United Rentals, CenturyLink, Reliance deals price; Valeant upsizes; funds lose $1.96 billion

By Paul A. Harris and Paul Deckelman

New York, March 12 – After a hiatus of several days, opportunistically timed drive-by deals returned to the junk bond market on Thursday, accounting for most of the $2.68 billion that priced during the session.

That included the day’s big deal, a $1.8 billion two-part offering of secured eight-year notes and unsecured 10-year paper from United Rentals Inc. The heavy equipment leasing and rental company’s new paper was seen having firmed slightly in the aftermarket.

Telecommunications operator CenturyLink Inc. also came to market with a quickly shopped deal, pricing $500 million of 10-year notes. They were among the most actively traded credits in Junkbondland on Thursday, although they remained around their issue price. The company’s existing notes were also busy, trading a little lower on news of the new deal.

The day’s one regularly scheduled pricing off the forward calendar, a $375 million eight-year secured offering from home infrastructure provider Reliance Intermediate Holdings LP, also saw some brisk aftermarket dealings, moving up around 1 point.

There was also active secondary trading in Wednesday’s offerings from Surgical Care Affiliates Inc. and Shea Homes LP, with Surgical Care’s new paper solidly higher and Shea’s two-parter staying around the bonds’ respective issue prices.

The news that Endo International plc was making a competing acquisition bid for Salix Pharmaceuticals Ltd. did not scare off Salix’s original suitor, Valeant Pharmaceuticals International Inc., which is shopping around a four-part megadeal to fund its purchase – quite the contrary. On Thursday, Valeant increased the size of its big deal to an even $10 billion equivalent. Big as it is, the deal is said to be several times oversubscribed, with pricing expected on Friday.

Statistical indicators of junk market performance turned higher across the board on Thursday after having been mixed on Wednesday and lower for the three sessions before that and for five sessions out of the previous six.

But another numerical measure – flows of funds into and out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of junk market liquidity trends – saw its first net outflow this week after six straight weeks of inflows. Almost $2 billion more was said to have left the funds than came into them in the latest week.

United Rentals prices tight

Thursday's primary market saw three issuers bring a combined four tranches of notes, raising an overall total of $2.68 billion.

Two of the three issuers came quick-to-market.

No deals were upsized.

Executions were mixed, with two tranches coming at the tight ends of talk, one coming on top of talk and one at the wide end.

United Rentals (North America), Inc. priced $1.8 billion of high-yield notes in a quick-to-market transaction.

The debt refinancing deal included a $1 billion tranche of eight-year senior secured notes (Ba1/BB+) that priced at par to yield 4 5/8%, at the tight end of the 4 5/8% to 4¾% yield talk.

It also included an $800 million tranche of 10-year senior unsecured notes (B1/BB-) that priced at par to yield 5½%, at the tight end of the 5½% to 5 5/8% yield talk.

Wells Fargo Securities LLC was the left bookrunner. BofA Merrill Lynch, Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Barclays, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC were the joint bookrunners.

CenturyLink drives by

CenturyLink priced a $500 million issue of non-callable 10-year senior notes (Ba2/BB/BB+) at par to yield 5 5/8%.

The yield printed on top of yield talk.

BofA Merrill Lynch was the left bookrunner for the debt refinancing. Citigroup, JPMorgan and Wells Fargo were the joint bookrunners.

Reliance Comfort secured deal

Reliance Comfort priced Thursday's only deal to have run a brief roadshow.

The Toronto-based company priced a $375 million issue of eight-year senior secured notes (B1/BB-) at par to yield 6½%, at the wide end of the 6¼% to 6½% yield talk.

Joint bookrunner Barclays will bill and deliver for the debt refinancing deal. RBC Capital Markets was also a joint bookrunner.

The company plans to use the proceeds to refinance its 9½% senior secured notes due 2019.

The issuing entity will be Reliance Intermediate Holdings LP, the holding company for its subsidiary and operating company, Reliance LP, which does business as Reliance Home Comfort, a supplier of home infrastructure and services.

Valeant upsizes

Valeant Pharmaceuticals upsized its four-part offering of senior notes (B1/B) to $10 billion equivalent from $9.6 billion equivalent late Thursday, shifting $400 million of proceeds from its concurrent bank loan.

The deal is said to be playing to $30 billion of demand, according to an investor.

The company set price talk earlier in the day.

The talk for each of the respective tranches came tighter than initial guidance levels that were supplied by traders earlier in the week.

A tranche of dollar-denominated notes due on March 15, 2020, callable after two years at par plus 50% of the coupon, is talked to yield in the 5 3/8% area. Early guidance was 5½%.

A tranche of dollar-denominated notes due May 15, 2023, callable after three years at par plus 50% of the coupon, is talked to yield in the 6% area. Early guidance was 6¼%.

A tranche of euro-denominated notes due May 15, 2023, callable after three years at par plus 50% of the coupon, is talked to yield 4½% to 4¾%. Early guidance was 5%.

And a tranche of dollar-denominated notes due April 15, 2025, callable after five years at par plus 50% of the coupon, is talked to yield in the 6¼% area. Early guidance was 6½%.

The investor lamented the paring of price talk but added that it was no surprise because the eight-year notes and 10-year notes seemed cheap at initial guidance. The five-year notes less so, the investor added.

Deal risk

The issuing entity for the Valeant deal will be VRX Escrow Corp., which is significant because proceeds from the Valeant bond deal will be escrowed until its acquisition of Salix Pharmaceuticals closes, which, according to plan, is to take place in the quarter ahead.

However, Endo International is also in the market to acquire Salix, the investor noted, adding that the Endo bid exceeds Valeant's by about 11%.

The high-yield investor calculates that there is about a 25% chance that Valeant's bid for Salix falls to that of Endo.

But in case it does, the work that high-yield investors did on the Valeant deal will be for naught, the investor said, noting that the Valeant bonds are coming with a T+10 settlement, and a potential breakup of its acquisition deal should not cost Valeant a dime.

Had it been a T+3 settlement Valeant could have been on the hook for a week's worth of interest expense in the event that its acquisition deal fell apart, the investor said.

Commitments for Valeant's $10 billion four-part bond deal were due at Thursday's close, and pricing is set for Friday.

Deutsche Bank is the left bookrunner. HSBC Securities (USA) Inc., MUFG, DNB Markets Inc., SunTrust Robinson Humphrey Inc., Barclays, Morgan Stanley, RBC and Citigroup are the joint bookrunners.

Cimpress for Friday

Also on deck with a Friday deal is Netherlands-based Cimpress NV, which talked its $275 million offering of seven-year senior notes (Ba3/B) to yield in the 7% area on Thursday.

JPMorgan, MUFG, Santander and SunTrust are the joint bookrunners.

Wind upsizes

In the European market, Wind Acquisition Finance SA priced €775 million of senior secured notes due July 15, 2020 (Ba3/BB) on Thursday in a two-part debt refinancing deal that was upsized from €600 million.

A €375 million add-on to the existing 4% notes priced at 101.25 to yield 3.737%. The reoffer price came in the middle of the 101 to 101.5 price talk.

A €400 million tranche of new floating-rate notes priced at par to yield Euribor plus 412.5 basis points. The Euribor spread came at the tight end of spread talk in the 425 bps area.

Joint bookrunner Deutsche Bank will bill and deliver. Banca IMI, BNP Paribas, Credit Agricole CIB and HSBC were also joint bookrunners.

Play taps 5¼% notes

Warsaw-based mobile telecommunications operator Play priced a €125 million add-on to its 5¼% notes due Feb. 1, 2019 (B1/B+/BB-) at 104.25 to yield 4.052% on Thursday.

The reoffer price came at the rich end of the 104 to 104.25 price talk.

JPMorgan managed the quick-to-market sale.

Proceeds will be used to fund capital expenditures.

ETFs see big outflows

Amid news that dedicated high-yield funds sustained $1.96 billion of outflows for the week to Wednesday, according to information contained in a weekly report from Lipper-AMG, came word that high-yield ETFs have recently been seeing near-record daily outflows.

On Tuesday the ETFs saw $559 million of daily outflows, according to a trader who added that it was the second-largest daily outflow from ETFs on record.

Daily outflows from ETFs moderated on Wednesday, the most recent session for which data was available at press time, according to a buyside source.

On Wednesday the ETFs saw $448 million of daily outflows, while actively managed funds saw $150 million of outflows on Wednesday.

Through the course of the week the outflows being sustained by ETFs moderated, a trader commented.

The negative flows are significant but not massive, an investor said, adding that Wednesday's number notwithstanding, there is still cash flowing into the actively managed funds.

United Rentals stays near issue

In the secondary market, traders saw the new United Rentals eight- and 10-year notes mostly little changed from the par level at which both tranches of the Greenwich, Conn.-based heavy equipment rental company’s quickly shopped megadeal had priced.

A trader saw its 4 5/8% senior secured notes due 2023 having opened at around 100¼ and then having moved up to 100½ bid, on volume of over $14 million.

A second trader heard the company’s 5½% notes due 2025 quoted in a 100¼-to-100½ bid context, while the 4 5/8% notes were offered at 101, but said that “for all I know, both could be 100¼ to 100½.”

CenturyLink little moved

The day’s other drive-by offering, Monroe, La.-based wireline telecommunications company CenturyLink’s deal, also pretty much stayed around its par issue price.

A trader quoted the new bonds right at the par level going home, on busy initial volume of over $29 million.

A second saw the bonds initially trading around 100¼ bid before settling in around a par-to-100 1/8 bid context.

Yet another trader saw the bonds dip as low as 99¾ bid before finishing at par.

The company’s existing bonds “traded off ¾ to 1 point” ahead of the new deal, a trader said, with its 6¾% notes due 2023 trading around 109 5/8 bid, with more than $14 million having changed hands.

Its 5.8% notes due 2022 were around the 103 5/8 bid mark, on volume of more than $7 million.

Wednesday deals active

Going back a day, traders saw some of the new deals that had priced on Wednesday trading actively, with Surgical Care Affiliates’ 6% notes due 2023 having moved up on the day.

One trader saw those notes at 101 1/8 bid, calling them up 1/8 point on the session, with more than $14 million having traded.

Another saw them “wrapped around 101.”

The Deerfield, Ill.-based surgical centers operator priced $250 million of the notes at par on Wednesday in a regularly scheduled forward calendar offering. They had traded in a 100½-to-101 bid context when they first hit the aftermarket.

There was also significant trading in Shea Homes’ two tranches of bonds, both of which had priced at par.

A market source said that the company’s 5 7/8% notes due 2023 were going home at 100¼ bid, down 1/8 point, on volume of more than $19 million, while its 6 1/8% notes due 2025 were trading at 100 1/8 bid, down 3/8 point on the session, on turnover of some $28 million.

The Walnut, Calif.-based homebuilder brought $375 million of each issue to market on Wednesday, with both tranches of bonds trading around 100¼ in initial dealings after pricing.

A trader quoted GFL Environmental, Inc.’s 7 7/8% notes due 2020 at 98¾ bid but said he had only seen one trade at that level, early in the session.

The Vaughn, Ont.-based solid-waste management and environmental clean-up company priced $250 million of the notes at 99.488 to yield 8% in a regularly scheduled deal on Wednesday.

Valeant notes seen easier

A trader said that Valeant Pharmaceuticals’ existing issues, which had risen more than a point in active trading on Wednesday, “were off maybe ½ point from yesterday’s levels in active trading.”

However, a second trader quoted its most active issue, the 5½% notes due 2023, about unchanged at the par level, with more than $18 million having changed hands.

A trader had said that the bonds had moved up on Wednesday on the news that Irish pharmaceutical company Endo International had stepped in with a higher bid for Salix Pharmaceuticals, raising the possibility that Laval, Quebec-based Valeant would not be able to acquire Salix and thus would not have to issue the new bonds and take out a $4 billion loan, about doubling its existing $15 billion of debt.

Last month, Valeant announced its plan to acquire Raleigh, N.C.-based Salix for $10.1 billion, or $158 per share – but Endo said Wednesday that it is willing to pay $175 per share for Salix, or about $11.2 billion.

However, Valeant is still shopping its bond deal around, in fact upsizing it on Thursday in the apparent belief that Salix shareholders will prefer its all-cash bid even though it is a lower total value than Endo’s cash-and-stock offer.

Indicators get better

Statistical indicators of junk market performance turned higher across the board on Thursday after having been mixed on Wednesday and lower for the three sessions before that and for five sessions out of the previous six.

The KDP High Yield Daily index gained 6 bps on Thursday to close at 71.28 after having been unchanged on Wednesday and down for seven straight sessions before that, including Tuesday, when the index had plunged by 42 bps.

Its yield meanwhile came in by 2 bps to 5.37%, its second straight narrowing. On Wednesday, it had declined by 1 bp, in sharp contrast to Tuesday, when it had ballooned out by 15 bps, its seventh successive widening.

The Markit Series 23 CDX North American High Yield index rose by 9/32 point on Thursday to end at 107 9/16 bid, 107 5/8 offered – its first gain after several straight losing sessions, including Wednesday, when it had eased by 1/32 point.

The Merrill Lynch U.S. High Yield Master II index made it two advances in a row on Thursday, rising by 0.072% on top of Wednesday’s 0.116% gain. That had snapped a downward skid of three straight sessions and five sessions out of the prior six.

Thursday’s improvement lifted its year-to-date return to 2.34% from Wednesday’s 2.267%, although it remained down from its peak 2015 level of 3.125%, set last Monday.

Funds off by nearly $2 billion

High-yield mutual funds and ETFs – considered a reliable barometer of overall junk market liquidity trends – saw their first outflow in seven weeks this week, market sources said Thursday.

That setback put a dent in the flows’ solidly positive footing for the year to date.

Sources familiar with the fund-flow statistics said that $1.96 billion more left those funds than came into them during the week ended Wednesday.

It was the first outflow after six consecutive weekly inflows reaching back to the end of January.

This week’s outflow followed the $309 million cash injection reported last Thursday.

Even with the outflow, though, the funds were still showing a net inflow of $9.17 billion, although that was down from $11.12 billion last week. (See related story elsewhere in this issue.)

© 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.