AES’ $1 billion leads busy primary; new Sprint, Warner active; funds lose $703 million

By Paul A. Harris and James McCandless

San Antonio, March 1 – The high-yield primary market sprang to life on Thursday, despite turbulence in the stock market, with the pricing of five drive-by tranches from four different issuers.

The day’s biggest deal was a $1 billion offering of notes in two parts by power generator AES Corp.

Aircraft leasing company Avolon Holdings Ltd. and Australian iron miner Fortescue Metals Group Ltd. each brought $500 million transactions to market.

All three of these deals came at the mid-point of talk.

Meanwhile the high-yield secondary market continued the lower activity that it had Wednesday, according to traders, with newer issues taking up most of the space.

Last Wednesday’s $1 billion pricing from Sprint Corp. took up much of the volume in the secondary market.

Warner Music Group’s latest pricing, a fast $325 million issue Wednesday, showed continuing activity.

Frontier Communications Corp. notes were heavy in volume for a third day after Tuesday’s quarterly earnings report and Wednesday’s news that it would scrap its quarterly dividend.

Intelsat SA and Ensco plc contributed to Thursday’s volume.

Meanwhile high-yield mutual and exchange-traded funds saw outflows for a seventh straight week, according to data compiled by AMG Data Services Inc. For the week ended Feb. 28, the funds lost $703 million.

It follows the previous week’s $335 million outflow.

AES in threes and fives

In total the primary market saw five drive-by tranches from four different issuers with a sixth from a fifth issuer expected to price although terms were not available at press time.

Most of that new paper felt a little heavy to one trader, who added that post-break volumes tended to be low.

AES priced $1 billion of senior notes (Ba2/BB) in a quick-to-market two-part deal on Thursday.

The offering included $500 million of three-year bullet notes which priced at par to yield 4%. The yield printed in the middle of both talk and initial guidance for a yield in the 4% area.

AES also priced $500 million of five-year notes at par to yield 4½%%. Again, the yield printed in the middle of both yield talk and initial guidance that was set in the 4½% area.

Morgan Stanley & Co., Barclays, BofA Merrill Lynch, Citigroup Global Market Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co., JP Morgan Securities LLC and MUFG were the joint bookrunners.

The Arlington, Va.-based power company plans to use the proceeds to fund tender offers for its 8% senior notes due 2020 and 7 3/8% senior notes due 2021.

Avolon’s five-year bullet

Avolon Holdings priced $500 million of five-year senior bullet notes (Ba3/BB/BB) at par to yield 5½%.

The yield printed in the middle of both yield talk and initial price talk that were announced in the 5½% area.

Morgan Stanley & Co. and JP Morgan Securities LLC were the lead bookrunners. Barclays, BNP Paribas, Credit Agricole CIB, SunTrust Robinson Humphrey and UBS Investment Bank were the joint bookrunners.

The Ireland-based provider of aircraft leasing and lease management services plans to use the proceeds for general corporate purposes, which may include future debt repayment.

FMG drives by

Fortescue Metals priced a $500 million issue of five-year senior bullet notes (Ba2/BB/BB+) at par to yield 5 1/8%.

The yield printed in the middle of the 5% to 5¼% yield talk.

JP Morgan Securities LLC was the lead.

The Perth, Australia-based iron ore producer plans to use the proceeds to repay debt.

New Enterprise prices tight

New Enterprise Stone & Lime Co., Inc. priced a $450 million issue of eight-year senior secured notes (B2/B+) at par to yield 6¼%.

The deal, which priced at the end of the roadshow – it was Thursday’s sole roadshow deal – appeared to be the outperformer late in the day, sources said.

The yield printed at the tight end of the 6¼% to 6½% yield talk.

The deal went very well, according to traders, who added that the order book was said to contain around $2 billion of orders.

A trader saw $10 million of the deal trade at 101 after the break on Thursday afternoon.

Goldman Sachs & Co. was the left bookrunner. KKR was the joint bookrunner.

The New Enterprise, Pa.-based heavy construction materials supplier and contractor plans to use the proceeds, together with cash on hand and borrowings under its asset-based revolving credit facility, to pay off its existing term loan and make the required prepayment premium.

Garda taps 8¾% notes

Garda World Security Corp. priced a $125 million add-on to its 8¾% senior notes due May 15, 2025 (Caa2/CCC+/B-) at 105.25.

The yield to worst is 7.506%. The yield to maturity is 7.78%.

The reoffer price came at the cheap end of the 105.25 to 105.75 price talk. The yield to worst came at the wide end of the 7.392% to 7.506% yield talk.

Initial guidance was in the 105.5 area.

Barclays was the global coordinator and lead left bookrunner. Citigroup Global Markets, Macquarie Capital, SG CIB and TD Securities were the joint bookrunners.

The Montreal-based cash logistics and security solutions provider plans to use the proceeds to fund the acquisition of Primary Response, fund cash onto the balance sheet for other acquisitions (including the potential acquisition of a U.S. target) and for general corporate purposes.

Meritage plans 10-year bullet

Meritage Homes Corp. was also heard to be in the market Thursday with a $300 million offering of 10-year senior bullet notes (existing ratings Ba2/BB).

The deal was expected to be a drive-by that would price before the Thursday close.

However no terms were available at press time, according to a trader who added that word in the market held that the deal had been pushed into the Friday session.

JP Morgan Securities LLC, RBC Capital Markets LLC, Citigroup Global Markets Inc., BofA Merrill Lynch, Mizuho Securities, PNC Capital Markets, SunTrust Robinson Humphrey and US Bancorp are the joint bookrunners.

The Scottsdale, Ariz.-based real estate developer plans to use the proceeds to repay its 4½% notes due 2018 and for general corporate purposes.

Sprint issues active

In the secondary, Overland Park, Kan.-based wireless company Sprint’s $1 billion new issue rolled on to another day of high volume, a market source confirmed, remaining heavily traded in the session.

The 7 5/8% notes due 2026 lost about 1 point to close at 99 bid.

Sprint priced the notes at par on Feb. 20.

Warner deal starts active

Among more recent deals, the $325 million of eight-year senior notes priced Wednesday for New York-based entertainment conglomerate Warner Music were the most actively traded in the secondary market on Thursday, a trader said.

“It’s been a pretty quick turnaround for these issues,” a trader said.

The 5½% bonds due 2026 rose to 100¾ bid.

They had priced at par.

Frontier trades

Norwalk, Conn.-based wireline telecom name Frontier Communications saw another day of active paper after releasing its fourth quarter earnings report on Tuesday while also announcing that it would be doubling down on its commitment to increased debt flexibility by rescinding its quarterly common stock dividend.

“Frontier is active no matter what, but they’ve seen some increase in levels since reporting,” a trader said. “And getting rid of that dividend really helps them.”

The 7 5/8% paper due 2024 lost 1½ points to close at about 62 bid.

The 10½% paper due 2022 fell about ½ point to close at 84½ bid.

The 11% paper due 2025 traded down 1¾ points to close at 76¼ bid.

Volume names trade

Luxembourg-based satellite communications company Intelsat’s notes were active again Thursday, as a trader confirmed that they were still trading off of comments made by FCC chairman Ajit Pai about favorable changes to the country’s 5G network.

The Intelsat Jackson Holdings SA 5½% notes due 2023 ticked up almost ¼ point to close at about 83¼ bid. The 7¼% notes due 2020 gained 1 point to close at 93¾ bid.

Britain-based oil and gas driller Ensco’s 5¾% bonds due 2044 dropped about 1½ points to close at 67¾ bid.

Indexes slightly lower

The KDP High Yield Daily Index fell slightly by 2 basis points to end at 70.73. Its yield rose 1 bps to end at 5.65%.

Meanwhile the Merrill Lynch high yield index lost 0.2% on the day. Its year-to-date return is now negative 0.497%.

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