Level 3 drives by, Ziggo also prices; HCA megadeal stays busy; overall market lower

By Paul Deckelman and Paul A. Harris

New York, Jan. 14 – High-yield pricing activity moderated on Wednesday, syndicate sources said, although there continued a steady flow of news out of the primary sphere.

Some $900 million of dollar-denominated, fully junk-rated paper had priced in two tranches by the day’s end, the sources said – down from Tuesday’s tally of $1.6 billion in three tranches.

Familiar junk issuer Level 3 Communications Inc. priced a quickly shopped $500 million issue of eight-year notes via a financing subsidiary. The new bonds moved up modestly when they moved into the aftermarket. There was also some activity seen in the Broomfield, Colo.-based telecommunications company’s existing notes.

The communications sector also accounted for the day’s other pricing, as Dutch phone, cable and internet service provider Ziggo Holding BV brought a €740 equivalent two-part issue to market via a financing subsidiary, including $400 million of 10-year notes, which also firmed when they were freed for secondary dealings.

That Ziggo deal was the second transaction in as many sessions by a European phone, cable and internet company owned by Liberty Global plc. On Tuesday, its Virgin Media Inc. subsidiary, which provides those services to customers in the United Kingdom, did a similar multi-part 10-year deal, also including a $400 million tranche of dollar-denominated notes. That new Virgin paper, meanwhile, was seen by traders as having eased from Tuesday’s aftermarket gains, in line with a generally easier junk bond market.

However, Tuesday’s other deal, from hospital operator HCA Holdings, Inc., traded at or above Tuesday’s levels and was the busiest credit in Junkbondland for a second straight session.

Elsewhere in the primary, Koppers Inc., Angus Chemical Co. and Thomas Cook Finance plc were all heard to be marketing new deals.

Overall, the secondary market had a weaker tone to it, in line with lower equities, despite a strong rebound in crude oil prices from their recent lows.

Statistical market performance measures were lower across the board on Wednesday after having been mixed on Tuesday, their second downside session in the last three days.

Level 3 $500 million drive-by

The primary market news flow intensified during the Wednesday session.

A pair of dollar-denominated deals totaling $900 million – one of them a drive-by – were priced in executions that saw one coming at the tight end of talk and the other at the wide end.

Level 3 Financing, Inc. priced a $500 million issue of eight-year senior notes (B3/B/BB) at par to yield 5 5/8%.

The yield printed at the wide end of the 5½% to 5 5/8% yield talk.

The par-pricing deal traded to par ½ bid, 101 offered in the secondary market, a trader said late Wednesday.

Citigroup was the left bookrunner. BofA Merrill Lynch, Morgan Stanley, Barclays, Goldman Sachs, Jeffries and J.P. Morgan were the joint bookrunners for the debt refinancing deal.

Ziggo €740 million equivalent

Ziggo Bond Finance BV priced €740 million equivalent of 10-year senior notes (B2/).

The deal included a $400 million tranche of notes that priced at par to yield 5 7/8%, at the tight end of yield talk in the 6% area.

In addition, Ziggo priced a €400 million tranche of notes at par to yield 4 5/8%, at the tight end of yield talk in the 4¾% area.

Credit Suisse was the lead left bookrunner. BofA Merrill Lynch, Deutsche Bank, ING and Morgan Stanley were the joint bookrunners.

The Utrecht, the Netherlands-based telecommunications company plans to use the proceeds to finance the contribution of UPC Netherlands to the Ziggo credit pool.

Ziggo cheap to Virgin Media

Wednesday's Ziggo deal went well, in part because it came cheap to the dollar- and euro-denominated unsecured 10-year tranches priced on Tuesday by Virgin Media from basically the same business sector as Ziggo, a London-based sellside source said.

To recap those unsecured issues, Virgin Media Finance plc priced a €460 million tranche at par to yield 4½% (versus 4 5/8% for Ziggo) and a $400 million tranche at par to yield 5¾% (versus 5 7/8% for Ziggo).

Those Virgin Media tranches came as part of a £925 million equivalent three-part deal that also featured a £300 million tranche of senior secured notes.

Both Ziggo tranches were headed out above their respective new issue prices on Wednesday, according to a trader who spotted the euro-denominated notes at par 5/8 bid, par 7/8 offered, and the dollar-denominated notes at par ¾ bid, 101 offered.

Koppers starts roadshow

Koppers Inc., a wholly owned subsidiary of Koppers Holdings Inc., began a roadshow on Wednesday for a $400 million offering of five-year senior notes.

Deutsche Bank, Barclays, BofA Merrill Lynch, Fifth Third, PNC, RBS and Wells Fargo are joint bookrunners for the debt refinancing and general corporate purposes deal.

Angus starts Thursday

Angus Chemical plans to start a roadshow on Thursday in New York for a $225 million offering of senior notes due 2023, in a deal that is expected to price late in the week ahead.

Morgan Stanley, JPMorgan and Deutsche Bank are the joint bookrunners for the buyout financing.

The issuing entity will be Aruba Investments, Inc.

Thomas Cook €400 million

Thomas Cook Finance plans to price a €400 million offering of senior notes due June 2021 (expected ratings /B/B+) on Friday.

Global coordinator Credit Suisse will bill and deliver. Royal Bank of Scotland is also a global coordinator. Barclays, BNP Paribas, CM-CIC, DNB, Jefferies, KBC, Lloyds, Nordea and SG CIB are joint bookrunners.

The London-based travel company plans to use the proceeds to refinance debt.

Inflows continue

The cash flows of the dedicated high-yield funds remained positive on Tuesday, the most recent day for which data was available at press time, according to a market source.

High-yield ETFs saw $250 million of daily inflows on Tuesday, while actively managed funds saw $654 million of inflows.

For the week to date – last Thursday's open to this Wednesday's close – the dedicated funds are tracking $654 million of aggregate inflows, the source added.

Level 3 bond firmer

In the secondary arena, Level 3 Financing’s new 5 5/8% notes due 2023 were seen having moved up slightly after pricing late in the session.

A trader quoted the notes in a wide par-to-101 bid context, up from their par pricing level.

A second trader narrowed that a little to 100 1/8 bid, 100 7/8 offered, while yet another narrowed that further still, seeing the notes trading between 100 3/8 and 100 7/8.

Several of the company’s existing issues also saw some busy trading, with its 8 1/8% notes due 2019 and its 9 3/8% notes due 2019 both seen by a market source around the 106 bid area with over $7 million of the former issue and over $5 million of the latter having traded by mid-afternoon.

Ziggo moves up

There was also some upside seen in the new Ziggo Bond Finance 5 7/8% notes due 2025.

A trader saw the bonds going out around the 101 bid level, up from par issue price, while a second pegged them at 100¾ bid, 101 offered.

Yet a third trader said the bonds – which had priced during the morning [ET] part of the day, traded between 100½ and 101 1/8 bid somewhere around midday [ET] , but did not see them after that.

But another market source later in the day estimated them at somewhere between 100½ and 101 bid.

The traders meanwhile saw Tuesday’s new issue from Virgin Media Finance plc – like Ziggo, a Liberty Global European cable, broadband and phone service provider – having come down from the gains racked up after that $400 million issue of 5¾% notes due 2025 priced at par.

Those bonds had gotten as good as 101¼ bid, 101½ offered after pricing, but on Wednesday, one trader saw them down ½ point, at 100¾ bid, while a second saw them down even further at 100½ bid, 101 offered, which he called a ¾-point loss on the session.

HCA stays active

While a number of junk issues were easier on Wednesday, the new paper from HCA Inc. was not among them. The company – a subsidiary of Nashville-based hospital giant HCA Holdings – priced a quickly shopped $1 billion of 5 3/8% notes due 2025 at par on Tuesday, after the deal was upsized from an originally announced $750 million. They had firmed smartly in the aftermarket, trading up to around a 101¾ to 102 bid level when they first were freed.

And on Wednesday, they were even busier, topping the high-yield Most Actives list for a second straight session with some $132 million having changed hands, a market source said. He saw them “a little better” versus Tuesday’s levels, closing around a 102¼-to-102½ bid context.

A second trader saw them essentially unchanged on the day, but did see them get as high as 102½ bid.

Another market source saw the bonds between 102 and 102½.

The company’s existing bonds – which had moved up on Tuesday on the news of the new financing – stayed busy and pretty much held those gains on Wednesday, a trader said.

He saw the company’s 6½% notes due 2020 having firmed to 112 bid, on volume of $16 million.

HCA’s 3¾% notes due 2019 were in a 101-to-101½ offered context, as more than $17 million changed hands.

Market seen off

Away from the new deals, a trader said that “this was a very tough market to try and get things done in, especially if you were a seller. In general, the market was soft and ugly. You needed to hit the bids.”

Junk was seen weaker in line with a fall in equities, which fell for a fourth straight day on Wednesday as a World Bank forecast and further drop in copper prices fueled concerns about global weakness.

Even a sharp rebound in world crude oil prices was not much help. Crude, which had established new six-year lows earlier in the week, saw its best gain since August of 2012, with benchmark West Texas Intermediate jumping $2.59, or 5.6%, with the February contract settling at $48.48. However, analysts said that the upturn was not based on any fundamental change in the oil market, but rather was driven by technical factors related to the looming expiration of options.

With that in mind, another trader said that energy-related junk bonds “were still drifting down 2, 3, 4 points, depending on the name.”

He saw Key Energy Services Inc.’s 6¾% notes due 2021 drop by 2¾ points to 59¼ bid, while Samson Investment Co.’s 9¾% notes due 2020 lost 1¾ points to end at 30.

However, the losses were not universal – yet another trader said that while energy issues generally were selling off during the morning, some of them came back in the afternoon as oil rallied on those technical concerns.

“Bids got filled in” once oil rallied, he said.

He saw California Resources Corp.’s 6% notes due 2024 having come back from early weakness to close pretty much unchanged at 79½ bid.

Indicators head lower

Statistical indicators of junk market performance turned lower on Wednesday after having been mixed on Tuesday. They had also been lower on Monday.

The KDP High Yield Daily index plunged by 18 basis points to end at 70.60, after having risen by 5 bps on Tuesday. Wednesday’s setback was its second in three sessions.

Its yield widened by 6 bps to 5.63% after having come in by 2 bps on Tuesday. It had been unchanged at 5.59% on Monday.

The Markit Series 23 CDX North American High Yield index eased by 1/32 point on Wednesday to finish at 105¼ bid, 105 5/16 offered. It was the index’s fourth straight loss, following its 9/32 point downturn on Tuesday.

The Merrill Lynch U.S. High Yield Master II index dropped by 0.27%, after having inched up by 0.002% on Tuesday.

That sent its year-to-date return figure back into the red with a 0.27% loss, versus Tuesday’s 0.197% return. However, that loss was still less than the 0.59% cumulative loss – the biggest since October of 2011 – posted last Tuesday.

The Finra/Bloomberg U.S .High Yield index volume rose to $5.054 billion on Wednesday from Tuesday’s $4.492 billion.

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