Cliffs add-on, M/I Homes price; new M/I gains; recent issues busy; Hertz, Charter seen lower

By Paul Deckelman and Paul A. Harris

New York, July 31 – The high-yield primary pricing machine continued to roll on Monday, the final trading session of the month of July, with two new quickly shopped issues seen having come to market, generating more than $800 million of fresh paper.

Iron-ore producer Cliffs Natural Resources Inc. had the big deal of the day, a $575 million add-on to its existing $500 million of 5¾% senior guaranteed notes due in March of 2025. The notes priced at a discount to par, generating $808 million of fresh capital.

Earlier, builder M/I Homes, Inc. priced $250 million of new eight-year paper.

Traders saw modest gains when the latter issue hit the aftermarket, but did not immediately report any initial dealings in the new Cliffs paper.

But they did see Cliffs’ existing notes that will be repaid with the new-deal proceeds having firmed smartly on the day.

Elsewhere, traders saw continued brisk activity in some of the credits priced last week, including the new deals from United Rentals, Inc., AssuredPartners Inc. and NGPL PipeCo LLC.

Away from the new deals, Hertz Corp. paper fell after the car-rental company announced that it would not go forward with the planned redemption of one of its issues of bonds.

Charter Communications Inc. notes fizzled – even as its stock sizzled – amid the news Japanese tech giant SoftBank Group was considering making a bid for the cable company.

Statistical market performance measures were mixed for a second straight session on Monday; they had turned mixed on Friday after having moved lower on Thursday for the first time since July 6. The indicators had also been higher across the board last Tuesday and Wednesday, and mixed for two straight sessions before that.

Cliffs $575 million tack-on

The drive-by market opened during the final session of July.

Two quick-to-market issuers brought single tranche deals and raised a combined total of $808 million.

Neither deal was upsized.

One priced at the tight end of talk while the other came at the cheap, or wide end of price talk.

Cliffs Natural Resources Inc. priced a $575 million tack-on to its 5¾% senior guaranteed notes due March 1, 2025 (B2/B) at 97.00 to yield 6.253%.

The reoffer price came at the cheap end of the 97 to 97.5 price talk.

The Cleveland-based iron ore producer paid a concession to get the tack-on done, according to market sources.

A trader looked at Monday's tap as essentially a new deal and thought it looked fair at 97.

A sell-side source said that the existing bonds were trading at 99½ on Monday morning and calculated that the company made a 2½ point concession.

The original bonds did not trade exceptionally well, the sellsider added.

Credit Suisse was the sole bookrunner for Monday's debt refinancing deal.

M/I Homes prices tight

M/I Homes, Inc. also brought a Monday drive-by.

The Columbus, Ohio-based builder of single-family homes priced a $250 million issue of eight-year senior notes (B2/BB-/BB-) at par to yield 5 5/8%.

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

JP Morgan, Citigroup, Wells Fargo, PNC, US Bancorp and Fifth Third Bank were the joint bookrunners for the debt refinancing and general corporate purposes deal.

US Steel whisper 7% to 7¼%

Two hefty offers took positions on the active forward calendar, both expected to price on Tuesday.

United States Steel Corp. is expected to price $750 million of eight-year senior notes (existing ratings Caa1/B).

Initial guidance has the bonds coming to yield 7% to 7¼%.

BofA Merrill Lynch, J.P. Morgan, Barclays, Morgan Stanley, PNC, Wells Fargo and Goldman Sachs are the joint bookrunners for the debt refinancing deal.

Diamond Offshore Drilling

Diamond Offshore Drilling, Inc. is expected to wrap up a brief roadshow for its $500 million offering of eight-year senior bullet notes (current ratings Ba3/BB-) on Tuesday.

Whisper on the debt refinancing deal is 7½%, said a trader, who also advised that some covenant concessions might be forthcoming.

Joint active bookrunner Barclays will bill and deliver. JP Morgan is also a joint active bookrunner. Wells Fargo, Citigroup, SunTrust, BOTM and HSBC are the joint bookrunners.

The dollar-denominated primary market could heat up, heading into mid-August, according to a syndicate banker who added that there is a hefty deal pipeline for the first two weeks of the month.

A $5 billion per week run-rate is not impossible, the source said.

After the new issue market crosses the midpoint of August, watch for the shutters to close, sources say.

Limacorporate FRN

In Europe the shutters are already mostly closed, a London-based sellside source said on Monday.

One deal is on the road.

Italy-based Limacorporate is marketing a €275 million offering of five-year senior floating-rate notes on an investor roadshow set to run through Wednesday.

Goldman Sachs International and UBS are managing the sale.

The Villanova, Italy-based provider of products and services to the medical fields of orthopedics and traumatology plans to use the proceeds to repay bank debt.

Following the Limacorporate deal things could become very quiet in the euro-denominated high-yield primary market, the banker said.

It might not heat up again until September.

Watch for the Sept. 4 week to be a busy one in the euro market, the source advised.

Bonds backing the acquisition of Spanish retailer Cortefiel by CVC and PAI Partners are heard to be on the horizon.

That deal will come later in the year, however, the London sellsider said on Monday.

Issuance falls sharply in July

Monday’s two new deals closed out the weakest month for new issuance in Junkbondland in a year-and-a-half, according to data compiled by Prospect News.

When the dust had settled, just $8.18 billion of new U.S.-dollar-denominated and fully junk-rated paper had priced in 19 tranches in July.

That was not only well down from the $20.57 billion of such new paper which had come to market in June – it was the smallest-volume month seen so far this year.

In fact, one would have to go back to February of 2016 so find such a light-volume month – and then just barely; that month, some $8.1 billion, only slightly less than the July 2017 total, had priced in 14 tranches.

This July’s total was also far less than the $14.08 billion which had priced in the year-ago month, the Prospect News data indicated.

M/I Homes moves up

In the aftermarket, traders said that the new M/I Homes 5 5/8% notes due 2025 firmed modestly after their par pricing, on active volume of over $24 million, with about $19 million of that in big round-lot transactions.

A trader said that the notes traded between 100¼ and 101¼ bid, with the last trades of the day taking place in a 100¾-to-101¼ bid context.

A second trader saw them more narrowly focused between 101 and 101¼ bid going home.

New Cliffs paper unseen

Several traders said that they had not seen any initial aftermarket dealings in the new Cliffs Natural Resources add-on 2025 notes.

But one of the traders did see the company’s existing 8¼% senior secured notes due 2020 – which are to be repaid using the proceeds of the new deal – having moved up on Monday to nearly 112½ bid, about a 3-point gain on the session, though on volume of around $5 million.

Recent deals active

Some of the recently priced new issues were seen actively trading around on Monday, chief among them the United Rentals 4 7/8% notes due January 2028.

A trader pegged those bonds between 100 1/8 and 100½ bid, while a second saw them finishing the session at 100¼ bid, unchanged on the day, with over $48 million having changed hands.

The Stamford, Conn.-based equipment rental company had priced $925 million of the notes at par Friday in a quick-to-market deal.

Friday’s other issue – from Lake Mary, Fla.-based insurance brokerage services company AssuredPartners – was seen slightly easier on Monday, with those 7% notes due 2025 off 1/8 point, at 101¼ bid, on volume of over $20 million.

The company had priced $500 million of those notes at par in a regularly scheduled forward calendar offering, after the deal was upsized from, $450 million originally.

Going back a bit further, a market source said that NGPL PipeCo.’s 4 7/8% notes due 2027 gained another ¼ point on the day and ended at 103¼ bid, on volume of over $12 million, while its 4 3/8% notes due 2022 closed out just over 103 bid, also up ¼ point on the day, with $10 million traded.

The Houston-based natural gas pipeline company priced $700 million of each series of notes in a quick-to-market transaction last Tuesday.

Hertz is hurting

Away from the new deals, Hertz bonds ran into some trouble on Monday after the company pulled its redemption of its 6¾% notes due 2019.

A trader said the 2019 paper was off a point at 99. The 7.625% second-lien notes due 2022 meantime declined to “99-ish” from around 102 previously.

At another desk, a source saw the 5½% notes due 2024 falling 3¾ points to 83 bid.

On May 30, Hertz announced that it would redeem its $450 million of 6¾% senior notes due 2019 and its $250 million of 4¼% senior notes due 2018 on June 29. But the redemptions were conditioned on Hertz completing an offering of senior second priority secured notes – a $1.25 billion deal that priced May 31.

But while the offering condition was met, other conditions were not met – at least not to the company’s satisfaction.

Though the redemption of the 6¾% notes was nixed, the company did redeem the 4¼% notes, waiving the financing requirement in order to do so. It also paid down its revolving credit facility by $150 million.

Also on Monday, Barclays lowered its rating on the company’s stock to “underweight,” as the investment bank is not expecting the latest quarterly results to be stellar.

Barclays also noted the general headwinds the company is facing.

Hertz is a car rental company based in Estero, Fla.

Charter chopped down

News reports that Japanese tech giant SoftBank might be looking to make a bid for Charter Communications Inc. caused the Stamford, Conn.-based cable operator’s Nasdaq-traded shares to jump almost 6%on four times their normal volume Monday.

But not so for its bonds, which retreated on the idea that such a deal would add to Charter’s already considerable leverage.

Its 3¾% notes due 2028 plunged by 1 3/8 points, to just under 97½ bid, on volume of over $21 million.

Indicators remain mixed

Statistical market performance measures were mixed for a second straight session on Monday; they had turned mixed on Friday after having moved lower on Thursday for the first time since July 6. The indicators had also been higher across the board last Tuesday and Wednesday, and mixed for two straight sessions before that.

The KDP High Yield Daily Index fell by3 basis points on Monday to end at 72.59, its second straight downturn. It had also ended down by 4 bps on Friday, after having been unchanged on Thursday following gains on Tuesday and Wednesday.

Its yield rose by 1 bp to 4.94%, its third straight widening, having also increased by 1 bp on Friday.

The Markit CDX Series 28 High Yield Index edged up by 1/32 point on Monday to 107 19/32 bid, 107 21/32 offered, after having fallen by that same 1/32 point on Friday, its second straight loss.

Stephanie N. Rotondo contributed to this review

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