Staples prices, lags in secondary; Golden Entertainment active; U.S. Steel mixed

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 9 – One deal dominated attention in both the domestic primary and secondary market on Tuesday – Staples, Inc.’s two-tranche offering.

The deal was ultimately downsized to $3 billion after previously upsizing.

The senior notes were in focus in the secondary space although both tranches were lagging their issue price.

The European high-yield primary market was also active with Telecom Italia pricing €1 billion of 2¾% six-year senior notes (Ba1/BB+/BB+) on Tuesday and Orano pricing a €750 million issue of 3 3/8% seven-year senior notes.

Golden Entertainment Inc.’s newly priced 7 5/8% senior notes due 2026 were maintaining their premium in active trading on Tuesday.

United States Steel Corp.’s junk bonds were mixed on Tuesday following an analyst downgrade of the company’s equity due to concerns about oversupply.

Downsized Staples prices

Staples dominated the conversation during Tuesday's primary market session, providing plenty to talk about, sources said.

The basics are as follows:

Allocations went out on $2 billion of seven-year senior secured notes (B1/B+) which priced at par to yield 7½%.

The tranche was downsized from $2.025 billion after having been previously upsized from $750 million.

The yield printed at the wide end of the 7¼% to 7½% final yield talk and at the tight end of the 7½% to 7¾% initial guidance.

In addition, Staples priced $1 billion of eight-year senior unsecured notes (B3/B-) at par to yield 10¾%.

The tranche was downsized from $1.375 billion.

The yield printed in the middle of yield talk in the 10¾% area and well wide of initial guidance in the high 9% to low 10% area.

Goldman Sachs was the left lead bookrunner.

The Framingham, Mass.-based business supplies distributor plans to use the proceeds, together with the term loan and ABL facility proceeds, to refinance debt and make a distribution to sponsor Sycamore Partners.

Staples rejiggering

The initial resizing of the Staples deal, which took place Monday when price talk on the bonds was announced, saw $375 million shifted to the secured bonds from the unsecured bonds, and $900 million shifted to the secured bonds from the concurrent term loan, decreasing the loan size to $2.3 billion from $3.2 billion.

The bond deal was downsized by a further $25 million on Tuesday. With that downsizing, the ABL credit facility increased to $102 million from $77 million.

Extensive covenant changes were announced on Monday and further covenant changes were announced Tuesday.

An affiliate of sponsor Sycamore Partners took down $180 million of the unsecured bonds, contractually agreeing not to dispose of the notes for value, except in limited circumstances, until Sept. 1.

One trader, noting that Sycamore is the recipient of the dividend in the uses of proceeds, wondered what the impact will be should the equity sponsor decide to sell its $180 million of unsecured paper after the lock-up period expires, and expressed the opinion that it is not an ideal formula for assuring that the bonds will trade well.

In the wake of Staples, the active forward calendar contained just one dollar-denominated deal.

Australia-based Mineral Resources Ltd. is conducting a roadshow for a $750 million offering of eight-year senior notes (B+). The deal is in the market with early guidance in the 7¾% to 8% area and is possible Friday business.

Telecom Italia junk

There was news in the European high-yield primary market.

Telecom Italia priced €1 billion of 2¾% six-year senior notes (Ba1/BB+/BB+) at 99.32 to yield 2 7/8% on Tuesday.

The yield printed at the tight end of final yield talk in the 3% area and through earlier talk of 3% to 3 1/8%, a London-based sellside source said.

Initial conversations on yield took place in the 3 3/8% area, the source added.

Joint bookrunner UniCredit will bill and deliver. Banca IMI, BNP Paribas, BofA Merrill Lynch, Mediobanca and SG CIB were also joint bookrunners.

It was Telecom Italia's first straight-out junk bond deal since Fitch Ratings downgraded the company to speculative grade BB+ from investment grade BBB- last week, a move predicated upon the telecom's 4.7-times adjusted net leverage.

Orano oversubscribed

Paris-based energy firm Orano priced a €750 million issue of 3 3/8% seven-year senior notes (BB+) at 99.236 to yield 3½% on Tuesday.

The debt refinancing deal played to €2 billion of orders.

Joint bookrunner Santander will bill and deliver. BNP Paribas, CM-CIC, Goldman Sachs, HSBC, JPMorgan, Natixis and SG CIB were also joint bookrunners.

Only one euro-denominated deal remains on the active forward calendar.

Italmatch Chemicals SpA is on the road with a €200 million add-on to the Fire (BC) SpA Euribor plus 475 basis points senior secured floating-rate notes due Sept. 30, 2024 (expected ratings B3/B).

Price talk is 99, plus or minus 25 cents.

The roadshow is scheduled to wrap up on Wednesday in Paris.

Staples lags

Staples was the focus of the secondary space with the secured and unsecured tranche dominating activity after breaking for trade.

Both tranches were lagging their issue price in high-volume activity.

Staples 7½% senior secured notes due 2026 traded down 1¾ points, according to a market source. They were seen changing hands at 98¼ in the late afternoon.

More than $236 million of the bonds were on the tape during Tuesday’s session.

The 10¾% senior unsecured notes due 2027 traded down ¼ point.

They were changing hands around 99 ¾ in the late afternoon.

More than $121 million of the bonds were on the tape by the late afternoon.

Golden Entertainment active

While trading paled in comparison to Staples, Golden Entertainment’s 7 5/8% senior notes due 2026 were active in the secondary space with the notes largely unchanged after trading up during the previous session.

The 7 5/8% notes were seen at par 1/8 bid, par 3/8 offered early in Tuesday’s session.

They continued to trade at par ¼ in the late afternoon, flush with their closing on Monday, sources said.

Golden Entertainment priced a $375 million issue of the 7 5/8% notes at par on Monday.

The yield printed at the tight end of yield talk in the 7¾% area and well inside of initial talk in the 8% area.

The order book was heard to be two-times the deal size.

U.S. Steel mixed

U.S. Steel’s senior notes were mixed on Tuesday after an analyst downgrade of the company’s equity due to concerns about a supply glut.

U.S. Steel’s 6 7/8% senior notes due 2025 rose 1 point to 99 3/8.

However, the steel producer’s 6¼% senior notes due 2026 dropped 1 point to 92½, according to a market source.

The notes, which are typically slow to trade, saw some activity after a Credit Suisse analyst downgraded the company’s stock.

New domestic steel capacity that is set to come online in 2021 and 2022 will impact the company’s profit margins, Barron’s reported.

Monday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Monday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $97 million of inflows on the day.

Actively managed high-yield funds saw $110 million of inflows on Monday, the trader said.

With three of the present week's five sessions now in the tally, the combined funds are tracking $333 million of inflows in the week that will conclude at Wednesday's close.

Indexes flat

Indexes were largely flat on Tuesday with some posting minor gains and others showing losses.

The KDP High Yield Daily index rose 1 basis point on Tuesday with the yield now 5.77%.

The index was up 7 bps on Monday after a cumulative gain of 21 bps on the week last week.

The ICE BofAML US High Yield index was up 1.4 bps with the year-to-date return now 8.073%.

The index rose 9.8 bps on Monday after a cumulative gain of 58.1 bps on the week last week.

The index shot past 8% year-to-date returns on Monday after only recently surpassing the 7% threshold on March 26 and passing 6% year-to-date returns on March 11.

The CDX High Yield 30 index dropped 16 bps to close Tuesday at 106.94.

The index rose 9 bps on Monday after a cumulative gain of 36 bps on the week last week.

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