Teekay, ContourGlobal bring add-ons in quiet pre-holiday session; Valeant firms after call

By Paul Deckelman and Paul A. Harris

New York, Nov. 10 – High-yield primary sphere pricing activity slowed markedly on Tuesday, with syndicate sources seeing just a pair of smallish add-on offerings getting done.

Teekay Corp., a provider of marine transportation, oil production and storage services to the offshore energy industry, priced a $200 million add-on to its January 2020 notes. They were quoted up around 1 point in initial aftermarket dealings.

ContourGlobal Power Holdings SA, a developer and operator of wholesale electric power generation businesses, did a $100 million addition to its existing June 2019 secured notes.

The slightly less than $300 million generated by those two deals was well down from the $1 billion of new dollar-denominated, fully junk-rated paper that priced in Monday’s quickly shopped 10.25-year transaction from hospital operator HCA, Inc.

That deal, meantime, was seen trading about ½ point higher, on heavy volume.

But other recent offerings, such as last week’s deals from Charter Communications, Inc. and First Data Corp., were being quoted easier on the day, in line with an overall weaker junk market.

One exception to the rule was Valeant Pharmaceuticals International, Inc., whose bonds rose after the embattled Canadian drug manufacturer held a conference call – its second in less than three weeks – during which company executives outlined the steps it is taking to address investor concerns in the wake of severe recent criticism of its business practices. They also noted that deleveraging Valeant’s debt-swollen balance sheet is a key priority, which will account for the bulk of its free cash flow at least through next year.

Valeant sector peer Mallinckrodt plc – whose bonds and shares had tanked on Monday as the same short-seller whose criticisms have lately bedeviled Valeant turned its sights on Mallinckrodt – moved up on Tuesday from Monday’s closing lows

Overall, with activity relatively quiet heading into Wednesday’s rare mid-week holiday break in observance of Veterans Day, statistical measures of junk market performance were lower across the board for a fifth straight session on Tuesday, their sixth loss in the last 11 sessions.

Teekay taps 8½% notes

A pair of add-on deals priced during the Tuesday primary market session.

The combined take was $297.3 million.

Both taps were in the market at least overnight.

Neither one was upsized.

Teekay priced a $200 million add-on to its 8½% senior bullet notes due Jan. 15, 2020 (B2) at 99.01 to yield 8.783%.

The reoffer price came on top of price talk and in line with initial guidance in the low 99 area.

J.P. Morgan Securities LLC and Citigroup Global Markets Inc. were the joint bookrunners for the debt refinancing deal.

ContourGlobal prices tight

ContourGlobal Power priced a $100 million add-on to its 7 1/8% senior secured notes due June 1, 2019 (B3/BB-/BB-) at 99.251 to yield 7.367%.

The reoffer price came at the tight end of the 99.25 to 99.5 price talk.

Goldman Sachs & Co. was the bookrunner for the debt refinancing deal, which was marketed to both high yield and emerging markets accounts.

Rackspace Hosting roadshow

Rackspace Hosting, Inc. plans to start a roadshow on Thursday for a $350 million offering of senior notes due January 2024 (Ba1/BB+).

The deal is whispered to yield 5¾% to 6% and is expected to price in the middle part of the week ahead, according to a trader.

Morgan Stanley & Co. LLC, Goldman Sachs and JPMorgan are the joint bookrunners.

The San Antonio, Texas-based managed cloud computing company plans to use the proceeds to repay all outstanding amounts under its senior revolving credit facility and for general corporate purposes, which may include share repurchases pursuant to its previously announced $1 billion share buyback authorization.

Perform Group talk

From the European primary market, Perform Group Financing plc talked its £200 million offering of five-year senior secured notes (expected ratings B3/B) to yield 9% including one point to two points of original issue discount.

Credit Suisse is the lead left bookrunner.

Mixed flows

The cash flows of the dedicated high-yield funds were mixed on Monday, the most recent session for which data was available at press time, a trader said.

High-yield exchange-traded funds sustained $359 million of outflows on the day.

Asset managers saw $65 million of inflows.

Bank loan funds, meanwhile, sustained $125 million of outflows on Monday.

Teekay trades up

In the secondary arena, a trader quoted Teekay’s new add-on tranche of 8½% notes due 2020 at 100 bid, 100½ offered late in the session.

That was up from the 99.01 level at which the Hamilton, Bermuda-based maritime energy services company’s tranche had priced earlier in the session.

There meantime was no immediate aftermarket activity seen in New York-based ContourGlobal’s 7 1/8% 2019 secured add-on notes.

HCA heads higher

A trader said that the busiest issue of the session in Junkbondland on Tuesday was HCA’s new 5 7/8% notes due February 2026.

He said the notes “traded pretty well,” moving up to around a 100½-to-100¾ context.

He said that the notes had been “trading fairly well since their break” following Monday’s pricing.

The Nashville-based hospitals giant had priced $1 billion of those notes at par in a quick-to-market transaction, with the new bonds then having moved up slightly, with over $34 million traded.

A second trader pegged the new notes at 100¾ bid, calling that up some 3/8 point on the session. He said that trading volume in the new deal more than doubled from Monday’s level to over $87 million on Tuesday.

At another desk, a trader said that the 100½ bid, 100¾ offered closing level was around ½ point higher on the day.

HCA’s existing 5 7/8% notes due 2022, however, retreated by 1 point on the session to close at 109 bid, on volume of over $18 million.

Recent deals easier

A trader said that some of the recently priced deals were a little easier on the day, in line with the overall market’s generally softer tone.

For instance, he said that Charter Communications’ 5¾% notes due February 2026 were off by 1/8 point at 99 bid, 99 3/8 offered.

And he saw both tranches of First Data’s $3.2 billion of new notes likewise on the downside, quoting its 5% first-lien senior secured notes due 2024 at 98 5/8 bid, 99 1/8 offered, down 1/8 point on the day, while its 5¾% second-lien secured notes due 2024 were ¼ point lower at 98 bid, 98½ offered.

A second trader saw the First Data 5¾% paper 1/8 point down on the day at 98½ bid, with over $19 million traded.

But he said that the 5% notes had actually firmed marginally to the 99 bid level, with over $16 million having changed hands.

The Atlanta-based transaction processing company had priced both tranches of its drive-by deal at par on Thursday after having radically upsized the offering from an originally shopped $1.5 billion. It increased the first-lien tranche to $1 billion from $750 million originally and the second-lien piece of paper to $2.2 billion from $750 million.

As for the Charter issue, the second trader also saw those bonds a little better on the day, quoting them at 99 3/8 bid, up 3/16 point on the session, with over $14 million having traded.

The Stamford, Conn.-based cable and internet service provider had priced $2.5 billion of the notes at par in a quickly shopped offering on Thursday via its CCOH Safari LLC unit. The bonds had initially traded around par when they began trading on Friday, but they had lost ground during Monday’s session.

Valeant moves up

Away from the new deals, a trader said that Valeant Pharmaceuticals’ paper “was trading around a point higher than yesterday [Monday],” seeing its 6 1/8% notes due 2025 going home at around 85 bid.

Another trader located those bonds at 85 1/8 bid, up 1 1/8 point on the day, on volume of over $22 million.

The Laval, Quebec-based drug manufacturer’s 5 7/8% notes due 2023 were even more active, gaining nearly ½ point on the session to finish at 84¾ bid, with over $29 million having changed hands.

The bonds rose after the company held a lengthy morning conference call with analysts on which its senior executives outlined what Valeant has been doing in the wake of the allegations against it by short-seller Citron Research and what impact its moves might have on company finances in the short to medium term.

The moves include cutting all of the company’s ties with Philidor RX Services LLC, a controversial specialty pharmacy company that Citron had said allowed Valeant to artificially inflate its reported sales revenue, a charge that Valeant vehemently denies.

Valeant also said that it was working on putting together a new plan to use different specialty pharmacies as a distribution channel, with a plan expected within 90 days.

Its executives also said that one of their key priorities would be chopping away at the more than $30 billion of long-term debt now on the company’s books following a series of acquisitions earlier in the year.

“In the near term, deleveraging of our balance sheet is a priority and will require the use of the bulk of our cash flow for repayment,” Valeant’s chairman and chief executive officer, J. Michael Pearson, declared. (See related story elsewhere in this issue.)

Mallinckrodt on the rebound

Valeant sector peer Mallinckrodt – also the focus of negative comments from Citron Research, which said that it had even greater downside potential than Valeant – was also higher on Tuesday after its bonds had plunged by nearly 10 points on Monday.

A trader said that the Irish drug manufacturer’s 5 5/8% notes due 2023 “were kind of all over the place,” trading between a low of 84½ and a high at 86½ bid near the close, “so they were up about 2 points today off their lows.”

But he said that “they didn’t really trade that much” on Tuesday, unlike Monday, when over $14 million had moved around.

A second trader, who had seen those bonds plunge to 83 bid, 85 offered on Monday from prior levels in the mid-90s, saw them going home on Tuesday at 87 bid, 89 offered.

Indicators remain weaker

Statistical measures of junk market performance were lower across the board for a fifth straight session on Tuesday and their sixth loss in the last 11 sessions. They had had declined last Wednesday for the first time in more than a week, since Sept. 27, with a number of higher or mixed sessions in between.

The KDP High Yield Daily index fell by 17 basis points on Tuesday to end at 66.65, its fourth consecutive loss. That skid has also included plunges of 25 bps on Monday, 20 bps on Friday and 13 bps on Thursday after having been unchanged last Wednesday.

Its yield rose by 6 bps on Tuesday, its fourth straight widening; it had increased by 9 bps on Monday, by 3 bps on Friday and by 7 bps on Thursday after having been unchanged on Wednesday. It was the yield’s fifth rise in the last six sessions, having also risen by 3 bps last Tuesday.

The Markit Series 25 CDX North American High Yield index lost 3/32 point on Tuesday to finish at 102 11/32 bid, 102 3/8 offered. It was its fifth successive loss after three straight higher sessions and thus its sixth downturn in the last nine sessions. The index had also been down by 13/32 point on Monday.

And the Merrill Lynch North American Master II High Yield index fell for a fifth session in a row on Tuesday after two higher sessions before that, making the day’s loss its sixth in the last eight trading days.

The index dropped by 0.226% on top of Monday’s 0.377% retreat.

Tuesday’s loss sent the index’s year-to-date return further into the red with a 0.825% cumulative loss, having deepened from Monday’s 0.60% decline. The year-to-date return had moved back into negative territory on Friday for the first time since Oct. 22. The new year-to-date losses do still remain well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2.

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