AerCap parachutes in with upsized $1 billion deal, new bonds fly; Valeant, oils, Wynn all rebound

By Paul Deckelman and Paul A. Harris

New York, Oct. 16 – Junkbondland saw its first new deal in more than a week on Friday – and what a deal it was.

Netherlands-based aircraft leasing company AerCap Holdings NV made an unscheduled landing, bringing an opportunistically timed and sharply upsized $1 billion offering of five-year notes to market.

It was the first new deal the primaryside had seen since last Wednesday, when lawn-care products maker Scotts Miracle-Gro Co. did an upsized $400 million issue of eight-year notes.

After the new AerCap bonds priced, investors saw them zoom skyward, adding more than 1 point in heavy trading.

AerCap’s deal means the junk market goes out with $1 billion of new paper on the week, up from the $400 million last week, ended Oct. 9, attributable to the Scotts deal. There had been no new paper priced the week before that, ended Oct. 2.

This week’s issuance brought the year-to-date tally of new junk bonds to $227.45 billion in 360 tranches, according to data compiled by Prospect News – but that was running some 13.9% behind the $264.46 billion which had priced in 491 tranches by this point on the calendar last year.

The gap between last year’s new issuance and this years widened this week; last Friday, the 2015 year-to-date total trailed last year’s cumulative issuance figure by 10.6%, according to the data.

Away from the new deals, traders reported an overall better market tone, citing the robust flows of investor cash, as illustrated by the inflows seen by dedicated mutual funds and exchange-traded funds

That better tone even helped to lift bonds which had been seen down on Thursday, including Valeant Pharmaceuticals International Inc., various energy related credits such as California Resources Corp., and Wynn Resorts, Ltd.

Traders also saw strength in Advanced Micro Devices Inc.’s bonds despite the computer-chip manufacturer’s swing to a sizable third-quarter loss from last year’s profit; they noted that the company also released positive news about a joint venture with a Chinese partner that will result in a big infusion of cash into AMD’s coffers.

Statistical measures of junk market performance turned higher across the board on Friday after having been mixed on Thursday and lower all around on Wednesday; it was the third higher session in the last seven trading days.

The indicators were also universally higher versus where they had finished last Friday – their second consecutive week-over-week gain, and third such stronger week out of the last six and fourth such better week out of the last eight.

AerCap massively upsizes

The Friday session saw one high-yield deal price.

That deal came as a drive-by, priced at the tight end of talk and was massively upsized.

Schiphol, Netherlands-based AerCap Holdings NV sold a $1 billion issue of five-year senior bullet notes (Ba2/BB+/BB+) at par to yield 4 5/8%.

The deal size was increased from $400 million.

The yield printed at the tight end of the official yield talk in the 4¾% area and much tighter than the initial pro forma level of 5%.

The sale played to a book thought to contain around $5 billion of orders and came about 50 basis points cheap to AerCap’s existing 4¼% notes due July 1, 2020 which were trading at a yield of 4 1/8% on Friday, a trader said, pointing out that the new 4 5/8% notes due Oct. 30, 2020 come with a tenor that is only about four month longer than that of the existing 4 1/8% notes.

The new 4 5/8% notes were trading at 101¼ bid, 101¾ offered in the secondary, a trader said.

Joint bookrunner Citigroup will bill and deliver.

BofA Merrill Lynch, Credit Agricole, Morgan Stanley, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Mizuho, RBC, UBS and Wells Fargo were also joint bookrunners.

Hold the champagne

In the wake of Friday’s massively upsized AerCap drive-by deal the active forward calendar is thin, sources say.

Even though AerCap was trading up in the secondary market, one trader expressed doubts about its implications for a primary market revival.

“A lot of people have AerCap going investment grade,” the trader said.

“I’m not ready to put on the party hat just yet.”

Other recent deals have struggled to cross the finish line and ended up paying fabulous concessions to turbulence in the markets, the source recounted.

Meanwhile syndicate officials held their cards close to their vests, as the week came to an end.

“We’ll just have to wait and see,” one counseled, when pressed for tips.

When the week ahead gets underway it will do so to a calendar that features just two deals on the road.

Greatbatch Ltd. is marketing $360 million of eight-year senior notes (Caa1/B-), an acquisition financing via Credit Suisse and KeyBanc.

The market awaits official price talk.

Early guidance has the notes coming in a yield range of 8% to 8½%, a trader said.

The deal is set to price early in the week ahead.

And Verisure Holding AB was scheduled to start a roadshow on Friday for a €700 million seven-year senior secured notes (B1/B).

The roadshow wraps up on Wednesday and the deal is set to price thereafter.

Flows flat to slightly positive

The tone of the market has improved in recent days, sources say.

Cash flows for dedicated high-yield funds were flat to slightly positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $16 million of inflows.

Asset managers saw $10 million of inflows.

Friday’s numbers are almost sure to be more emphatically positive, sources said shortly after the close.

One trader saw offers-wanted-in-competition lists totaling about $1 billion, on Friday.

“The market was definitely bid-for today,” the source said.

Another trader remarked that real money accounts were putting cash to work in high yield on Thursday and Friday, and chalked up the shift in sentiment among the market’s strong hands, to a decrease in capital markets volatility.

New AerCap bonds fly high

In the secondary, the big news of the day was the $1 billion new deal from Dutch aircraft leasing company AerCap Holdings and the new issue’s strong performance in the secondary market.

A trader said that the new 4 5/8% notes due 2020 “did real well,” seeing those notes having moved up to 101 3/8 bid, 101½ offered after pricing at par.

“They priced at the tight end of the [expected yield] range, and there was enough demand that they actually upsized the deal to $1 billion” from the originally anticipated $400 million.

He saw “a pretty fair amount of volume” in the new bonds.

Noting the fact that this was the junk bond market’s first new deal since the Scotts Miracle-Gro transaction had priced more than a week ago, he opined that “this was probably one reason why it did so well – there’s not a lot of new stuff right now to look at.”

Traders at other desks likewise saw the new bonds pop up when they were freed for secondary dealings.

One quoted the paper at 101¼ bid, 101 5/8 offered.

At another desk, a trader quoted the bonds at 101 bid. He saw more than $68 million of the notes traded, making it easily the busiest junk credit of the day.

More than $10 million of the company’s existing 6¾% notes due 2016 were seen having traded around the 103½ bid level on Friday.

Frontier bonds firmer

Among recently priced credits, a trader said “the new-issue telecoms” that have recently come to market were about ¼ point better, in line with the overall better tone of the market.

He pegged Frontier Communications Corp.’s 11% notes due 2025 trading as high as the 101¼ bid level before going home at 101.

A second trader said that the Stamford, Conn.-based wireline telecom company’s 11% notes “moved up a little, probably up close to 1 point” at a context of 101¼ to 101½.

He saw its 10½% notes due 2022 having firmed to 102 bid, 102½ offered.

Its 8 7/8% notes due 2020 got as good as 102¾ bid, 103¼ offered.

Despite the fact that those bonds priced more than a month ago, on Sept. 11 – $1 billion of the five-years, $2 billion of the seven-years and $3.6 billion of the 10-years, all at par – activity in the deal remained brisk.

A trader saw more than $23 million of the 10½% notes and over $16 million of the 11% notes changing hands, along with about $11 million of the five-year paper.

Valeant on the rebound

Away from new or recently priced issues, traders saw the generally firm market tone helping some of the notes that had been seen under pressure during Thursday’s session.

One such name was Montreal-based drug manufacturer Valeant, one of Thursday’s biggest losers.

A trader said that “the bonds gained back some ground” that they had lost on Thursday, with the company’s 6 1/8% notes due 2025 up 1¼ points to the 96 bid level.

A second trader said that the issue “seemed to be one of the popular ones,” rising 1 3/8 points to a 95½ to 96½ bid context.

Yet another trader said that the bonds firmed by more than 1 point to end at 95 7/8 bid on volume of over $21 million.

One of the traders also quoted Valeant’s 5 7/8% notes due 2023 up 1 point on the day at 96 bid, although he said that there was “not a lot of volume in the credit.”

On Thursday, the Valeant bonds – which had recently fallen from levels around par to gyrate in the 90s after Congressional Democrats talked about issuing a subpoena to force the company to come before Congress to explain its pricing policies on some of its medications – fell anew, pushed lower by the news that the federal prosecutors in Boston and New York had issued subpoenas seeking information.

The 6 1/8% notes had slid nearly 1½ points on trading volume of over $86 million.

The 5 7/8% paper had fallen 1½ points, with over $48 million traded.

Energy issues better

Energy credits that have recently been under pressure pushed higher on Friday. They got a boost as crude oil prices broke out of their recent doldrums, with West Texas Intermediate for November jumping 88 cents to $47.26 per barrel.

Among the sector gainers were California Resources’ 6% notes due 2024, with a trader quoting them around 69 to 70 – well up from Thursday’s 66¾ to 67½ levels.

Other oilers enjoying a rebound included Chesapeake Energy Corp., whose 6 5/8% notes due 2020 gained 1¾ points, ending at 76½ bid.

Sector peer Berry Petroleum Co.’s 6¾% notes due 2020 firmed by 2¼ points to end at 40 bid.

AMD catches a bid

Bond investors were apparently not particularly fazed by Advanced Micro Devices’ late-Thursday report that it had lost $197 million during the third quarter – a sharp reversal from its year-earlier profit.

The 25 cents per share loss that it posted was wider than the roughly 10 or 11 cents per share that analysts had been expecting.

However, its 7½% notes due 2022 jumped 4 5/8 points on Friday to 68 5/8 bid on volume of more than $10 million.

A second trader pegged its 7% notes due 2024 in a 67 to 68 bid context, while its 6¾% notes due 2019 last traded at 73½, both issues up around 3 points on the day, “so yeah, those are feeling better.”

Analysts noted that while the company lost more money than expected, its $1.06 billion of revenues did beat expectations.

They also noted the announcement by the Sunnyvale, Calif.-based semiconductor maker of plans for a joint venture with Chinese manufacturer NFME – with the sale of some AMD facilities expected to bring the company $371 million of much-needed cash.

Wynn’s luck changes

Another name on the comeback trail was Wynn Resorts, whose 5½% notes due 2025 gained ½ point on brisk volume of over $21 million, ending at 90¾ bid while its 5¼% notes due 2021 were 1 full point higher at 88¾ with over $10 million traded.

On Thursday, the 5½% notes lost ½ point on volume of over $25 million, while the 5¼s were down nearly 2½ points, with over $10 million having changed hands.

That followed the Las Vegas-based casino company’s report of third-quarter earnings, with net income falling to $73.8 million, or 73 cents per share – down 62% from a year ago. Revenue slid by 27% year over year to $996.3 million. Both revenue and per-share earnings fell short of Wall Street’s expectations.

Indicators turn higher

Statistical measures of junk market performance turned higher across the board on Friday after having been mixed on Thursday and lower all around on Wednesday; it was the third higher session in the last seven trading days.

The indicators were also universally higher versus where they had finished last Friday – their second consecutive week-over-week gain, and third such stronger week out of the last six and fourth such better week out of the last eight.

The KDP High Yield Daily Index posted its first gain on Friday after having suffered two straight losses, rising by 24 basis points to 67.35. It was the index’s seventh gain in the last nine sessions and its eighth gain in the last 11 trading days. On Thursday, it had finished off by 8 bps.

Its yield came in by 10 bps to close at 6.50%, after having risen by 3 bps on Thursday. It was the yield’s seventh narrowing in the last nine sessions and its eighth tightening in the last 12.

Those levels compare favorably to the 67.29 index reading and 6.56% yield seen last Friday. Oct. 9.

The Markit Series 25 CDX North American High Yield Index posted its second straight gain on Friday, rising by 3/8 point to end at 102 15/32 bid, 102½ offered, on top of Thursday’s 15/32 point gain. It was the fourth higher finish in the last eight sessions.

Those levels were an improvement over last Friday’s close at 102 5/16 bid, 102 11/32 offered.

The Merrill Lynch North American Master II High Yield Index finally posted a gain on Friday after three straight losses. It advanced by 0.278%, in contrast to Thursday’s 0.016% easing.

Friday’s upturn was its seventh in the last 10 sessions and its eighth improvement in the last 12 trading days.

It cut the index’s year-to-date deficit to 0.382% from Thursday’s 0.658%, and from the 3.069% year-to-date loss seen on Oct. 2 – the most red ink for the year so far and the index’s lowest level since Oct. 5, 2011, when the market measure had shown a 3.834% year-to-date deficit.

For the week, the index gained 0.068%, its second consecutive weekly rise; it had jumped 2.702% last week, its single biggest weekly gain so far this year, which had left the year-to-date deficit at 0.45%.

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