United Continental, Baffinland and Century Communities price in quieter session; TransDigm, Rite Aid busy

By Paul Deckelman and Paul A. Harris

New York, Jan. 23 – The high yield primary market took a step back on Monday after several high-volume sessions before that.

Syndicate sources said that three new issues of U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers priced during the session, totaling some $769 million of proceeds.

But that was well down from the $3.75 billion that got done in four tranches on Friday and the $2.35 billion that was racked up during Thursday’s three-deal session.

Giant airline operator United Airlines Inc. made an unscheduled landing in Junkbondland with a downsized $300 million offering of seven-year notes.

Homebuilder Century Communities, Inc. also did a quickly shopped deal, an upsized $125 million add-on to its existing 2022 notes.

Meanwhile, Canadian resources company Baffinland Iron Mines Corp. finally managed to price its $350 million offering of five-year secured notes – a deal that had been hanging around on the forward calendar since the end of last year, although it took some structural and covenant changes and a heavily discounted price to finally get the long-delayed transaction done.

Secondary market traders meantime saw continued busy activity in Friday’s new deals from aviation leasing company Avolon Holdings Ltd., telecommunications operator RCN Telecom Services LLC and from Pattern Energy Group, Inc.

Away from the new deals, there was brisk trading in the bonds of aviation components maker TransDigm Inc. and drugstore operator Rite Aid Corp. in reaction to news about those companies.

Statistical market performance measures turned lower across the board on Monday after having been mixed on Friday. It was the indicators’ second weak session in the last three trading days.

Baffinland prices 12% notes

The high yield primary market appeared to hit a speed bump on Monday.

Three issuers completed single-tranche deals for a combined take of $769 million.

One of the three deals came as a drive-by.

One was upsized and one was downsized.

In contrast to the snug pricings that have prevailed since early last fall, Monday's three executions – while they all came within talk – priced at the wide or cheap ends of price and yield talk.

After spending weeks on the sidelines Baffinland Iron Mines Corp. priced a $350 million issue of 12% five-year senior secured notes (Caa1/B-) at 97.50 to yield 12.69%.

The deal printed with a coupon on top of coupon talk, a reoffer price at the cheap end of the 97.5 to 98 price talk, and a yield at the wide end of the 12.55% to 12.69% yield talk.

Goldman Sachs was the left bookrunner. Morgan Stanley was the joint bookrunner.

There were structural and covenant changes (see related story in this issue).

United Airlines downsizes

United Airlines, Inc. priced a substantially downsized $300 million issue of non-callable seven-year senior notes (BB-/BB) at par to yield 5%.

The issue size was decreased from $500 million.

The yield printed at the wide end of the 4 7/8% to 5% yield talk.

BofA Merrill Lynch was the left bookrunner for the general corporate purposes deal. JP Morgan, Barclays and Deutsche Bank were the joint bookrunners.

Century Communities upsizes

Century Communities, Inc. priced an upsized $125 million add-on to its 6 7/8% senior notes due May 15, 2022 (existing ratings B3/B) at 102 to yield 6.192%.

The add-on, which came as an a.m.-to-p.m. drive-by, was upsized from $100 million after having been upsized earlier in the day from $50 million.

The reoffer price came at the cheap end of the 102 to 102.5 price talk.

JP Morgan, BofA Merrill Lynch and Citigroup Global Markets were the joint bookrunners for the debt refinancing deal.

The Greenwood Village, Colo.-based homebuilder plans to use the proceeds to repay debt under its revolver.

Hexion talk is 10½% area

At least some of Monday's new issue business appeared to be pushed back into the Tuesday session, sources said.

Hexion talked its $460 million offering of five-year first-priority senior secured notes to yield in the 10½% area.

Official talk comes tight to initial guidance in the high 10% to 11% area.

The deal is set to price on Tuesday, a timing change that keeps it in the market one day longer than expected, sources say. Earlier timing had the deal set to clear the market on Monday.

J.P. Morgan, Citigroup, BofA Merrill Lynch, Citizens Bank, Credit Suisse, Deutsche Bank, Goldman Sachs and Wells Fargo are the joint bookrunners.

Ferrellgas tapping 8 5/8% notes

Ferrellgas Partners are in the market with a $150 million add-on to their 8 5/8% senior notes due July 15, 2020 (existing ratings Caa1/CCC+).

The deal had been seen as possible Monday or Tuesday business, a source said.

No terms were available at press time.

BofA Merrill Lynch, Capital One, Fifth Third, JP Morgan and Wells Fargo are the bookrunners for the bank debt refinancing.

Wildhorse roadshow

Wildhorse Resource Development Corp. began a roadshow on Monday in New York for a $300 million offering of eight-year senior notes (expected ratings Caa1/B).

An investor conference call is scheduled for Tuesday.

The offer is expected to price on Friday.

Wells Fargo is the left bookrunner for the debt refinancing and general corporate purposes deal. BMO, Barclays, BofA Merrill Lynch, Citigroup and JP Morgan are the joint bookrunners.

B&M Retail roadshow

More news came from the sterling-denominated primary market on Monday.

B&M European Value Retail SA began a roadshow for a £250 million offering of five-year senior secured notes (Ba3).

The debt refinancing deal is set to price late in the present week.

BofA Merrill Lynch and HSBC are the joint global coordinators. Barclays, BNP Paribas, Goldman Sachs and Lloyds are the joint bookrunners.

The first three weeks of the new year have seen a greater amount of sterling-denominated issuance, £1.65 billion in four tranches, than last November and December combined (£1.35 billion in three tranches), according to Prospect News data.

There are various reasons for this, a London-based syndicate banker said on Monday.

First of all, the European new issue calendar has been comparatively light, and high yield investors tend to look at sterling-denominated deals when there is nothing else to buy, the source said.

Also there is a perception that the Brexit proceedings have stabilized, somewhat, in the wake of British Prime Minister Theresa May's speech a week ago, indicating that the final Brexit deal will go in front of both houses of Parliament.

Also, in terms of a foreign exchange arbitrage, the pound has become cheap versus the euro, in the wake of Brexit, the source added.

Recent deals trade actively

Traders did not immediately report initial aftermarket activity in Monday’s new issues, from Nanavut, Canada-based Baffinland Iron Mines, from Chicago-based UAL or from Century Communities.

But as had been the case on Friday, they did see continued activity in the three new deals that came to market at the end of last week.

A trader said that the Hong Kong and Dublin-based aircraft leasing company Avolon Holdings Ltd.’s new 5¼% notes due in August of 2022 – which had shot up to above the 102 bid mark heavy initial trading of more than $112 million on Friday – came down from that peak level on Monday, finishing down 7/8 point on the day at 101 5/8 bid, with over $41 million of the notes having changed hands.

Its 5½% notes due 2024, which also ended around 102 bid on Friday, when more than $140 million had traded, eased by 1/16 point on Monday to close at 101 15/16, on volume of more than $34 million.

Both tranches – totaling a whopping $3 billion – came to market via the company’s Park Aerospace Holdings Ltd. subsidiary, pricing at par.

A trader said that more than $15 million of new Radiate Holdco, LLC 6 5/8% notes due 2025 traded on Monday, ending at 99¾ bid, down ¼ point on the session, mostly around the par level.

The $400 million of notes – co-issued by Radiate Finance, LLC – priced at par on Friday as part of the funding for the pending acquisition of Princeton, N.J.-based RCN Telecom and Grande Communications Networks.

The day’s third deal -- Pattern Energy’s new 5 7/8% notes due 2024 – moved up by 1 point Monday to around 101 7/8 bid, with over $18 million traded.

The San Francisco-based independent power company’s $350 million deal had also priced at par on Friday.

TransDigm trades off

Away from the new issues, a trader noted that TransDigm Group Inc.’s 6 3/8% notes due 2026 had lost 1 point on the day, ending at 99 bid, on volume of more than $19 million.

That continued a slide seen on Friday, when the Cleveland-based aircraft components manufacturer’s paper had fallen by nearly 3 point on the day, on volume of over $59 million.

That coincided with two days of declines in its New York Stock Exchange-traded shares – 10% on Friday and another 1.37% on Monday – after short-seller Citron Research suggested that TransDigm’s bottom line could be adversely impacted should President Trump follow through with promises to drive harder bargains with military aircraft producers, a pricing pinch that could be passed along to subcontractors such as TransDigm.

Citron added insult to injury by comparing TransDigm to troubled Valeant Pharmaceuticals International Inc.

Rite Aid roiled

Camp Hill, Pa.-based drugstore operator Rite Aid’s 6 1/8% notes due 2023 were about unchanged at 104¾, with over $14 million.

The notes had retreated on Friday after a Bloomberg report suggested the company’s coming acquisition by larger rival Walgreen’s could run into regulatory opposition.

Indicators off during session

Statistical market performance measures turned lower across the board on Monday after having been mixed on Friday. It was the indicators’ second weak session in the last three trading days.

The KDP High Yield index fell by 9 basis points on Monday to close at 71.81, its fourth consecutive loss and eighth loss in the last 10 sessions. On Friday, it had ended off by 6 bps.

Its yield rose by 3 bps to 5.21%, its fourth straight widening and fifth rise in the last eight sessions. It had moved up by 1 bp on Friday.

The Markit Series 27 CDX index retreated by nearly 3/32 point on Monday to end at 106 7/32 bid, 106¼ offered, in contrast to its 1/16 point rise on Friday. It was the index’s second loss in three sessions.

And the Merrill Lynch High Yield index made it five losses in a row on Monday, easing by 0.01%, after declining by 0.057% on Friday.

The latest loss cut its year-to-date return to 0.924% from Friday’s 0.934%, and from last Monday’s 1.127% – its peak level for the year so far.

© 2015 Prospect News.
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