NEW YORK: At least three US high-yield issuers are on tap to print deals on Wednesday, including a payment-in-kind (PIK) toggle for American Greetings and a USD500m trade for Micron Technology.
But not everything is going smoothly in the asset class, as there was some pushback on homebuilder Lennar, which delayed its new transaction a day and shortened the tenor.
On Tuesday it had been expected to price a planned USD250m 12-year deal after price talk was set at 4.25% area.
But on Wednesday morning the issuer instead launched a dramatically shorter USD400m five-year bullet at a wider 4.5%.
Citi is running the deal off its investment-grade desk. One high-yield syndicate official said that the changes proved that investors were remaining disciplined despite what had been a vastly improved market tone on Tuesday.
"The market is under pressure, given factors about emerging market contagion, and we're keeping a sharp eye on things," he said, adding that the original price talk on Lennar may have been
Aggressive too, even though it is a split-rated crossover name. Meanwhile the stock rebound proved to be short lived, with the S&P headed south again on Wednesday.
It was off 0.4% by midday, while the HY21 index was marginally softer. And the secondary performance of most of Tuesday's four deals from Netflix, AMC Entertainment, Regency Energy Partners and Chrysler was lackluster.
Chrysler's 2019s and 2021s were about a quarter of a point higher. The dual-tranche USD2.755bn deal, one of the largest add-ons ever in the US market, had attracted an order book of around USD8bn.
Economic data is driving sentiment at the moment, and market participants are cautious ahead of Friday's payrolls print.
Investor concerns are centered on whether a slowdown in emerging market economies will have an impact on demand for US exports and the broader US economy.
At the same time, fears about a sharp hike in interest rates have diminished, following a surprise fall in 10-year Treasury yields to 2.65% from around 3% at the start of the year.
PIK INTEREST
More details emerged on the USD275m five-year non-call two senior PIK toggle issue for Century Intermediate Holding Company the indirect parent of American Greetings Corporation.
Price talk was set at 9.75%-10% by left lead BofAML on Wednesday for the cash coupon, and 75bp back from that if PIK. The deal is expected to price with an original issue discount of one point, with books to close at 3pm.
American Greetings 7.375% December 2021 bonds were bid at around 101 to yield 7.2%, according to Trace data, indicating a subordination premium of around 250bp in line with most PIK deals that have printed over the past few months.
The PIK has probably aroused the most interest of recent primary deals, simply because of its timing.
Such instruments are usually restricted to buoyant market conditions, so the announcement on Tuesday seemed to indicate that high-yield is well and truly open for all types of deals.
The majority of the proceeds will repay the preferred stock investment made by a subsidiary of Koch Industries last year that helped finance the USD878m management buyout of the century-old card maker by its founding Weiss family.
Although a risky instrument mainly because the issuer has the option to skip cash interest payments the transaction will improve the company's over all cost of capital, Moody's said. It said that was driven by the tax-deductibility of debt versus preferred stock.
"We (also) expect the company to deleverage at a moderate pace over time, primarily driven by debt repayment," the rating agency said, predicting a leverage range of around 4.0 times over the next 12 to 18 months.
Moody's assigned a B3 rating to the PIK on Tuesday, and upgraded the senior unsecured notes issued by American Greetings by one notch to B2 and the first-lien debt to Ba2 at the same time, citing the increase in junior debt capital.
The proposed debt issuance will refinance about USD247m of unrated preferred stock held at Century Intermediate Holding Company, a subsidiary of Century, fund approximately USD32m in prepayment penalty fees, and pay a dividend of approximately USD35m, according to Moody's.
The dividend will go to a related company outside of the restricted group, which is owned and controlled by the Weiss family, and will partially finance the building of new company headquarters where American Greetings will ultimately be a lessee.
The buyout was financed through a combination of Weiss shares, the investment by a subsidiary of Koch Industries, USD600m in committed debt financing and cash on hand.
BofAML, Deutsche Bank, KeyBank, Macquarie and PNC underwrote the original debt, which consisted of a USD200m revolver and a USD400m term loan.
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