Foundation Building Materials, Axalta, upsized MGIC deals price; new MSCI, SBA deals active

By Paul Deckelman and Paul A. Harris

New York, Aug. 2 – Pricing activity picked up in the high yield market on Tuesday as a trio of regularly scheduled forward calendar offerings totaling some $1.5 billion of new fully junk-rated, dollar denominated paper got done.

Foundation Building Materials, LLC, whose offering had first surfaced in the market around the middle of last week, priced $575 million of five-year secured notes.

Paint, varnish and sealant manufacturer Axalta Coating Systems Ltd. did $500 million of eight-year notes as part of an $875 million equivalent dual-currency offering first announced on Monday, that also included a tranche of eight-year euro denominated paper.

Mortgage insurer MGIC Investment Corp. came to market with an upsized $425 million offering of seven-year notes, another deal that had been announced on Monday and then shopped around overnight.

Traders quoted the latter notes solidly higher in initial aftermarket dealings.

Also in the aftermarket, the traders said that the two drive-by deals which had priced on Monday – wireless antenna tower operator SBA Communications Corp.’s upsized $1.1 billion of eight-year notes and financial research and analytics company MSCI Inc.’s upsized $500 million of 10-year notes were easily the day’s busiest issues in Junkbondland, with both trading near their respective pricing levels.

Away from the deals that have actually priced so far, primaryside players saw U.S. government contractor company Engility Corp. starting a roadshow for its $380 million offering of eight-year notes, which are expected to price at the end of the week.

Apart from the new-deal realm, there was notable activity in Frontier Communications Corp., which had reported second-quarter numbers on Monday.

Statistical market performance measures were mixed for a third consecutive session on Tuesday. They had turned mixed on Friday and stayed that way on Monday after having been lower across the board on Thursday. It was the fourth mixed session in the last five trading days.

Foundation Building Materials

Three companies priced three tranches of dollar-denominated high yield bonds on Tuesday.

All three deals were in the market at least overnight.

One of the three tranches was upsized.

Executions were solid, with two deals coming at the tight ends of yield talk while the third came in line with talk.

Foundation Building Materials LLC priced a $575 million issue of five-year senior secured notes (Caa1/B+) at par to yield 8¼%.

The yield printed at the tight end of the 8¼% to 8½% yield talk. Initial guidance was in the 8½% area.

Goldman Sachs was the left bookrunner. Jefferies, Credit Suisse and RBC were the joint bookrunners.

The Tustin, Calif.-based building materials company plans to use the proceeds, together with other sources including its ABL facility, to repay its existing credit facilities and other debt, as well as to partly fund the acquisition of the Winroc construction products division of Superior Plus Corp., to pay fees and expenses incurred in connection with other transactions, and for general corporate purposes.

The issuing entities will be special purpose vehicle FBM Finance Inc., and, following the close of the Winroc acquisition, LSF9 Cypress Holdings LLC, the parent of Foundation Building Materials.

Axalta in dollars and euros

Axalta Coating Systems Ltd. priced $875 million equivalent of eight-year senior notes (B2/B+) in two tranches.

The deal included $500 million of 4 7/8% notes which priced at 99.591 to yield 4.938%, slightly below the midpoint of yield talk in the 5% area.

In addition the company priced €335 million of 4¼% notes at par to yield 4¼%. The yield printed at the tight end of the 4¼% to 4½% yield talk.

The color on the dollar-denominated tranche was that it went well, playing to $2.75 billion of orders, according to a portfolio manager.

Lead left bookrunner Barclays will bill and deliver.

Deutsche Bank, Goldman Sachs, BofA Merrill Lynch, Citigroup, Credit Suisse and J.P. Morgan were the joint bookrunners.

The Philadelphia-based provider of coatings systems for industrial applications plans to use proceeds to refinance its 7 3/8% senior notes due 2021 and for general corporate purposes.

MGIC upsizes

MGIC Investment Corp. launched and priced an upsized $425 million issue of seven-year senior bullet notes (Ba3/BB) at par to yield 5¾%.

The issue size was increased from $350 million.

The yield printed at the tight end of the 5¾% to 5 7/8% yield talk.

The deal was performing well in the secondary market at 101 bid, 101½ offered, a trader said shortly after the terms rolled out.

Goldman Sachs was the sole bookrunner.

The Milwaukee-based mortgage insurance company plans to use the proceeds, together with shares of common stock, to purchase a portion of its 2020 convertible notes and possibly purchase a portion of its 2063 convertible debentures owned by holders other than MGIC. The additional proceeds resulting from the $75 million upsizing of the deal will be used to redeem more of the 2020 convertible notes, and for general corporate purpose.

Engility eight-year deal

The calendar for the remaining three sessions of the first week in August continued to take shape on Tuesday.

Engility Corp. was scheduled to kick off its $380 million offering of eight-year senior notes (Caa1/B-) at an investor lunch in New York.

The deal, which is in the market with yield talk in the low 9% context, is scheduled to price at the end of the week.

Morgan Stanley, Barclays, SunTrust, Regions, Deutsche Bank, JP Morgan and Jefferies are the joint bookrunners for the debt refinancing deal.

Avon secured deal

Avon Products, Inc. is in the market with a $400 million offering of senior secured notes due 2022.

Initial guidance has the notes pricing with a yield in the 8% area, they add.

The debt refinancing deal, which is being led by BofA Merrill Lynch, is expected to price by the end of the week.

Engility and Avon took places on a solid active forward calendar carrying $3.7 billion of new issue business.

It also includes Adient Global Holding Ltd. which is marketing $2 billion equivalent, with eight-year euro-denominated notes, initial guidance 4¼% to 4½%, and 10-year dollar-denominated notes, initial guidance 4 7/8% to 5%.

And Diamond Resorts International, Inc. is marketing $600 million eight-year senior notes (Caa1/CCC+) in a deal to fund the LBO by Apollo.

Monday outflows

That calendar comes against a backdrop of some selling, especially on the part of the high yield ETFs, a trader said late Tuesday.

The dedicated high yield bond funds sustained outflows on Monday, the most recent session for which data was available at press time, a portfolio manager said.

High yield ETFs sustained a sizable $397 million of outflows on the day.

Actively managed funds saw $110 million of outflows on Monday.

Dedicated bank loan funds were solid on the day, seeing $45 million of inflows on Monday, the portfolio manager said.

New Foundation, MGIC seen higher

In the secondary market, traders were quoting several of the day’s new issues higher.

One said that he had heard several quotes for Foundation Building Materials’ 8¼% senior secured notes due 2021, with bid levels heard at 100½ and 101¼, though no real aftermarket trading.

At another desk, MGIC’s 5¾% notes due 2023 were pegged in a 101 to 101½ bid level.

Both issues had firmed after having priced at par.

Traders did not immediately report any initial aftermarket action in Axalta Coating Systems’ new 4 7/8% notes due 20224, which had priced at 99.591 to yield 4.938%.

Monday’s SBA and MSCI busy

The traders reported considerable activity in the two new deals which came to market and got done on Monday.

‘Both names were definitely heavily traded,” one market source declared.

SBA Communications’ 4 7/8% notes due 2024 were seen by one trader around 99¼ bid, 99½ offered.

A second said that the issue opened at 99¾ bid “but then traded back down” to 99¼ bid.

And a third said that the notes had hit a high of 99 7/8 bid, before coming off that peak to end down 5/8 point at 99¼ bid.

He said that more than $80 million of the notes had changed hands.

The Boca Raton, Fla.-based communications antenna tower owner had priced a quick-to-market $1.1 billion of the notes at 99.178 to yield 5% on Monday, after the offering had been upside from an originally announced $800 million.

The day’s other issue – from New York based MSCI Inc., a provider of analytical and research services to investment companies – was likewise near the top of the Most Actives list, with volume of over $75 million.

One trader said the bonds stayed around 100¼ bid “for most of the day,” while a second saw them retreat to 100 1/8 bid near the close from 100½ bid earlier.

MSCI had priced a quickly shopped $500 million of the notes at par on Monday, after the transaction was upsized from an originally announced $400 million.

Frontier trades around

Away from the new deals, a trader observed that “some of the higher-beta names were actively traded,” including Frontier Communications.

He saw the Stamford, Conn.-based wireline telecommunications company’s 11% notes due 2025 off by as much as ¾ point at 105¾ bid.

Another source, though, located those bonds at 106¾ bid near the day’s end, calling that up ¼ point, on volume of more than $46 million.

He said that Frontier’s 10½% notes due 2022 were ½ point better, at 107¼ bid, with over $30 million having traded.

Friontier, which earlier in the year had bought landline assets in a number of states from Verizon Corp., said pro-forma revenue, including the former Verizon assets, rose 91% to $2.61 billion, although that was off from Wall Street consensus estimates of $2.71 billion.

Indicators stay mixed

Statistical market performance measures were mixed for a third consecutive session on Tuesday. They had turned mixed on Friday and stayed that way on Monday after having been lower across the board on Thursday. It was the fourth mixed session in the last five trading days.

The KDP High Yield index edged upward by 1 basis point on Tuesday to close at 69.15, after having risen by 8 bps on Monday, which was its first improvement after five straight losses, including Friday’s 6 bps downturn.

Its yield rose by 1 bp to 5.72% – its fourth consecutive widening and the second straight session during which the yield had increased even though the index reading rose – the yield typically moves inversely to the index, falling when the index level rises and vice versa. It had risen by 3 bps on Monday. Tuesday was the sixth yield gain in the last seven sessions.

The Markit Series 26 CDX index lost nearly 5/16 point Tuesday to end at 103 7/16 bid, 103½ offered, its second straight loss and third setback in the last four sessions. On Monday, it had plunged by 21/32 point.

The Merrill Lynch High Yield index suffered its sixth consecutive loss, matching six straight advances before that. It was down by 0.198% on Tuesday after having fallen by 0.048% on Monday.

That loss lowered the index’s year-to-date return to 11.805% – its first time under 12% since July 11, when it had closed at 11.60%.

Tuesday’s finish was down from 12.027% on Monday, which itself was down from last Monday’s close at 12.546%, the index’s peak year-to-date return.

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