Fortress prices upsized add-on, Lonestar ahead; new Mattel busy; Kindred jumps on Humana talks

By Paul Deckelman and Paul A. Harris

New York, Dec. 18 – The high-yield primary market saw but a single small deal get done on Monday as activity was starting to wind down ahead of the year-end holidays.

Fortress Transportation and Infrastructure Investors LLC priced a quickly shopped and upsized $100 million add-on to its existing $350 million of 2022 notes.

Traders did not report any initial aftermarket dealings in the name.

There meantime remains just one more regularly scheduled forward calendar transaction waiting to price – Fort Worth, Texas-based energy operator Lonestar Resources US Inc.’s planned $250 million five-year offering.

But traders saw intense activity on Monday in Friday’s big deal from toy manufacturer Mattel Inc. Its eight-year megadeal moved up sharply from its par pricing level, though it came down from its initial highs.

Volume soared to over $130 million, easily dominating the day’s Most Actives list.

Mattel’s existing notes – which had gotten knocked around last week after a multiple ratings downgrade pushed the name squarely into Junkbondland – rebounded from those recent lows.

Elsewhere, Kindred Healthcare Inc.’s notes climbed on the news that the operator of acute-care hospitals, rehabilitation centers and hospice facilities and home healthcare provider is in what have been described as advanced talks to be acquired by insurance giant Humana Inc. and several private-equity companies in a transaction valued at some $4 billion, debt included.

PetSmart Inc., whose paper has lately taken a pounding, was seen on the rebound on Monday, though there seemed to be no fresh news out on the specialty retailer.

Statistical market performance measures were mixed for a second straight session on Monday. They had turned mixed on Friday, after having turned lower across the board on Thursday. The indicators have now been mixed in four out of the last five trading days.

Fortress upsizes

An otherwise quiet Monday session in the primary market featured Fortress Transportation and Infrastructure Investors LLC pricing an upsized $100 million add-on to its 6¾% senior notes due March 15, 2022 (B1/B+) at 103.25 in a quick-to-market deal.

The reoffer price came in the middle of price talk in the 103.25 area and rendered a 5.633% yield to worst.

The add-on was upsized from $75 million.

Morgan Stanley was the sole bookrunner.

The New York-based owner of transportation equipment and infrastructure plans to use the proceeds for general corporate purposes, including funding of future investments. The additional proceeds resulting from the $25 million upsizing of the deal will be used for general corporate purposes.

In the wake of Fortress only one deal remains on the active forward calendar.

Lonestar Resources US Inc. is expected to price a $250 million offering of five-year senior notes during the early-to-middle part of the Dec. 18 week.

Mattel moves up

In the secondary market, the new 6¾% notes from Mattel Inc. “traded up a couple of points for most of the day,” a trader said, seeing that paper go as high as a 102¼-to-102½ bid context, before coming off those highs late in the day but still ending up solidly higher from their par issue price.

He opined that “I think that after all of the debate about it,” given the company’s recent downgrade to junk bond status from investment grade, “guys kind of poured in at the end and it ended up trading pretty well.”

He said the 6¾% coupon – somewhat above the average junk issue yield, which is in the mid-to-high 5% range – “was enough to get some interest in it. It was a big benchmark deal, so people clamored for it.”

A second trader saw the notes at 102¼ bid “all day, in very active trading. It seemed to hold up pretty well.”

However, at the end of the day, a market source at another desk noted that after holding above 102 bid for most of the day, a series of sizable trades pushed its price below that level, finally going home around 101 5/8 bid, which was down by 5/8 on the day.

Volume was an extremely heavy $134 million.

Mattel, an El Segundo, Calif.-based toy manufacturer, had priced its $1 billion deal at par last Friday off the forward calendar.

The offering came to market fairly late in the day – but a trader said that it still generated more than $40 million of volume in the waning minutes of Friday’s session, shooting up to around 102¼ bid in its initial aftermarket dealings.

Existing Mattel bonds better

Along with the new notes, traders saw continued brisk volume in the company’s existing notes, which had recently been under pressure after Mattel got downgraded a week ago by all three major ratings agencies.

Moody’s Investors Service and Fitch Ratings both knocked Mattel off its former investment grade perch, dropping the credit into junk territory. Standard & Poor’s had already pushed the company into the junk space some weeks previously, but also further downgraded it last Monday.

Against that backdrop, the existing paper had traded mostly lower.

But they came off those lows, with a trader suggesting the name had simply been oversold.

He saw its 3.15% notes due 2023 move up by 1 point, to 87 1/8 bid, on volume of more than $9 million.

Mattel’s 5.45% long bond due 2041 gained more than 1 point in intraday dealings, getting as good as around the 84 7/8 bid level, before ending at 84, still up ¾ point on the day, with over $6 million having changed hands.

Recent deals trade around

Apart from Mattel, several recently priced new issues were seen having traded fairly actively on Monday.

Whiting Petroleum Corp.’s 6 5/8% notes due Jan. 15, 2026 were seen by a market source to have generated more than $12 million of trading, although he did not see the bonds budging from their recent level around 101½ bid.

The Denver-based oil and gas company priced its $1 billion issue at par last Tuesday, after upsizing that quick-to-market transaction from an originally announced $750 million.

Valeant Pharmaceuticals International, Inc.’s 9% notes due 2025 were seen having firmed by 5/8 point, to 102 5/8 bid, with over $9 million having traded.

The Laval, Que.-based drug manufacturer priced $1.5 billion of those notes on Dec. 4 at 98.611, yielding 9¼%, after it upsized its drive-by offering from $1 billion originally.

Kindred climbs on Humana news

Away from the new or recently priced deals, healthcare company Kindred’s several issues of bonds traded up around 5 or 6 points on the day, on the news that the Louisville, Ky.-based hospital operator and home healthcare provider is in what have been called “advanced talks” to be acquired by its downtown Louisville neighbor, the insurance giant Humana Inc. and a pair of private equity companies.

“They were pretty active,” a trader said, noting that the notes “were wildly higher, but came off those highs,” still firming smartly on the day when all was said and done.

For instance, he saw its 8¾% notes due 2023 get as good as 106 bid, before closing around 105 – still well up from its most recent previous round-lot levels around par bid last week. More than $12 million of the notes traded.

Its 8% notes due 2020 and 6 3/8% notes due 2022 were each even busier than that, a market source said, both knocking down around $18 or $19 million or volume.

The 8% notes got as good as 107 7/8 bid before coming down from that peak and ending at 105¾ bid, still well up from previous round-lot levels around 100½ bid.

The 6 3/8% paper popped up to 101½ bid from prior levels in the mid-90s.

According to published reports, the envisioned transaction, including debt assumption, puts an enterprise value of about $4 billion on Kindred.

Humana, acting in concert with private-equity players Welsh, Carson, Anderson & Stowe, would acquire Kindred’s hospice and home healthcare services businesses, while the private equity firms alone would take over its hospitals and rehabilitation facilities.

PetSmart paper pops

For the first time in a number of sessions, traders said that PetSmart’s bonds were not under pressure.

The Phoenix-based retailer of pet food and other pet supplies and services had been in retreat all of last week, on investor worries about weakening EBITDA and fears that the company could choose to spin off its valuable Chewy on-line sales unit to benefit its equity sponsors alone, while the overall company remained stuck paying off the$2 billion of junk bonds it sold to finance the buy of that online business earlier this year.

But on Monday, those oversold notes came back solidly, with its 7 1/8% notes due 2023 up more than two 2 points at 60¼ bid, with over $19 million traded, and its 5 7/8% secured notes due2025 also up by more than a deuce on the day at just under 77 bid, on turnover of some $11 million.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Monday. They had turned mixed on Friday, after having turned lower across the board on Thursday. The indicators have now been mixed in four out of the last five trading days.

The KDP High Yield Daily Index fell for a third straight session, losing basis points Monday to close at 71.81, after having eased by 1 bp on Friday and by 4 bps on Thursday. It had been unchanged on Wednesday and stronger last Monday and Tuesday.

Its yield meantime rose by 2 bps to 5.31%, after having come in by 1 bp on Friday. It was the third widening in the last four sessions, with the yield having also risen by 1 bp on Thursday and 2 bps on Wednesday.

But the Markit CDX Series 29 index gained over 5/32 point on the day to 108 9/32 bid, 108 5/16 offered, on top of Friday’s 1/8 point advance. The index had been down 3/32 point Thursday.

The Merrill Lynch High Yield Index edged up by 0.02%, its first gain after three straight losses, having been down by 0.34% on Friday, 0.06% on Thursday and 0.031% on Wednesday.

Monday’s upturn lifted its year-to-date return to 7.261% from Friday’s close at 7.24%. But it still remained down from its 2017 peak level of 7.636%, set back on Oct. 24.

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