XPO, Service King drive by, XPO gains; Community Health, Valeant lower; funds add $1.655 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 11 – After a one-day hiatus, new issuance resumed in the high-yield market on Thursday, syndicate sources said.

A pair of issuers brought more than $600 million of new dollar-denominated and fully junk-rated paper to market via a pair of quickly shopped transactions.

Supply-chain solutions provider XPO Logistics, Inc. priced $535 million of seven-year notes.

Traders said those bonds moved up once they hit the aftermarket.

There was also a smallish $75 million add-on offering from Service King Collision Repair Centers to its existing 2022 notes, via a pair of financing subsidiaries.

In the secondary market, traders reported a fall-off in volume in some of the recently priced offerings, including the previously busy Builders FirstSource Inc. and MGM Growth Properties LLC paper.

Away from the new deals, the traders saw Community Health Systems Inc.’s bonds down across the hospital operator’s capital structure in active trading.

And they saw Valeant Pharmaceuticals International, Inc.’s bonds – which had run up earlier in the week – fall on Thursday in response to potential new legal troubles.

Statistical market performance measures were mixed for a second straight session on Thursday; they had turned mixed on Wednesday after having been higher across the board for four straight sessions. Thursday’s was the

the indicators’ sixth mixed performance in the last 10 trading days.

However, 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 – was back on the upside this week, posting its first net inflow after two straight weeks of net outflows.

Some $1.655 billion more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, a solid rebound from the $2.464 billion outflow – the biggest cash loss seen so-far this year – that was reported last Thursday.

XPO prices tight

Two issuers came with single-tranche drive-by deals on Thursday to raise a combined total of $604 million.

Neither deal was upsized.

Executions were tight, with one pricing at the tight end of yield talk while the other priced at the rich end of price talk.

XPO Logistics priced a $535 million issue of seven-year senior notes (B2/B-) at par to yield 6 1/8% on Thursday, according to market sources.

The yield printed at the tight end of yield talk that had been set in the 6¼% area and in line with initial guidance in the low 6% yield context.

The deal played to at least $2.5 billion of demand, a trader said.

Barclays was the sole bookrunner.

The Greenwich, Conn.-based provider of supply chain solutions plans to use the proceeds to partially refinance its existing 7 7/8% senior notes due 2019.

Service King taps 7 7/8% notes

In other drive-by action on Thursday, Service King priced a $75 million add-on to the Midas Intermediate Holdco II LLC/Finance Inc. 7 7/8% senior notes due Oct. 1, 2022 (Caa1/CCC+) at 99.25 to yield 8.029%.

The reoffer price came at the rich end of price talk set in the 99 area.

Trading in the add-on paper was very quiet, a New York-based trader said.

JP Morgan, BofA Merrill Lynch, Credit Suisse, Deutsche Bank, Macquarie and Blackstone were the joint bookrunners for the general corporate purposes deal.

Vivint for Friday

APX Group, Inc., the holding company of Vivint, Inc., plans to price a $100 million tack-on to its 7 7/8% senior secured notes due Dec. 1, 2022 (B) on Friday.

An investor conference call was scheduled to take place late Thursday afternoon.

Credit Suisse, BofA Merrill Lynch, Deutsche Bank, Citigroup, Morgan Stanley, Macquarie, HSBC, Guggenheim, Mizuho and Imperial are the joint bookrunners for the general corporate purposes deal.

Diamond upsizes to $1 billion

Diamond Resorts International, Inc. upsized its notes offering to $1 billion from $600 million, while downsizing its concurrent term loan to $800 million from $1.2 billion.

The upsizing of the notes offer comes in the form of a $400 million tranche of seven-year senior secured notes (expected ratings B1/B+).

The secured notes, along with the previously announced $600 million tranche of eight-year senior unsecured notes (Caa1/CCC+), are set to price early in the week ahead.

RBC is the left bookrunner. Barclays and Jefferies LLC are the joint bookrunners.

Proceeds will be used to help fund the leveraged buyout of the company by Apollo Global Management LLC and to refinance some existing Diamond Resorts International debt.

The unsecured notes offering ran an Aug. 1 to Aug. 4 roadshow and was subsequently delayed when the company elected to restate earnings.

XPO paper pops

In the secondary arena, traders saw the new XPO Logistics 6 1/8% notes at higher levels in initial aftermarket dealings.

One saw the company’s quickly shopped new notes at 101 bid, 101¾ offered while a second pegged the bonds in a 101½ to 102 bid context.

At another shop, a market source saw the bonds moving between 101¼ and 102¼ bid.

The traders meantime did not immediately report any aftermarket dealings in the new add-on issue from Service King, a Richardson, Texas-based operator of a chain of auto collision repair shops.

Recent deals quiet down

The traders said that there was not much activity on Thursday in the recently priced issues which had dominated the Most Actives list over the previous few days.

For instance, a trader said that the Builders FirstSource 5 5/8% senior secured notes due 2024 “were not really moving much.” He quoted them in a 101¼ to 101½ bid context.

A second trader saw the notes moving between 101 and 101½ bid, with only about $8 million having changed hands.

That was a far cry from Tuesday, when the Dallas-based building supplies company had priced $750 million of the notes at par in a quickly shopped offering and they had shot up to 101½ bid in initial aftermarket dealings of more than $56 million.

More than $36 million of the notes had moved around in follow-up trading on Tuesday, holding around those same levels.

MGM Growth Properties’ 4½% notes due 2026 held steady in a narrow range between 100¼ and 100 5/8 bid on Thursday, also on only about $8 million traded.

The company – a Las Vegas-based real estate investment trust specializing in gaming and lodging industry properties – priced $500 million of the notes at par on Tuesday also in a quick-to-market transaction, via its MGM Growth Properties Operating Partnership LP and MGM Finance Co-Issuer Inc. subsidiaries.

More than $39 million had traded on Wednesday, when the bonds settled between 100¼ and 100 5/16 bid.

Community Health gets hit

Away from the new issues, traders said that the various bonds of Community Health Systems were lower on Thursday; one trader said that “they popped the other day, but were off ½ to 2 points or so today.”

A second trader said the Franklin, Tenn.-based hospital operator “got toasted,” seeing its 6 7/8% notes due 2022 fall by 2¼ points to 84¾ bid, with over $34 million changing hands, while its 8% notes due 2019 were down a deuce on the day at 95½ bid, with over $26 million traded.

He saw its 7 1/8% notes due 2020 off almost 4 points on the day at 87 5/8 bid, with $14 million of turnover.

He suggested that investors were reacting to the reduced EBITDA guidance the company recently put out in the wake of its spinoff of Quorum Health Resources LLC and the latter’s 38 hospitals, a separation that was completed during the just-ended second quarter.

Valeant off on probe

Elsewhere in the healthcare sphere, Valeant Pharmaceuticals’ debt was among the day’s losers, though one trader was surprised the bonds hadn’t dropped lower.

The bonds – which had run up earlier in the week after the company reported earnings and reaffirmed its yearly guidance – declined 1 to 2 points after the Justice Department said it was looking into whether or not Valeant defrauded insurers by not being forthcoming about its relationship with mail-order pharmacy Philidor.

A trader said the 6 1/8% notes due 2025 dipped “almost 2 points” to 86, while the 5 7/8% notes due 2023 slid a point to 87.

Another trader saw the 6 1/8% notes falling 1½ points to “around 86.”

The market learned of the federal probe in October 2015. Since then, the Canadian drugmaker has been beset by even more troubles, including issues with its accounting practices.

On Thursday, a report from the Justice Department was released that indicated the investigation into the relationship with Philidor could result in criminal charges.

Valeant said in its earnings release this week that it had been cooperating with the investigation.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Thursday; they had turned mixed on Wednesday after having been higher across the board for four straight sessions.

The KDP High Yield Index eased by 1 basis point on Thursday, to 69.80 – its first downturn after five straight gains. It had risen by 8 bps on Wednesday.

Its yield rose by 1 bp on Thursday to 5.47%, its first increase after five straight sessions before that in which the yield had narrowed, including Wednesday, when it had come in by 3 bps.

The Markit Series 26 CDX Index rebounded on Thursday from Wednesday’s loss, which had been its first setback after five straight gains.

The index firmed by 3/16 point to close at 104¾ bid, 104 25/32 offered after dipping by 1/8 point on Wednesday.

The Merrill Lynch High Yield Index was meanwhile up for a seventh successive session, firming by 0.039%, on top of the 0.075% gain seen Wednesday.

Thursday’s advance brought the index’s year-to-date return up to 123.483%, its fifth consecutive new peak level for the year, eclipsing the former mark of 13.438%, which had been set on Wednesday.

-Stephanie N. Rotondo contributed to this review

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