Upsized Mallinckrodt prices, gains; Rite Aid firms; energy mixed despite oil slide

By Paul A. Harris and Paul Deckelman

New York, April 8 – The high-yield primary realm saw only one deal get priced on Wednesday – but it was a big one.

Syndicate sources said that a financing subsidiary of Irish pharmaceuticals manufacturer Mallinckrodt plc came to market with an upsized $1.4 billion two-part regularly scheduled forward calendar offering consisting of five- and 10-year notes.

After the notes priced, traders said that both tranches firmed smartly in limited initial aftermarket activity. The company’s existing bonds were also seen on the upside.

The Junkbondland forward calendar meantime grew, with carmaker Fiat Chrysler Automobiles NV, lodging industry REIT Ryman Hospitality Properties, Inc. and European real estate investor Grand City Properties SA seen likely to soon bring new dollar-denominated bond issues to market. But a prospective sterling-based transaction from British lender International Personal Finance plc was heard to have been withdrawn.

Among recently priced issues, drugstore operator Rite Aid Corp.’s eight-year megadeal firmed in busy trading after the company reported fiscal fourth-quarter and full-year earnings. Coal producer Peabody Energy Corp.’s big new seven-year issue saw a second straight session of gains after a hedge fund operator touted the company as a value play.

Energy credits – which had enjoyed two straight sessions of solid upside on Monday and Tuesday in line with surging world crude oil prices – were mixed on Wednesday, with some names, such as Linn Energy LLC, continuing to ride that upward momentum despite a tumble in crude, while others, like California Resources Corp., following oil prices down.

Statistical indicators of market performance meanwhile turned mixed on Wednesday after having been higher across the board for the previous two sessions.

Mallinckrodt upsizes

Mallinckrodt International Finance priced an upsized $1.4 billion two-part issue of senior notes (B1/BB-) on Wednesday, according to an informed source.

An upsized $700 million of tranche of five-year notes priced at par to yield 4 7/8%, on top of yield talk. The tranche was upsized from $500 million.

A $700 million tranche of 10-year notes priced at par to yield 5½%. The yield printed at the tight end of yield talk in the 5 5/8% area.

The overall size of the transaction was increased from $1.2 billion.

Goldman Sachs & Co. was the left bookrunner. Barclays and Deutsche Bank Securities Inc. were the joint bookrunners.

Proceeds will be used to help fund the acquisition of Ikaria, Inc., a Hampton, N.J.-based provider of proprietary and innovative therapies for critical-care units in hospitals.

Mallinckrodt is a Dublin-based pharmaceutical company with headquarters in St. Louis.

Ryman starts roadshow

Ryman Hospitality Properties began a roadshow on the East Coast of the United States on Wednesday for a $400 million offering of eight-year senior notes (expected ratings B1/BB), according to an informed source.

The roadshow continues on Thursday, and the deal is also set to price on Thursday.

Deutsche Bank Securities is the left bookrunner for the Rule 144A and Regulation S with registration rights offer. BofA Merrill Lynch, J.P. Morgan Securities LLC, Wells Fargo Securities LLC, US Bancorp and Credit Agricole CIB are the joint bookrunners.

Scotia Capital, Capital One, Raymond James, SMBC Nikko and TD Securities are the co-managers.

The notes become callable after three years at par plus 75% of the coupon, and feature a three-year 35% equity clawback at par plus the coupon as well as a 101% poison put.

The Nashville-based real estate investment trust is issuing via subsidiaries RHP Hotel Properties, LP and RHP Finance Corp.

It plans to use the proceeds to repay its existing $300 million term loan A and pay down its revolver.

The REIT specializes in group-oriented, destination hotel assets in urban and resort markets.

Fiat announces $3 billion

Fiat Chrysler Automobiles announced in a Wednesday press release that it plans to offer $3 billion of unsecured senior notes in one or more series, subject to market conditions.

The notes will be offered and sold under Rule 144A and Regulation S.

The London-based automaker plans to use the proceeds for general corporate purposes, which may include refinancing the secured notes of its subsidiary, FCA US LLC (formerly Chrysler Group LLC).

Grand City bond deal

Grand City Properties announced in a Wednesday press release that it plans to sell bonds in order to raise cash to fund the company's growth strategy and/or to repay bank loans.

The prospective issuer is a specialist real estate company focused on investing in and managing turnaround opportunities in the real estate property market.

The company is based in Luxembourg.

Mallinckrodt moves up

In the secondary arena, traders saw good gains for the new Mallinckrodt five- and 10-year notes, although one said that there had not been that much trading in them due to the lateness of the hour at which the upsized megadeal had priced.

A trader initially quoted the 4 7/8% notes due 2020 in a 100¼-to-100½ bid context.

But two other traders at separate desks later saw that five-year paper finishing the day trading between 101 and 101½ bid.

The first trader meantime saw the company’s new 5½% notes due 2025 trading between 101 and 101¼ bid, although he later saw them having firmed up to 101½ to 101¾.

The other two traders each saw a closing range for the 10-years at 101½ to 102.

There was also some movement seen in the company’s established bonds.

Its 5¾% notes due 2022 gained ¼ point on the session to end at 104¼ bid, with over $10 million having traded.

Mallinckrodt’s existing 3½% notes due 2018 rose as high as par bid from prior levels around 97 before coming off that peak to end at 99 3/8 bid, still up 2¼ points, but on volume of around $4 million.

Isle, Kosmos edge up

Among Tuesday’s issues, a trader saw Isle of Capri Casinos, Inc.’s add-on to its existing 5 7/8% notes due 2021 having edged up by 1/8 point on the day, to 103 1/8 bid, 103 5/8 offered.

The St. Louis-based regional casino operator had priced its quick-to-market $150 million add-on at 102 to yield 5.302, and the notes had initially firmed to around a 103-to-103½ bid context – about where the existing bonds had been trading last week, before the new deal news.

Tuesday’s other pricing – the $225 million addition to Hamilton, Bermuda-based oil and natural gas exploration and production company Kosmos Energy Ltd.’s 7 7/8% senior secured notes due 2021 – was seen finishing Wednesday at 93¾ bid, on volume of around $4 million.

That drive-by add-on had priced at 92 to yield 9.59%. There were a handful of trades seen late in the day on Tuesday, pushing the bonds as high as 94 bid, before they came off that peak to end around 93.

Rite Aid better after numbers

A trader saw Rite Aid’s recently priced 6 1/8% notes due 2023 “wrapped around 105” on Wednesday after the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator reported results for the 2015 fiscal fourth quarter and full year ended on Feb. 28.

Rite Aid had priced that $1.8 billion bond deal at par on March 19 as a regularly scheduled forward calendar transaction. After initially trading north of 101 bid for a few sessions after the pricing, the bonds began moving up as March came to a close, and the rise continued on into April.

At the end of last week, the trader said, the bonds had been around a 104 bid context, “and then they legged up a little bit this week – 104½ earlier in the week, 104¾ yesterday [Tuesday] and then 105 today, so they’ve kind of been inching their way higher.”

A trader at another desk saw the bonds about unchanged on the session, at 105 1/8 bid, while volume of over $21 million put the issue among Wednesday’s busiest junk bonds.

For the fourth quarter, the company reported revenues of $6.8 billion, up from $6.6 billion in the year-ago quarter, and net income of $1.84 billion, or $1.79 per diluted share, well up from $55.4 million, or 6 cents per share, a year ago, although the latest quarter’s jump included the favorable impact of a reduction of a deferred tax asset valuation allowance of $1.84 billion and income tax expense of $125.3 million compared to last year’s income tax benefit of $6 million.

During the conference call following the release of the figures, company executives noted that Rite Aid had refinanced and re-priced its revolving credit facility, enlarging that facility to some $3 billion. That gave it enough liquidity to repay its 10¼% senior secured second-lien notes due 2019 and take out a big tranche of term loan debt due 2020, producing substantial interest-cost savings. It plans to use the revolver again in August to take out its 8% first-lien senior secured notes due 2020 when they become callable, which should yield additional interest-cost reductions (see related story elsewhere in this issue).

Peabody gains continue

Peabody Energy’s 10% senior secured second-lien notes due 2022 gained about 1 point on the day, pushing up to about 90¼ bid on brisk volume of over $14 million.

It was the second straight session of sharp gains for the St. Louis-based coal producer’s notes – a $1 billion issue that priced at 97.566 on March 5 to yield 10½% but then tumbled from that perch to around the mid-80s amid continued coal-sector and overall energy weakness.

On Tuesday, they had zoomed by 3 points on the day to 89 bid, on heavy volume of more than $29 million, topping the junk Most Actives list.

That rebound was spurred by comments made on CNBC Tuesday by Christian Zann, a partner and portfolio manager at Balyasny Asset Management, who deemed Peabody “a value play.”

A trader said Wednesday that “calling it a value name gave that a bid today. There was definitely some follow-on action” after Tuesday’s jump.

Energy names a mixed bag

After two straight sessions during which world crude prices had firmed smartly from their recent low levels, the black gold stumbled on Wednesday. U.S. benchmark-grade West Texas Intermediate for May delivery slid by $3.02 per barrel, or 5.59%, to end at $50.96, after having shot up 5.72% on Monday and another 3.11% on Tuesday in trading on the New York Mercantile Exchange.

European benchmark-grade Brent crude lost $3.04 per barrel, or 5.14%, ending at $56.06, after having zoomed by 5.3% on Monday and another 1.55% on Tuesday.

A trader said that California Resources’ 6% notes due 2024 “were busy along with oil down $3 – as oil goes, Cal Res goes,” with the notes losing ¾ point to end at 90½ bid on volume of more than $14 million.

But Linn Energy’s 6½% notes due 2019, which had firmed solidly on Tuesday, were seen having gained another 1 3/8 points on Wednesday, finishing the day at 86½ bid, while its 6¼% notes due 2019 were up by 1¼ points to 83¾ bid, with both issues seeing more than $11 million of bonds having changed hands.

Indicators turn mixed

Overall, a trader characterized Wednesday’s session as “kind of a quiet day.” He said that “everything was sort of sloshing around at ‘unched’ [i.e., unchanged] trading levels.”

“It felt like there really was not a lot of price action or movement going on today,” he added.

Statistical indicators of junk market performance turned mixed on Wednesday after having risen across the board on Monday and Tuesday and having been higher all around in six out of the previous seven sessions.

The KDP High Yield Daily index climbed by 13 basis points to go home at 71.64, its seventh straight advance and its 12th gain in the last 13 sessions. On Tuesday, it had jumped by 16 bps.

Its yield came in by 5 bps on Wednesday to end at 5.23%, its fourth consecutive decline. On Tuesday, it had gone down by 6 bps.

But the Markit Series 24 CDX North American High Yield index suffered its first loss after two consecutive advances, finishing down by 1/16 point at 107 21/32 bid, 107 11/16 offered. On Tuesday, it had been up by 3/16 point.

However, the Merrill Lynch U.S. High Yield Master II index posted its eighth straight gain on Wednesday, improving by 0.191%, on top of Tuesday’s 0.268% rise.

Wednesday’s improvement was its 13th in the last 14 sessions.

The latest gain lifted its year-to-date return to 3.314% from 3.117% on Tuesday, which had been the first time the cumulative return had ended above the psychologically significant 3% mark since March 3, when it had closed at 3.016%.

Wednesday’s year-to-date close marked a new high for 2015 so far, eclipsing the old mark of 3.125%, which had been set on March 2.

One of the index components, its yield to worst, dipped to 5.99% on Wednesday from 6.033% on Tuesday – the yield’s first time under the 6% mark since March 5, when it had closed at 5.98%, although it remained above its low point for the year of 5.853%, established on Feb. 27.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.