Clarivate prices inside talk; FXI and American Builders active; WeWork up; Tesla gains

By Paul A. Harris and James McCandless

Portland, Ore., Oct. 25 – As the high-yield market slows down during the third-quarter earnings season, Friday saw an expected issue price and the active deal calendar thin.

Clarivate Analytics plc (Camelot Finance SA), expected during the session, priced at par to yield 4½%.

Blackboard Inc. failed to priced its anticipated issue by week end and the deal will carry over into next week.

New issuance from FXI Holdings, Inc. and American Builders & Contractors Supply Co., Inc. were in the forefront of trading.

Meanwhile, WeWork Cos. Inc.’s paper fared better as details of its rescue financing package from SoftBank are released.

Auto name Tesla, Inc.’s notes pushed upward in the wake of third-quarter earnings.

Clarivate—A rich deal

During an otherwise quiet Friday session in the high yield primary market Clarivate Analytics plc (Camelot Finance SA) priced an upsized $700 million issue of seven-year senior secured notes (B2/B) at par to yield 4½%.

The size of the issue increased from $500 million with the shift of $200 million to the notes from the bank loan, decreasing the loan size to $900 million from $1.1 billion.

The notes priced 12.5 basis points inside of price talk in the 4¾% area – talk which, itself, came well inside of initial guidance in the low 5% area, sources said.

Noting the upsize and the swooping price talk, a trader termed it a “rich” trade, demonstrating that the primary market is unquestionably open.

Blackboard, a work in progress

One other deal had been slated to price ahead of the weekend.

Blackboard Inc. conducted a roadshow for a $243 million offering of five-year second-lien notes (Caa2/CCC) during the past week.

The bonds are struggling but not dead, said a trader who has been watching the situation.

The existing Blackboard bonds, which are expected to be called when the education technology company completes its debt refinancing, are trading well below call price which implies that there is a perception of the possibility of deal risk on the part of investors, the trader said.

Yet it's not the triple-C bond deal that is impeding the refinancing, the trader asserted.

Rather it's the concurrent $500 million five-year term loan (B1/B).

Proceeds are expected to shift to the bonds from the struggling loan, the trader said, adding that the upsize will make the bond portion more expensive.

Whereas early guidance had the bond deal coming at a discount, with a coupon in the low 10% area, an upsize could push the yield into the 12% context, the trader said.

One reason that the Blackboard loan is facing tough sledding has as much to do with the technical shape of the leveraged loan market as it does with the credit specifically, sources tell Prospect News.

The CLO bid for weaker credit quality paper, which in the face of a protracted period of mass outflows of retail cash from the leveraged loan asset class that has been driving demand in the loan market, is fading, sources say.

“The big news in the loan market is that the CLO baskets for low-rated paper are being maxed out,” said an investor who plays both loans and bonds.

Hence the loan market, which thanks to a previously robust CLO bid had become something of a haven for off-the-run borrowers with credit challenges, is becoming less welcoming, forcing those borrowers back into the junk bond market where there is a steep, and possibly growing price to pay for credit and liquidity challenges.

The week ahead

Apart from Blackboard, only one other deal remained on the active calendar at Friday's close.

Wesco Aircraft Holdings, Inc. is in the market with a $1,575,000,000 two-part deal backing the buyout of the company by an affiliate of Platinum Equity and the merger of Wesco with Pattonair USA Inc.

The roadshow is set to wrap up late in the week ahead.

The deal features $1 billion of seven-year senior secured notes (B3/B) guided in the high 7% area, and $575 million of eight-year senior unsecured notes (Caa2/CCC+) guided to come in the 350-basis points area behind the secured paper.

Pressed for tips on other deals expected in the week ahead, market sources turned out empty pockets on Friday.

Presently the market is wending its way through the umbra of an earnings blackout, which will delay the appearance of some potential issuers, a syndicate banker said.

However, the banker pointed to the execution that Clarivate/Camelot received on Friday – with a swelling deal size accompanied by plummeting price talk – and said, in an understated fashion, “The market is open.”

Shortly thereafter a trader confirmed this take, mentioning that the high yield-ETFs were on a buying tear on Friday, as traders labored through a pile of offers-wanted-in-competition (OWICs).

Thursday outflows

The Friday buying on the part of the junk ETFs, which the trader remarked upon, came on the heels of a substantial $339 million of daily outflows which the ETFs sustained on Thursday, according to data provided by a market source.

Actively managed high-yield funds were essentially flat – albeit slightly positive – on the day, seeing $5 million of inflows on Thursday, the source added.

News of Thursday's daily flows follows a Thursday afternoon report that the combined junk funds saw a substantial $1.22 billion of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

It was the second consecutive big weekly inflow, trailing the previous week's $1.79 billion inflow.

Although lately the weekly flows have not been uniformly positive, they have been decidedly positive, the source said.

Five of the past seven weeks have seen positive flows, resulting in net inflows of $6.6 billion in that seven-week period, the source market source said.

New issues trade

FXI Holdings’ new 12¼% senior secured notes due 2026 ended at 99¼ bid.

About $26 million of the notes traded.

The issue from the Media, Pa.-based polyurethane foam producer landed at $775 million and yielded 12 5/8%, pricing at 98.279 on Thursday.

Beloit, Wis.-based roofing company ABC Supply’s new 4% senior secured notes due 2028 were active but held at 100¼.

About $25 million of the issues changed hands.

The deal came to market on Wednesday at $700 million.

WeWork better

Meanwhile, WeWork’s notes fared better through the day, traders said.

The 7 7/8% senior notes due 2025 gained 1 point to close at 84¼ bid.

After news broke this week that the New York-based coworking company has accepted an $8 billion package of rescue financing from SoftBank, details of the deal emerged.

New debt will consist of $1.1 billion in senior secured notes, $2.2 billion in unsecured notes and a $1.75 billion letter of credit facility, Prospect News reported.

Additionally, SoftBank will be accelerating an existing commitment to fund $1.5 billion.

The funding is expected to occur after the completion of a $3 billion tender offer for all non-SoftBank shareholders at a price of $19.19 per share, expected to commence in the fourth quarter of 2019.

The deal also sees the exit of former chief executive officer Adam Neumann, who will leave the organization with up to $1.7 billion.

Tesla up

Carmaker Tesla’s issues were seen pushing upward, market sources said.

The 5.3% senior notes due 2025 picked up ¼ point to close at 94½ bid.

The market continues to look favorably on the company’s third-quarter results that it put out Wednesday.

The company reported a profit of $1.86 per share, far better than the 15 cents per share loss that analysts predicted.

Revenues came in at $6.3 billion.

Indexes gain

Three high-yield indexes gained at the tail end of the week.

The KDP High Yield Daily index hopped up 7 basis points to finish the week, closing at 71.32 with the yield contracting to 5.48%.

The index went unchanged on Thursday, inched up 2 bps on Wednesday and picked up 5 bps on Tuesday.

The index added 9 bps this week.

The ICE BofAML US High Yield index gained 9.5 bps with the year-to-date return now at 12.082%.

The index rose 6.5 bps on Thursday, gained 4.8 bps on Wednesday and picked up 1.5 bps on Tuesday.

The CDX High Yield 30 index improved by 33.18 bps to 107.4772.

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