Downsized, still-gigantic Community Health leads pricing parade; Harbinger, Masonite join in

By Paul Deckelman and Paul A. Harris

New York, Jan. 15 - Community Health Systems, Inc. was heard by high-yield syndicate sources to have brought a sharply downsized, but still enormous, $4 billion two-part offering to market on Wednesday, more than doubling the amount of dollar-denominated, fully junk-rated paper that has priced so far this year.

The hospital operator's giant-sized transaction was not only the biggest deal seen so far in the fledgling new year - topping the split-rated $3.65 billion three-part offering that Icahn Enterprises LP did exactly one week ago - but it was the biggest junk deal seen since last Oct. 8, when Deutsche Telekom AG successfully did a $5.6 billion five-part secondary offering of bonds of its T-Mobile USA Inc. unit, according to data compiled by Prospect News. It was also the biggest issuance of new junk since Sprint Corp.'s $6.5 billion two-part bond offering last Sept. 4, the data indicated.

The Community Health bonds came too late in the session for any kind of aftermarket.

Earlier in the session, diversified holding company Harbinger Group Inc. priced a quick-to-market $200 million of eight-year notes, while door manufacturer Masonite International Corp. did a quickly shopped add-on to its existing 2021 notes.

And Goldman Sachs-affiliated funds did a successful $1.4 billion secondary offering of First Data Corp. senior PIK notes.

Traders saw all three of those names trading well above their respective issue prices later in the day.

Apart from the new deals, Caesars Entertainment Corp.'s bonds moved higher in heavy trading on Wednesday, although there was no company-specific fresh news out that might explain why the debt-laden casino giant's paper would be doing so well - other than its attractive yield, well into the double digits.

Statistical market performance measures were higher across the board for a second consecutive session.

$4.36 billion on Wednesday

The primary market saw three issuers bring a total of four tranches of junk, raising a combined total of $4.36 billion on Wednesday.

In addition, a secondary offering of First Data bonds, sold by funds affiliated with Goldman Sachs, nearly doubled in size and traded sharply higher.

The session's largest amount of issuance came from Community Health Systems, Inc., which completed a downsized $4 billion two-part deal.

A $1 billion tranche of 7.5-year senior secured notes (Ba2/BB/) priced at par to yield 5 1/8%. The secured notes tranche was reduced from $1,705,000,000. The yield printed on top of yield talk.

An upsized $3 billion tranche of eight-year senior unsecured notes (B3/B-/B) priced at par to yield 6 7/8%. The unsecured tranche was upsized from $2,875,000,000. The yield printed at the tight end of yield talk in the 7% area.

The overall bond portion of the financing was decreased from $4.58 billion. At the same time, the company upsized its seven-year term loan D to $2,925,000,000 from $2.26 billion.

Joint physical bookrunner BofA Merrill Lynch will bill and deliver for the acquisition financing deal. Credit Suisse was also a joint physical bookrunner.

Citigroup, Goldman Sachs, J.P. Morgan, RBC, SunTrust, UBS and Wells Fargo were joint bookrunners.

Harbinger at the tight end

In drive-by action, Harbinger Group priced a $200 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 7¾%.

The yield printed at the tight end of the 7¾% to 8% yield talk.

Credit Suisse, Deutsche Bank and Jefferies were the joint bookrunners for the general corporate purposes deal.

Masonite upsizes tap

Masonite International also came quick-to-market, pricing an upsized $125 million add-on to its 8¼% senior notes due April 15, 2021 (B3/B+) at 108¾ to yield 5.704%.

The deal was upsized from $100 million.

The reoffer price came rich to price talk in the 108½ area.

BofA Merrill Lynch was the sole bookrunner.

The Tampa, Fla.-based door manufacturer plans to use the proceeds for general corporate purposes, which may include future acquisitions.

First Data PIK notes

Affiliates of Goldman Sachs resold a massively upsized $1,399,257,000 amount of First Data Holdings Inc. 14½% senior all-PIK notes due Sept. 24, 2019 on Wednesday.

The non-rated notes, which came as a secondary offering, were priced at 94½ to yield 15.95%.

The deal was upsized from $725 million.

The reoffer price came on top of price talk that was richened from earlier talk of 94.

The notes traded sharply higher to 96¾ bid, 97¼ offered, according to a trader who saw high volume.

Goldman Sachs ran the books.

Proceeds from the private offer will go to the affiliates of Goldman Sachs.

First Data, a Greenwood Village, Colo., provider of electronic commerce and payment services, will not receive any proceeds.

CBS Outdoor's tranches, talk

CBS Outdoor Americas Inc. set tranche sizes and price talk for its $800 million two-part offering of senior notes (B1/BB-).

A $400 million tranche of eight-year notes, which come with three years of call protection, is talked with a yield in the 5 3/8% area. That's the wide end of earlier guidance of 5¼% to 5 3/8%, however the deal came into the market with initial guidance in the high 5% context, according to market sources.

Meanwhile a $400 million tranche of 10-year notes, which come with five years of call protection, is talked to yield in the 5¾% area. Again, it is the wide end of earlier guidance of 5 5/8% to 5¾%, but inside of initial guidance in the low 6% range.

The deal is expected to price on Thursday.

Deutsche Bank, Citigroup and Wells Fargo are the active bookrunners.

Community Health not seen

In the secondary market, traders did not see any signs of the new Community Health Systems bonds, owning to the lateness of the hour at which the Franklin, Tenn.-based hospital operator's $4 billion two-part offering priced.

Earlier bonds trade up

However, traders did see some activity in the bonds that came to market earlier in the session - and these were all seen having moved up from their respective issue prices.

"The two new deals that came were looking pretty good," a trader said, referring to the offerings from Harbinger Group and Masonite International.

"The market was pretty firm, and there is growing demand for product," he opined.

He heard Harbinger's 7¾% notes due 2022 being quoted around 101 bid, up from the par level at which the New York-based diversified holding company's quick-to-market issue had priced.

A second trader quoted the bonds at 101¼ bid, while at another desk, a trader saw two-sided markets at 101 3/8 bid, 101 7/8 offered.

Masonite's quickly-shopped add-on to its 8¼% notes due 2021 were seen by a trader at 110 bid, 111 offered, up from the 108¾ level at which that tranche priced.

And besides those deals, a trader said that the big secondary offering in First Data's 14½% senior PIK notes due 2019 was trading around 97 bid, after having priced earlier at 941/2.

Another market source located the bonds in a 96¾ to 97¼ context.

Going back a day or so, a trader saw Laredo Petroleum, Inc.'s 5 3/8% notes due 2022 up ½ point on the session at 101 bid, 101¼ offered.

The Tulsa, Okla.-based energy exploration and production company had priced its $450 million drive-by offering at par late in the day on Monday, after upsizing the deal from an originally announced $350 million, and the bonds had moved up between ½ point and ¾ point when they were freed for trading on Tuesday.

Caesars bonds busy

Away from the new deals, Caesars Entertainment "is always an active one," a trader said, and this was especially true on Wednesday, when more than $43 million of its Harrah's Entertainment Inc. 10% second-priority senior secured notes due 2018 changed hands, easily topping the Junkbondland Most Actives list.

A market source saw that paper up nearly 1 full point, going out at 50 7/8 bid.

A second trader pegged the bonds up ½ point, at 51 bid.

A second, smaller issue of 10% notes due 2018was meantime seen having gained ½ points on the day to go home at just under 55 bid..

There was no fresh news seen out about Las Vegas-based Caesars, one of the largest casino and lodging companies in the world, that might explain the sudden popularity of its debt.

However, one of the market sources pointed out that the bonds trading around 51 are now trading at a yield of around 29½% - an attractive level for investors not afraid to add a little risk to their portfolios.

Several recent commentaries in the financial media have argued that with the interest payments on the over $20 billion of debt on its books sopping up most, if not all, of the company's considerable cash flow, Caesars has ceased to be a viable equity market holding - and given the superior position that debt holders would have in any kind of restructuring scenario, its bonds are now a more attractive investment holding than its shares.

In the gaming world, meantime, New Jersey regulators said that the states casino operators had taken in some $8.37 million in online gaming revenues in the first six weeks of play since its legalization in the Garden State.

Of that sum, the Borgata resort, jointly owned by Boyd Gaming Corp. and MGM Resorts International, did the best, with $3.75 million, followed by Caesars at $2.38 million.

NII among the actives

NII Holdings Inc.'s 10% notes due 2016 remained among the 10 Most Active junk credits on Wednesday, a trader said, with over $15 million having changed hands.

He saw those bonds, issued by the company's NII Capital Corp. subsidiary, having dipped about ½ point, easing to 58¼ bid. But a second trader located those bonds around the 59 bid area, calling them little changed on the session.

NII was still riding the momentum generated on Monday, when the bonds and shares of the Reston, Va.-based seller of the Nextel wireless service in Latin America surged in heavy trading on the news that it had signed an agreement with a rival, the Spanish telecommunications company Telefonica SA, that will allow NII to distribute its service to customers in Brazil and Mexico - the two largest Latin American markets - over Telefonica's 3G wireless network.

That would spare NII of the necessity of having to build out its own network in remote areas, a costly venture.

The 10% notes had zoomed more than 5½ points on Monday to end at 60 bid on the news, with over $64 million having traded.

Little impact from Penney move

Elsewhere, a trader noted the late-day announcement that troubled Plano, Texas-based retailer J.C. Penney Co. will close a total of 33 underperforming stores and expects to reduce its headcount by as much as 2,000 positions.

However, that news hit the market just after 4 p.m. ET, as the day's activity was winding down, and there was no immediate impact seen on the company's bonds.

He said that the company's 7.65% notes due 2016 were unchanged at 88¾ bid following the news, while its 5.65% notes due 2020 were steady at around the 77½ mark.

"Tune in tomorrow [Thursday]," he said, speculating that the news might have some impact - positive or negative - once investors had a chance to read the company's announcement through, hear what the analysts were saying about it and then come to their own conclusions.

He opined that the closure of the stores could attract attention to J.C. Penney "as a real estate play," since the company, like most large retailers, has at least some of its stores in stand-alone "big box" locations owned by the company.

J.C. Penney is believed to own somewhere around 300 of its more than 1,100 stores in the United States, with the remainder occupying leased space in shopping centers. The company also owns its headquarters complex in Plano, a northern suburb of Dallas. The company's real estate holdings have been estimated at as much as $3 billion.

J.C. Penney said in a statement that "these actions are expected to result in an annual cost savings of approximately $65 million, beginning in 2014. In connection with this initiative, the company expects to incur estimated pre-tax charges of approximately $26 million in the fourth quarter of fiscal 2013 and approximately $17 million in future periods."

Market indicators stay strong

Overall, statistical junk-market performance indicators were higher across the board for a second consecutive session on Wednesday, after having been mixed on Monday.

The Markit Series 21 CDX North American High Yield index rose by 5/16 point to end at 108 3/16 bid, 108 5/16 offered, its second straight advance. On Tuesday, the index had gained 5/32 point.

The KDP High Yield Daily index gained 8 basis points on Wednesday to finish at 74.96, its second improvement in a row. It had risen by 3 bps on Tuesday, after having been unchanged on Monday, which had snapped a string of seven consecutive advances before that.

Its yield, meanwhile, narrowed by 3 bps to go out at 5.41%, its second straight decline. On Tuesday, it came in by 2 bps, while on Monday, it had been unchanged, following four straight sessions of falling yields before that.

And the widely followed Merrill Lynch High Yield Master II index extended its amazing winning streak to 18 consecutive sessions, dating back to Dec. 19. It was up by 0.101% on Wednesday, after having risen by 0.035% on Tuesday.

The latest gain lifted its year-to-date return to 0.916%, its ninth straight new peak level for 2014, passing the previous mark of 0.815%, which had been set on Tuesday.

The index's yield to worst came in to 5.436%, its fourth straight new 2014 low level. That eclipsed the previous low point of 5.463, set on Tuesday.

Its spread to worst tightened to 403 bps over comparable Treasuries - a new tight level for 2014 so far - from 407 bps on Tuesday, and down as well from its previous tight level for the year so far of 406 bps, set last Wednesday.

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