Manitowoc carries over; Digicel weakens; Archrock flat; Blackboard skyrockets on sale

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 8 – The one new deal on deck for Friday was carried over to the March 11 week, which promises to be an active one for the domestic high-yield primary market.

Manitowoc Co. Inc. was slated to price its $300 million offering of seven-year senior secured second-lien notes (B2/B) on Friday.

It now joins Johnson Controls (Power Solutions)’s highly anticipated $4.7 billion equivalent three-part deal and Target Hospitality (Arrow BidCo, LLC)’s $340 million offering of five-year senior secured notes on the calendar for the March 11 week.

Meanwhile, trading volume was again light in the secondary space as the market closed out a soft week on heavy footing.

Digicel International Finance Ltd.’s newly priced 8¾% senior notes due 2024 (B1/B) were slightly weaker on Friday after making large gains in the previous session.

Archrock, Inc.’s 6 7/8% notes due 2027 (B3/B) dipped early in the session but rallied toward the market close to end the day largely flat.

Outside of new paper, losses continued to mount for Dean Foods Co.’s 6½% senior notes due 2023 with speculation the company would be forced to sell some of its assets.

Blackboard Inc.’s 9¾% senior notes due 2021 skyrocketed on Friday on news of an asset sale.

Johnson Controls eyed

Following a quiet Friday session in the new issue market, eyes turned to the Johnson Controls (Power Solutions) $4.7 billion equivalent three-part deal teed up for the March 11 week, sources said.

The offer, in the market to raise cash for Brookfield Business Partners’ acquisition of Johnson Controls’ Power Solutions business, features $2 billion of seven-year senior secured notes (Ba3/B+/BB), initial guidance in the 7% area; $750 million equivalent of euro-denominated seven-year senior secured notes (Ba3/B+/BB), initial guidance in the 5% area; and $1.95 billion of eight-year senior unsecured notes (B3/B/B-), initial guidance in the low 9% area.

The secured portions of the deal are multiple-times oversubscribed and going very well, market sources say.

The unsecured tranche, however, is engendering some pushback on its covenant package that the buyside is characterizing as “aggressive,” a market source said.

Specifically, the permitted investments covenant grants Brookfield extensive leeway to spin off collateral, the source added.

Timing targets the mid-to-late part of the March 11 week for pricing on the Johnson Controls' megadeal.

But that timing may be subject to acceleration, an investor said.

The week ahead

Elsewhere, Target Hospitality (Arrow BidCo, LLC) is conducting a roadshow for a $340 million offering of five-year senior secured notes backing a business combination of Target Lodging and Signor Lodging into a single entity to be called Target Hospitality.

Early guidance has the notes coming in the high 8% to 9% area. However, it may need a bit more juice than that, a trader opined on Friday.

Finally, in a deal that had been expected to clear the market on Friday, Manitowoc's $300 million offering of seven-year senior secured second-lien notes (B2/B) was moved to the March 11 week.

Initial guidance was in the low 8% area. However, pricing has likely widened with the market, sources said.

There are other transactions possible in the March 11 week, sources said.

However, prospective issuers are unlikely to step in front of the Johnson Controls megadeal, an investment banker said.

Digicel weakens

Digicel’s 8¾% senior notes were coming in from their highs on Friday. However, the notes were still trading with a healthy premium over their issue price.

The 8¾% notes were trading in a range of par ¼ to 101 and stood poised to close the day at par 5/8, a market source said.

More than $27.5 million of the bonds were on the tape during Friday’s session.

The new paper was strong out of the gate on Thursday and traded as high as 101 1/8 before closing the day at par ¾, sources said.

Digicel priced an upsized $600 million issue of the 8¾% senior notes at par on Thursday.

The issue size increased from $550 million.

The yield and price both came on top of final talk, which was tightened to 8¾%. Earlier yield talk was in the 9% area.

Archrock flat

Archrock’s 6 7/8% senior notes due 2027 were also weaker in secondary trading on Friday.

However, the notes rallied toward the end of the session and stood poised to close the day flat.

The 6 7/8% senior notes traded to a low of 99 7/8 on Friday but rebounded to close the day at par ½, flush with Thursday’s close, a market source said.

More than $48 million of the bonds were on the tape by the late afternoon.

Archrock priced a $500 million issue of the 6 7/8% notes at par in a Thursday drive-by.

The yield printed in the middle of yield talk in the 6 7/8% area.

Dean Foods’ losses mount

Losses continued to mount for Dean Foods embattled 6½% senior notes due 2023. The notes dropped another 1 5/8 points.

They were quoted at 65½ bid, 66½ offered and were changing hands around 66 1/8, sources said.

More than $14 million of the bonds were on the tape during Friday’s session.

The notes dropped 1½ points on Thursday following a ratings downgrade.

They have been under pressure since the food and beverage company’s fourth-quarter report and announced strategic review in late February.

There is speculation the company will have no choice but to sell its assets, sources said.

Blackboard soars

Blackboard’s 9¾% senior notes due 2021 skyrocketed on Friday on news of an asset sale.

The notes rose 13 points in high-volume activity, a market source said.

They were seen at 86¼ bid, 86½ offered. More than $16 million of the bonds were on the tape by the late afternoon.

The notes’ meteoric rise followed news that Blackboard had entered into a definitive agreement to sell its Blackboard Transact business unit to Reverence Capital Partners for an undisclosed sum, a source said.

Blackboard is an educational technology company. Its Blackboard Transact business segment is focused on payment services for higher education.

The deal is expected to close in the second half of 2019.

Thursday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs saw $189 million of inflows on the day.

Actively managed high yield funds saw $30 million of inflows on Thursday, the source added.

News of those daily cash inflows follows a Thursday afternoon report that the combined funds sustained a hefty $1.9 billion of net outflows during the week to Wednesday's close, the first negative weekly flow in a month, sources say.

Indexes mixed

Indexes were mixed on Friday, although all closed out the week with cumulative losses.

The KDP High Yield Daily index dropped 23 basis points to close Friday at 69.48 with the yield now 6.13%.

The index was down 5 bps on Thursday, 11 bps on Wednesday, 4 bps on Tuesday and was flat on Monday.

The index saw a cumulative loss of 43 bps on the week.

The ICE BofAML US High Yield index sank below 6% year-to-date returns on Friday.

The index dropped 24.4 bps with the year-to-date return now 5.832%.

The index was down 18.2 bps on Thursday, 11 bps on Wednesday and 4.1 bps on Tuesday after rising 0.2 bp on Monday.

The index saw a cumulative loss of 57.5 bps on the week.

The index shot past 6% returns on Feb. 25 after passing 5% returns on Feb. 12.

The CDX High Yield 30 index rose 3 bps to close Friday at 105.50.

The index dropped 22 bps on Thursday, 36 bps on Wednesday, 26 bps on Tuesday and 12 bps on Monday.

The index was down 93 bps on the week.

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