Navistar megadeal paces $2.6 billion day, new Constellium busy; funds dive $1.2 billion

By Paul Deckelman

New York, Nov. 2 – The high-yield primary market saw its heaviest day of new issuance in a month on Thursday as nearly $2.6 billion of new dollar-denominated and fully junk-rated paper from four domestic or industrialized country issuers came clattering down the chute.

The big deal of the day was truck, bus and engine manufacturer Navistar International Corp.’s quickly shopped $1.1 billion of eight-year notes.

There was also a trio of upsized deals that priced off the forward calendar.

Entegris Inc., a specialty chemicals producer, brought a $550 million issue of 8.25-year notes to market.

Dutch aluminum products maker Constellium NV priced $500 million and €400 million of 8.25-year notes in a two-part offering.

And residential lender Freedom Mortgage Corp. came in with a $435 million eight-year transaction.

Telecommunications company Windstream Holdings Inc. was heard to be shopping around a $250 million eight-year add-on offering.

In the secondary realm, traders said that the new Constellium dollar-denominated notes were among the busiest credits of the day in Junkbondland, moving up solidly after pricing at par.

They also saw the Navistar notes modestly better, though on considerably less volume than Constellium.

Away from the new deals, Alliance One International’s bonds and shares jumped after the tobacco company reported strong quarterly numbers.

Bonds of some companies which have lately been under pressure, including Tesla Inc., Community Health Systems, Inc. and Murray Energy Corp. were all seen on the rebound Thursday,

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

And another numerical performance 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 – sank deeply into the red this week as $1.2 billion more left those funds than came into them during the latest reporting week, way overshadowing last week’s small net inflow (see related story elsewhere in this issue).

Navistar drives by

In the new-deal market, Navistar International priced $1.1 billion of senior notes due 2025 (Caa1/CCC+/B-) at par to yield 6 5/8%.

A high-yield market source said that the offering was brought to market via bookrunners Citigroup Global Market Inc. Deutsche Bank Securities Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC.

The quick-to-market offering priced just a few hours after the company announced the deal – although Navistar had indicated in late October that it planned to offer new bonds.

Navistar, a Lisle, Ill.-based manufacturer of trucks, buses, military vehicles and heavy engines; plans to use the proceeds, together with borrowings under a new senior secured term loan facility, to retire all $1.45 billion of its existing 8¼% senior notes due 2021.

Some of the proceeds of the bond and bank debt financing will also be used to repay all outstanding existing senior secured term loan facility borrowings, to add cash to the company’s balance sheet so that it can retire at maturity or repurchase a portion of its 4½% senior subordinated convertible notes due 2018 and to pay any associated prepayment premiums, transaction fees and expenses.

Entegris upsizes offering

Entegris, a Billerica, Mass.-based provider of specialty chemicals and advanced materials solutions for the microelectronics industry, priced an upsized $550 million of 8.25-year senior notes (Ba3/BB-) at par to yield 4 5/8%, high-yield syndicate sources said Thursday.

The issue was enlarged from the $450 million originally announced.

The issue came on the tight side of price talk envisioning a yield in the 4¾% area.

That deal was brought to market via left lead bookrunner Goldman Sachs, with Bank of America Merrill Lynch and Morgan Stanley & Co. Inc. also serving as bookrunners.

The transaction was announced on Wednesday and then was marketed to prospective investors via a Thursday morning investor call plus small-group meetings before it priced later in the day on Thursday.

The company plans to use the proceeds to redeem its $360 million of currently outstanding 6% notes due 2022 at a price of 104.5 plus accrued interest, to pay fees and expenses related to the redemption of the 2022 notes, and for general corporate purposes.

Constellium brings two-parter

The day’s lone non-U.S. issuer, Amsterdam-based aluminum products manufacturer Constellium NV, was heard by the sources to have priced an upsized $500 million offering of senior notes and €400 million of senior notes, both due in February 2026 (B3/B-)

The dollar-denominated portion of that two-part bond deal was upsized from an originally announced $450 million while the euro-denominated tranche was unchanged

The dollar-denominated notes priced at par to yield 5 7.8%.

The euro-denominated notes priced at par to yield 4¼%

The transaction was brought to market via a large and complex consortium of underwriters.

Deutsche Bank was the left bookrunner for both tranches.

Credit Suisse, BofA Merrill Lynch, Goldman Sachs, JPMorgan and Wells Fargo Securities were also bookrunners for the dollar-denominated notes, while Credit Suisse, Barclays, BNP Paribas, Credit Mutual and HSBC were also bookrunners for the euro-denominated portion.

Constellium plans to use the proceeds from the notes, along with funds from an offering of class A ordinary shares and cash on hand, to fund tender offers for its $425 million of 7 7/8% senior secured notes due 2021, its €250 million of 7% senior notes due 2023 and its $400 million of 8% senior notes due 2023 and to redeem any notes that remain outstanding after the tender offers, which will end on Nov. 6.

Freedom sells seven-year deal

Freedom Mortgage, a Mount Laurel, N.J.-based non-bank residential mortgage loan originator and servicer, priced an upsized $435 million issue of seven year notes (B2/B) at par to yield 8 1/8%.

The issue was expanded from an originally announced $400 million and came at the tight of talk that had anticipated a yield in the 8¼% area.

Barclays Capital Inc., J.P. Morgan and Citigroup brought the deal to market.

Freedom Mortgage plans to use the to add cash to its balance sheet for strategic acquisitions of mortgage servicing rights and other assets.

Biggest day in a month

Thursday’s four new issues generated a total of $2.96 billion in new dollar-denominated junk paper. It was the heaviest new-issuance day the junk market had seen almost exactly one month earlier, Oct. 3.

That session saw $3.08 billion get done in three tranches, according to data compiled by Prospect News

Included in that figure was a pair of giant-sized offerings, from West Corp. and Energy Transfer Equity, LP.

Windstream shops deal

Also in the new-deal arena. Little Rock, Ark.-based telecom company Windstream Holdings Inc. announced plans to sell $250 million of add-on 8 5/8% senior first-lien notes due Oct. 31, 2025.

High yield syndicate sources said that the Rule 144A and Regulation S for life transaction is being brought to market via left lead bookrunner Citigroup, with BNP Paribas Securities Corp., SunTrust Robinson Humphrey, Inc., Bank of America Merrill Lynch, MUFG Securities Americas, Inc. and J.P. Morgan also acting as bookrunners.

The notes had been described by market participants as possibly being Thursday’s business, following the morning conference call with investors.

However, several traders said, the notes had not priced by Thursday afternoon, with participants surmising that the deal would get done during Friday’s session.

Windstream plans to use the add-on deal proceeds to pay revolving credit facility debt.

New Constellium notes strong

In the aftermarket, traders said that the new 5 7/8% notes due February 2026 from Constellium were right near the top of the day’s Most Actives list, with over $61 million having changed hands.

One market source pegged the bonds at 101½ bid, well up from their par issue price.

Another saw the bonds trading in a 101½ to 102 bid context.

Navistar quoted higher

The new issue from Navistar International also saw some aftermarket action, though on nowhere near the kind of volume seen in the Constellium notes.

A trader located Navistar’s 6 5/8% notes due 2025 trading between 100 3/8 and 100 5/8 bid, up from their par new issue price.

At another shop, a trader saw them better than that, quoting them in a 100¾ to 101 bid range.

Names on the rebound

Away from the activity in the new or recently priced issues, traders saw some names which had taken a drubbing on Wednesday managing to regain some of that lost ground.

A market source noted that Tesla’s 5.3% notes due 2025 gained around 9/32 point in very active Thursday trading of more than $76 million, ending just below 95 bid.

On Wednesday, Palo Alto, Calif.-based Tesla’s notes had ended down 1½ points, falling below the 95 bid figure, with over $30 million traded.

The electric car manufacturer reported a $619 million quarterly loss and admitted that it will not meet its previously announced ambitious production targets for its Model 3, having to push its goal of 5,000 vehicles a week back to early next year instead of by the end of the current year.

A trader noted that Community Health Systems’ paper had “really gotten whacked” on Wednesday after the Franklin, Tenn.-based hospital operator reported a third-quarter loss of $110 million in its third quarter. The adjusted per-share loss of 77 cents was more than double the roughly 30 cents of red ink Wall Street had been looking for.

“They tanked yesterday [Wednesday] after the bell,” he said, falling by multiple points on busy volume.

On Thursday, he said, “there was some rebound” – he saw its 7 1/8% notes due 2020 closing at 81 3/8 bid – “still down versus the close, but off its lows on the day,” which he said took the notes as low as 78 bid in the morning.

Another trader saw them finishing up by ¼ point Thursday at 81 3/8 bid.

Coal operator Murray Energy’s 11¼% notes due 2021, down earlier in the week, gained some 2½ points on the session to end at 57¼ bid on volume of more than $38 million.

Alliance One on fire

A big winner on the day was Morrisville. N.C.-based tobacco company Alliance One International after it reported favorable quarterly earnings.

Its 9 7/8% notes due 2021 ended up 2½ points at 92½ bid, with nearly $40 million traded.

Indicators turn lower

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

The KDP High Yield Daily Index lost 3 basis points on Thursday to end at 72.23, erasing the 3 bps gain it had posted on Wednesday – its first such advance in more than a week of setbacks or days which saw the market measure unchanged.

Its yield rose by 2 bps, to 5.20%, after having come in by 1 bp Wednesday, its first tightening after widening out by 1 bp in each of the two straight previous sessions.

The Markit CDX Series 29 High Yield Index fell back by 3/32 point on Thursday, finishing at 108 7/32 bid, 108¼ offered, its second consecutive loss. On Wednesday, it had eased by 1/16 point in contrast to its gain of nearly 5/32 point on Tuesday. The index has recently been choppy, falling on Monday after having firming last Friday – which in turn had followed four successive losses.

The Merrill Lynch North American High Yield Master II Index lost 0.054%, snapping a winning streak of three successive gains after suffering three straight losses.

It had risen by that same amount, 0.054%, on Wednesday, on top of Tuesday’s 0.033% gain and Monday’s 0.045% improvement.

The loss dropped the index’s year-to date return to 7.459% on Thursday, down from 7.517% on Wednesday and down as well from the 7.636% cumulative return posted last Tuesday, Oct. 24, the peak year-to-date return for 2017 so far.

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