Primary quiet as holiday nears; CalRes, Valeant, new Mattel up, funds plunge $1.11 billion

By Paul Deckelman and Paul A. Harris

New York, Dec. 21 – The high-yield primary market remained ice-cold on the official first day of winter Thursday, with nothing happening on the new deal front and nothing really expected to happen for the remainder of this calendar year.

In the secondary sphere, traders said that the market was a mixed bag, with not real theme seen and volume levels quiet on this, the last full session before the Christmas holiday break. The Securities Industry and Financial Markets Association has recommended an early close on Friday ahead of the full market shutdown slated for this coming Monday.

Energy sector bellwether credit California Resources Corp.’s 2022 notes were seen topping the day’s Most Actives list, while finishing up modestly on the session. Global crude oil prices meantime continued their recent surge.

Among new bonds, toymaker Mattel Inc. was also modestly firmer, though on considerably more restrained volume than the CalRes notes generated.

Valeant Pharmaceuticals International, Inc.’s recently priced eight-year offering was better in relatively busy trading. The company’s other bonds – particularly its existing eight-year notes – were better across the drug maker’s capital structure.

Also in the healthcare area, Kindred Healthcare Inc.’s bonds were again firmer in the wake of this week’s news that giant insurer Humana Inc. and several private-equity companies will team up to acquire the hospital and rehabilitation center operator.

Kidney dialysis provider DaVita Inc. – in the process of selling its primary-care unit – gyrated around before ending off a little, but on not much volume.

Elsewhere, telecom provider Frontier Communications Corp.’s most actively traded bonds were seen mixed on the day.

Firearms manufacturer Remington Outdoor Co. Inc.’s bonds were softer following a Moody’s Investors Service downgrade.

Statistical market performance measures were mixed for a second straight session on Thursday, their fourth mixed performance in the last five trading days.

But 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 anything but mixed on Thursday, with $1.11 billion more leaving those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday. It was the funds’ their second big cash drain in a row, including the $922 million net outflow during the week ended last Wednesday, Dec. 13.

Wednesday outflows

The primary market remained shuttered on Thursday and is expected to be closed until January, sources say.

Daily cash flows for dedicated high-yield bond funds were negative on Wednesday, the most recent session for which data was available at press time, an investor said.

High-yield ETFs sustained $160 million of outflows on the day.

Asset managers were flat to negative, sustaining $15 million of outflows on Wednesday.

A quiet session

Several traders mentioned how quiet Thursday’s session was.

One said that overall volume was perhaps $1.2 billion, down from the already becalmed levels seen earlier in the week.

“Once you get past the top five most active names,” he said, “volume drops off like a rock, into the single digits” in terms of how many millions of notes changed hands.

Cal Res climbs

One of the few legitimately busy names was Los Angeles-based oil and natural gas exploration and production company California Resources’ energy sector benchmark credit, its 8% second lien senior secured notes due 2022.

A market source quoted those notes up 3/16 point on the day, ending at around 78 11/16 bid, with over $30 million traded.

A trader who saw the notes at 78 5/8 bid, calling that a 1/8 point gain, opined: “I would have thought that they would be up higher.”

The notes rose against a backdrop of firmer crude oil prices.

Key domestic grade West Texas Intermediate for February delivery gained 27 cents per barrel in New York Mercantile Exchange dealings, settling at $58.36, its third straight rise, while global grade Brent North Sea crude for February delivery gained 34 cents per barrel in London dealings, ending at $64.90, its fourth successive gain.

Mattel seen firmer

Mattel Inc.’s new 6¾% notes due 2025 gained ¼ point in Thursday dealings, ending at 101¼ bid, on volume of around $8 million

The El Segundo, Calif.-based toy manufacturer’s $1 billion issue had priced at par on last Friday off the forward calendar, and quickly moved up to around the 102¼ bid level, with a market-leading $43 million having traded after the issue hit the aftermarket.

It proceeded to come off those levels in relatively heavy trading over the next several sessions, finally coming down to around the 101 bid level on Tuesday staying there on Wednesday and then moving up a little in Thursday’s dealings.

Valeant paper pops

Also among the recently priced names, Valeant Pharmaceuticals International’s 9% notes due 2025 were “pretty active too,” a trader said, with over $13 million of that paper changing hands.

It finished at 104 5/8 bid, up 3/8 point on the session.

The Laval, Que.-based drug manufacturer priced $1.5 billion of those notes at 98.611 on Dec. 4, yielding 9¼%, after that quick-to-market issue was upsized from an originally planned $1 billion.

From that discount pricing, the bonds quickly moved up to around the par level and continued to gradually strengthen above that, taking the issue up to around its current levels.

Valeant’s existing paper was meantime also better across its capital structure.

The company’s 6 1/8% notes due 2025 were the big winner on the day, up more than 1 1/8 points to end at an even 92 bid on more than $19 million of turnover.

Its 5 7/8% notes due 2023 gained more than 1 point to end at 93¼ bid, though volume was only around

$4 million.

Kindred climb continues

Elsewhere in the healthcare space, a trader said that Kindred Health “continued its rise,” although only its 8% notes due 2020 traded in any kind of volume.

Those notes gained ¼ point to end at 108¼ bid, with around $8 million having traded.

Traders saw little or no trading in its recently busy 6 3/8% notes due 2022 and 8¾% notes due 2023.

Those bonds all rose sharply on Monday and again on Tuesday on the news that the giant insurer Humana, along with private-equity players Welsh, Carson, Anderson & Stowe and TPG, will buy Kindred, a Louisville, Ky.-based operator of acute-care hospitals and rehabilitation facilities and a provider of hospice care and home health care services, paying $9 per share, or $810 million total for the company.

With more than $3 billion of assumed debt, the deal has an enterprise value of $4 billion.

Traders meantime saw DaVita Inc.’s 5% notes due 2025 ending down 1/8 point on the day at 100 1/8 bid, with about $6 million traded on a round-lot basis.

A market source noticed that earlier in the day, there had been a number of smaller odd-lot transactions that lifted its levels as high as 103 bid before the bonds deflated late in the day.

The Denver-based provider of kidney dialysis services and other medical services, announced earlier in the month that it will sell its DaVita Medical Group primary-care operation to United Healthcare owned Optum, a leading health services company, for approximately $4.9 billion in cash. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.

Dallas-based hospital operator Tenet Healthcare Corp.’s 6% notes due 2020 were seen by a trader up ¼ point at 106 bid, its paper still enjoying the momentum from gains earlier in the week on the news that it plans to

sell its Conifer Health Solutions debt-collection business.

Tenet – dealing with debt north of $12 billion – also said that it plans to increase its cost cutting efforts by another $100 million, bringing to $250 million the amount of such savings it hopes to book by the end of the year.

Tenet said in its Tuesday announcement that that it is continuing to take “aggressive actions” to improve its financial performance, accelerate growth and eliminate unnecessary costs.

Frontier notes mixed

Away from the healthcare realm, traders saw mixed performance Thursday from Stamford, Conn.-based wireline telecom operator Frontier Communications’ notes.

A trader saw its widely traded 11% notes due 2025 moving up to 74¾ bid, a gain of ¾ point on the day, with over $16 million having changed hands.

But its 10½% notes due 2022 retreated to 76 bid, falling 3/8 point, with over $10 million of volume.

A trader said the latter bonds had actually been up most of the day, hitting a peak level of 77 3/8 bid, before being dragged lower by a single large transaction later in the day.

Remington in retreat

Elsewhere, the bonds of Remington Outdoor traded down on Thursday after Moody’s Investors Service notched the company’s corporate family credit rating to Caa3 from Caa2.

A trader saw the Madison, N.C.-based firearms manufacturer’s FGI Operating Co. LLC/FGI Finance, Inc. (Freedom Group Inc.) 7 7/8% senior secured notes due May 2020 ending at just under 23 bid, down slightly on the session, with about $7 million having traded.

He noted: “I almost never see those” trading around on a day-to-day basis.

Earlier in the day, a trader at another shop saw the bonds fall to around 22 bid, calling them “a couple of points weaker on the day” versus recent levels, after having taken a substantial tumble in late November.

In its downgrade announcement, Moody’s expressed concern with Remington’s weak operating performance, liquidity pressure from approaching maturities and the view that the company’s capital structure is unsustainable.

Ratings are also constrained by the longer-term threat of increased gun regulations, Moody’s said – even though, paradoxically, the possibility of more gun regulations spurs firearms sales, helping swell revenues of gun manufacturing companies and retail sales outlets.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Thursday, their fourth mixed performance in the last five trading days. They had turned mixed on Wednesday and stayed there on Thursday after being lower across the board on Tuesday and, before that, mixed last Friday and again on Monday.

The KDP High Yield Daily Index fell for a sixth straight session on Thursday, losing 2 basis points to close at 71.67. It had also fallen by 6 bps on both Tuesday and again on Wednesday.

Its yield meantime was unchanged at 5.34%, after having risen over three consecutive sessions, including a 1 bp widening on Wednesday and increases of 2 bps each on Monday and Tuesday.

However, the Markit CDX Series 29 index posted its second gain in a row, ending up by 1/16 point – matching Wednesday’s advance – as it closed Thursday at 108 5/16 bid, 108 3/8 offered, more than making up for Tuesday’s roughly 1/16 point loss.

The Merrill Lynch High Yield Index rose by 0.042% Thursday, its first gain after having eased by 0.013% on Tuesday and by 0.024% on Wednesday.

The latest gain raised its year-to-date return to 7.267% from Wednesday’s finish at 7.222%. But the cumulative return still remained well down from its 2017 peak level of 7.636%, set back on Oct. 24.

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