Kraft Heinz upsizes; NFP prices; Avis on deck; Del Monte trades up; airlines trade off

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 4 – The domestic high-yield primary market launched what promises to be an active week with a multibillion dollar offering.

Kraft Heinz Foods Co. priced a massively upsized $3.5 billion split-rated senior notes (Baa3/BB+) deal in three bullet tranches.

Also in Monday drive-by action, NFP Corp. priced a $300 million issue of five-year senior secured notes (B2/B).

Mauser Packaging Solutions Holding Co., formerly known as BWAY, was also slated to price a $150 million of four-year senior first-lien notes in a Monday drive-by but deal terms were unavailable as of press time.

Avis Budget Car Rental, LLC and Avis Budget Finance, Inc. also joined the forward calendar with a $400 million offering of five-year senior secured notes (Ba2/BB-) slated to price on Tuesday.

As the primary market ripped into the May 4 week, the secondary space launched the week quietly with the cash bond market relatively unchanged, a market source said.

Market players were continuing to eye the new issues in the pipeline and the onslaught of earnings expected in the coming week.

As the market awaited Kraft Heinz’s new offering, the company’s capital structure was little changed.

While volume was light, Del Monte Foods Inc.’s newly priced 11 7/8% senior notes due 2025 (Caa2/CCC+) were trading well above their issue price.

Monday marked another brutal day for airlines with American Airlines Group Inc.’s and Delta Air Lines, Inc.’s senior notes trading off after famed investor Warren Buffett announced he had exited his position in the companies.

Massive upsize for Kraft Heinz

The forecast calls for a busy week in the high-yield new issue market, sources say.

In addition to straight-out junk bond sales, watch for continued traffic in distressed high-grade companies, crossovers and fallen angels, they add.

Kraft Heinz Foods set the pace on Monday with a massively upsized $3.5 billion amount of split-rated senior notes (Baa3/BB+) in three bullet tranches.

The deal included $1.35 billion of seven-year notes which priced at par to yield 3 7/8%, tight to talk in the 4% area. Initial talk was in the 4¼% area.

In addition, the company priced $1.35 billion of 10.75-year notes at par to yield 4¼%, in the middle of yield talk in the 4¼% area. Initial talk was in the 4½% area.

In a tranche added subsequent to the deal being announced, Kraft Heinz also priced $800 million of 30-year notes at par to yield 5½%.

The deal size increased from $1.5 billion, and was heard to be playing to $9 billion of orders, with a lot of participation from high-yield accounts

Other Monday action

NFP Corp. priced a $300 million issue of five-year senior secured notes (B2/B) at par to yield 7% in a drive-by.

The yield printed at the tight end of the 7% to 7¼% yield talk.

Meanwhile, Mauser Packaging Solutions, formerly known as BWAY, is seeking to place $150 million of four-year senior first-lien notes.

Initial talk has the notes coming with an 8½% coupon at a discount.

The deal kicked off as a Monday drive-by but no terms were available at press time.

Elsewhere, Avis Budget talked a $400 million offering of five-year senior secured notes (Ba2/BB-) with a 10½% coupon at OID 97 to 98.

Official talk came on top of initial talk.

The deal is set to price Tuesday morning.

Kraft Heinz unchanged

The latest offering of fallen angel Kraft Heinz did little to move its capital structure, a market source said.

The longer duration notes were unchanged from a dollar perspective, a source said.

The 3% senior notes due 2026, a large middle-of-the-curve tranche, was down about ½ point, a market source said.

The pricing of the new notes “makes sense from the standpoint of the existing bonds,” a market source said.

With the new notes coming more or less in line with the valuation of the existing notes, there were no major movements.

Proceeds from the new offering will be used to fund a tender offer for up to $1.2 billion in five series of notes with maturities in 2021, 2022 and 2023. (See related article in this issue.)

Kraft Heinz was one of the largest fallen angels in 2020 with $21.7 billion in bonds that entered the high-yield index.

While 2020 has been a record year for fallen angels, the food manufacturer’s downgrade to junk occurred in mid-February and was unconnected to the Covid-19 pandemic.

Del Monte trades up

While volume was light, Del Monte’s recently priced 11 7/8% senior notes due 2025 were trading well above their issue price in the aftermarket.

The 11 7/8% notes were trading in a range of 98¾ to 99 on Monday and were seen at 99 bid heading into the market close.

The notes had about $7 million in reported volume during Monday’s session.

While the coupon on the notes was “amazing,” the notes were rated triple-CCC and were highly speculative, a source said.

The company “definitely had to make some concessions,” to price the offering, another source said.

Del Monte priced a $500 million issue of 11 7/8% notes at 97 to yield 12.704% on Friday.

Initial talk had the notes coming with a 12% coupon and with 3 points to 5 points of original issue discount.

Airlines trade off

Monday marked another brutal day for airlines after Warren Buffet voiced his vote of no confidence in the industry.

American Airlines’ 3¾% senior notes due 2025 dropped 4¼ points to 42¼, according to a market source.

The 5% senior notes due 2022 dropped 5 points to 51½.

Delta Airlines’ capital structure was also taking a hit and was down 3 to 4 points across the curve, a source said.

The 2.9% senior notes due 2024 dropped 4 5/8 points to close Monday at 73¾.

The 3 5/8% senior notes due 2022 also dropped about 4 5/8 points to 85.

The 4 3/8% senior notes due 2028 were down 4 points to 70.

The 3.8% senior notes due 2023 were down 3¾ points to 79¼.

While Delta Airlines’ outstanding notes were trading off several points, its recently priced 7% senior secured first-lien notes due 2025 (Baa2/BBB-) were down about 1 point.

The 7% notes were trading in a range of par bid to 101¼, a market source said.

The notes were trading in the 101½ to 101¾ context last Friday.

Delta priced a $3.5 billion issue of the 7% notes at par on April 27.

While the 7% notes carry investment-grade ratings, Delta is one of the latest fallen angels to hit junkbondland with its $4.1 billion in bonds entering the high-yield index.

Airlines were taking a hit on Monday after Warren Buffet announced that Berkshire Hathaway had exited its position in several U.S. airlines, including American and Delta.

The airlines’ futures are uncertain with the coronavirus pandemic expected to alter travel patterns in the long term.

The government bailout to airlines, which includes airlines issuing equity to the government also makes their future share value unclear, Buffett is reported to have said.

$1.26 billion Friday inflows

The dedicated high-yield bond funds had $1.26 billion of net inflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $723 million of inflows on the day.

Indexes soft

Indexes opened the week in the red after all had cumulative gains the previous week.

The KDP High Yield Daily index was down 13 basis points to close Monday at 62.49 with the yield now 7.5%.

The index posted a cumulative gain of 15 bps on the week last week.

The ICE BofAML US High Yield index slid 13.9 bps with the year-to-date return now negative 10.212.

The index was had a cumulative gain of 47.4 bps on the week last week.

The CDX High Yield 30 index dropped 35 bps to close Monday at 93.46.

The index saw a cumulative gain of 85 bps on the week last week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.