Flora Food upsizes; WeWork, Jagged Peak price; American Tire continues to tank; Goodyear down

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 25 – The European and domestic primary market remained active on Wednesday with the dollar-denominated calendar for the April 23 week cleared with four deals pricing.

Flora Food Group priced an upsized €1.1 billion equivalent two-part offering of eight-year senior notes (B3/expected B-/expected B-). The dollar-denominated tranche was stuck at par after breaking for trade.

WeWork Cos. Inc. priced an upsized $702 million issue of non-callable seven-year senior notes (S&P: B+/Fitch: BB-) at par to yield 7 7/8% on Wednesday. The notes were seen trading at par ¼ after breaking late in the afternoon.

Jagged Peak Energy Inc. priced an upsized $500 million issue of eight-year senior notes (B3/B) at par to yield 5 7/8%.

In the European market, Darling Ingredients Inc. priced a €515 million issue of eight-year senior notes (expected Ba3/confirmed BB+) at par to yield 3 5/8% on Wednesday, according to a market source.

As the primary market priced new paper, the secondary space started Wednesday weak but ended the day on firm footing in lock-step with equities, a market source said.

Netflix, Inc.’s new 5 7/8% senior notes due 2028 (Ba3/B+) remained active in the secondary space with the notes seen trading down slightly.

The downward spiral of American Tire Distributors’ 10¼% senior notes due 2022 continued on Wednesday with the notes losing another 9 points after its distribution relationship with Goodyear Tire & Rubber Co. came to an end.

Goodyear’s junk bonds were also off 1 to 1.5-point on Wednesday, which sources attributed to the company’s first quarter earnings report and their sensitivity to interest rates.

Flora Food upsizes

Flora Food Group priced an upsized €1.1 billion equivalent two-part offering of eight-year senior notes (B3/expected B-/expected B-).

The euro-denominated tranche featured €685 million of notes that priced at par to yield 5¾%.

The tranche came into the market sized at €500 million minimum. The yield printed at the tight end of the 5¾% to 6% yield talk.

The dollar-denominated tranche featured $525 million of notes that priced at par to yield 7 7/8%. The tranche came into the market sized at $500 million minimum.

The yield printed in the middle of the 7¾% to 8% yield talk.

The issue size was increased by approximately €50 million, from €1.05 billion equivalent.

The dollar-denominated tranche was at least three-times oversubscribed, a trader said.

Global coordinator Credit Suisse will bill and deliver. Deutsche Bank and KKR are also global coordinators. BNP Paribas, Credit Agricole CIB, Goldman Sachs, HSBC, ING, Lloyds, Mizuho, RBC, SG CIB and UniCredit are joint bookrunners.

Proceeds will be used to help fund the acquisition of Unilever’s spreads business by KKR. With the €50 million increase in the amount of bonds to be issued, the size of the equity contribution will be reduced to approximately €1,924,000,000 from €1,974,000,000.

WeWork prices debut issue

WeWork priced an upsized $702 million issue of non-callable seven-year senior notes (S&P: B+/Fitch: BB-) at par to yield 7 7/8% on Wednesday, according to market sources.

The size of the debut junk deal from the New York-based provider of shared workspaces and related business services of the issue size was increased from $500 million.

At the original size, the deal was said to be as much as five-times oversubscribed, according to a trader. On Wednesday morning, when price talk circulated, the market anticipated that WeWork might upsize the deal to as much as $1 billion, the trader said.

The yield printed in the middle of the 7¾% to 8% yield talk and at the wide end of initial guidance in the high 7% area.

JPMorgan managed the sale.

The New York-based provider of shared workspaces and related business services plans to use the proceeds for general corporate purposes.

Jagged Peak upsized and tight

Jagged Peak priced an upsized $500 million issue of eight-year senior notes (B3/B) at par to yield 5 7/8%.

The issue size was increased from $400 million.

The yield printed at the tight end of the 5 7/8% to 6% yield talk, and tight to early guidance in the 6% to 6¼% area.

Late Wednesday morning the deal was heard to be playing to $1.5 billion of orders, a trader said.

J.P. Morgan Securities LLC was the lead.

The issuing entity will be Jagged Peak Energy LLC, a wholly owned subsidiary of the Denver-based independent oil and gas energy exploration, development and production company.

Proceeds will be used to pay down its revolving credit facility and for general corporate purposes. The additional proceeds resulting from the $100 million upsize of the deal will also be used for general corporate purposes.

Forward calendar

Wednesday's activity cleared the announced dollar-denominated new issue calendar for the remainder of the April 23 week, a syndicate banker said.

Only one deal remains on the active dollar calendar.

Neptune Energy Group is scheduled to have a roadshow for its $500 million offering of seven-year senior notes through May 1.

However, watch for the dollar-denominated market to remain relatively active, a syndicate banker said on Wednesday, adding that an earnings blackout period is presently underway, and it could serve to mute issuance somewhat.

Darling prices tight

In the European market, Darling Ingredients priced a €515 million issue of eight-year senior notes (expected Ba3/confirmed BB+) at par to yield 3 5/8% on Wednesday, according to a market source.

The yield printed at the tight end of yield talk in the 3¾% area.

Joint bookrunner BNP Paribas Securities Corp. will bill and deliver. BofA Merrill Lynch, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co. are also joint bookrunners.

The Irving, Texas-based company plans to use the proceeds, together a draw on its revolving credit facility, to refinance all of its 4¾% senior notes due 2022 by means of a concurrent tender offer, and/or redemption.

Darling Ingredients is a provider of rendering, cooking oil and bakery waste recycling and recovery solutions.

Look for the highly active European new issue market to continue its steady new deal pace through the remainder of the April 23 week and the April-May crossover week, sources say.

Flora stuck at par

Flora’s 7 7/8% senior notes due 2026 were stuck at par after breaking for trade, a market source said. While the notes were active, “they can’t bounce above par,” the source said.

WeWork’s 7 7/8% senior notes due 2025 were seen at par ¼ bid, par ½ offered with trades seen at par ¼ soon after breaking for trade, a market source said.

Market tone improves

While the high-yield market saw another down day, the tone improved in the afternoon with the upswing in equities, a market source said.

The high-yield market used to move in close correlation with equities, which has not been the case in recent history. “But we did see it today,” a source said.

Wednesday started off weak but firmed in the afternoon as the Dow Jones industrial average started the day down 100 points but ended the session up 60 points.

The market was off another ¼ point, driven by the “herd mentality of the ETFs,” a market source said.

However, Tuesday’s ETF sell-off tempered Wednesday afternoon, another source said. “It’s nothing substantial yet,” the source said, “but things definitely felt a little bit better.”

Netflix active

Netflix’s recently priced 5 7/8% senior notes due 2028 (Ba3/B+) remained active in the secondary space on Wednesday with the notes seen slightly weaker.

The notes were at 99 5/8 bid, par offered early in Wednesday’s session but slipped to 99 3/8 bid, 99 7/8 offered later in the afternoon, sources said.

The notes were seen trading down about 3/8-point on Wednesday.

Netflix priced an upsized $1.9 billion issue of the 5 7/8% notes at par on Monday. While active, the notes have had a lackluster performance in the secondary market since breaking for trade.

The notes were seen at 99 7/8 bid, par 1/8 offered on Monday with most trades at par. The notes slipped below their issue price on Tuesday with trades seen at 99 7/8.

American Tire blows out

American Tire’s 10¼% senior notes due 2022 dropped another 9 points on Wednesday after dropping about 31 points on Tuesday.

The notes were seen trading at 40¼ during Wednesday’s session. “Not a lot of love there,” a market source said.

The 10¼% notes printed at 97½ last week. They opened Tuesday at 80 and steadily traded down to 49¾ after American Tire announced its distribution agreement with Goodyear ended.

S&P lowered its corporate credit rating of American Tire on Wednesday to CCC+ from B- and issue-level rating on the senior notes to CCC- from CCC as a result of American Tire’s loss of Goodyear as a client.

Moody’s Investors Service placed American Tire on review for downgrade on April 17 after Goodyear and Bridgestone formed a tire distribution joint venture.

“The credit profile of ATDI is already relatively weak, as evidenced by the company's underlying B3 corporate family rating and owing to its high leverage and only modestly positive cash flow profile – before the potential loss of one of its biggest suppliers," Moody’s wrote.

Goodyear drops

While American Tire tanked, Goodyear’s junk bonds were also seen down on Wednesday. Goodyear’s 5% senior notes due 2026 and 4 7/8% senior notes due 2027 (Ba3/BB) were seen off by 1 to 1.5 points, a market source said.

The 5% notes traded down to 95 5/8. The 4 7/8% notes traded down to 94. Goodyear reported first quarter earnings prior to the market open Wednesday.

While Goodyear’s non-GAAP earnings per share of 50 cents beat analyst expectations of 46 cents, Goodyear reported a net income of $75 million for the first quarter, a $91 million decrease from the first quarter of 2017.

As a double B credit, Goodyear is also sensitive to rates and is widening as rates increase, a market source said.

The issue with American Tires is “mixed in,” a market source said, but Goodyear has tended to be sensitive and react to rate increases.

Indexes’ losses continue

Indexes continued to post losses on Wednesday, marking their fifth consecutive trading day of losses.

The KDP High Yield index was down another 16 basis points to 70.54 on Wednesday with the yield now 5.81%. The index also dropped 16 basis points on Tuesday.

The index has posted losses since April 19 after seeing 10 consecutive trading days of gains.

The Merrill Lynch High Yield index continued to sink into negative territory on Wednesday. The index was down 30.1 bps on Wednesday with the negative year-to-date return now 0.562.

The index returned to negative territory on Monday after posting positive year-to-date returns since April 12.

The CDX high yield 30 index was down 11.7 basis points on Wednesday after losing 17 basis points on Tuesday. The CDX has posted losses since April 17.

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