Downsized Adient 10-year prices to cap busier $7.23 billion week, recent deals trade higher

By Paul Deckelman and Paul A. Harris

New York, Aug. 5 – The high-yield market saw a single deal priced on Friday, bringing to a conclusion a busy week that saw $7.24 billion of new junk-rated, dollar-denominated paper, up from last week’s total.

Adient Global Holdings Ltd., an automotive seating and interior components business being spun off from Johnson Controls Inc., came to market with $900 million of new 10-year notes, part of a two-part offering that also included a euro-denominated eight-year piece.

The dollar tranches had been downsized, while the euro portion of the deal was upsized by a similar amount.

Traders said that the new bonds firmed smartly in active trading.

That firmer tone was also evident in the prices of the various issues which came to market during Thursday’s very prolific $3.25 billion session.

There was considerable trading, all at higher levels, in those deals – for Albertsons Cos., LLC, Avon Products, Inc., CNH Industrial NV, Engility Corp. and SPX Flow Inc.

There was considerably less volume – though still at mostly stronger levels – in some of the deals that had priced earlier in the week, from companies such as Foundation Building Materials, LLC. MGIC Investment Corp. and MSCI Inc., among others.

Statistical market performance measures turned higher across the board on Thursday after having been mixed over the previous four consecutive sessions.

Those indicators were also higher all around from where they had closed out last Friday, when they had been lower on a week-over-week basis. It was the fifth stronger week in the last six.

Adient prices $2 billion

Adient Global Holdings, the automotive seating and interiors business which is being spun off by Milwaukee-based Johnson Controls Inc., priced $2 billion equivalent of senior notes (Ba3/BB) in two tranches, Friday’s sole deal.

It was helmed by global coordinator Citigroup, and featured €1 billion of eight-year bullet notes which priced at par to yield 3½%. The yield printed at the tight end of the 3½% to 3¾% yield talk and tight to initial guidance in the low 4% yield context. The tranche size was increased from the expected $1 billion equivalent size.

The euro piece could be the last euro-denominated deal of the summer, said a London-based debt capital markets banker who added that Adient attracted a big crowd.

A number of investors who might otherwise have left for vacation stuck around for the Adient deal, especially when the early buzz had it coming in the low 4% context.

However the tightening of talk – to 3½% to 3¾% – probably didn’t surprise anyone or do much to dilute the demand, the banker said.

In addition to the euro tranche, Adient priced $900 million of 10-year notes at par to yield 4 7/8%. The yield printed at the tight end of yield talk set in the 5% area and tight to initial guidance in the low 5% area. The tranche size was decreased from the expected $1 billion amount.

The par-pricing Adient dollar-denominated 4 7/8% notes due 2026 were at 101 7/8 bid, 102 3/8 offered in the secondary market Friday afternoon, a source said.

Proceeds will be used to help fund the spinoff.

The financing also includes a $3 billion credit facility.

The week ahead

In the wake of Adient, the active forward calendar was empty at Friday’s close.

However the market should be active in the week ahead, a trader said, adding that dealers including BofA Merrill Lynch disclosed that there were transactions primed and ready.

The Diamond Resorts International, Inc. $600 million offering of eight-year notes could resurface in the week ahead, a market source said.

The deal, in the market via RBC, was scheduled to roadshow during the past week.

It was delayed when Diamond Resorts postponed its earnings release for the quarter ending June 30, 2016, sources say.

In an Aug. 4 filing with the Securities and Exchange Commission, the company said its independent registered public accounting firm expressed the view that Diamond Resorts may not have correctly applied the relative sales value inventory valuation model in the preparation of its consolidated financial statements for 2014 and subsequent periods.

The company expects to report earnings for the quarter ended June 30 early in the week ahead, according to the filing.

Elsewhere Innovation Ventures, LLC announced in a Friday press release that it intends to commence an offering of new unsecured notes as part of a debt refinancing.

The producer of 5-hour Energy drink is also putting in place a new $525 million senior secured credit facility that launched on Thursday, via arrangers BofA Merrill Lynch and KeyBanc.

ETF flows turn positive

The daily cash flows of high-yield ETFs, which were strongly negative during the first three sessions of August, came in well above the balk line on Thursday, a trader said.

The ETFs saw $238 million of inflows on the day.

That inflow trails three consecutive large outflows sustained during the first three days of August: $397 million on Monday, $476 million on Tuesday and $357 million on Wednesday, sources say.

Actively managed high-yield funds, meanwhile, saw $175 million of outflows on Thursday.

The news comes on the heels of a late Thursday afternoon report from Lipper US Fund Flows that dedicated high yield bond funds saw $2.46 billion of outflows for the week to Wednesday's close.

Nearly all of that amount, approximately $2.3 billion, came from the high-yield ETFs, a source said on Friday.

Busier primary week

The week’s new issuance came to $7.24 billion in 12 tranches, according to data compiled by Prospect News.

That was up from the $5.42 billion which had gotten done in eight tranches in the Junkbondland primary the week before, ended July 29.

The key to the increased volume was the $3.25 billion of new paper from five issuers which came to market in six tranches on Thursday – the most new dollar-denominated and fully junk-rated paper from domestic or industrialized-country issuers since June 13, when five borrowers priced a total of $4.91 billion in seven tranches.

The week’s issuance, in turn, raised the year-to-date junk bond total to $136.15 billion in 198 tranches, down 29.8% from the year-earlier pace, which had seen $198.03 billion in 317 tranches.

Market moves higher

A trader said that Friday’s market “Is out of control – everything is just going higher.”

Market-watchers said that junk got a boost from a strong surge in equities, in contrast to Thursday’s weaker session.

The bellwether Dow Jones Industrial Average jumped by 191.48 points, or 1.04%, to end at 18,543.53, with other indexes following a similar trajectory.

Adient notes improve

The new Adient Global Holdings 4 7/8% notes due 2026 moved up firmly when they hit the aftermarket after pricing on Friday, a trader said.

He saw the notes moving around in a 101 3/8 to 102¼ bid context, with the final trades of the day going off between 101¾ and 102 1/8 bid.

More than $61 million of the notes changed hands, putting the issue well up on the day’s Most Actives list.

Thursday deals trade up

The traders said that the slew of new deals which had come to market the session before, on Thursday, traded well above their issue prices, on active volume.

CNH Industrial’s new 4½% notes due 2023 were the most actively traded of the lot, with over $86 million having changed hands.

The bonds traded between 100¼ and 101½ bid, with the last trades of the day happening between 101 3/8 and 101 ½ bid, up from the par price at which the Basildon, England-based heavy equipment maker’s $600 million drive-by offering had priced.

Thursday’s big deal of the day – the quickly shopped and solidly upsized $1.25 billion of new 8.5-year notes from Boise, Idaho-based supermarket giant Albertsons – was trading at 101 3/8 to 101 5/8 bid, up from its par issue price on Thursday. More than $60 million traded.

A trader said that New York-based beauty-products maker and marketer Avon Products’ 7 7/8% senior secured notes due 2022 had perhaps the biggest gains, trading between 102 5/8 and 104¼ bid, on volume of more than $50 million, finishing in a 104 to 104¼ bid context – versus the par level at which that $500 million regularly scheduled forward calendar deal had priced after being upsized from $400 million originally.

One of the traders said that Engility’s 8 7/8% notes due 2024 moved up to 101½ bid, 102 offered, with over $54 million having traded.

The Chantilly, Va.-based government contractor had actually downsized its regularly scheduled offering of eight-year notes to $300 million from $380 million, pricing that paper at par.

Indictors continue firming

Statistical market performance measures turned higher across the board on Thursday after having been mixed over the previous four consecutive sessions.

Those indicators were also higher all around from where they had closed out last Friday, when they had been lower on a week-over-week basis. It was the fifth stronger week in the last six.

The KDP High Yield Index climbed by 18 basis points on Friday, its second straight rise and fourth in the last five sessions. It had also zoomed by 20 bps on Thursday.

Its yield narrowed on Friday by 10 bps to 5.56% on top of a 6 bps narrowing on Thursday and an unchanged session on Wednesday – which had followed four straight sessions during which the yield had increased.

Those levels compared favorably with the 69.06 index reading and the 5.68% yield seen last Friday, July 29.

The Markit Series 26 CDX Index saw its third straight gain on Friday, improving by 3/8 point to 104 17/32 bid, 104 9/16 bid, on top of Thursday’s 9/32 point rise. It was the fourth gain in the last six sessions.

The index was up from 104 13/32 bid, 104 7/16 bid the previous Friday.

The Merrill Lynch High Yield Index was also up for a third straight session, firming by 0.342%, on the heels of Thursday’s 0.392% upturn and Wednesday’s 0.056% rise, which had broken a six-session slump.

Friday’s gain brought the index’s year-to-date return up to 12.671%. That was up from 12.037% on Thursday, and set a new peak level for the year, up from the previous zenith of 12.546%, which had been set on July 25.

For the week, the index rose by 0.546%, in contrast to the previous week’s 0.41% loss, which had followed five straight weekly gains before that.

It was the sixth rise in the last seven weeks.

© 2015 Prospect News.
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