Cliffs deal closes $8.87 billion week, year’s busiest; new bonds busy; Freeport firms

By Paul Deckelman and Paul A. Harris

New York, Feb. 10 – The high-yield primary market had a more relaxed tone on Friday after two consecutive sessions in which new issuance topped the $2 billion mark.

Syndicate sources saw just one $500 million deal get done as iron ore producer Cliffs Natural Resources Inc. did a quickly shopped eight-year offering.

When the new bonds hit the aftermarket, they were heard to have traded busily, though little changed from their issue price.

There was considerable activity at higher levels in the company’s existing bonds including one of the two secured issues that Cliffs plans to take out using the proceeds of its new bond deal.

The Cliffs offering lifted the week’s new-issuance total to $8.87 billion in 18 tranches – the busiest week the primary arena has seen so far this year, according to data compiled by Prospect News.

Traders meantime saw continued active aftermarket dealings in a number of the new issues which came to market either on Thursday or earlier in the week, including the new bonds of Halcon Resources Corp., Ferroglobe plc, Block Communications Inc. and Peabody Energy Corp. And, as was the case on Thursday, the new Ferroglobe and Block Communications issues added to their already handsome initial gains.

Away from the new or recent issues, traders said that Freeport McMoRan Copper & Gold Inc.’s bonds were all solidly higher in busy trading, helped by a surge in world copper prices Friday as labor woes shut down the world’s largest copper mine.

Statistical market performance measures posted their second consecutive stronger session on Friday; they had rebounded on Thursday, turning higher across the board after being lower all around on Wednesday and mixed for two sessions before that.

The indicators meantime were mixed versus where they had been last Friday, after two straight weeks before that of Friday-to-Friday gains. It was the second mixed week in the last five weeks.

Cliffs prices tight

Cliffs Natural Resources priced Friday’s sole deal, a $500 million issue of eight-year senior notes (B3/B) that came at par to yield 5¾%.

The yield printed at the tight end of the 5¾% to 6% yield talk.

The notes were generically par ½ bid, 101½ offered in the secondary market, according to a trader who was not seeing any activity in the name late Friday.

BofA Merrill Lynch, Credit Suisse, Deutsche Bank and Goldman Sachs were the joint bookrunners.

The Cleveland-based mining and natural resources company plans to use the proceeds, along with a portion of the proceeds from a sale of common shares, to redeem all of its outstanding 1.5 lien notes and second-lien notes.

In a prospectus filed on Thursday with the Securities and Exchange Commission Cliffs disclosed plans to sell $600 million of eight-year senior unsecured debt and 50 million common shares of stock.

The size both the bond and stock offerings ultimately changed, with the company selling $500 million of notes, instead of $600 million, and an upsized 55 million of shares which grossed $591,250,000.

The week ahead

The Feb. 13 week is set to get underway with just a slight amount of business on the active forward calendar.

Gateway Casinos & Entertainment Ltd. is in the market attempting to place a $225 million offering of seven-year second priority senior secured notes (Caa1/CCC+), a deal set to price in the middle part of the week ahead.

However the high-yield primary market’s drive-though window will remain open, as it has been during the past week, sources said on Friday.

The Feb. 6 week saw junk issuers raise $8.87 billion in 18 tranches.

All in all it was a busy week, a sellside source said on Friday – and data from Prospect News confirmed it was the busiest so far this year.

The tally was well up from the $6.16 billion which had priced in nine tranches last week, ended Feb. 3/

And notwithstanding forecasts of sub-$300 billion issuance totals for 2017 which surfaced in the waning days of 2016, it is far too early to mourn 2017 as a subpar year in terms of new deal volume, sources say.

Six weeks into the new year, the new issue machine has generated $35.88 billion, or just under $6 billion per week, according to Prospect News data. That pace would put 2017 issuance above the $310 billion mark, which the high-yield primary market has not done since 2014 when it generated $313.75 billion.

Of course the road ahead is pocked with imponderables which could dampen primary market activity, sources point out.

And of course 2017 is expected to see the Fed move more aggressively than it has during the past decade.

However in the near term the primary market will likely continue to generate the respectable weekly rate of issuance seen thus far in 2017, a trader said on Friday.

Cliffs new issue active...

A trader quoted the new Cliffs Natural Resources bonds at 100½ bid, 101½ offered.

A second trader heard them offered at 102 but had not seen a bid level.

However, a market source at another desk later reported that the new bonds had finished the session barely above their par issue price at 100 1/8 bid but with brisk volume of more than $34 million seen, putting the credit high up on the day’s Most Actives list.

...while existing bonds climb

The company’s outstanding bonds were meantime heard trading at higher levels and on good volume.

Its 6¼% long bonds due 2040 did the best, with a market source seeing that paper up nearly 5 points on the session at 89½ bid. Over $25 million traded.

He also saw the company’s 7¾% second-lien notes due 2020 moving up to 104½ bid, about a 5/8 point gain from recent previous round-lot levels. More than $19 million of those notes traded on Friday.

That 7¾% paper is one of the two existing issues that Cliffs plans to redeem using proceeds from the new bond deal and some of the proceeds from its sale of 55 million common shares.

The other issue slated for redemption – its 8% 1.5-lien notes due 2020 – was not seen on Friday, a trader said.

However, those bonds had risen by nearly 2 points on Thursday – when the company first announced its intentions of taking those bonds out using its new financings. They had moved up to 106 9/16, up from previous levels around 104¾, although only around $4 million of those bonds traded at that time.

Thursday deals trade around

Traders said that the day’s Most Actives list was dominated by recent new issues, particularly those which had come to market during Thursday’s very busy session.

“The new deals are all trading like crazy, you have no idea,” one of those market participants exclaimed.

Halcon Resources’ new 6¾% notes due 2025 was the busiest of the bunch, although the Houston-based oil and natural gas exploration and production company’s deal really didn’t go anywhere. A trader quoted those bonds right at their par issue price, though with over $40 million changing hands.

A second trader said that “the bonds were wrapped around par.” He was “seeing people selling at 99 7/8, while people were buying at par or one ’teenth below that.

“How exciting – making no money trading this,” he sarcastically exclaimed.

Halcon priced $850 million of those notes at par on Thursday after that quick-to market offering was upsized from $700 million originally.

It was quite another story for Block Communications’ 6 7/8% notes due 2025.

The Toledo, Ohio-based diversified media company’s quickly shopped $500 million offering of 6 7/8% notes due 2025 had firmed smartly on busy volume on Thursday when it was cleared for secondary dealings and it kept right on going on Friday, with a trader seeing the notes having gained another 5/8 point on the day to go home at 103½ bid. More than $17 million traded.

And it was a similar story for the new Ferroglobe 9 3/8% notes due 2022, which had also racked up hefty initial gains when they started trading after the London-based provider of silicon metals and specialty alloys had priced its regularly scheduled $350 million forward calendar offering at par.

On Friday, it added to those gains, finishing up by a full 1¾ points at 104 bid, on volume of $22 million.

Going back a little further, Peabody Energy’s 6 3/8% notes due 2025 were seen little changed at 102 bid, though on volume of more than $17 million.

The St. Louis-based coal operator priced $500 million of those notes at par in a regularly scheduled offering on Wednesday as part of a $1 billion two-part transaction.

Freeport bonds better

Away from the new deals, traders reported that Freeport McMoRan’s several issues were standout performers on Friday.

A market source saw the Phoenix-based copper and gold mining company’s 3.55% notes due 2022 up nearly 2 points, closing at 94¾ bid, with over $15 million traded.

Its 5.4% bonds due 2034 were up by more than a deuce on the day at 88¾ bid, with over $12 million traded.

And its 3 7/8% notes due 2023 were almost 2 points better at just under 94 bid, also on over 412 million of volume.

Freeport’s bonds and its shares rose as copper prices soared after labor woes at BHP Billiton’s huge Escondida mine in Chile, the world’s largest copper mine, forced it to declare a force majeure – an inability to meet previously agreed upon copper commitments.

Indicators up on session

Statistical market performance measures posted their second consecutive stronger session on Friday; they had rebounded on Thursday, turning higher across the board after being lower all around on Wednesday and mixed for two sessions before that.

The indicators meantime were mixed versus where they had been last Friday, after two straight weeks before that of Friday-to-Friday gains. It was the second mixed week in the last five weeks.

The KDP High Yield Index rose by 6 basis points on Friday to end at 72.23, its second straight gain and its seventh rise in the last eight sessions. It was also up by 3 bps on Thursday.

Its yield came in by 2 bps to 5.08% after being unchanged on Thursday.

Those levels compared favorably with last Friday’s 72.12 index reading and 5.12% yield.

The Markit CDX Series 27 High Yield Index posted its second straight gain, edging up by 1/32 point to 107 7/16 bid, 107 15/32 offered.

But it was down slightly from last Friday’s levels around 107½ bid.

© 2015 Prospect News.
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