US high-yield prints US$2.15bn on quiet day

8 min read

Canadian aerospace and defense company Bombardier priced the biggest deal of the day, raising US$1.8bn from a two-part issue that will push out the maturity of its debt and cut its funding costs.

Price whispers on the quick-print deal were heard from investors in the area of high 4% for the five-year tranche and low 6% on the longer 8.5-year bond, and official price talk was later confirmed at 4.75%–4.875% and 6.125% respectively.

“We like the story, and Bombardier is a very price sensitive issuer and will price marginally cheap,” said one fixed-income portfolio manager.

By mid-afternoon, demand had topped US$5.7bn across both tranches, investors said.

The final sizes of each portion were fixed at US$600m on the bullet five-year and US$1.2bn for the longer dated issue, callable after three years, and they priced at par at 4.75% and 6% respectively.

Both of those coupons are well inside the 7.25% and 6.3% interest costs on the respective €785m (US$1.1bn) 2016s and the US$162m 2014s that the new bonds will refinance. The 2016s become callable next month at US$101.21, while the 2014 notes mature on May 1 2014.

Observers estimated the new issue concession at between 5bp and 12.5bp on the five-year, and said there was none on the 8.5-year based on yields of 4.1% and 5.4% on Bombardier’s 2018 and 2020 bonds; and yields of 5.69% and 6.086% for the March 2022s and January 2023s.

Bank of America Merrill Lynch is left-lead on the trade, alongside Barclays, Citigroup, Commerzbank, Credit Agricole, Credit Suisse, Deutsche Bank, JP Morgan, Morgan Stanley, NBC and UBS on the right.

“It’s a good deal in terms of technicals, and Bombardier has been trying to get this deal done for months,” said one.

Citi analysts said earlier this month that Bombardier, rated Ba3 by Moody’s and BB- by S&P and Fitch, could tap the US high-yield market with a US$1.75bn–$2bn new issue following a meeting with the company’s management.

According to Citi, CFO Pierre Alary said there was a possibility of raising US$500m–$750m of additional liquidity, as well as prefunding the 2016 euro notes and refinancing the 6.3% 2014 notes.

Exterran funds Chesapeake deal

Exterran Partners was the other deal to price, and it had similar success, upsizing its deal by US$50m and pricing well inside price talk.

Its US$350m 8.5-year non-call four senior note will partly finance its planned acquisition of natural gas compression assets from Chesapeake Energy Corp.

Exterran, which provides natural gas contract operations services throughout the US, agreed to pay US$360m in late February to purchase 334 compression units from Chesapeake in Arkansas, Louisiana, Oklahoma, Texas and Wyoming.

Whispers on the new bond were heard in the area of 6.25%–6.5% from one investor, and price talk later emerged at 6.375% area.

It priced at par to yield 6% – roughly flat to the company’s 6% US$350m April 2021 bonds trading just a touch below par when the new deal was announced – but 25bp wider in spread terms.

“Like the sector, but margins are thin and pricing is tight,” said one investor.

Wells Fargo is left-lead on the deal alongside Credit Agricole, RBS, Bank of America Merrill Lynch, JP Morgan, RBC and Goldman Sachs.

The bond, rated B1 by Moody’s and B from S&P, and proceeds for the acquisition will be held in escrow until the deal closes. The remainder will be used to repay outstanding borrowings under its revolving credit facility.

Bankers ready Men’s Wearhouse debt financing

No other new deals were announced Monday, although price talk emerged on Lonestar Resources’ US$200m five-year deal at 8.75% area. Left lead Jefferies is due to price the deal Tuesday.

Looking ahead, bankers will meet Tuesday on the US$2.2bn debt financing backing the acquisition of Jos A. Bank by rival clothing retailer Men’s Wearhouse, sources told IFR.

Moody’s meanwhile assigned a Ba2 rating Monday to the loan portion of the financing for the US$1.8bn deal between two of the largest names in the US retail clothing market.

According to a filing, Men’s Wearhouse said the debt would comprise a US$500m asset-based lending revolver, a US$1.1bn covenant-lite senior secured term loan B, and US$600m in unsecured notes – or, if the notes are not issued by the time of the merger, US$600m in senior unsecured bridge loans.

JP Morgan is lead-left on the revolver and the term loans, joined by Bank of America Merrill Lynch to the right. Bank of America Merrill Lynch is lead left on the bridge loans, joined by JP Morgan to the right.

Moody’s said the ratings were constrained by the high initial debt burden with leverage in the region of mid-five times. However, it expects that to fall to under five times within 12 to 18 months from the closing of the acquisition, due to cost savings and free cash flow generation.

“The cost saving synergies that management has estimated at USD100-150m are realistic and can be realized over the next few years,” the rating agency said.

Comcast divestitures could bring high yield supply

In other M&A related deals, leveraged finance bankers left disappointed that Time Warner Cable struck a deal to merge with investment-grade Comcast Corp rather than “junk” rated Charter Communications may have something to cheer about after all.

Reuters reported on Monday that the three million subscribers that Comcast Corp plans to divest as part of the deal to buy Time Warner Cable might be worth roughly US$18bn, according to a source familiar with the matter.

“A majority of the financing will eventually be financed in the high-yield bond market,” the analyst predicted.

The company has received strong interest from other cable companies and investors, the source quoted by Reuters said.

Charter Communications, Cox Communications and Sequel Communications could be among them, the analyst said.

Neil Begley, senior analyst at Moody’s, said it would make sense from Comcast’s perspective to sell subscribers in areas where it does not have a large footprint.

“If there is another cable group in close proximity to those areas where Comcast is not as big, they will likely pay the most money. It’s certainly how Comcast could maximize the money they get,” said Begley.

According to Reuters, while the subscribers could be sold off, Comcast is also considering a spinoff of the assets into a separate publicly traded company.

“That is also an option. Comcast could spin off the subscriber base, and that could be bought out as a whole by someone like Charter.”

However, analysts were skeptical about the US$18bn valuation, as it values each of the three million subscribers at approximately US$6,000 each.

The first credit analyst valued the assets closer to US$15bn, or approximately US$5,000 per subscriber.

A plane flies over a Bombardier plant in Montreal