Upsized, restructured DFC prices to cap $3.9 billion week, new bonds gain; Cascades treads water

By Paul Deckelman and Paul A. Harris

New York, June 6 – The high-yield primary sphere closed out the first week in June on Friday with just one pricing of U.S. dollar-denominated, fully junk-rated bonds – financial services company DFC Global Corp.’s $800 million six-year note offering, which came to market via a financing subsidiary after having been restructured and upsized.

Traders said that the DFC bonds firmed smartly when they were freed for aftermarket dealings.

The DFC deal raised the week’s total issuance of new junk to $3.9 billion in nine tranches, according to data compiled by Prospect News – about double the $1.92 billion that had priced in six tranches the week before, ended May 30, although it should be noted that the prior week had just four trading days, due to the Memorial Day market close.

Those most recent pricings lifted year-to-date new issuance in Junkbondland to $149.2 billion in 282 tranches, according to the data – although that was lagging about 5.5% behind the nearly $158 million that had priced in 349 tranches by this point on the calendar a year ago.

Traders said that many of the deals which priced earlier in the week seemed to be at least holding their own, or even better, including issues from glass and metal packaging maker Ardagh Group, natural gas pipeline operator Southern Star Central Corp. and semiconductor manufacturer Advanced Micro Devices, Inc.

However, paper packaging maker Cascades Inc.’s new eight-year notes were seen having trouble gaining any traction, trading just a little above their par issue price.

Away from the new deals, metallurgical coal producer Walter Energy, Inc.’s battered PIK toggle notes issued earlier this year were seen ending the week a few points up from their mid-week lows.

And traders saw Caesars Entertainment Corp. bonds gyrating around after a bondholders group slapped the gaming giant with a notice of default, claiming it had violated the indenture governing their bonds by a controversial recent asset transfer to an affiliated entity, which the bondholders said undermined their position in the event of a possible restructuring.

Statistical market performance indicators were higher for a second straight session on Friday after having been turned mixed on Tuesday and Wednesday.

However, the indicators turned mixed versus their stronger performance across the board a week earlier.

DFC Global upsizes

DFC Global priced Friday’s only deal, an upsized, restructured $800 million issue of six-year senior secured notes (B2/B) that came at par to yield 10½%.

The deal was increased from the equivalent of $750 million; a proposed £150 million tranche was withdrawn.

The yield on the dollar notes came at the tight end of the 10½% to 10¾% yield talk. The sterling-denominated notes had been talked to yield 25 to 50 basis points behind the dollar notes.

Jefferies LLC and Credit Suisse Securities (USA) LLC were the joint bookrunners.

The issuing entity is DFC Finance Corp.

Proceeds will be used to help fund the merger of DFC Global with DFC Finance Corp., an affiliate of Lone Star Funds.

Men’s Wearhouse starts Monday

Men’s Wearhouse plans to begin a roadshow on Monday for a $600 million offering of eight-year senior notes.

The deal is expected to price in the middle or late part of the week ahead.

BofA Merrill Lynch and J.P. Morgan Securities LLC are the joint bookrunners.

The notes come with three years of call protection and feature a three-year 35% equity clawback.

Credit ratings remain to be determined.

Proceeds will be used to help fund the purchase of Jos. A. Bank Clothiers a Hampstead, Md.-based designer, manufacturer and retailer of men’s apparel, footwear and accessories.

New DFC notes rise

In the secondary arena, traders saw the new DFC Finance Corp. 10 ½% senior secured notes due 2020 solidly higher when the Berwyn, Pa.-based alternative financial services provider’s upsized new issue was freed for aftermarket activity.

Although one trader said he had seen the notes bid at 100 ½ on the break, but had not seen an offering side, other traders subsequently said the bonds had moved up nicely.

“DFC did really well, one of them said, quoting the bonds in a 101 3/8 to 101 5/8 context, well up from their par issue price.

A second trader saw the bonds at bid levels between 101 1/8 and 101 5/8.

At another shop, a market source saw the company’s existing 10 3/8% notes due 2016 up about ¾ point at 105 ¾ bid, on volume of more than $27 million, making it one of the most actively traded high yield issues on the day.

No surge for Cascade...

Looking at the issues that came to market on Thursday, one of the traders said that “most everything did okay, but the one that just stood there was Cascade.”

He added that the Quebec-based green packaging and tissue paper products manufacturer’s 5½% notes due 2022 “just couldn’t get out of their own way.”

He saw the bonds trading between 100¼ and 100½ bid, a little above the par level at which that $550 million of notes had priced in a quick-to-market deal to yield 5.498%, after having been upsized from $500 million.

A second trader said that he had heard the new Cascade bonds “offered as cheaply as 100¼,” estimating that they were probably trading in a context of 100 1/8 to 100¼ – but added that “at least it didn’t go down.”

Those bonds priced as part of a larger two-tranche deal that also included C$250 million of 5½% notes due 2021 that priced at par to yield 5.499% after upsizing from C$200 million.

...but other Thursday issues improve

While Cascade was treading water, one of the traders noted that Southern Star Central’s 5 1/8% notes due 2022 “did very well,” trading around the same 101¼ to 101½ bid level that the bonds had reached in their initial aftermarket trading after Thursday’s pricing.

A second trader quoted the notes at 101 bid, 101½ offered, although he called that off by around ¼ point from their late-Thursday levels.

The Owensboro, Ky.-based interstate gas pipeline company priced $450 million of the notes at par on Thursday.

Another strong performer was Ardagh Finance Holdings SA’s new 8 5/8% notes due 2019, which had come to market fairly late on Thursday. They began trading Friday, a market participant said – and jumped to 101 7/8 bid, 102 1/8 offered, well up from the 99 level at which the unit of Dublin, Ireland-based glass and metal packaging products maker Ardagh Group had gotten its $710 million deal done.

A second trader pegged those bonds at 101½ bid, 102 offered.

Ardagh sold the bonds as part of a two-part, $1.05 billion equivalent offering, upsized slightly from $1 billion, that also included €250 million of 8 3/8% notes due 2019, which also priced at 99.

A trader saw Michaels Stores Inc.’s 5 7/8% senior subordinated notes due 2020 at 102¼ bid, 102¾ offered.

That was up a little from the 102 level at which the Irving, Texas-based arts and crafts supply retailer priced its quickly shopped $250 million add-on to its existing $260 million of the notes originally sold this past December.

Polymer pops up

Going back a little further, a trader said that Polymer Group, Inc.’s 6 7/8% notes due 2019 were trading on Friday at 101¼ bid, 101½ offered.

That was well up from the par level at which the Charlotte, N.C.-based producer of engineered materials priced its $210 million of the notes on Wednesday, after upsizing the transaction from $200 million originally.

Outerwall, Inc.’s 5 7/8% notes due 2021 were seen trading on Friday around a 100¾ to 101 context.

The Bellevue, Wash.-based provider of retail kiosk services priced its $300 million of notes at par on Wednesday; they initially traded between 100¼ and 100¾ bid, before moving up later in the week.

A trader said that Advanced Micro Devices’ 7% notes due 2024 “did okay.” He saw the Sunnyvale, Calif.-based semiconductor manufacturer’s bonds trading between 100½ and 100¾ bid, versus the par issue price at which the quickly shopped $500 million offering had come to market after upsizing from an originally announced $400 million.

A second trader said the bonds had gotten as good as a 101¾ bid level.

But yet another market source said that Friday’s activity at higher levels mostly involved smallish odd-lot trades. He said the most recent round-lot transactions in the bond, earlier in the week, took place around the 101 bid mark.

Sleepy pre-summer continues

A trader said that Friday’s overall session was “very quiet, very lackluster,” adding that the lack of activity “is ridiculous.”

Another trader saw perhaps a few trades in the new deals – and then “that was about it for the excitement.”

Walter bonds better

Among specific credits away from the new-deal names, a trader said that Walter Energy’s 11%/12% senior secured second-lien PIK toggle notes due 2020, which priced several months ago at par and then were subsequently beaten down on investor angst over the outlook for the Birmingham, Ala.-based metallurgical coal producer’s business were trading Friday at 79½ bid, which he called up 2 or 3 points from mid-week levels around 76.

Walter priced the $350 million of PIK paper on March 19 as part of a quick-to-market $550 million two-part deal – upsized from $450 million originally – that also included a $200 million add-on to the company’s existing $450 million of 9½% senior secured notes due 2019 that it had priced in September of 2013.

The bonds began to tumble just a day or two after their pricing in response to Bank of America report opining that the met coal industry will remain in a decline for several years to come.

Walter’s 8½% notes due 2021 were seen by another trader up 1¼ points at 53¼ bid.

Caesars bonds seen turbulent

Elsewhere, a trader said that people in the market “were talking about the Caesars second-lien bonds – it looks like some people want to put them into default” over the Las Vegas-based gaming giant’s controversial transaction earlier this year transferring ownership of four of its hotel properties to a recently formed entity, Caesars Growth Partners LLC – a move which some bondholders have called a fraudulent conveyance aimed at stripping those assets from the company so their value can’t be included in any restructuring.

“They’re down a couple of points,” he declared.

Investors owning at least 30% of the 10% notes due 2018 issued by Caesars Entertainment Operating Co. sent the parent company a notice of default on Thursday, according to a regulatory filing.

The creditors said the company defaulted on its obligations by transferring assets like the Bally’s Las Vegas hotel to Caesars Growth Partners and by separately removing the parent company’s guarantee on the operating unit’s debt.

The 10% notes were down 1 point at 42½ bid.

Another trader said that the Caesars operating company 8½% notes due 2020 were down ½ point, last trading at 84 bid, on volume of over $21 million at mid-afternoon.

He saw its 11¼% notes due 2017 up ½ point, last trading around 91 bid, on volume of over $6 million, while its 9% notes due 2020 were seen off 1½ points at 83 bid, with over $6 million changing hands.

He said the rest of the company’s bonds “were just small-size trading.”

Indicators up on day

Statistical junk performance indicators were seen by market sources as higher across the board for a second consecutive session on Friday, after having been mixed on Tuesday and Wednesday.

But the indicators were ending the week mixed versus where they had been the previous Friday, when the market measures were higher all around.

The Markit Series 22 index rose by 11/32 point on Friday, its second straight gain, ending at 109 bid, 109 1/16 offered. On Thursday, it had improved by 9/32 point.

The index was also up from the 108 5/16 bid, 108 3/8 offered level at which it had closed out the previous week on Friday, May 30.

The KDP High Yield Daily Index firmed by 1 basis point on the day to close at 74.91, after having been unchanged on Thursday.

Its yield came in by 2 bps to 5.08%, after having been unchanged over the previous two sessions.

The index’s reading was down from 74.92% the previous Friday, although the yield – which would normally rise as the index reading falls – tightened from 5.09% the week before.

The widely followed Merrill Lynch High Yield Master II Index saw its third consecutive gain on Friday, improving by 0.148%, on top of the 0.88% rise recorded on Thursday.

Friday’s advance lifted the index’s year-to-date return to 5.035% – its second straight new 2014 peak level, surpassing the previous high point of 4.88%, seen on Thursday. It was the first time the index has been above the psychologically significant 5% mark this year. It had ended 2013 at 7.419%.

Several index components set new marks for the year on Friday. Its average price for issues covered by the index rose to a new high for the year of 105.6011, up from the old mark of 105.462135, set on Thursday.

Its yield fell to 5.031%, down from the previous low for the year of 5.058%, set on Monday of this week.

And its spread to worst narrowed to 373 basis points over comparable Treasury issues, a new tight level for the year, versus the previous tight level of 377 bps, set on Tuesday.

For the week, the index was up by 0.28%, its 12th straight weekly gain. It had risen by 0.342% the week before, with the year-to-date return at 4.742% last Friday.

The index has now risen in 19 weeks out of the 23 since the start of the year, versus four weeks in which it turned lower.

© 2015 Prospect News.
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