NEW YORK, Nov 8 (IFR) - The US high-yield primary market
quickly got back to business post-hurricane Sandy with 19 deals
launched this week through Thursday, most of which are drive-by
Despite lingering transit difficulties, market participants
were mostly back at their desks. With Election Day over, focus
has shifted back to the US fiscal cliff and Europe, with the
high-yield cash market lower on both Wednesday and Thursday,
although still outperforming equities.
Despite the pullback in the secondary market, the high-yield
primary market remains robust, with plenty of buyside cash
needing to be put to work and issuers busily working to price
deals before the Thanksgiving holiday.
"We are certainly going to be sprinting hard to Thanksgiving
with a good backlog of deals," said one syndicate manager.
A few large deals have led issuance this week. Offerings
from Clear Channel Worldwide, E*TRADE and an upcoming deal for
Sprint Nextel have filled up the calendar, along with a number
of smaller drive-by and roadshow offerings.
Launched last week, Clear Channel Worldwide Holdings, the
subsidiary of Clear Channel Outdoor, priced a large
US$2.725bn series A and series B senior notes issue on Tuesday
via Goldman Sachs, Citigroup, Morgan Stanley, Credit Suisse,
Deutsche Bank and Wells Fargo joint books.
The 10-year non-call five deal was split into US$735.75m
series A notes that priced at 6.50% at 99 to yield 6.639%, and
another US$1.99bn in series B notes that priced at 6.50% at par.
This was on the wide end of talk for both series of notes.
Clear Channel is a marquee name in the high-yield market,
and Clear Channel Outdoor is considered to be one of the
strongest parts of its business.
The deal was heard to have been well-oversubscribed, but
aftermarket performance was disappointing. Initially the series
A notes dropped half a point, while the B notes were seen down
one eighth of a point. As markets slumped following Election
Day, the issue was still under pressure, off a quarter of a
E*TRADE Financial Corp was another large issuer on
Tuesday, pricing a B2/B- rated US$1.305bn two-part deal, split
between five-year non-call two and seven-year non-call three
senior notes. BofA Merrill, Goldman Sachs and Morgan Stanley
were joint books.
E*TRADE was motivated to come to market to address its high
coupon 12.50% springing lien notes due 2017, which are callable
in a couple of weeks. It also tackled the 7.875% senior notes
due 2015. Through this exercise, the company saves close to
US$50m in annual interest expense.
The new US$505m senior notes tranche due 2017 priced at 6%
at par, in line with talk. The remaining US$800m in senior notes
due 2019 priced at 6.375% at par, on the wide end of talk. In
the aftermarket, the deal was quoted around par on Wednesday
while the broader market sold off roughly half a point.
Financial names do not make up a big part of the high-yield
universe, but several entered as fallen angels following the
Post-crisis, however, these financial credits, which include
CIT, ILFC and Ford Motor Credit, have shown marked improvement.
FMCC this year was upgraded to investment-grade by Moody's and
Fitch (S&P rates it BB+). ILFC, meanwhile, is split rated -- Ba3
at Moody's and BBB- at S&P. S&P revised its outlook on ILFC to
stable earlier this year from negative.
E*TRADE, rated Ba3/B+, is also viewed as starting to turn a
corner as it shrinks its balance sheet and loan book and
improves capital ratios and free cash flow, which can be used to
pay down debt.
With positive momentum backing the name, demand for the new
notes was good. The book included a major roll-over factor from
existing holders, as well as new money from high quality
E*TRADE's five-year tranche also appealed to a certain
pocket of investors, as the short maturity was viewed as a way
to have less interest rate risk while capturing yield on a
short-term basis. At the same time, investors are betting that
the notes will be called in two years.
The five-year note trend appears to be gaining momentum.
Other issuers to price five-year bonds recently include Avis
Budget Car Rental, which priced on Monday a US$300m 4.875%
five-year non-call 2.5 senior notes offering.
iStar Financial raised US$300m in a 5.25-year bullet
note on Wednesday at 7.125% at par. Last week, Checkers Drive-In
Restaurants priced a US$160m five-year non-call 2.5 senior
secured issue at 11% at par via Jefferies.
This afternoon, Epicor launched a US$340m five-year non-call
one senior discount note through BofA Merrill and RBC that is
expected to price tomorrow.
"There is an influx of short duration capital, with some
investors looking for five-year paper," said the syndicate
manager. "Investors have identified this yield to call paper as
being increasingly in their investment management style. We tend
to find some of these investors betting that the debt will be
called out, given the state of the market."
Elsewhere in the market, Sprint Nextel is expected to
price a US dollar benchmark sized 10-year bullet issue later
today through BofA Merrill, Barclays, Citigroup, Deutsche Bank,
Goldman Sachs and JP Morgan joint books. Proceeds will be used
to repay debt. The deal is talked at 5.875% area.
Sprint Nextel was last in the market in August with a
US$1.5bn eight-year bullet note via JP Morgan left lead. That
deal priced at 7% at par and was trading at 109.50-110.50
In the broader market, default rates declined in October.
Moody's reported that the 12-month trailing global
speculative-grade default rate came in at 2.9% for the month,
down from 3.1% in September. In the US, the default rate edged
lower to 3.4%, compared to 3.5% in September.
Similarly, S&P estimates that the 12-month trailing
speculative grade corporate default rate in the US decreased to
2.8% in October from 3% in September. The rating agency said the
slight decline last month is a result of a large number of
defaults in October 2011 falling out from the pool of
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