Upsized Halcon leads busy primary, new Peabody active; funds gain $442 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 9 – The high-yield primary realm saw its second consecutive busy session on Thursday.

Syndicate sources said that $2.5 billion of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers came to market in six single-tranche deals during the session, with most of them opportunistically timed and quickly shopped drive-by transactions.

That volume was about on a par with the $2.5 billion which had gotten done in five tranches brought by four issuers on Wednesday. Monday had meantime been even busier, with $3.28 billion of new paper priced, also in five tranches from four issuers.

Oil and natural gas operator Halcon Resources Corp. had the big deal of the day on Thursday, bringing an upsized $850 million of eight-year notes to market.

All told, three eight-year deals got done on Thursday, including diversified media company Block Communications Inc.’s upsized $500 million of the notes and medical technology provider Hill-Rom Holdings, Inc.’s $300 million issue.

There was also a pair of smallish but upsized add-ons to existing paper – pool and spa treatment chemical manufacturer KIK Custom Products, Inc.’s $235 million addition to its 2023 notes and aluminum products producer Aleris International Inc.’s $250 million tap of its 2021 secured debt.

The day’s lone regularly scheduled forward calendar offering was silicon metals and specialty alloys maker’s Ferroglobe plc’s $350 million of 2022 paper.

In the secondary market, traders said that new Ferroglobe issue was well bid as was the Block Communications deal, with Halcon and Hill-Rom holding around their respective issue prices.

The traders also saw brisk activity in Wednesday’s new deals from Peabody Energy Corp. and Parsley Energy Inc.

Statistical market performance measures rebounded on Thursday, turning higher across the board after bein lower all around on Wednesday and mixed for two sessions before that.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – were in positive territory for a second consecutive reporting week after two outflows, as $442 million more came into those weekly reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday.

That net inflow followed the $413 million cash gain reported last Thursday for the seven-day period ended Feb. 1 (see related story elsewhere in this issue).

Halcon upsizes

A busy Thursday session in the primary market saw six issuers bring one tranche apiece, raising a combined total of $2.5 billion.

All indications point to a new issue market that remains on the march.

Five of the six issuers came with drive-by deals.

Four of the six upsized their offerings.

Executions were solid, with one deal coming inside of talk, two coming at the tight end, two coming on top of talk and one coming at the cheap end.

Halcon Resources priced an upsized $850 million issue of eight-year senior notes (Caa1/B-) at par to yield 6¾%.

The amount was increased from $700 million.

The yield printed on top of yield talk that had been set in the 6¾% area and inside of early guidance in the 7% area.

JP Morgan, BofA Merrill Lynch, Barclays, BMO, Goldman Sachs, RBC and Wells Fargo were the joint bookrunners for the debt refinancing.

Block sees strong demand

In a deal that was said to be very oversubscribed, Block Communications priced an upsized $500 million issue of eight-year senior notes (B1/B+) at par to yield 6 7/8%.

The size was increased from $350 million.

The yield printed 12.5 basis points inside the 7% to 7¼% yield talk. Initial guidance was in the 7¼% area.

BofA Merrill Lynch and JP Morgan were the joint bookrunners for the debt refinancing.

Ferroglobe prices tight

In the only Thursday deal to price at the conclusion of a roadshow, Ferroglobe priced a $350 million issue of five-year senior notes (B3//B+) at par to yield 9 3/8%.

The yield printed at the tight end of yield talk that was fixed in the 9½% area.

Goldman Sachs was the bookrunner.

The issuing entity will be Globe Specialty Metals, Inc., a wholly owned subsidiary of Ferroglobe.

The London-based supplier of silicon metal, silicon-based specialty alloys and ferroalloys plans to use the proceeds to repay certain existing debt and to pay compensation expenses owed to Ferroglobe’s former executive chairman.

Hill-Rom drives by

Hill-Rom Holdings priced a $300 million issue of eight-year senior notes (B1/BB) at par to yield 5%.

The yield printed at the tight end of talk for a yield in the 5 1/8% area and inside initial guidance that was announced in the 5¼% area.

JP Morgan, BofA Merrill Lynch, Citizens, Goldman Sachs, MUFG and PNC were the joint bookrunners for the acquisition financing.

Aleris upsizes tap

Aleris International priced an upsized $250 million tack-on to its 9½% senior secured notes due April 1, 2021 (B2/B) at 107.00 to yield 6.954%.

The amount was increased from $200 million.

The reoffer price came on top of price talk that was set in the 107 area.

Credit Suisse, BofA Merrill Lynch, Barclays, Deutsche Bank and Citigroup were the joint bookrunners for the general corporate purposes deal.

KIK Custom Products tap

KIK Custom Products priced an upsized $235 million add-on to the 9% senior notes due Aug. 15, 2023 issued by Kronos Acquisition Holdings Inc. at par to yield 9%.

The size was increased from $200 million.

The reoffer price came at the cheap end of the par to par ½ price talk.

Barclays, BMO, Nomura and Macquarie were the joint bookrunners for the debt refinancing.

ICBPI prices tight

The European primary session bore the imprint of a hot market too.

Two issuers completed PIK toggle deals, both of which came at the conclusions of roadshows.

Milan-based financial services provider Instituto Centrale delle Banche Popolari Italiane SpA (ICBPI) priced a €600 million issue of senior secured fixed-rate PIK toggle notes due May 30, 2021 (existing ratings B3/B) at par to yield 7 1/8%.

The notes pay a cash coupon of 7 1/8% which steps up to 7 7/8% in the event of an in-kind payment.

The yield printed at the tight end of the 7¼% area talk and went very well, an informed source said.

Global coordinator Deutsche Bank will bill and deliver. BofA Merrill Lynch was also a global coordinator.

UBS, Banca IMI, JPMorgan and Goldman Sachs were joint bookrunners.

Proceeds will be used to fund the acquisitions of the merchant acquiring business of Banca Monte dei Paschi di Siena, as well as Bassilichi SpA and DB Cards, or for general corporate purposes.

The issuing entity is Mercury Bondco plc, the majority shareholder of ICBPI.

Verallia prices tight

Horizon Parent Holdings Sarl, a holding company of Verallia, priced a €350 million issue of senior secured PIK toggle notes due 2022 (CCC+) at par to yield 8¼%.

The notes pay an 8¼% cash coupon which steps up to 9% for in-kind interest payments.

The yield printed at the tight end of the 8¼% to 8½% yield talk.

Credit Suisse was the lead left global coordinator. Barclays and Goldman Sachs were joint global coordinators. BofA Merrill Lynch and Deutsche Bank were joint bookrunners.

The Paris-based glass packaging manufacturer plans to use the proceeds to pre-fund the payment of cash interest on the notes, as well as for general corporate purposes and to make a distribution to shareholders.

Last October the company withdrew a €500 million offering of five-year PIK toggle notes, a deal which faced resistance from investors, according to market sources.

One difference, this time, was that the Verallia deal was smaller than the October offer. And part of the use of proceeds is to pre-fund interest payments on the notes, a debt capital markets banker said.

Big ETF outflows

For the second consecutive day, high-yield ETFs sustained big outflows on Wednesday, the most recent session for which data was available at press time, a trader said.

The ETFs experienced $691 million of outflows on Wednesday following $521 million of outflows on Tuesday.

Taken together those two outflows represent the biggest back-to-back daily outflows from high-yield ETFs since October, the trader said.

Actively managed funds were positive on the day, seeing $25 million of inflows on Wednesday.

New Block deal rocks

In the aftermarket, traders said that the day’s activity was largely new-deal focused.

One opined that “there’s just been an onslaught [of new paper] over the past several sessions.

He added that “for the most part,” Thursday’s issues, and the deals which had priced earlier in the week, “have traded pretty well, so far.”

One of the standout performers on the day was Block Communications’ new 6 7/8% notes due 2025.

A trader saw the Toledo, Ohio-based diversified media company’s upsized quick-to-market offering in a 102 to 102¾ bid context, well up from their par pricing level.

A second saw those bonds get as good as 102 7/8 bid, awhile a third sent them home right around the 103 bid level.

More than $42 million of those notes changed hands during the session, putting the credit high up on the day’s Most Actives list.

Ferroglobe seen firmer

The new 9 3/8% notes due 2022 from Ferroglobe also traded strongly, a market source said.

He saw the bonds trading in a 101½ to 102¼ bid range after they had priced at par.

Two other traders at different shops independently pegged the bonds at 102 bid at the end of the day.

Halcon, Hill-Rom near issue

The day’s largest new offering, from Houston-based energy exploration and production company Halcon Resources, was also the busiest of the Thursday deals when it hit the aftermarket, with a trader estimating turnover at more than $56 million.

He saw those 6¾% notes due 2025 finishing just under their par issue price at 99 15/16 bid, while a second market source located those bonds in a 99½ to 99¾ bid range.

But at another shop, a trader said they had gotten as good as 100½ bid, 101 offered.

Chicago-based medical technology company Hill-Rom Holdings’ 5% notes due 2025 meantime were seen by a trader straddling their par issue price in a 99¾ to 100¼ bid range.

But another trader saw them firm to around 100½ bid, with over $44 million traded.

Add-ons improve slightly

Among the day’s add-on issues, a trader said that KIK Custom Product’ 9% senior notes due August 2023 firmed modestly to a 100½ to 101 bid context.

That add-on to the Toronto-based pool and spa treatment and personal-care products manufacturer’s existing $655 million of bonds had earlier priced at par after the issue was upsized.

Beachwood, Ohio-based aluminum products producer Aleris International’s upsized addition to its $550 million of existing 9½% senior secured notes due April 2021 stayed right around its 107 issue price a trader said.

A second quoted the paper between 106¾ and 107½ bid.

Peabody tops Actives list

The busiest junk paper of the session was the two tranches of Peabody Energy’s new $1 billion deal, both of which had priced on par on Wednesday and then had firmed smartly in initial aftermarket dealings.

A trader said that more than $100 million of each tranche had traded on Thursday and both were down from their initial peak levels.

He quoted the St. Louis-based coal producer’s 6% notes due 2022 at just under 102 bid, calling that down about ½ point on the session, while its 6 3/8% notes due 2025 closed a shade above 102, which he called down about 5/8 point on the day.

Parsley off its peaks

Also off slightly on the day was Parsley Energy’s 5¼% notes due August 2025.

The Austin, Texas-based oil and gas exploration and production operator had priced its regularly scheduled $450 million issue at par after those 8.5-year bonds had been upsized from $350 million. They initially traded up to a 101¼ to 102 bid context.

On Thursday, one trader quoted this issue down ¼ point, going out at 101½ bid.

A second saw them trading between 101 3/8 and 101 7/8 bid, also deeming that off ¼ point on the day.

Indicators show improvement

Statistical market performance measures rebounded on Thursday, turning higher across the board after being lower all around on Wednesday and mixed for two sessions before that.

The KDP High Yield Index rose by 3 basis points on Thursday to end at 72.17, its sixth gain in the last seven sessions. That winning streak was only interrupted on Wednesday, when it moved down by 9 bps.

Its yield was unchanged at 5.10%, its second unchanged finish in the last three sessions. On Wednesday, the yield rose 2 bps to 5.10% after being unchanged on Tuesday.

The Markit CDX Series 27 High Yield Index broke out of a three-session rut, rising by 5/16 point on Thursday to 107 3/8 bid, 107 7/16 offered, versus Wednesday’s loss of 5/32 point.

And the Merrill Lynch High Yield Index also ended higher, gaining 0.009% after dropping 0.106% on Wednesday, which had been its first loss after five straight advances.

Thursday’s upturn raised the index’s year-to-date return to 1.818% from 1.809% on Wednesday, although it remained below Tuesday’s 1.916% close.

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