Post-holiday primary remains quiet as market activity resumes; Yum! shops megadeal, CVR slates

By Paul Deckelman and Paul A. Harris

New York, May 31 – It was back to work in Junkbondland on Tuesday after the extended Memorial Day holiday weekend, which saw fixed-income markets in the United States closed on Monday.

But market participants reported that things were pretty quiet on the final session of May, as people spent much of the day just getting re-acclimated after the holiday break.

As had been the case on Friday, no new deals were priced Tuesday, the second straight quiet session after last week’s eye-popping $11.2 billion of new issuance in 20 tranches – the biggest weekly volume seen so far this year, according to data compiled by Prospect News.

Syndicate sources did indicate that Yum! Brands, Inc. was marketing the prospective $2.3 billion of eight-and 10-year notes that the giant operator and franchisor of such well-known fast-food chains as KFC, Taco Bell and Pizza Hut had announced on Friday; they said the deal was being pitched to would-be investors via a Tuesday group lunch presentation and global conference call, with pricing expected later this week.

Nitrogen fertilizer producer CVR Partners LP meantime was heard to have hit the road to sell $625 million of new secured notes in a deal that is also expected to price towards the end of the week.

Primaryside participants were expecting activity levels to pick up as the month of June opened.

In the secondary realm, traders reported a generally quiet session, although there was some noticeable activity in such credits as Teck Resources Ltd., Hertz Equipment Rental Corp. and TransDigm Inc., all of which priced during last week’s seemingly non-stop bond barrage.

Away from the new deals, active energy names included California Resources Corp. and Continental Resources Inc.

First Quantum Minerals Ltd.’s bonds were better, though on light volume, helped by the Canadian mining concern’s late-Friday announcement of a successful refinancing of its bank-debt facilities, including improved covenants and an extended amortization schedule.

Yum! details emerge

The post-Memorial Day week got off to a slow start in the primary market, with no deals pricing.

A modest calendar began to take shape, however.

Yum! Brands was scheduled to hold a New York investor group lunch and global conference call on Tuesday for its $2.3 billion two-part offering of senior notes (B1/BB).

The deal is comprised of tranches of eight-year notes and 10-year notes.

Early yield guidance has the eight-year paper coming at 4¾% to 5% and the 10-year notes 25 basis points behind the eight-year paper, implying a yield of 5% to 5¼%, a trader said.

Pricing is expected on Thursday.

Goldman Sachs is the left bookrunner. JP Morgan, Citigroup, Wells Fargo and Morgan Stanley are the joint bookrunners.

The Louisville, Ky.-based fast food company plans to use the proceeds, together with $2.3 billion of new credit facilities and available cash, to make a cash distribution to its parent, to be used to fund share repurchases and/or a special dividend, and also to repay its existing credit facility and for general corporate purposes.

CVR starts roadshow

CVR Partners began a roadshow on Tuesday for a $625 million offering of seven-year senior secured notes.

As the market awaits official price talk, early guidance has the debt refinancing deal coming in the low-to-mid 8% yield context, market sources say.

The offer is expected to price on Thursday.

Credit Suisse and UBS are the joint bookrunners.

Away from Yum! and CVR, issuance volume for the post-Memorial Day week is expected to be modest compared to the blazing $11.2 billion that cleared in the week leading up to Memorial Day weekend, the biggest week of the year to date.

The May-June crossover week could see $5 billion to $7 billion, a trader said.

However, notwithstanding the fact that Monday’s announcements came to just under $3 billion, syndicate bankers who spoke on Tuesday professed no visibility on the amount of business that the trader forecasted.

A lot of what had initially been contemplated as post-Memorial Day business was pushed ahead into the massive pre-Memorial Day week, with dealers keen to get new issue business done before a possible Fed rate hike or a possible decision from voters in the United Kingdom to exit the European Union have a chance to erode the appetite for risk, sources say.

That acceleration of business, which pushed early June deals into the late May timeframe, has left a bit of a vacuum, a syndicate banker said on Tuesday.

Tuesday was destined to be a quiet day, at any rate, because a lot of people took vacation days on Friday and are just getting back to their desks after having managed to turn an already-extended holiday weekend into an even more extended one, a sellside source explained.

As people return from these mini-vacations, primary market activity is apt to intensify as the week goes on, the sellsider said.

Friday inflows

Cash flows for dedicated high-yield bond funds were positive on Friday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $53 million of inflows on the day.

Actively managed funds saw $35 million of inflows on Friday.

Dedicated bank loan funds were strongly positive on Friday, with $155 million of inflows on the day, the trader said.

High-grade names dominate

In the secondary market, although a trader said that overall activity was busy, with the Trace system estimating more than $3 billion of total volume by the close, the activity was concentrated in the higher parts of the credit spectrum. “A lot of high quality stuff was trading,” the trader commented, referring to the crossover plays, including such split-rated credits as Gap Inc., General Motors Financial Co. Inc. and recent split-rated issues from Charter Communications Inc. and Western Digital Corp. that were dominating the Most Actives list on Tuesday.

Western Digital’s senior secured 7 3/8% notes due 2023, which had priced at par back on March 30 and which have been among the most active issues since then, were ¼ point better at 104 bid on Tuesday with over $19 million traded.

But the other half of the Irvine, Calif.-based computer disk drive maker’s deal – its fully junk-rated 10½% notes due 2024 – were even busier on Tuesday, the trader said, as over $40 million having changed hands. The bonds gained 1½ points to 103¾ bid.

Recent issues busy

Among recently priced names, the new Teck Resources 8% notes due 2021 were finishing at 102½ bid, up 3/8 point on the day. More than $23 million traded.

The company’s 8½% notes due 2024 were at 102 5/8 bid, up 1/8 point, on about the same amount of volume.

Teck, a Vancouver, B.C.-based mining concern, priced $1.25 billion of those notes in a regularly scheduled forward calendar on Thursday after the transaction was upsized from an original $1 billion.

The deal consisted of $650 million of the 2021 notes and $600 million of the 2024 notes. Both tranches priced at par but quickly sprinted up above the 102 bid level on active volume when they were freed for secondary dealings.

Among other recently priced issues, the new Hertz Equipment 7¾% notes due 2024 were ¼ point better at 100 ½ bid on volume of over $16 million.

HERC, a division of the giant Estero, Fla.-based vehicle and heavy equipment rental company Hertz Global Holdings, Inc., priced $1.235 billion of new paper in two tranches on Wednesday after upsizing the scheduled forward calendar offering from $1.1 billion.

That deal consisted of the $625 million of 7¾% notes due 2024 as well as $610 million of 7½% notes due 2022, both of which priced at par and then hugged a par to 100¼ bid context.

Last week’s offering from TransDigm of 6 3/8% notes due 2026 eased by around 1/8 point, back to the par level on over $12 million of activity.

The Cleveland-based aircraft components maker’s $950 million of the notes had priced at par in a quick-to-market offering on Wednesday but firmed only slightly from that point, although on heavy volume.

Energy credits active

Away from the new issues, there was some activity seen among energy-related issues, which were mostly a mixed bag.

California Resources’ 8% notes due 2022 were seen by a market source firming to 73 bid, up 5/8 point on the session. Over $13 million of the bonds moved around.

The company’s 6% notes due 2024 meantime were seen trading in a 53 to 55 bid context, up around ½ point.

Continental Resources’ 3.8% notes due 2024, on the other hand, lost ½ point on the day, finishing at 87 1/8 point, on volume of more than $20 million.

First Quantum’s refinancing

First Quantum Minerals’ 7% notes due 2021 jumped some 2½ points on the day, which one of the traders said was a sizable strengthening for a largely quiet session.

Volume, though, was only around $4 million.

The rise came on the heels of the announcement late in the day during Friday’s abbreviated pre-holiday session that the Toronto based precious and industrial metals mining concern had completed a new term loan and revolving credit facility with its core relationship banks.

The company said the new facility replaces the existing $3 billion facility.

The new facility is comprised of a $907.5 million term loan facility, and a $907.5 million revolving credit facility, maturing in December 2019.

First Quantum said the new facility “includes revised financial covenants and an extended amortization schedule that only starts in June 2017, which combined with the receipt of the Kevitsa asset sale proceeds [from the sale of one of its mines], improves the financial flexibility of the Company without reducing liquidity, while further reducing net debt.”

Indicators stay mixed

Statistical market performance measures were mixed for a fourth consecutive day on Tuesday; the indicators had first turned mixed on Thursday, after being higher across the board on both Tuesday and Wednesday.

Although the junk bond market was officially closed on Monday in observance of the Memorial Day holiday, those indexes which did publish produced mixed results.

The KDP High Yield Daily Index was unchanged on Tuesday at 67.57; the index did not publish on Monday due to the holiday. On Friday, it had edged up by 2 basis points, its fourth straight gain and fifth such advance in the prior six sessions, after having risen by 9 bps on Thursday.

Its yield edged up by 1 bps on Tuesday to 6.18%; on Friday, it had come in by 1 bp to 6.17%, its fourth straight narrowing, after having tightened by 4 bps on Thursday.

The Markit Series 26 CDX North American High Yield Index lost 3/32 point on Tuesday to finish at ¾ bid, 102 25/32 offered, its fourth consecutive decline and seventh downturn in the last 11 sessions. On Monday, when the index published despite the holiday break, it had edged off marginally. On Friday, it had declined by 1/16 point and had lost 1/8 point on Thursday, its first setback after four straight sessions on the upside before that.

The Merrill Lynch North American High Yield Master II Index, though, gained 0.071% on Tuesday, its eighth straight advance and tenth such success in the last 12 sessions. On Monday, when the index was published despite the holiday break, it had firmed by 0.056%, on top of Friday’s 0.014% rise.

The latest gain lifted its year-to-date return to 8.147%, its sixth consecutive peak level for the year. That was up from 8.07% on Monday and from 8.01% on Friday – which had marked the first time the index’s cumulative return had moved above the 8% mark this year.

The index is now at its highest closing levels since Dec. 31, 2012 when it finished out that year at 15.583%.

© 2015 Prospect News.
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