Upsized MDC prices to cap $2.57 billion week, moves up; oil names gain; busy Valeant fades

By Paul Deckelman and Paul A. Harris

New York, March 18 – The high-yield primary sphere saw its biggest pricing of the week on Friday as marketing and communications company MDC Partners Inc. brought an upsized $900 million issue of eight-year notes to market, a day after the offering was first announced.

When the new issue hit the aftermarket, traders saw the notes firming smartly, scoring gains of more than 1 point.

The MDC deal closed out a week which saw some $2.57 billion of new dollar-denominated and fully junk-rated paper come to market in six tranches, down from the $3.21 billion which gotten done in five tranches last week, ended March 11, according to data compiled by Prospect News.

The week’s issuance, in turn, lifted year-to-date new issuance to $20.28 billion in 36 tranches – but that still lagged 73% percent behind the year-ago new deal pace, when $75.23 billion of new junk paper having priced in 108 tranches by this point on the 2015 calendar, according to the data.

Among the issues which came to market earlier in the week, Radian Group Inc.’s five-year notes were clearly the standout performers during the week, finishing more than 2 points above their issue price.

Away from the new deals, traders saw energy names with a good bid, led by Whiting Petroleum Corp., whose bonds rose 10 points on the day, helped by the news that the company had reached agreement with some of its bondholders on an exchange of new convertible notes for their existing bonds.

Valeant Pharmaceuticals International Inc.’s bonds were once again among the busiest junk credits on the day, but were seen falling back after showing early strength.

Statistical market performance measures turned mixed on Friday after having been higher across the board on Thursday. It was their second mixed session in the last three trading days.

However, those indicators were higher all around versus where they had finished out last Friday – their fifth consecutive upside week-over-week performance.

MDC upsized and tight

MDC Partners priced Friday’s sole deal, an upsized $900 million issue of eight-year senior notes (B3/B+) that came at par to yield 6½%.

The yield printed at the tight end of the 6½% to 6¾% yield talk, which was also the initial guidance.

The deal went well, playing to a book that contained at least $2 billion of orders, a trader said.

The new MDC Partners 6½% notes were at 101¼ bid, 101¾ offered late Friday afternoon, sources said.

J.P. Morgan and Wells Fargo were the joint bookrunners.

The New York-based marketing and communications network services provider plans to use the proceeds to redeem all $735 million of its outstanding 6¾% senior notes due 2020, and to repay any outstanding borrowings under its amended and restated senior secured revolver. Any remaining proceeds will be used for general corporate purposes, including funding of deferred acquisition consideration.

Prior to the upsizing of the deal the company had said it intended to use cash on hand, in addition to the original amount of bond proceeds, to refinance the debt.

Western Digital to bring deal

There were deal announcements on Friday.

Western Digital Corp. plans to start a roadshow on Monday for $5.5 billion of bonds in two tranches.

It features a $1.5 billion tranche of split-rated seven-year senior secured notes (Ba1/BBB-/BBB-) as well as a $4.1 billion tranche of straight speculative-grade eight-year senior unsecured notes (Ba2/BB+/BB+).

The secured tranche comes with initial guidance in the low 6% context. The unsecured tranche has initial guidance in the low 9% context.

The roadshow wraps up on March 28 and the deal is expected to price on March 29.

Bank of America Merrill Lynch, J.P. Morgan, Credit Suisse, RBC and HSBC are the joint bookrunners for the deal to help fund the acquisition of SanDisk Corp.

Surgery Partners roadshow

Elsewhere Surgery Center Holdings, Inc. plans to start a roadshow on Monday for a $400 million offering of five-year senior notes.

The deal is set to price early in the March 28 week.

Initial conversations are taking place in a yield context around 8 ½%, sources say.

Jefferies is the left bookrunner. BofA Merrill Lynch, Goldman Sachs and Morgan Stanley are the joint bookrunners.

The issuer is a subsidiary of Nashville, Tenn.-based Surgery Partners, Inc., a provider of surgery and related health care services. It plans to use the proceeds to repay its existing second-lien debt, as well as to pay down its revolver and for general corporate purposes.

The week ahead

Look for business to pick up during the holiday-shortened pre-Easter week, a syndicate banker said on Friday.

Watch for at least three deals, two from the health care sector and one from the technology sector, the banker said, adding that all of them will be sized $500 million or higher.

It could be a big week, but issuers are expected to come early in the period because the crowd will likely begin to thin as Good Friday approaches, the banker advised.

The syndicate official cast a weather eye upon crude oil prices, which declined somewhat on Friday.

The barrel price of West Texas Intermediate crude oil for April 2016 delivery fell 84 cents, or 2.09%, to $39.36.

“The crude oil price recovery has been driving the return of risk appetite,” the banker said, adding that the way ahead may hinge on that price continuing to improve or at least holding in.

Inflows for Thursday

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

High-yield ETFs saw $334 million of inflows on the day.

Asset managers saw $100 million of inflows on Thursday.

Those daily inflows trail Thursday’s report that the junk funds saw $1.68 billion of aggregate inflows during the week to Wednesday’s close, according to Lipper-AMG.

MDC moves up

When the new MDC Partners 6½% notes due 2024 reached the aftermarket, “they were well received,” a trader said.

He pegged the bonds at 100¾ bid, 101¼ offered, up from their par issue price.

Two other traders meantime saw the bonds doing even better than that, each separately quoting them going home at 101¼ bid, 101¾ offered.

“With that,” one of them said, “the CDS for MDC probably tightened by around 15” basis points on the day in the credit default-swaps market.

Radian continues rise

Elsewhere among the new and recently priced issues, a trader saw Radian Group’s 7% notes due 2021 continuing to add to the already hefty gains that those bonds have notched since their Tuesday pricing.

He quoted the notes trading in a 102 3/8 to 102 7/8 bid context, although he said that was actually down 1/8 point on the day.

But at another desk, the trader saw the bonds doing better than that, finishing the session at 103 bid, up ½ point from their Thursday close.

He said, though, that activity was limited, with just around $6 million of the bonds having traded.

Radian Group, a Philadelphia-based mortgage insurance provider, priced its $350 million of the new notes at par on Tuesday after the deal was upsized from $325 million originally.

The offering had surfaced in the market on Monday and priced the following day. It was one of the most actively traded issues in Tuesday’s market, racking up over $47 million of volume, as the new bonds shot up to 101½ bid. On Wednesday, they gained another ½ point to 102, with about $15 million traded.

The firming trend continued on Thursday, setting the stage for Friday’s further gains.

Valeant in retreat

Away from the new issues, Valeant Pharmaceuticals International’s bonds were among the top trading credits on the session Friday, at least volume-wise, just as they have been pretty much all week.

A market source saw the Canadian drug manufacturer’s most actively traded issue, its 6 1/8% notes due 2025, falling 1½ points on the day to end at 75 3/8 bid. More than $40 million of the bonds changing hands.

Elsewhere in the capital structure, the company’s 6¾% notes due 2018 surrendered nearly 2½ points on the day to close just below 87½ bid.

Valeant, another trader said, “was trading in a 2 point range.

“It had a nice strong bid this morning – but then it kind of just crapped out and ended down 1½ point after being up 1½.”

Laval, Que.-based Valeant’s numerous series of outstanding bonds had fallen sharply on Tuesday. The 6 1/8% notes, for instance, plunged by more than 10½ points on the session on volume of $196 million after the drug manufacturer held a conference call during which it announced that as a result of its ongoing review of past accounting problems it would lower its 2015 year-end and full-year 2016 revenue and EBITDA guidance from previously projected levels.

With Valeant thus having less free capital to deploy, it also said that it would cut debt by $1.7 billion this year – down from the $2.25 billion debt-cutting target that it had proclaimed when it held its investor day back in December,

Valeant further said at that time that because it was forced to delay its year-end 10-K report to the Securities and Exchange Commission past a March 16 deadline due to the ongoing accounting review it was in breach of the reporting covenants on its bonds, which in turn triggers cross-defaults on its credit agreements – although the company said that it would meet with its banks in the coming week to seek waivers on any such events of default.

After that initial carnage on Tuesday, the Valeant bonds had seemed to be recovering as the week wore on, with the 2025 notes having firmed slightly Wednesday and again on Thursday, bouncing off the bottoms they had hit on Tuesday – only to give back those gains during Friday’s session, on continued heavy volume.

Whiting up on swap

Whiting Petroleum was the nom du jour in the distressed debt market on Friday, jumping as much as 10 points on word the company had wrapped a private debt swap.

A trader said the company’s 5% notes due 2019 traded up almost 5 points to 76 on “tons of trades.” He also saw the 6½% notes due 2018 rising 10½ points to 71¼.

At another desk, a trader said the 5% notes improved by 10 points, trading as high as 80. He called the 5¾% notes due 2021 8 points better at 76.

The Denver-based oil and gas producer said Friday that it had reached a deal with bondholders to privately exchange approximately $430 million of unsecured notes for new convertible notes due in 2018, 2019 and 2021.

Elsewhere in the oil and gas space, bonds were trending higher even as oil prices came in towards the end of the day.

“Oil was up pretty good but now it’s down almost a buck,” a trader said at the close.

The weakness in the commodity – domestic crude closed off almost 1% at $41.27 a barrel – came as Baker Hughes reported that active drill rigs in the United States increased by one this week. The addition comes after 12 weeks of declines.

Profit taking was also blamed for oil’s slip.

A trader said Linn Energy LLC’s 8 5/8% notes due 2020 were up a point at 11¾. The trader also saw Continental Resources Inc.’s 3.8% notes due 2024 popping 3 points to 85½.

A quiet session

Some market participants took advantage of the unseasonably mild weather for the last few days of winter in the Northeast and made an early exit.

“I think it was quiet,” one of the traders said. “I thought even oil and gas would have been a little more active today,” with oil prices lower, “but it still looked to be a pretty decent bid for some of the shorter dated paper.”

He said the healthcare sector “was quiet today, and gaming saw not a heck of a lot” of activity.

The day, he said, “was more of a sleeper than anything else. I’ve been trying to do a trade for an hour – and no one’s around.”

He said that there had been “a little bit of action in the morning – but there was no real direction today,

“It was just kind of a sideways day, in my opinion.”

Indicators mixed

Statistical market performance measures turned mixed on Friday after having been higher across the board on Thursday. It was their second mixed session in the last three trading days.

However, those indicators were higher all around versus where they had finished out last Friday – their fifth consecutive upside week-over-week performance.

The KDP High Yield Daily Index rose by 24 basis points on Friday to end at an even 66.00, its third straight gain after one loss and its sixth improvement in the last seven sessions. On Thursday, the index had moved up by 28 bps.

Its yield eased by 1 bp to 6.62% after having tightened by 9 bps on Thursday. It was its third straight narrowing after having widened in one session and its fifth tightening in the last six sessions.

Friday’s levels compared favorably with last Friday’s 65.46 index reading and 6.74% yield.

The Markit Series 25 CDX North American High Yield Index, on the other hand, lost 1/8 point on Friday, finishing at 102 13/16 bid, 102 27/32 offered. It was the index’s first loss after two straight gains, including Thursday, when the index rose by 17/32 point, and its third setback in the last five sessions.

But the index was up on the week from last Friday’s close at 102 19/32 bid, 102 5/8 offered.

The Merrill Lynch North American High Yield Master II Index posted its second consecutive improvement on Friday, advancing by 0.59% on the day, on top of Thursday’s 0.638% upturn.

Friday marked the index’s fifth gain in the last seven sessions.

Friday’s advance improved the index’s year-to-date return to 3.599% – its second straight new peak cumulative gain, up from Thursday’s 2.991%, and its first time this year above the psychologically significant 3% mark.

For the week, the index was up by 1.054% – its fifth consecutive weekly gain and seventh upturn in the last nine weeks.

The index had also risen by 1.154% last week, when the year-to-date return stood at 2.518%.

-Stephanie N. Rotondo contributed to this review

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