U.K.’s McLaren prices secured deal; Intelsat active; funds fall by $1.14 billion

By Paul Deckelman and Paul A. Harris

New York, July 13 – The high-yield primary market saw its first bona fide dollar-denominated new issue for July and the year’s second half that was not an add-on to existing bonds price on Thursday.

British carmaker McLaren Automotive came to market during the session with $250 million of five-year senior secured notes, as part of an upsized £564 million equivalent dual-currency calendar offering that also included a sterling-denominated secured tranche.

Traders said that the McLaren bonds – the first dollar-denominated non-add-on new issue seen in Junkbondland since June 29 – was well received when it hit the aftermarket, gaining almost 2 points when freed for secondary action.

Elsewhere, although market participants were hoping that K. Hovnanian Enterprises, Inc. might price an $840 million two-part offering during the session, the homebuilder’s five- and seven-year notes did not appear, instead staying on the calendar as possible Friday business.

Also in the new-deal sphere, traders saw some activity in relatively recently priced names such as Tenet Healthcare Corp., PetSmart, Inc. and Intelsat SA.

Several of the latter company’s existing issues were also busily traded, moving up amid news reports that some of the company’s bondholders were in talks to try to revive the communications satellite company’s failed planned merger with industry peer OneWeb LLC.

Apart from the new deals, traders saw Frontier Communications Corp.’s various bond issues continuing to lose ground.

Recently topical names such as Halcon Resources Corp., Rite Aid Corp. and NRG Energy, Inc., all of which plan major asset sales and big debt paydowns with the anticipated sale proceeds, were seen both busy and better on the day.

Statistical market performance measures were higher across the board for a second straight session on Thursday. They had turned upwards on Wednesday after being mixed for three consecutive trading days before that.

Another numerical indicator – flows of investor cash into or out of high yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – plunged deeper into the red this week, its fourth consecutive downturn after three weeks of gains, according to numbers released on Thursday. Some $1.14 billion more left those weekly reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, July 12 – almost exactly the same size as the $1.16 billion net outflow reported last Thursday for the seven-day period ended July 5 (see related story elsewhere in this issue).

United Group prices

The European primary market plowed through most of its substantial deal calendar on Thursday, as four issuers combined to price a total of seven tranches of notes to raise €2.15 billion, £370 million and $250 million.

All of the deals priced at the conclusions of roadshows that ran through the week.

Two of the four issuers upsized the amounts of bonds they sold.

Executions appeared solid, with five of the seven tranches pricing at the tight ends of talk. The remaining two came on top of or in the middle of talk.

United Group BV priced €1.35 billion of senior secured notes (B) in three tranches.

The deal included €575 million of five-year fixed-rate notes which priced at par to yield 4 3/8%. The yield printed at the tight end of yield talk that had been set in the 4½% area.

A €325 million amount of seven-year fixed-rate notes priced at par to yield 4 7/8%, in the middle of the 4¾% to 5% yield talk.

And a €450 million amount of Euribor plus 437.5 basis points six-year floating-rate notes also priced at par, with a 0% Euribor floor. Talk on the floating-rate notes was in the Euribor plus 450 bps area with a 0% Euribor floor.

Joint bookrunner Credit Suisse will bill and deliver. BofA Merrill Lynch, Banca IMI, BNP Paribas, Citigroup, ING, JPMorgan, Raffiesen and UniCredit were also joint bookrunners.

Proceeds will be used to refinance debt and fund acquisitions.

McLaren upsized and tight

Making its debut in the high-yield market, McLaren Automotive priced an upsized £564 million equivalent amount of five-year senior secured notes in two tranches.

The deal included £370 million of notes that priced at par to yield 5%. The yield printed at the tight end of the 5% to 5¼% yield talk.

It also included $250 million of notes that priced at par to yield 5¾%. The dollar notes also priced at the tight end of yield talk, in this case 5¾% to 6%.

The overall deal size was increased from £525 million equivalent.

At one point McLaren was seeking to size the dollar tranche at $300 million, according to a trader who added that the deal received a lukewarm reception as it roadshowed in the United States.

JPMorgan was the physical bookrunner. HSBC, Barclays, NatWest and Santander were the joint bookrunners.

The Woking, England-based performance automobile manufacturer plans to use the proceeds to fund the purchase of shares from its former chairman Ron Dennis and to refinance debt.

AnaCap upsizes

AnaCap Financial Europe SA SICAV-RAIF priced an upsized €325 million issue of Euribor plus 500 basis points seven-year senior secured floating-rate notes (BB-) at 99.5.

The amount was increased from €315 million.

The reoffer price came on top of price talk. The spread came at the tight end of the 500 to 525 bps spread talk.

Morgan Stanley was the lead bookrunner.

Maxeda prices tight

Maxeda DIY Holding BV priced a €475 million issue of five-year senior secured notes (B2/B-) at par to yield 6 1/8%.

The yield printed at the tight end of yield talk that was announced in the 6¼% area.

A proposed tranche of secured floating-rate notes was withdrawn and the proceeds shifted to the fixed-rate tranche.

Goldman Sachs was the lead bookrunner for the debt refinancing deal.

HEMA to price Friday

Thursday’s burst of European issuance left one company to complete its deal before the coming weekend.

Amsterdam-based discount retailer HEMA BV set price talk for its €760 million two-part offering of high-yield notes on Thursday.

The deal includes €610 million of five-year senior secured floating-rate notes (B2/B-), which come with one year of call protection, talked with a 575 to 600 basis points spread to Euribor and a 0% Euribor floor.

The unsecured portion of the deal comes in the form of €150 million of 5.5-year senior notes (Caa2/CCC) with two years of call protection, talked to yield in the 8½% area.

The deal is set to price on Friday.

Credit Suisse is the lead.

There is also one dollar-denominated deal expected to price before the weekend.

K. Hovnanian Enterprises has been roadshowing an $840 million two-part offering of senior secured notes (Caa2/CCC+), including five-year notes and seven-year notes.

Early guidance on the five-year notes was in the 8% area, while initial guidance on the seven-year notes was in the 9% area.

Jefferies markets notes, loan

Looking to the July 17 week, Jefferies Finance LLC announced it would begin a roadshow on Monday to launch a $250 million seven-year senior secured term loan and a $400 million seven-year senior notes offering.

The debt is being marketed at the same time. There will be a bank meeting for the term loan on Tuesday with the New York group lunch, the source said.

Jefferies, Citigroup and HSBC are the bookrunners on the deal.

Proceeds will be used to repay an existing term loan and for general corporate purposes.

McLaren Auto bonds ride

In the secondary sphere, traders saw good upside movement in McLaren Automotive’s new dollar-denominated 5¾% senior secured notes due 2022.

A trader said that more than $44 million of those notes changed hands when they hit the aftermarket. He quoted them in a bid range between 100¾ and 102 1/8, after the issue had priced at par.

A second trader pegged the new bonds at 101 3/8 bid.

At yet another desk, a market source saw the bonds finishing at 101¼ bid, 102 offered.

The McLaren dollar bonds were the first dollar-denominated and fully junk-rated bonds that were not an add-on to an existing issue to hit the market since June 29, when five issuers priced a total of $1.79 billion of junk paper, according to data compiled by Prospect News.

Grinding Media edges up

Between then and now, the junk market had seen two smallish, quickly shopped dollar-denominated add-ons.

London-based financial information provider IHS Markit Ltd. did a $300 million addition to its existing $500 million of 4¾% notes due Feb. 15, 2025, pricing it at 105.5 on Monday to yield 3.882% after the offering was upsized from an originally announced $250 million.

And metals producers Grinding Media and Moly-Cop AltaSteel Ltd. priced a $100 million tap of their existing $775 million of 7 3/8% senior secured notes due Dec. 15, 2023 on Wednesday at 107.75 to yield 5.356%.

A trader on Thursday saw that latter issue around 108 bid, 109 offered.

Recent Tenet, PetSmart credits active

Going back a little further among recently priced issues, a market source saw some activity Thursday in some of Tenet Healthcare’s notes, which the Dallas-based hospital operator had priced in a mammoth $3.78 billion four-part quick-to-market issue on Jun 5 – the biggest deal seen in Junkbondland so far this year.

He saw the company’s 4 5/8% first-lien senior secured notes due 2024 ending Thursday at 100 1/8 bid, up 1/8 point on the day on volume of more than $15 million.

Both Tenet and its wholly owned funding subsidiary, THC Escrow Corp., had priced a tranche of those bonds at par – $830 million for the parent and $1.04 billion for the subsidiary.

THC Escrow’s 5 1/8% senior secured second-lien notes due 2025 were seen down ¼ point on the day at 100¼ bid, on volume of around $8 million. The company had priced $1.41 billion of those notes at par.

Tenet’s more established 6% notes due 2020 were also among the day’s volume leaders, with about $9 million traded.

Those notes eased by 1/16 point to end at 107 3/16 bid.

Meanwhile PetSmart’s 8 7/8% notes due 2025 gained 1 5/8 points on the day to go home at 95½ bid.

But a trader said that volume was “relatively light,” with only around $4 million seen having traded.

The San Diego-based specialty retailer of pet foods and supplies priced $650 million of those notes at par on May 25 as part of a $2 billion regularly scheduled two-part transaction that also included $1.35 billion of 5 7/8% senior secured first-lien notes due 2025, which also priced at par.

Intelsat bonds gain altitude

Intelsat Jackson Holdings SA’s recently priced 9¾% notes due 2025 were also among the day’s busier credits, with a trader seeing more than $20 million moving around.

He located those notes at 101 bid, calling them up 1 point on the day.

Inteslsat Jackson had priced $1.5 billion of those notes at par in a quick-to-market transaction on June 19 and they have mostly been orbiting around that issue price since then.

Other issues from across Luxembourg-based communications satellite company Intelsat SA’s complex capital structure were also seen higher on the session.

Intelsat Jackson’s 5½% notes due 2023 gained 1¼ points over recent round-lot trading levels, ending at 84¼ bid on volume of over $10 million.

The Intelsat Jackson 7¼% notes due 2020 rose by 9/16 point, finishing at 94¾ bid. Over $9 million traded.

The company’s Intelsat (Luxembourg) SA’s 7¾% notes due 2021 ended the session at 58 bid, up nearly 3 points from their recent trading levels on volume of over $12 million.

And Intelsat Connect Finance SA’s 12½% notes due 2022 gained nearly 1¾ points on the day to close just below 92 bid. Volume was around $4 million.

The satellite company’s notes firmed on reports that holders of the “LuxCo” bonds were in talks to potentially try to revive the company’s recently failed merger with OneWeb.

Back on June 1, Intelsat announced that it had terminated an exchange offer due to limited response. The exchange was being done in an effort to reduce its debt by about $3.6 billion.

Extending the offer three times and even adding a sweetener did little to compel investors to participate.

The termination of the exchange then led Arlington, Va.-based OneWeb and its corporate parent, Japanese technology company SoftBank Group Corp., to back out of the $14 billion merger.

Topical names stay busy

A trader saw some continued trading in what he called “recently topical names” that had moved up over the past few sessions in response to specific news developments.

Halcon Resources’ 6¾% notes due 2025 “were still trading around their 103 takeout level,” with over $25 million having changed hands.

The Houston-based oil and natural gas exploration and production company announced plans to sell all of its operated holdings in North Dakota’s Bakken Shale oil field for $1.4 billion and to buy back half of those outstanding 2025 bonds.

Rite Aid Corp.’s 6 1/8% notes due 2023 gained ¼ point on the day to end at 98 bid, with over $14 million traded.

The Camp Hill, Pa.-based drugstore chain operator recently unveiled plans to sell about half of its 4,600 United States stores to larger industry rival Walgreens Boots Alliance Inc. for over $5 billion and cut its debt load and leverage ratio in half using the sale proceeds.

And NRG Energy’s 6¼% notes due 2024 gained ½ point on the session, a trader said, ending at 104½ bid on volume of more than $11 million.

The Princeton, N.J.-based merchant power generation company announced a sweeping corporate revamp that will include selling its stake in subsidiary NRG Yield Inc. and other non-core assets and using the anticipated proceeds from those sales, plus improved cash flow from other initiatives, to cut its net debt levels by almost 70% over the next three years.

Frontier continues to falter

On the downside, a trader said that Frontier Communications’ bonds remained weak. The Stamford, Conn.-based wireline telecommunications operator’s 10½% notes due 2022 were down 1/8 point at just under 92½ bid on activity of over $40 million.

He saw its 11% notes due 2025 doing even worse, off by ¾ point to 88½ bid. Over $21 million changed hands.

Indicators add to gains

Statistical market performance measures were higher across the board for a second straight session on Thursday. They had turned upwards on Wednesday after being mixed for three consecutive trading days.

The KDP High Yield Daily Index jumped by 10 basis points on Thursday to close at 72.08, its second successive gain. On Wednesday, the index rose by 9 bps, its first advance after five straight losses, including on Monday and Tuesday, when it was down by 1 bp in each of those sessions.

Its yield came in by 4 bps to finish at 5.05%. It tightened 2 bps on Wednesday, was unchanged on Tuesday and widened out over the four sessions before that, including Monday, when the yield had risen by 6 bps.

The Markit CDX Series 28 High Yield Index moved up by 7/32 point, closing at 107 5/16 bid, 107 3/8 offered, its second straight stronger showing. On Wednesday, the index gained 13/32 point after being unchanged on Tuesday. It had also posted gains over the two sessions before that, which in turn had followed three successive losses.

And the Merrill Lynch North American High Yield Index saw its fourth improvement in a row on Thursday, rising by 0.076% on top of Wednesday’s 0.263% advance. Those four straight better sessions follow three sessions before that on the downside.

Thursday’s upturn lifted the index’s year-to-date return to 5.066% from Wednesday’s 4.986% close – its first time back above the psychologically potent 5% mark since June 19, when it had ended at 5.058%. However, the cumulative return remained below its high point for the year to date of 5.173%, recorded on June 14.

-Stephanie N. Rotondo contributed to this review

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