Security Services Borrower, LLC and Prime Finance, Inc.

The company stated in a Thursday press release that up to $1.89 billion of the notes are to be sold in a marketed Rule 144A and Regulation S offering, and at least $1.25 billion are to be sold in a fully committed private placement.

Arrow Global upsizes FRN

In the European primary market Arrow Global Finance plc priced an upsized €230 million issue of seven-year senior secured floating-rate notes (B1/BB-) at 98.75.

The issue size was increased from €225 million.

The spread and issue price came on top of talk.

Global coordinator and physical bookrunner Goldman Sachs International will bill and deliver. JPMorgan and HSBC were also global coordinators and physical bookrunners.

The Manchester, England-based purchaser of consumer debt and provider of receivables management solutions plans to use the proceeds to finance the acquisition of InVesting BV, a consumer debt purchaser and collections provider with operations in the Netherlands and Belgium. Proceeds will also be used to repay the drawn revolver and for general corporate purposes.

New Charter trades actively

In the secondary arena, traders said there was a sizeable amount of activity in the new Charter Communications 5½% notes due 2026, after the Stamford, Conn.-based cable and broadband service provider priced its $300 million add-on to its existing CCO Holdings, LLC/CCO Holdings Capital Corp. notes that it priced just a week ago.

Over $23 million of those notes were seen to have changed hands.

The bonds traded well up from the add-on’s 100.375 issue price, but essentially not much different than the levels at which the earlier new issue had been seen trading on Tuesday and Wednesday.

A pair of traders at separate shops each saw the bonds at 101 3/8 bid, 101 /34 offered.

And a third had them going home at 101½ bid, which he called unchanged on the day.

Micron moves up

The day’s other deal – Micron Technology’s 7½% senior secured notes due in September 2023 – priced later than the Charter offering and little real aftermarket trading was initially seen.

However, one trader did quote the notes well up from their par issue price, seeing them going out at 101 3/8 bid, 101 5/8 offered.

Western Digital walloped

Even as that big tech-sector deal was being priced, though, traders were reporting that another recently priced computer-industry offering was running into trouble on Thursday,

“Seagate pre-announced negative results,” one of them said, “and that really took down Western Digital’s bonds.”

He saw the latter’s 7 3/8% senior secured notes due 2023 down 1 point on the day at 101½ bid, while its 10½% unsecured notes due 2024 were down a deuce on the day in the 97¾ to 98 bid area.

He noted that before that news from rival computer hard-drive manufacturer Seagate came out, Western Digital’s secured bonds had been more than holding their own since the company had priced that $1.875 billion tranche of split-rated (Ba1/BBB-/BBB-) secured seven-year notes at par back on March 30. They quickly shot up to around the 102 bid level and stayed there for most of the intervening two weeks.

However, he said, the unsecured eight-year piece of paper “has struggled right from the break.”

Irvine, Calif.-based hard-drive maker Western Digital priced $3.35 billion of those unsecured bonds, also at par, on March 30, but the bonds have mostly traded at or a little under that issue price since then.

In Thursday’s dealings, another trader saw the secured notes down 1¼ points, finishing at 100¾ bid, 101¼ offered, while the unsecured notes lost 2¼ points to 97½ bid, 98 offered.

At another shop, a market source located the secured bonds going home at 101 5/16 bid, down 1 3/16 points on the day, with over $119 million traded, making the issue easily the busiest of the day in Junkbondland.

He meantime saw more than $60 million of the unsecured notes changing hands, losing some 2 3/8 points on the session to close at 97½ bid.

The bonds were hammered down after Western Digital sector peer Seagate announced that it expects to report revenue of about $2.6 billion when it delivers its fiscal third quarter results on April 29. That’s down from previous guidance of $2.7 billion. That would represent a 21% year over year revenue decline and its fifth straight quarterly revenue shortfall.

Seagate also projected that it will report a 23% profit margin, down from its previous guidance of 25.6%.

Seagate blamed the weaker numbers on lower demand for disk drives in the business sector, as well as weaker demand for disk drives among China-based personal computer manufacturers.

Its own Seagate HDD Cayman 4 7/8% notes due 2027 slid on the news to just under 71 bid on Thursday from Wednesday’s close above 75 bid, though on only a handful of sizable trades.

New GFL bonds gain

Elsewhere, a trader said that Wednesday’s offering by GFL Environmental of 9 7/8% notes due February 2021 gained 7/8 point on the day, closing at 104 3/8 bid.

Volume was over $13 million.

The Vaughn, Ont.-based solid and liquid waste management company priced $200 million of those notes at 103.25, yielding 8.838%, as a fungible add-on to the existing bonds.

The quick-to-market offering was upsized from an originally announced $150 million.

Indicators stay higher

Statistical market performance measures were higher across the board for a fifth straight session on Thursday, their sixth rise in the last seven trading days.

The KDP High Yield Daily Index shot up by 21 points on Thursday to end at 66.69, its fifth straight rise. It had also jumped by 32 basis points on Wednesday and by 24 bps on Tuesday.

Its yield, meantime, came in by 5 bps to 6.42%, its second straight narrowing. It had tightened by 11 bps on Wednesday after having been unchanged on Tuesday.

The Markit Series 26 CDX North American High Yield Index posted its fifth straight gain on Thursday, rising by almost 5/32 point to 102 25/32 bid, 102 27/32 offered. It had been up by about 1/8 point on Wednesday.

And the Merrill Lynch North American High Yield Master II Index made it five gains in a row on Thursday as it improved by 0.272%, on top of Wednesday’s 0.693% advance.

That lifted its year-to-date return to 5.328%, its fourth consecutive new peak level for the year, up from the previous mark of 5.042%, set on Wednesday.

Wednesday was both the index’s first time above the psychologically significant 5% total return mark this year as well as its first time above 5% since Sept. 19, 2014, when it had closed at 5.21%.

Funds gain $84.6 million

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – posted its second consecutive weekly net inflow, after having seen a net outflow two weeks ago.

Some $84.6 million came into those funds during the latest reporting week, on top of the $1.181 billion of fresh cash reported last Thursday for the week ended April 6 (see related story elsewhere in this issue).

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