Salem, upsized Tallgrass add-on price, new Salem paper pops; funds slide by $1.73 billion

By Paul Deckelman

New York, May 11 – The high-yield primary sphere saw a pair of new deals price during Thursday’s session, generating $605 million of new U.S. dollar-denominated and fully junk-rated paper.

Both deals were regularly scheduled transactions off the forward calendar.

The day’s new-issuance total was down from the $1.4 billion which had gotten done in three tranches during Wednesday’s session and well down from the $3.5 billion which priced in seven tranches from six separate issuers on Tuesday.

Salem Media Group, Inc., a provider of radio programming and digital media content, priced $225 million of seven-year secured notes, which firmed smartly in active trading when they moved into the aftermarket.

Tallgrass Energy Partners, LP priced an upsized $350 million add-on to its existing 2024 notes.

The notes moved modestly higher when they began trading around.

In the secondary market, traders saw considerable activity in several recently priced issues, including Wednesday’s issue from CDK Global Inc. and Tuesday’s new issues from Fortescue Metals Group Ltd. and Community Health Systems Inc.

Away from the new-deal arena, Cengage Learning Inc.’s bonds were on the slide after the educational materials company posted disappointing first-quarter earnings.

Statistical market performance measures turned mixed on Thursday after being higher across the board on Wednesday. They had also been mixed over the three sessions before that.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – remained clearly on the downside in the latest reporting week, posting its second straight net outflow and its fourth cash loss in the last five weeks, according to numbers released on Thursday.

Some $1.73 billion more left those weekly reporting only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, on top of the $386 million net outflow reported last Thursday for the week ended May 3 (see related story elsewhere in this issue).

Salem tightens on pricing

Salem Media Group priced a $255 million issue of seven-year senior secured notes (B2/B) at par to yield 6¾%.

The notes priced at the tight end of revised talk in the 6¾% to 6 7/8% area which had emerged late Wednesday, according to syndicate sources.

That represented a tightening from the 7% to 7¼% area price talk which had been heard earlier Wednesday.

The Rule 144A and Regulation S for life offering was brought to market via sole bookrunner Wells Fargo Securities LLC.

Salem, a Camarillo, Calif.-based domestic multimedia company specializing in Christian and politically conservative content, with media properties comprising radio broadcasting, digital media and publishing outlets, will also be entering into a new senior secured asset-based revolving credit facility

It plans to use the proceeds from the bond deal and the ABL facility to refinance outstanding debt, to pay offering fees and expenses and for general corporate purposes.

Tallgrass upsizes add-on

The day’s other pricing came from Tallgrass Energy Partners, which priced an upsized $350 million add-on to its existing 5½% senior notes due Sept. 15, 2024 (B1/BB+).

The offering was increased in size from an originally announced $200 million.

Primaryside sources said that the additional notes priced at par, at the rich end of price talk set in a 99.5 to par context.

The Rule 144A and Regulation S for life add-on was brought to market via joint bookrunners Credit Suisse Securities (USA) LLC, Capital One Securities , Inc., Citigroup Global Markets Inc., Morgan Stanley & Co., MUFG Securities Americas, Inc., PNC Capital Markets LLC. and U.S. Bancorp Investments, Inc.

Tallgrass, a Leawood, Kan.-based publicly traded, growth-oriented limited partnership that owns, operates, acquires and develops midstream energy assets in North America, plans to use the proceeds from the add-on deal to repay revolving credit facility debt.

Tallgrass and its financing subsidiary priced the $400 million of existing notes at par on back Aug. 18, 2016 after a roadshow, with the proceeds slated to repay revolving credit facility debt.

New Salem notes soar

When they reached the aftermarket, the new Salem Media 6¾% notes were among the standout performers.

A trader saw the new bonds move up to 102½ bid on the break.

A second said that the Salem paper “traded up quite a bit,” getting as good as a 102 5/8 to 103 bid context, “then they came off those highs” and ended up trading between 102 5/8 and 102 7/8 bid.

At another desk, the notes were quoted at 102 7/8 bid.

Volume of more than $51 million made the issue among the most active in the junk bond space.

Tallgrass trades up

The new Tallgrass Energy Partners 5½% notes were also firmer when they began trading around.

One trader saw the new notes at 100¾ bid, up from their par issue price. A second pegged them between 100 5/8 and 101 bid.

Volume was considerably less, though, than in the Salem Media notes.

One of the traders said the latter had seen brisk volume “even though it wasn’t a very big issue – these things were well oversubscribed.”

CDK bonds among the busiest

A trader said that Wednesday’s new issue of 4 7/8% notes due 2027 from CDK Global “was one of the bigger volumes” with over $54 million having changed hands, putting it high up on the Most Actives list.

He saw the bonds at 100¾ bid.

A second trader also located the notes at that level, calling them up ¼ point on the session.

CDK, a Hoffman Estates, Ill.-based provider of information technology and digital marketing solutions to the automotive retailing and related industries, priced its regularly scheduled $600 million bond deal at par on Wednesday after the offering was upsized from an originally announced $500 million.

It plans to use the proceeds for general corporate purposes.

Fortescue also active

Traders said that most of the other recently priced issues “weren’t all that active,” as one put it – with several exceptions.

Tuesday’s two-part offering from Australian iron ore miner Fortescue Metals Group was still among the more active issues of the day, although volume was considerably less than had been seen on Wednesday.

A market source said that its 4¾% notes due 2022 were about unchanged on the day at 101 bid on volume of over $15 million, while the other half of its $1.5 billion megadeal – the 5 1/8% notes due 2024 – traded at 100½ bid on Thursday, down about 3/16 point, with $12 million traded.

Fortescue’s FMG Resources (August 2006) Pty Ltd. unit priced $750 million of each bond on Tuesday in a quickly shopped issue that was upsized from $1 billion to meet increased investor demand.

More than $50 million of the five-year notes and over $75 million of the seven-year piece had traded on Wednesday.

Franklin, Tenn.-based hospital operator Community Health Systems’ new 6¼% notes due 2023 were heard to have eased by around 1/16 point on the session to just under the 102½ bid mark, with over $19 million traded.

Its CHS/Community Health Systems Inc. subsidiary priced $900 million of those notes on Tuesday in a quick-to-market add-on tranche to its existing $2.2 billion. Those notes came to market at 101.75 to yield 5.83% after the issue was upsized from an originally announced $700 million.

More than $73 million traded on Wednesday.

Cengage sent lower

Away from the new issues, a trader said that Cengage Learning’s 9½% notes due 29024 lost more than 5 points on the session after the Boston-based educational content, technology and services provider reported first-quarter earnings that were “not good.”

“Those bonds were off by more than that,” he said, “but they finished the day about 5 points lower.”

The notes were quoted going home at 85½ bid, down from recent levels in the lower 90s, with more than $18 million changing hands.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday after being higher across the board on Wednesday. They had also been mixed over the three consecutive sessions before that.

The KDP High Yield Daily Index gained 7 basis points to close at 72.27, its third straight upturn. It had firmed by 9 bps on Wednesday and by 1 bp on Tuesday.

Its yield came in by 1 bp to 5.12% after tightening by 3 bps on Wednesday and being unchanged over the two sessions before that.

The Markit CDX Series 28 Index was down by over 1/16 point on Thursday, closing at 107 9/16 bid, 107 5/8 offered. On Wednesday, it had risen nearly 3/16 point on the day, after easing by 1/16 point on Tuesday.

The Merrill Lynch North American High Yield turned up by 0.073% on Thursday, its fourth straight improvement. It advanced by 0.008% on Wednesday. Those gains followed two straight losses and before that a streak of 11 successive gains.

Thursday’s upturn raised the index’s year-to-date return to 4.01% from Wednesday’s 3.934%, and established a new high point for the year to date, eclipsing the former zenith of 3.987% set last Wednesday, May 3.

It was also the index’s first time above the psychologically significant 4% mark so far this year, and its highest close since ending at 17.489% on the last day of 2016.

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