Europe takes primary spotlight; Windstream, Uniti gain on exchange offer; funds lose $450 million

By Paul Deckelman and Paul A. Harris

New York, Oct 19 – For the first time in more than a month, the dollar-denominated junk bond primary market fell silent on Thursday, with no new deals heard by syndicate sources to have priced. The last time Junkbondland saw such a shutout was on Sept. 5, the first day back after the Labor Day holiday break in the United States.

As had been the case on Wednesday, the European segment of the high-yield world took center stage, as Italian construction and infrastructure company Salini Impregilo SpA priced an upsized €500 million of seven-year notes.

Another Italy-based issuer – telecommunications operator Wind Tre SpA – was meantime shopping its huge €7.3 billion equivalent five-tranche senior secured deal around, with pricing seen possible in the upcoming week. That deal, when it comes, will generate some interest in the dollar market since two of the five tranches will be denominated in greenbacks, with the rest in euros.

A domestic telecom name, Windstream Holdings Inc., was generating the big news in the U.S. junk market as it announced an exchange offer for several series of its notes. That pushed that paper higher, along with the notes from former Windstream subsidiary Uniti Group Inc.

Canadian aircraft manufacturer Bombardier Inc.’s recently high-flying bonds were seen by traders to have lost some altitude but were still up from where they had been before jumping higher earlier in the week.

The traders saw little activity among recently priced high-yield names. Wednesday’s new deal from fast-food franchisor Nathan’s Famous Inc. was heard to have held on to the handsome gains it notched in initial aftermarket activity after pricing, but on very thin volume.

Statistical market performance measures were higher across the board for a third consecutive session on Thursday.

But 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 – turned negative this week, its first setback after four consecutive weekly gains. Some $450 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, Oct. 18, versus the $967 million net inflow reported last Thursday for the seven-day period ended Oct. 11 (see related story elsewhere in this issue).

Salini prints at 1¾%

As it did on Wednesday, European high-yield dominated primary market news again on Thursday.

Milan-based construction and infrastructure company Salini Impregilo braved rocky European capital markets roiled by news of political volatility and possible further corrosion of the European Union, as the government of Spain moved to suspend the autonomy of the Spanish province of Catalonia after Catalans voted to secede in a referendum outlawed by Spain.

Against this backdrop, Salini Impregilo priced an upsized €500 million issue of seven-year fixed-rate senior notes (S&P: BB+) which came at par to yield 1¾%.

The deal, which was upsized from €400 million, blew through talk, with the yield printing 12.5 bps below the tight end of the 1 7/8% to 2% final yield talk. That talk was revised downward from earlier talk of 2% to 2 1/8%.

At the time revised talk circulated, the debt refinancing deal was said to be playing to €2.2 billion of orders.

Banca IMI, BBVA, BNP Paribas, Goldman Sachs International, Natixis, Santander and UniCredit were joint bookrunners. BNP Paribas will bill and deliver.

Wind whispers

Meanwhile Wind Tre has commandeered the global high-yield market’s attention with a €7.3 billion equivalent amount of senior secured notes (B1/BB-/BB) announced Wednesday and now roadshowing in Europe, sources say.

The deal is coming in five benchmark sized tranches that are whispered as follows:

• Euro-denominated five-year fixed-rate notes whispered in the 3% area;

• Euro-denominated seven-year fixed-rate notes whispered in the 3 ½% area;

• Dollar-denominated eight-year fixed-rate notes whispered in the low-to-mid 5% area;

• Euro-denominated six-year floating-rate notes whispered at Euribor plus 300 to 325 bps at par; and

• Dollar-denominated five-year floating-rate notes whispered at Libor plus 300 to 325 bps at 99.5.

The European roadshow is scheduled to wrap up on Friday.

A roadshow in the United States is set to begin on Monday and run through Wednesday.

Joint global coordinator Deutsche Bank will bill and deliver for the euro-denominated notes.

Joint global coordinator BofA Merrill Lynch will bill and deliver for the dollar-denominated notes.

HSBC is also a joint global coordinator.

Warrior Met Coal roadshow

The dollar-denominated primary market remains in the shadow of an earnings blackout, sources say.

Thursday’s sole new issue news nugget in the dollar market came from Warrior Met Coal, Inc. which plans to start a roadshow on Friday for a $350 million offering of seven-year senior secured notes.

The dividend deal is in the market with initial guidance in the mid-7% area.

Goldman Sachs is the left bookrunner. Citigroup, Credit Suisse, Morgan Stanley, BMO and RBC are the joint bookrunners.

Little new-deal dealings

In the secondary arena, a trader noted the lack of new paper pricing – the first time since early September that no dollar-denominated and fully junk-rated paper had gotten done in a session.

“It’s been a quiet week,” he acknowledged, with only three smallish new deals having successfully come to market – Monday’s $280 million offering of five-year secured paper from British aircraft industry supply chain provider Pattonair, Tuesday’s upsized $30 million 2022 senior payment-in-kind (PIK) add-on deal from Canadian rural telecom and broadband service company Xplornet Communications Inc., and Wednesday’s $150 million of eight-year secured notes from Jericho, N.Y.-based fast-food restaurant operator Nathan’s Famous.

“We heard, going into October, that this would be a light month, though the first week wasn’t.”

In fact, $10.08 billion of new junk bonds priced in 15 tranches during the week ended Oct. 6, according to data compiled by Prospect News.

However, he continued, “then it started to taper off,” as a comparatively sedate $6.29 billion got done in 11 tranches last week, clearing out the forward calendar and setting the stage for the virtual drying up of activity this week.

While a few new or recently priced offerings had been prominently a part of the Most Actives list over the past several weeks, that was not the case on Thursday, with none of the new deals seen among the most active credits.

The Nathan’s 6 5/8% notes due 2025 – which had been among those busy movers on Wednesday, when the regularly scheduled forward calendar offering priced at par and then firmed smartly in initial aftermarket action, generating more than $18 million of volume – were only thinly traded on Thursday.

The trader said “they traded very small,” seeing the notes about unchanged at 102 bid, the same level at which they had closed out trading on Wednesday.

A second trader likewise called the restaurateur’s new deal unchanged at 102 bid, 102¾ offered.

Windstream a winner

Windstream Holdings paper “was very active,” one of the traders said, seeing the Little Rock, Ark.-based telecommunications company’s various bonds up by anywhere from 1 to 3 points, “depending on where in the capital structure they are.”

Those notes moved up amid the news that Windstream announced exchange offers for four series of notes issued by its Windstream Services LLC subsidiary – the company’s nearly $651 million of 7¾% senior notes due 2020, its $809 million of 7¾% senior notes due 2021, its $441 million of 7 ½% senior notes due 2022 and its more than $343 million of 7½% senior notes due 2023 (see related story elsewhere in this issue).

“It was positive for the whole structure,” the trader said.

“The bonds were notably active on that exchange offer,” a second trader agreed.

He noted that the company “is trying to combat” recent claims by a large noteholder that Windstream was in default of its bond indentures because of its transaction two years ago spinning off some of its properties into a new communications-oriented real estate investment trust, also based in Little Rock, known as Communications Sales & Leasing, which was later renamed Uniti Group. The bondholder charges that Windstream engaged in a sale and leaseback transaction with the new entity – when the bond indentures clearly limit the kind of transactions it can enter into.

Windstream, for its part, says the claims are without merit, denying that REIT transaction was prohibited.

“All of the bonds were up,” the second trader said, “except the 6 3/8% notes due 2023, the bond being exchanged into” – the company is offering new 6 3/8% notes in exchange for the shorter duration existing bonds.

He called the bonds up “2 to 4 points, depending on the flavor. Bonds that were in the lower 70s are now in the mid-70s. Bonds that were in the mid-70s are in the high 70s,”

Windstream’s 7¾% notes due 2020 were seen by a market source to have firmed by nearly 1 point to end at 89¼ bid on volume of more than $39 million, making it the busiest purely junk issue of the day.

Its 7¾% notes due 2022 jumped 3½ points to 78 bid, with over $26 million having changed hands.

The company’s 7¾% notes due 2021 improved by nearly 4 points on the day to 80¼ bid on volume of over $19 million.

In contrast, he saw the 6 3/8% notes due 2023 little changed on the day at 74 bid, with more than $11 million of turnover.

Uniti along for the ride

One of the traders also noted that “since Uniti is intertwined with Windstream,” it was also active on the day “on the back of the Windstream exchange news.

“The bonds rallied a bunch, but then they came off their intraday highs.”

For instance, he said that Uniti’s 8¼% notes due 2023 zoomed by “1 or 2 points to above 98 but then they came back in” to end around 96 bid, up ¾ point on the day, on volume of over $27 million.

He saw the REIT’s 7 1/8% notes due 2024 get as good as 93½ bid early in the session, “but they were volatile,” losing most of those gains and ending at 91½ bid, just a ½ point gain. Volume was more than $24 million.

Uniti’s 6% notes due 2023 followed a similar trajectory before ending up ¼ point on the day at 100½ bid, on more than $15 million of volume.

Bombardier bonds off

Elsewhere, a trader said that Bombardier’s bonds – which had jumped as much as 6 points pretty much across the board earlier in the week on the news that the company will partner up with Airbus on producing Bombardier’s new C-Series 100 to 150 passenger jets – were seen in retreat on Thursday.

“They were off a little, after being up 5 or 6 points two days ago,” he said, “down ½ to 1 point on a few names, so there was a little pullback on that.”

The Montreal-based aircraft maker’s 6 1/8% notes due 2023 were seen down ½ point at 102½ bid as over $19 million changed hands.

Its 6% notes due 2022 lost ¾ point on the day to close at 100¾ bid as over $15 million traded.

Bombardier’s 7½% notes due 2025 landed at 106¾ bid, off ¾ point, on volume of over $13 million.

Hospital names mixed

Traders said the hospitals sector remained busy amid all of the back-and-forth coming out of Washington on possible changes to America’s Affordable Care Act, commonly known as Obamacare.

Nashville-based hospital operator HCA’s 5 7/8% notes due 2026 edged up by ¼ point to 106¼ bid on volume of over $15 million, while its 5 3/8% notes due 2025 gained 1 full point, ending at 104½, with over $13 million traded.

Franklin, Tenn.-based sector peer Community Health Systems’ 8% notes due 2019 were seen losing ¼ point, ending at 97 bid, with over $13 million traded.

Its 5 1/8% notes due 2021 were likewise down around ¼ point, at 98¼ bid, as some $10 million traded.

But its 7 1/8% notes due 2020 shot up by more than 1¾ points to go home at 88 13/16, also on about $10 million of turnover.

Indicators stay higher

Statistical market performance measures were higher across the board for a third consecutive session on Thursday. Those indicators had firmed on Tuesday and had stayed strong on Wednesday. Tuesday’s upturn was the first in a week, improving after being mixed last Friday and again on Monday, which followed a lower session all around last Thursday.

The KDP High Yield Daily Index saw its third gain in a row on Thursday, firming by 1 basis point to end at 72.47. It had gained 4 bps on Wednesday and had risen by a robust 8 bps on Tuesday after two straight losses of 4 bps last Friday and 1 bp on Monday.

Its yield came in by 1 bps to 5.15% after being unchanged Wednesday and also narrowing on Tuesday, by 3 bps. Tuesday’s tightening had been its first move better after six straight sessions of widening out, including by 2 bps on Monday.

The Markit CDX Series 29 High Yield Index was on the plus side for a fifth successive session, edging up by around 1/16 point for a second consecutive trading day to finish at 108 9/32 bid, 108 11/32 offered. The index had also moved up by 3/32 point on both Monday and Tuesday following an 1/8 point rise last Friday.

And the Merrill Lynch North American High Yield Index improved by 0.006% on Thursday, its fourth consecutive advance. It had firmed by 0.076% on Wednesday, by 0.086% on Tuesday and by 0.075% on Monday after two sessions during which it was in retreat, losing 0.067% last Thursday and easing by 0.01% on Friday.

The latest gain lifted its year-to-date return to 7.477% from 7.47% on Wednesday, establishing a third straight new 2017 year-to-date peak level.

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