Sirius XM prices, trades up; L Brands at a discount; Mallinckrodt jumps; energy names under pressure

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 5 – The drive-by window was open on Wednesday with two refinancing deals pricing.

Sirius XM Radio Inc. priced an upsized $1.25 billion issue of 10-year senior notes (existing ratings Ba3/BB) at par to yield 5½%.

L Brands, Inc. priced a $500 million issue of 7½% 10-year senior notes (existing ratings Ba1/BB) at 98.286 to yield 7¾%.

Two deals remain on the forward calendar that are expected to price ahead of Friday’s close.

Grubhub Inc.’s $400 million offering of eight-year senior notes is expected to price on Friday, as is Stericycle, Inc.’s $550 million split-rated offering of five-year senior notes (/BBB-/BB+).

Meanwhile, the secondary space remained firm on Wednesday, closing the day unchanged to up slightly, sources said.

New paper from Sirius XM was in focus after breaking for trade with the notes trading in a wide range, a market source said.

Mallinckrodt plc’s junk bonds were on the rise on Wednesday following news of its settlement with the Department of Justice.

However, energy names remained under pressure with California Resources Corp.’s bellwether 8% senior notes due 2022 and Chesapeake Energy Corp.’s junk bonds trading down as crude oil futures continued to decline.

Sirius XM upsizes

With a strong Wednesday start in the U.S. equity markets, dealers showed up with a couple of debt refinancing deals at the drive-up window.

Sirius XM Radio priced an upsized $1.25 billion issue of 10-year senior notes (existing ratings Ba3/BB) at par to yield 5½%.

The issue size increased from $1 billion.

The yield printed in the middle of yield talk in the 5½% area and at the tight end of the 5½% to 5¾% initial talk.

The issuer was testing the water at 5 3/8%, according to an investor, who added that would have been too tight.

The issuer came forward with the extra 12.5 basis points, and the deal, which played to $3.5 billion of orders, was trading well late Wednesday, the investor said.

JP Morgan, Barclays, Citigroup, BofA, BMO, BNP, Credit Agricole, Goldman Sachs, Mizuho, Morgan Stanley, RBC, SunTrust, Scotia, US Bancorp and Wells Fargo were the joint bookrunners.

L Brands at a discount

Also bringing an a.m. to p.m. drive-by was L Brands, which priced a $500 million issue of 7½% 10-year senior notes (existing ratings Ba1/BB) at 98.286 to yield 7¾%.

In the secondary market, late Wednesday, the bonds were straddling the new issue price at 98¼ bid, 99 offered, according to an investor, who professed the belief that the deal was priced 25 basis points too tight.

The bonds, which were priced on the investment grade syndicate desk, had initial price talk in the mid-to-high 7% area.

Citigroup, BofA, HSBC and JP Morgan were joint bookrunners.

The calendar

With no new roadshow deals announced Wednesday the market is watching for at least two deals to price ahead of the Friday close.

Grubhub is on the high-yield road with a $400 million offering of eight-year senior notes (Ba3/BB) with initial guidance of 6% to 6¼%, and expected to price Friday.

And Stericycle is in the market with a $550 million split-rated offering of five-year senior notes (/BBB-/BB+) guided in the low 5% area. The roadshow is set to wrap up Friday.

Sirius XM in focus

Sirius XM’s 5½% senior notes due 2029 were in focus after breaking for trade with the notes dominating activity in the secondary space.

However, the 5½% notes were “trading all over the place,” a market source said.

The notes were changing hands in a range of par 1/8 to 101. They were seen at par ¼ bid, par ½ offered in the late afternoon.

However, they had just traded at par ¾ bid, par 7/8 offered, a market source said.

The notes saw more than $74 million in reported volume heading into Wednesday’s close.

Mallinckrodt’s settlement

Mallinckrodt’s junk bonds were on the rise on Wednesday after the pharmaceutical company reached a settlement with the Department of Justice over the marketing of its Acthar gel.

Mallinckrodt’s 5¾% notes due 2022 were the most active in its capital structure. The notes gained 2 3/8 points to trade up to 85½ by Wednesday afternoon.

More than $21 million of the bonds were on the tape.

While less active, the pharmaceutical company’s 5 5/8% senior notes due 2023 rose 2 points to 74, and the 4¾% senior notes due 2023 rose 3¾ points to 66.

The rally came after Mallinckrodt reached a $15.4 million settlement with the Department of Justice over the investigation into the marketing of Acthar gel.

The DOJ was investigating claims that Questcor Pharmaceuticals Inc., which Mallinckrodt acquired in 2014, bribed doctors to increase sales of Acthar.

While Mallinckrodt’s junk bonds rallied on the news, it is still a risky name, according to market sources.

The settlement did not address liabilities related to a whistleblower lawsuit about the marketing practices of Questcor, a source said.

Mallinckrodt’s capital structure cratered in late May after the pharmaceutical company announced it was filing suit against the U.S. Department of Health and Human Services and Centers for Medicare and Medicaid Services.

The suit challenged the recent decision by the government agencies that required Mallinckrodt to change the manufacturer price used to calculate Medicaid rebates for the Acthar gel – a situation that is still ongoing.

The pharmaceutical company also has exposure to liabilities related to opioids, sources said.

Energy under pressure

While equities continued to rally in the wake of Federal Reserve Chairman Jerome Powell’s comments on rate increases, energy remained under pressure as crude oil futures continued to flash warning signs.

California Resources 8% senior notes due 2022 dropped 1½ points on Wednesday.

They were seen at 69 bid, 70 offered in the mid-afternoon and were seen changing hands at 70¼ into the close, sources said.

Chesapeake Energy’s junk bonds were also trading down in high-volume activity.

Chesapeake’s 8% senior notes due 2027 dropped 2½ points to close the day at 88. The bonds saw more than $30 million in reported volume during Wednesday’s session.

Chesapeake’s 8% senior notes due 2025 were down 1½ points to 92¼, according to a market source. More than $17 million of the bonds were in play during Wednesday’s session.

Crude oil futures continued their decline on Wednesday with the barrel price of WTI crude oil for July delivery sliding another $1.80 or 3.37% to settle at $51.68.

Crude oil futures officially entered into bear market territory on Wednesday after data showed U.S. inventories at nearly two-year highs.

Mixed (large) Tuesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, according to market sources.

Mixed though they were, the Tuesday flows were nevertheless conspicuously large.

High-yield ETFs saw a massive $1.39 billion of inflows on the day, erasing the $1.35 billion of outflows which the ETFS sustained on Monday.

Meanwhile, actively managed high-yield funds sustained an eye-popping $1.24 billion of outflows on Tuesday, the source said.

Outflows from the actively managed funds were heard to have been fairly broad-based, the source remarked.

With only Wednesday's numbers remaining to be tallied in the flows of the combined funds for the week that concludes at Wednesday's close, the funds are tracking $2.9 billion of outflows for that period.

Indexes gain

Indexes were again on the rise on Wednesday.

The KDP High Yield Daily index gained 7 basis points to close Wednesday at 69.59 with the yield now 5.95%. The index gained 18 bps on Tuesday after sliding 6 bps on Monday.

The ICE BofAML US High Yield index again passed the 8% year-to-date threshold on Wednesday.

The index gained 17.7 bps with the year-to-date return now 8.086%. The index gained 43.7 bps on Tuesday after sliding 4.7 bps on Monday.

The index dropped below the 8% threshold on May 29 after largely posting returns of 8% plus since early April.

The CDX High Yield 30 index gained 9 bps to close Wednesday at 105.38. The index skyrocketed 92 bps on Tuesday after dropping 17 bps on Monday.

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