Kenan Advantage deal prices; European market busy; energy better; funds gain $81.8 million

By Paul Deckelman and Paul A. Harris

New York, July 23 – The high-yield primary market saw one deal price on Thursday. Kenan Advantage Group Inc. came to market with a regularly scheduled $405 million issue of eight year notes.

Traders reported no immediate aftermarket dealings in the bulk liquid transportation services company’s new notes.

The European wing of the junk bond market meantime remained a busy place, with Germany’s Labco/Synlab, Switzerland-based Dufry Group SCA and Belgian issuer Balta Group all getting euro-denominated bond deals done during the session.

Back in the domestic junk market, traders saw an upturn, or at least a steadying, in some of the issues that had been getting whacked around earlier in the week, particularly in the energy sector, including names like Chesapeake Energy Corp., SandRidge Energy Inc. and California Resources Corp.

Statistical measures of junk market performance were lower all around for a fifth consecutive session on Thursday.

But another statistical signpost – flows of funds into or out of high-yield mutual funds and exchange-traded funds, considered a reliable indicator of junk market liquidity trends – saw a third straight upturn in as many weeks as $81.8 million more came into those funds than left them.

Kenan comes in the middle

Kenan Advantage Group priced Thursday's sole dollar-denominated deal. European issuers inhabited much of the global high-yield primary market spotlight.

Kenan Advantage priced a $405 million issue of eight-year senior notes (B3/B-) at par to yield 7 7/8%.

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

Goldman Sachs & Co. was the left bookrunner for the buyout deal. KeyBank was the joint bookrunner.

Labco/Synlab three-part deal

In the busy European market Labco/Synlab priced an upsized €1.06 billion three-part high-yield notes transaction backing the acquisition of Germany-based Synlab.

The overall size of the deal increased from €1.05 billion.

All three of the tranches that made up the deal were priced on top of price talk.

Ephios Bondco plc priced an upsized €685 million of Labco senior secured notes due July 1, 2022 (B2/B+/B+) in two add-on tranches.

A €400 million add-on to the 6¼% notes priced at 99 to yield 6.429%.

A €285 million add-on to the Euribor plus 500 basis points notes also priced at 99.

The combined size of the secured portion of the deal was increased from €675 million.

Global coordinator JPMorgan will bill and deliver for the secured notes.

In the sole unsecured tranche, Ephios Holdco II plc priced €375 million of new eight-year senior unsecured notes (Caa1/B-/CCC+) at par to yield 8¼%.

Global coordinator Goldman Sachs will bill and deliver for the unsecured notes.

Barclays, Deutsche Bank, BNP Paribas, HSBC and Morgan Stanley were also global coordinators.

Proceeds will be used to finance the acquisition of Synlab by Cinven. The additional €10 million of proceeds resulting from the upsize will be used to fund the original issue discounts.

Dufry upsizes

Dufry Group priced an upsized €700 million issue of eight-year senior notes (Ba3/BB/BB-) at par to yield 4½%.

The issue increased in size from €500 million

The yield printed on top of yield talk.

Global coordinator and bookrunner BofA Merrill Lynch will bill and deliver. BBVA, ING, Santander GBM and UniCredit Bank were also joint global coordinators and bookrunners.

Credit Agricole CIB, Goldman Sachs International, HSBC, RBI, Royal Bank of Scotland and UBS were also bookrunners.

The Basel, Switzerland-based travel retailer plans to use the proceeds to help finance its acquisition of World Duty Free SpA.

Balta secured deal

Balta Group priced a €290 offering of seven-year senior secured notes (B2/B) at par to yield 7¾%.

The yield printed on top of yield talk.

Joint bookrunner Deutsche Bank will bill and deliver. Barclays, Credit Suisse and ING are also joint bookrunners.

Proceeds will be used to fund the acquisition of the Baafs-Vijve, a Belgium-based soft flooring company, by Lone Star Fund IX and to repay Balta debt.

Kenan notes not seen

A trader said there was no immediate aftermarket activity in the new Kenna Advantage Group 7 7/8% notes due 2023.

That $405 million deal was brought to market as a regularly scheduled forward calendar offering by OPE KAG Finance Sub Inc., a special-purpose company formed in connection with the pending buyout of the North Canton, Ohio-based provider of liquid bulk transportation services by Omers Private Equity from Goldman Sachs Capital Partners and Centerbridge Partners.

SoftBank heard softer

Market sources said that SoftBank Group Corp.’s new dollar-denominated bonds were being quoted below their par issue price.

But little real trading in the Tokyo-based telecommunications company’s paper was going on in domestic markets, with almost all of the activity taking place in Asia and Europe.

SoftBank – the majority owner of U.S. wireless carrier Sprint Corp., a familiar name in Junkbondland – priced $1 billion of 5 3/8% notes due 2022 and $1 billion of 6% notes due 2025 on Tuesday in a regularly scheduled forward calendar deal, part of a larger five-part offering that also included €2.25 billion of euro-denominated notes. All of the paper came at par.

Market sources said that the 5 3/8% notes and the 6% notes were heard to have eased to a 99¼-to-99¾ bid context.

Caleres climbs

A trader said that Caleres Inc.’s 6¼% notes due 2023 had moved up to trade between 101 and 101¼ bid.

The St. Louis-based footwear company, which was long-known as Brown Shoe Co. before a name change earlier this year, priced $200 million of the notes at par on Tuesday in a regularly scheduled transaction.

Energy names improve

Away from the new issues, a trader said that names in the recently hard-hit natural resources segment of the market, including oil and natural gas exploration and production operators, “have kind of found a level, generically,” after having been pushed lower earlier in the week.

He said that “some were a little bit better, some were a little bit worse, by about ¼ or ½.”

He said those credits “found a level wherever they were trading at this point.”

Among specific energy credits, Chesapeake Energy’s 4 7/8% notes due 2022 were seen having firmed nearly ¾ point on the day, finishing up at 80 bid, with more than $33 million having traded. On Wednesday, the issue had lost nearly 2 points on the session.

The Oklahoma City-based E&P company’s bonds had fallen on the news that Chesapeake was suspending its dividend, raising investor fears about a potential cash crunch for the company.

Elsewhere in the sector, Oklahoma City-based oiler SandRidge’s 8¾% notes due 2020 gained 1¼ points, ending at 75¼ bid, on volume of over $17 million, after easing by ¼ point on heavy volume Wednesday.

Los Angeles-based California Resources’ 6% notes due 2024 pushed up by nearly 2 points to 79½, with over $12 million traded.

The same bonds had fallen about 1 5/8 points on the day on Wednesday, on heavy volume of more than $30 million.

Indicators down again

Statistical measures of junk market performance were lower all around for a fifth consecutive session on Thursday.

The KDP High Yield Daily index lost 7 bps to finish at 69.12 after having slid by 19 bps on Wednesday. Thursday’s downturn was its fifth straight setback and its sixth in the last eight sessions.

Its yield, meanwhile, was up by 1 bp Thursday at 5.96%, widening for a fifth successive session, after having gone up by 7 bps on Wednesday.

The Markit Series 24 CDX North American High Yield index was off by 3/32 point on Thursday to close at 106 3/32 bid, 106 5/32 offered, its fifth straight loss and sixth downturn in the last seven sessions. It had nosedived by 17/32 point on Wednesday.

The Merrill Lynch North American Master II High Yield index eased by 0.07% on Thursday, its fifth downside session in a row.

One Wednesday, it had plunged by 0.403% – its biggest one-day loss so far this year, surpassing the 0.345% defeat recorded on Jan. 6.

Thursday’s loss dropped its year-to-date return to 1.551% from 1.622% on Wednesday.

Wednesday marked the first time the index’s cumulative return had fallen below the psychologically significant 2.00% mark since March 19, when it had closed at 1.983%. Thursday’s finish was the index’s lowest closing level since Feb. 5, when it had ended at 1.381%.

The year-to-date figure meantime remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Junk funds gain $82 million

Another numerical gauge, however – flows of cash into or out of high-yield mutual funds and ETFs, considered a reliable barometer of overall junk market liquidity trends – continued to show improvement this week from their biggest cash loss for the year so far, which was seen three weeks ago.

Some $81.8 million more had come into those weekly-reporting-only funds than had left them during the week ended Wednesday, on top of inflows of $1.23 billion last week and $45.08 million the week before that.

The funds were still trying to battle back from the massive $2.98 billion outflow recorded during the week ended July 1 – the biggest cash hemorrhage seen so far this year. (See related story elsewhere in this issue.)

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