First Data megadeal, Level 3 price; Bombardier falls despite aid; funds gain $2.04 billion

By Paul Deckelman and Paul A. Harris

New York, Oct. 29 – The high-yield market saw its biggest-volume new-issue session in more than a month on Thursday as $4.7 billion of new dollar-denominated and fully junk-rated paper priced in a trio of quickly shopped and upsized offerings from domestic issuers.

By far the biggest deal of the day was First Data Corp.’s $3.4 billion offering of eight-year notes, which was massively upsized from an originally announced size of $750 million. Terms on the electronic transaction processing company’s big deal were not seen until well into the night, hours after all other business had wrapped up.

Earlier in the session, fiber-optic network operator Level 3 Communications, Inc. had done an upsized $900 million of eight-year notes; traders saw the new bonds move up modestly on very active volume when they hit the aftermarket.

And homebuilder Lennar Corp. also came to market with an upsized drive-by offering of $400 million eight-year notes, which were not seen immediately trading around after pricing.

Those three deals combined to give Junkbondland its heaviest-volume day since Sept. 26, when financing affiliates of media company Cablevision Systems Corp. and chemical manufacturer Olin Corp. teamed up to price $6.02 billion of new notes in five tranches, according to data compiled by Prospect News.

Away from the new issues, the Valeant Pharmaceuticals International, Inc. saga continued. The embattled Canadian drug maker’s bonds first firmed as its biggest shareholder defended the company against recent allegations of corporate wrongdoing, but they then gave all of those gains back and then some after a major drugstore operator cut ties with Valeant’s controversial specialty pharmacy partner.

Another underachieving Canadian company, Bombardier, Inc., reported earnings and announced that the Quebec provincial government is investing $1 billion to help it complete its next-generation airliner building program. But bondholders and shareholders alike were not impressed with the Quebec transaction, focusing instead on the company’s disappointing third-quarter results and taking its bonds and shares broadly lower.

Statistical measures of junk market performance turned mixed on Thursday for the first time in a week after having been higher the previous day and lower for two sessions before that.

However, another numerical performance gauge – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – posted its fourth straight net addition of cash in the latest reporting week, a $2.04 billion inflow.

First Data supersizes

The drive-by market reignited on Thursday with three deals that upsized during the course of the day.

First Data launched and priced a massively upsized $3.4 billion offering of eight-year senior notes (Caa1/B/CCC+) at par to yield 7% on Thursday, according to a syndicate source.

The deal, which was said to be playing to a whopping $7 billion of orders, was increased in size from $750 million.

The yield printed on top of yield talk.

BofA Merrill Lynch, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Barclays, HSBC Bank, Mizuho Securities, PNC Capital Markets, SunTrust Robinson Humphrey, Wells Fargo Securities LLC, KKR Capital Markets, BBVA and KeyBanc Capital Markets are the joint bookrunners.

The Atlanta-based payment processing services provider planned to use the proceeds from the original $750 million offer to redeem and/or repurchase $650 million of its 12 5/8% senior notes due 2021.

Level 3 upsizes

Level 3 Financing, Inc. priced an upsized $900 million issue of eight-year senior notes (B1/B/BB) at par to yield 5 3/8%.

The deal size grew from $500 million.

The yield printed at the tight end of the 5 3/8% to 5½% yield talk and tight to early guidance in the mid-5% area, sources said.

The deal was said to have played to $2.5 billion to $3 billion of orders, according to a bond trader who spotted them trading modestly higher, at par 1/8 bid, par 3/8 offered, at the Thursday close.

Citigroup was the left bookrunner for the debt refinancing deal. BofA Merrill Lynch, Morgan Stanley & Co. LLC, Barclays, Credit Suisse, Goldman Sachs & Co. and J.P. Morgan Securities LLC were the joint bookrunners.

Lennar at a discount

Lennar priced an upsized $400 million issue of 4 7/8% eight-year senior bullet notes (expected ratings Ba2/BB/BB+) at 99.169 to yield 5%.

The debt refinancing deal was upsized from $350 million.

The yield printed on top of yield talk and tight to earlier guidance in the 5% area, according to market sources.

Deutsche Bank, Wells Fargo, BofA Merrill Lynch, Citigroup, JPMorgan, Mizuho Securities, Goldman Sachs and RBC Capital Markets were joint bookrunners.

Autodistribution prices deal

France-based Autodistribution Group priced a €239 million issue of restructured five-year senior holdco pay-if-you-can notes (B3/CCC+) at 99.5 with a cash yield of 9.126%.

The notes pay a 9% cash coupon and a 9¾% PIK coupon.

The coupon came on top of coupon talk. The reoffer price came at the rich end of the 99 to 99.5 price talk. The coupon printed at the tight end of the 9 1/8% to 9¼% yield talk.

In a restructuring triggered by investor pushback, the initial call premium was increased to 102 from 101. The notes will become callable after one year at 102 and after two years at par.

Global coordinator JPMorgan will bill and deliver. Credit Suisse was also a global coordinator. BNP Paribas was the lead manager.

Proceeds will be used to help fund the buyout of Autodis SAS by Bain Capital LLC for about €600 million.

Level 3 notes firmer

In the secondary market, a trader quoted the new Level 3 Financing 5 3/8% notes due 2024 at 100¼ bid, up from the par level at which the Broomfield, Colo.-based fiber-based communications services provider had priced its quick-to-market offering.

He said that volume in the new issue was brisk, with over $55 million having changed hands.

Traders meantime did not report any initial aftermarket dealings in Miami-based homebuilder Lennar’s new 4 7/8% notes due 2023.

Nor were any of the new First Data 7% notes due 2023 seen immediately trading around, given the relative lateness of the hour at which the Atlanta-based electronic transaction processing company’s giant-sized offering priced.

L Brands holds its own

Among other recently priced issues, L Brands, Inc.’s 6 7/8% bonds due 2035 “kind of hung in there” on Thursday, a trader said, quoting the Columbus, Ohio-based retailing company’s new issue in a 103½-to-104 bid context.

“There was definitely a drop off in trading volume,” he said, versus the levels seen on Wednesday, when more than $105 million of the new notes traded as high as 104 bid after having come to market at par on Tuesday as an upsized $1 billion issue.

“But price-wise they did hang in there.”

The trader also quoted the new Toll Brothers, Inc. 4 7/8% notes due 2025 at 100¼ bid.

The Horsham, Pa.-based homebuilder had priced $350 million of those split-rated (Ba1/BB+/BBB-) notes at par on Tuesday off the investment-grade desks, although traders said that there had been some junk accounts interested in the deal.

At another desk, though, a trader quoted the notes at 99¾ bid, 100¼ offered, calling them down ½ point from where they had been on Wednesday.

Valeant bonds gyrate

Away from the new deals, traders saw heavy volume in Valeant Pharmaceuticals International’s paper, ultimately to the downside.

One of the traders said the Laval, Quebec-based drug manufacturer’s 6 1/8% notes due 2025 “traded up earlier in the day,” gaining 2 points to move up to 88 bid, on the news that the company’s largest shareholder, Sequoia Fund, had issued a letter on Wednesday defending Valeant against accusations that it had booked fraudulent sales through a network of specialty pharmacies. Those allegations, issued last week by short-seller Citron Research, had rocked Valeant’s shares and bonds, sending the 6 1/8% notes, for instance, cascading down to around 80 bid from prior levels in the upper 90s.

Sequoia also affirmed its support for beleaguered Valeant chief executive officer Michael Pearson.

But later in the afternoon, the euphoria generated by Sequoia’s letter evaporated after major drugstore chain operator CVS Health dropped Valeant affiliate Philidor Rx Services from the network used by CVS Caremark’s pharmacy benefits unit.

“That sent the bonds right back down,” the trader said, seeing them finish at 85 bid, down 1 to 2 points point on the day.

Another trader had them at 84, down 2 7/8 points, with over $80 million having changed hands.

At another desk, a trader noted that the 5 7/8% notes due 2020 and the 5½% notes due 2023 trade pretty much in tandem in the lower 80s.

“It’s easy to see the ones whipping all around,” he said.

Bombardier bombs out

Elsewhere, Canadian aircraft and railroad equipment manufacturer Bombardier’s bonds were “coming in for a crash landing,” as one trader put it.

He noted that the company’s 5¾% notes due 2022, its 6% notes due 2022 and its 6 1/8% notes due 2023 had started out the day at 83-84 bid but had cascaded down to 77½-to-78½ by the end of the day, “so that’s down a lot.”

Volume was heavy, with some issues topping $35 million.

Bombardier reported third-quarter numbers and also announced that the Province of Quebec had elected to invest $1 billion for a 49.5% economic stake in the company, a move that company executives touted as a vote of confidence that would greatly enhance its liquidity. (See related story elsewhere in this issue.)

However, the quarterly results were weak, reflecting ongoing softness in its business and commercial jet line. One of the traders opined that the bondholders and shareholders “perhaps felt that $1 billion [from Quebec] wasn’t enough aid.”

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Thursday for the first time in a week after having been higher the previous day and lower for two sessions before that.

The KDP High Yield Daily index fell by 4 basis points to end at 67.25 after having risen by 7 bps on Wednesday to break a two-session slump.

Thursday’s loss was its third in the last four sessions

Its yield was unchanged at 6.47% after having come in by 8 bps on Wednesday.

The Markit Series 25 CDX North American High Yield index lost 5/32 point on Thursday to end at 103 1/32 bid, 103 3/32 offered. The loss was its third in the last four sessions. It followed a 5/16 point gain on Wednesday and, before that, two lower sessions in a row.

The Merrill Lynch North American Master II High Yield index though, edged up by 0.013%, its second gain in a row. On Wednesday, it had risen by 0.076%, its first gain after two straight losses.

Thursday’s improvement was its third in the last five sessions.

The gain raised the index’s year-to-date return to 0.136% from 0.124% on Wednesday. Those levels, while modest, still remained well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2, which was the market measure’s lowest level since Oct. 5, 2011, when it had shown a 3.834% year-to-date deficit.

Funds see $2.04 billion inflow

High-yield mutual funds and exchange-traded funds showed major net additions by investors in the latest reporting week. It was the fourth consecutive week in which inflows have been seen, bouncing back from the heavy net redemptions reported four weeks ago.

Sources familiar with the fund-flow statistics said Thursday that $2.04 billion more came into those weekly-reporting-only funds than left them during the week ended Wednesday.

That followed the $3.34 billion cash gain that was reported last week for the seven-day period ended Oct. 21. (See related story elsewhere in this issue.)

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