Aecom Technology megadeal leads $2 billion primary session; split-rated Alcoa prices, firms

By Paul Deckelman and Paul A. Harris

New York, Sept. 17 – The pace of activity in the high-yield primary sphere picked up on Wednesday, syndicate sources said, as some $2.02 billion came to market in four tranches – $1.6 billion of it in one deal, a two-part offering from Aecom Technology Corp., a San Francisco-based provider of engineering, construction and technical services.

That megadeal – consisting of two equal $800 million tranches of eight-year and 10-year notes – priced too late in the session for any kind of immediate aftermarket activity, traders said.

The day also saw York Risk Services, a Parsippany, N.J.-based provider of risk management, claims management and managed care services, bring a $270 million issue of eight-year paper.

And JAC Products Inc., a Pontiac, Mich.-based manufacturer of roof rack systems for light vehicles, did an upsized $150 million of five-year secured notes.

The day’s tally of new dollar-denominated, fully junk-rated paper was up from the $600 million that priced in two tranches on Tuesday, the syndicate sources said.

Besides the purely junk issues that priced, Pittsburgh-based aluminum producer Alcoa, Inc. priced a $1.25 billion split-rated (Ba1/BBB-/BB+) offering of 10-year notes, which saw some aftermarket dealings in the junk market, even though the transaction had priced off investment-grade desks. Those bonds were heard to have firmed when they began trading.

Tuesday’s offering of 10.5-year notes from advertising billboard provider CBS Outdoor Americas Inc. was seen to have been fairly busy, at modestly firmer levels.

Traders said a better tone was seen in the overall secondary market, although non-new-deal activity was muted, especially against the backdrop of the Federal Reserve’s announcement to the effect that the central bank will keep interest rates around their current lower levels for “a considerable” amount of time.

Statistical indicators of junk market performance were higher across the board on Wednesday, the first time that’s been seen in Junkbondland in more than three weeks.

Aecom $1.6 billion prices tight

Three issuers brought a total of four dollar-denominated tranches of junk bonds on Wednesday, raising a combined total of $2.02 billion.

Two tranches came at the tight end of talk. One came on top of talk. And one priced at the wide end of talk.

One of the four was slightly upsized.

Aecom Technology sold $1.6 billion of senior notes (Ba3/BB-) in two tranches.

The deal included an $800 million tranche of eight-year notes that priced at par to yield 5¾%. The yield printed at the tight end of yield talk in the 5 7/8% area.

Aecom Technology also priced an $800 million tranche of non-callable 10-year notes at par to yield 5 7/8%. The yield printed at the tight end of yield talk in the 6% area.

BofA Merrill Lynch, BNP Paribas, J.P. Morgan, MUFG, Scotiabank and Morgan Stanley were bookrunners for the acquisition financing.

York Risk’s eight-year deal

York Risk Services priced a $270 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 8½%.

The yield printed at the wide end of the 8¼% to 8½% yield talk.

Morgan Stanley, BofA Merrill Lynch, RBC, Barclays, BMO and Nomura were the bookrunners.

Proceeds, together with proceeds from a senior secured credit facility, equity contributions and cash on the balance sheet, will be used to help fund the buyout of the company by Onex Corp. from ABRY Partners and to retire certain existing debt.

JAC Products upsizes

JAC Products priced an upsized $150 million issue of five-year senior secured notes (B3/B) at par to yield 11½%.

The deal was upsized from $140 million.

The yield printed on top of yield talk.

Jefferies was the sole bookrunner.

The Pontiac, Mich.-based designer and manufacturer of roof rack systems for light vehicles plans to use the proceeds to refinance debt and fund a distribution.

Alcoa split-rated deal

In the crossover market, Alcoa Inc. launched and priced a $1.25 billion issue of 10-year senior notes (Ba1/BBB-/BB+) at par to yield 5 1/8%.

The yield printed inside of initial guidance that came in the mid-5% yield context.

The deal, which was announced Tuesday at benchmark size, priced on the investment-grade desk but trades on the high-yield desk, according to a high-yield investor.

The ratings from Moody’s Investors Service and Fitch Ratings are stable, but the BBB- rating from Standard & Poor's has a negative outlook, the source added.

Morgan Stanley and Credit Suisse were the active bookrunners for the acquisition financing.

Citigroup, Goldman Sachs and JPMorgan were the passive bookrunners.

RSP Permian starts Thursday

There were also new deal announcements on Wednesday.

RSP Permian, Inc. plans to start a roadshow on Thursday in New York for a $450 million offering of senior notes due 2022.

Joint bookrunner Barclays will bill and deliver. RBC, JPMorgan and UBS are also joint bookrunners.

The Dallas-based oil and gas exploration and production company plans to use the proceeds to repay revolver debt and for general corporate purposes.

Simmons Foods on deck

Simmons Foods scheduled an investor conference call at 11 a.m. ET Thursday to discuss a $415 million offering of second-lien senior secured notes due 2021 (expected ratings Caa1/CCC+).

The deal is set to price later on Thursday.

Wells Fargo is the sole bookrunner.

The Fayetteville, Ark.-based poultry processor and pet-food maker plans to use the proceeds to fund the tender offer for its notes maturing in 2017 and to redeem or retire any notes not purchased in the tender, as well as to pay down bank debt and fund a $26.5 million dividend to shareholders.

Alcoa moves up

In the secondary realm, traders said that the big new two-part deal from Aecom Technology priced too late in the day for any kind of aftermarket dealings.

The y likewise had not seen either of the day’s two other smallish deals, from York Risk Services and JAC Products.

However, there were some secondary dealings in the new Alcoa 5 1/8% notes due 2024.

A trader said that the new bonds were “trading actively” in a 100¾-to-101¾ context.

A second saw them “wrapped around 101,” although a third saw $1 million of the notes offered at 101, but with no bid side.

At another shop, a market source saw the aluminum-maker’s new deal get as good as 101 bid, 101½ offered.

That $1.25 billion issue had come to market at par off the investment-grade desks, although they were being handled afterward by the high-yield desks.

CBS Outdoor improves

CBS Outdoor Americas’ 5 7/8% notes due 2025 were seen trading moderately higher on Wednesday after having priced at par in a quick-to-market transaction on Tuesday, too late for any kind of aftermarket dealings at that time.

A trader said the New-York-based advertising billboard company’s notes traded between 100½ and 100¾ during the morning.

Another trader said the bonds were bid at 100½, although he didn’t hear any offered levels. After some morning action in the credit, “we didn’t see much after about 10 a.m. [ET] – it just kind of died out.”

However, at another desk, a market source said the notes were trading around 101 bid during the afternoon, calling them up 1 point from the level at which the $400 million of notes had priced. He estimated volume at a brisk $20 million-plus, putting the new issue among the day’s most active names.

One of the traders also saw the company’s 5¼% notes due 2022 – an add-on to its existing notes – at 99¾ bid, par offered. That was up from Tuesday’s 99.5 issue price and 5.333% yield at which the $150 million addition had priced, after having been upsized from $100 million originally.

PlyGem paper pops

Also among the recently priced deals, a trader saw PlyGem Industries, Inc.’s 6½% notes due 2022 having moved up to 96¾ bid, 97 offered – a gain of 2¼ points on the day.

The Cary, N.C.-based building products manufacturer had priced $150 million of those notes in a quickly shopped transaction on Monday as a non-fungible mirror tranche to its existing bonds.

They came to market at 93.25 to yield 7.221% and quickly moved into a 93¾ -to-94¼ context.

Clear Channel climbs

Clear Channel Communications Inc.’s 9% senior secured priority guarantee notes due 2022 were seen having pushed up to 103 bid, a gain of 1¼ points on the session, with over $27 million having traded, making it one of the most heavily traded junk credits of the day.

The San Antonio-based broadcasting and outdoor advertising company had priced $750 million of the notes at par in a quick-to-market offering on Sept. 5.

Quiet secondary seen

Away from the new deals, a trader characterized Wednesday’s session as “very boring.”

“It was a very quiet market, with everyone sitting around, waiting for the Fed.”

The central bank announced at the end of its two-day meeting that it will leave currently low interest rates in place for “a considerable” amount of time, rather than setting calendar-based goals for raising rates.

Another trader also saw not much doing in the non-new-deal secondary, opining that “nothing was happening – the new deals are still dominating things.”

However, he added that “the market had a pretty good tone for most of the day. Some things were up ¼ point today, some were a little better.”

Generically speaking, he saw things up by ¼ point to perhaps ½ point.

“There definitely was a firm bid for the market.”

What kind of flows?

The trader continued that he had heard that flows of money into or out of high-yield mutual funds or exchange-traded funds, considered a good barometer of overall market liquidity trends, had been positive on both Tuesday and again on Wednesday.

However, he noted that “on Thursday, Friday and Monday, there were $1.5 billion of outflows. A large portion was in managed funds rather than ETFs.”

He wondered if the inflows of the past two sessions would be enough to counterbalance the outflows seen the previous days.

AMG Data Services Inc., a unit of Thomson Reuters’ Lipper analytics division, is scheduled to release fund-flow numbers for the week ended Wednesday sometime late in Thursday’s session. Last week, it reported a $766 million net outflow for the week ended last Wednesday, Sept. 10. It was the second straight cash loss, following the $198 million outflow seen in the week ended Sept. 3.

Indicators head higher

For the first time in more than three weeks, statistical indicators of junk market performance were higher across the board on Wednesday after having been mixed on Monday and Tuesday and lower for three sessions before that. It was the indicators’ first all-around positive finish since Monday, Aug. 25; all of the subsequent sessions until Wednesday had been either mixed or lower.

The KDP High Yield Daily index gained 8 basis points to close at 72.85 after having fallen by 11 bps on Tuesday – its fifth loss in the previous six sessions and 11th downturn in the previous 13.

Its yield fell by 3 bps to 5.48%, its first narrowing after widening over the previous six sessions and over 13 of the previous 14 sessions.

The Markit CDX Series 22 index rose by 13/32 point on Wednesday, its second straight improvement. It had gained 1/8 point on Tuesday. On Monday, it had lost 11/32 point – its third consecutive downturn and fifth in the six previous sessions.

The widely followed Merrill Lynch High Yield Master II index broke out of a six-session slump on Wednesday, rising by 0.105%. On Tuesday, it had declined by exactly that same amount – 0.105%, its sixth successive loss and its 10th setback in the previous 11 sessions.

The gain raised its year-to-date return to 4.634% from 4.525%, although it still remained well below its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was closed for all intents and purposes due to the Labor Day holiday break.

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