Pharmaceutical Product Development drive-by megadeal prices; Sears, Frontier surge; oils slide

By Paul Deckelman and Paul A. Harris

New York, Aug. 3 – The month of August opened on a robust note in the high-yield primary sphere on Monday, as Pharmaceutical Product Development LLC, a provider of clinical trial and laboratory services to the pharmaceutical and biotechnology industries, priced a quickly shopped $1,125,000,000 offering of eight-year notes.

Traders said the new bonds firmed slightly on heavy aftermarket volume.

It was the day’s sole pricing, putting the day’s tally of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers a little behind the $1.54 billion that got done in two tranches on Friday, according to data compiled by Prospect News.

There was other news circulating around Junkbondland’s primary market as well, including sports and recreation merchandise company Vista Outdoor, Inc.’s announcement that it will sell $300 million of eight-year notes, which are being marketed to potential investors via a roadshow that began Monday.

But another prospective issuer – global oil and natural gas exploration and production company Petroceltic International plc – said it had suspended formal marketing of its planned $175 million issue of three-year secured paper, citing market conditions. The offering had first been announced in late June.

There was continued activity in Friday’s new seven-year notes from British telecom provider Cable & Wireless Communications, plc and clean-energy producer TerraForm Global, Inc., with both credits remaining well up from their respective issue prices.

Away from the new-deal world, Sears Holdings Corp.’s 6 5/8% bonds jumped on the retailer’s announcement that it would tender for $1 billion of the bonds – the vast bulk of the outstanding issue.

Frontier Communications Corp.’s bonds rose across the telecom company’s capital structure, helped by better-than-expected financial results and an update from management on its financing plans for its nearly $11 billion purchase of wireline assets from Verizon Communications Inc.

On the downside, energy names such as California Resources Corp. and SandRidge Energy, Inc. were lower in the wake of continued falling oil prices.

Statistical junk market performance indicators were down across the board for the first time since last Monday; they had been higher last Tuesday and Wednesday and mixed on Thursday and Friday.

PPD drives through

The dollar-denominated primary market saw its first a.m.-to-p.m. drive-by deal in over a fortnight price on Monday.

Pharmaceutical Product Development (“PPD”), an indirect wholly owned subsidiary of Jaguar Holding Co. II, completed the session's sole transaction, a $1,125,000,000 issue of eight-year senior notes (Caa1/B-) at par to yield 6 3/8%.

The yield printed at the tight end of yield talk in the 6½% area.

It appeared to go okay, a trader said, marking the new PPD 6 3/8% notes at par 3/8 bid, par 5/8%.

Given that it was sized at over $1 billion, trading in the issue was “kind of quiet,” the source added.

J.P. Morgan, Credit Suisse, Barclays, Deutsche, Goldman Sachs, Morgan Stanley and UBS were the joint bookrunners for the debt refinancing and dividend funding deal.

Drive-by drought

PPD completed the dollar-denominated primary market's first drive-by deal since Genesis Energy, LP priced a $750 million issue of 6¾% seven-year senior notes (B1/B+) at 98.629 to yield 7% on July 16, according to Prospect News data.

“That tells you where the market is,” a syndicate banker commented late Monday.

“It's hard to convince issuers to come right, now.

“If they don’t need the money today, they’ll wait.”

The cash positions of the buyside seem okay, the banker said.

Due to the weak calendar, cash has continued to build.

This may be the week for some of the pipeline deals that have been expected to actually materialize, the source added.

Vista Outdoor roadshow

Vista Outdoor started a roadshow on Monday for its $300 million offering of eight-year senior notes (Ba3/BB+).

Although the market awaits official price talk later in the week, early guidance is 6% to 6¼%, a trader said.

The debt refinancing and general corporate purposes deal, via bookrunner Morgan Stanley & Co., is expected to price later this week.

BUT tapping 7 3/8% notes

The European primary market generated news on Monday.

French electrical home equipment retailer BUT SAS plans to market a €66 million add-on to its 7 3/8% senior secured notes due Sept. 15, 2019 by means of an investor conference call scheduled for Tuesday.

Goldman Sachs has the books.

The Emerainville, France-based company plans to use the proceeds for general corporate purposes, which may include the purchase of additional stores or store networks.

The original €180 million issue priced at par in June 2014.

Active PPD trading

In the secondary market, traders said that the newly priced 6 3/8% notes due 2023 from Pharmaceutical Product Development and its corporate parent, Jaguar Holding Co. II, were the day’s most active junk market credit, with over $66 million of the Wilmington, N.C.-based clinical laboratory services provider’s new drive-by issue seen having changed hands.

A trader saw the bonds in a 100 3/8-to-100½ bid context, versus their par pricing level, “so there was not too much happening with those bonds.”

Another trader pegged the bonds at 100½ bid, up ½ point on the day.

Friday deals hold gains

The two offerings that had come to market on Friday were meanwhile seen continuing to each trade well above their respective discounted issue prices.

Cable & Wireless Communications’ 6 7/8% notes due 2022 were seen by one trader moving around between 99¾ and 100 1/8 bid, with “a lot of it trading,” more than $17 million on the day.

At another desk, a trader saw the bonds between 100 1/8 and 100 3/8 bid, calling that up 3/8 point, while yet another market source had them even better than that, trading as high as 100½, which he called a ½ point gain.

The London-based provider of telecommunications services to the United Kingdom had priced $750 million of those notes on Friday as a regularly scheduled forward calendar offering via its Sable International Finance Ltd. subsidiary.

The notes had priced at 98.644 to yield 7 1/8%, and had traded as high as a par-to-100¼ bid context during initial aftermarket dealings of over $28 million.

That day’s other new deal – TerraForm Global Operating LLC’s 9¾% notes due 2022 – were quoted trading between 100 1/8 and 100 3/8 bid, a trader said.

A second saw the bonds unchanged from Friday’s closing level around par bid, 100¼ offered.

And a third trader saw the bonds having retreated a little, to the 99 7/8 bid mark, which he called a loss of 3/8 point on the day.

More than $17 million changed hands on Monday.

The Bethesda, Md.-based clean-energy company had priced $810 million of those notes on Friday at 98.753 to yield 10% in a scheduled forward calendar offering.

They had immediately moved up to a par-to-100¼ bid context on initial aftermarket volume of over $26 million.

Sears soars on tender offer

Away from the new deals, traders said that Sears Holdings’ 6 5/8% notes due 2018 jumped nearly 3 points to 99½ bid, on volume of more than $20 million traded.

That followed the announcement by the Hoffman Estates, Ill.-based operator of the iconic Sears and Kmart department store chains that it will tender for $1 billion of those notes, out of the roughly $1.24 billion remaining outstanding from the original $1.25 billion of bonds.

Sears is offering total consideration of $990 per $1,000 principal amount of the bonds tendered, including a $30 per $1,000 principal amount early tender fee, for holders tendering their notes before the early tender deadline of 5 p.m. ET on Aug. 14. The tender offer expires on Aug. 28 at 11:59 p.m. ET.

Frontier firms up

Stamford, Conn.-based telecommunications operator Frontier Communications’ various issues of bonds were seen better after what market observers said were benign financial results for the latest quarter.

More than $9 million of its 8½% notes due 2020 traded, with the notes heard to have firmed by ¾ point to end at 104½ bid.

Its 7 1/8% notes due 2023 were also up ¾ point at 92 bid.

Its 6 7/8% notes due 2025 jumped more than a deuce on the day, to 87 7/8 bid, while its 7 5/8% notes due 2021 were up nearly 1 point, to 92½ bid.

In its latest quarterly report, Frontier posted better-than-expected revenues and a slightly smaller-than-expected net loss.

It also said that it would be “opportunistic” in accessing the capital markets to the next stage in funding for its $11 billion acquisition of Verizon wireline assets in a number of U.S. states (see related story elsewhere in this issue).

Oil names roiled

On the downside, West Texas Intermediate crude for September delivery fell $1.70, or 3.61%, to $45.42 a barrel on the New York Mercantile Exchange on Monday, as concerns about oversupply continued to grow. Those concerns have been fueled recently by increasing domestic rig counts.

On the heels of the decline, traders said that oil exploration and development bonds were getting whacked.

One saw Denbury Resources Inc.’s 5½% notes due 2022 fall almost a point to 76½. Comstock Resources Inc.’s 10% notes due 2020 were meantime off 3 points at 86 on “pretty heavy volume” of over $25 million, the trader said.

In California Resources’ 6% notes due 2024, a trader saw that issue slipping almost 1½ points to 78 3/8.

That trader also placed SandRidge Energy’s 8¾% notes due 2020 at 75¾, a loss of 3½ points on the day. A second market source pegged the 7½% notes due 2021 at 29, off 1½ points.

Linn Energy LLC was meantime weakening yet again, as a trader saw the 7¾% notes due 2021 falling almost 3 points to 56.

Another loser of the day, Halcon Resources Corp. saw its 9¾% notes due 2020 drop 2½ points to end at 51¾.

And, rounding out the sector, MidStates Petroleum Co. Inc.’s 10% notes due 2020 fell 2½ points to 86½, while the 10¾% notes due 2020 drifted down almost 2 points to 33¼.

Indicators turn south

Statistical measures of junk market performance were lower across the board on Monday, their first downside performance in a week.

Those performance measures had moved solidly higher last Tuesday and Wednesday to break out of a seven-session slump, and then turned mixed on Thursday and Friday.

The KDP High Yield Daily index retreated by 3 basis points to finish at 69.3, its second consecutive loss. On Friday, it had eased by 1 bp after having risen for three straight sessions before that, including Thursday’s 21 bps jump – which had come on the heels of an even larger rise of 29 bps on Wednesday.

Its yield, meanwhile, was unchanged on Monday at 5.93% after having edged up to that level by 1 bp on Friday. It had come in over the two sessions before that, including Thursday’s 5 bps tightening.

The Markit Series 24 CDX North American High Yield index was down 1/8 point on Monday to end at 106 1/32 bid, 106 3/32 offered, after having improved by 1/32 point on Friday.

The Merrill Lynch North American Master II High Yield index fell by 0.095%, its first downturn after four straight advances, including Friday’s 0.007% rise. Those four upside sessions – including Wednesday’s 0.405% surge, the second-biggest one-day gain seen this year – had followed seven straight losing sessions.

Monday’s loss lowered the index’s year-to-date return to 1.766% from Friday’s 1.863% finish. Those levels remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Stephanie N. Rotondo contributed to this review.

© 2015 Prospect News.
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