Calpine, Walter, Magnetation drive by in $3.2 billion session; Radiation Therapy still sliding

By Paul Deckelman and Paul A. Harris

New York, July 8 – Activity in the high-yield market picked up substantially on Tuesday, with syndicate sources reporting that some $3.23 billion of new dollar-denominated, fully junk-rated paper priced in three quickly-shopped transactions – up from the $1.5 billion that got done in two tranches on Monday, the first day back after the long Independence Day holiday break.

The signature deal of the day came from power-generation company Calpine Corp., which brought a $2.8 billion behemoth of a deal to market in 8.5-year and 10.5-year maturities. Traders said that just waiting for the big deal to come was the main focus in Junkbondland on Tuesday; the deal finally did price, but too late in the session for any kind of immediate aftermarket activity.

Meantime there was little activity seen in the company’s existing bonds, even though Calpine announced plans to redeem one series of bonds and tender for two others using the new-deal proceeds.

Also in the primary arena, coal producer Walter Energy Corp. did a $320 million add-on to its existing 2019 secured notes. Those established notes, in turn, retreated in active trading in response to the note issue.

Magnetation LLC, along with a financing subsidiary, did a $100 million add-on to the iron ore producer’s existing notes.

Apart from the deals that were being priced, there was a handful of announcements from companies planning on doing new junk bond deals.

Traders saw considerable activity in the big new General Motors Finance Co. two-part offering that priced on Monday, although they theorized that most of it was attributable to high-grade players reaching down to get a little yield rather than traditional junk bond investors.

Away from the new deals, there was further erosion in the bonds of the company formerly known as Radiation Therapy Services Inc., and, as had been the case on Monday, most of the activity was in smallish odd-lot trades. Market sources suggested that the slide may have been triggered by investor angst over the levels of Medicare and Medicaid reimbursement the medical services provider – now known as 21st Century Oncology Holdings, Inc. – will receive from the government.

Statistical market-performance indicators were turned lower across the board on Tuesday after having been seen mixed for the previous four consecutive sessions.

Calpine $2.8 billion drive-by

The dollar-denominated market regained its legs on Tuesday following a quiet Monday session as players resumed their places trailing the extended Independence Day holiday weekend.

The Tuesday session saw three issuers bring a combined four tranches to raise an overall total of $3.23 billion.

Calpine priced $2.8 billion of senior notes (B3/expected B-) in two tranches.

The quick-to-market deal included a $1.25 billion tranche of notes due Jan. 15, 2023, which priced at par to yield 5 3/8%.

Calpine also priced a $1.55 billion tranche of notes due Jan. 15, 2025 at par to yield 5¾%.

Both tranches came on top of yield talk.

The Houston-based power producer plans to use the proceeds from the unsecured notes that it sold on Tuesday to refinance its 8% senior secured notes due 2019, its 7 7/8% senior secured notes due 2020 and its 7½% senior secured notes due 2021.

Morgan Stanley, BofA Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Mitsubishi were the joint bookrunners.

Walter Energy taps 9½% notes

Walter Energy priced a $320 million add-on to its 9½% senior secured notes due Oct. 15, 2019 (B3/B-) at 99 to yield 9.741%.

The reoffer price came on top of price talk.

Morgan Stanley, BMO, Credit Agricole, Goldman Sachs, J.P. Morgan and Scotia were the joint bookrunners for the debt refinancing deal.

Magnetation taps 11% notes

Magnetation LLC and Mag Finance Corp. priced a $100 million add-on to their non-callable 11% senior notes due May 15, 2018 (B3/B-) at 108.75 to yield 8.388%.

The reoffer price came at the rich end of the 108.25 to 108.75 price talk.

JPMorgan, BMO and Jefferies LLC were the joint bookrunners.

The Grand Rapids, Mich.-based iron ore producer plans to use the proceeds to fund working capital and for general corporate purposes.

Ocean Rig leads calendar build

Both the active calendar and the “shadow” calendar saw meaningful buildups on Tuesday.

Ocean Rig UDW Inc. announced on Tuesday that it plans to sell $500 million of eight-year senior secured notes.

The debt refinancing deal, which is being led by joint bookrunners Deutsche Bank and Credit Suisse, is expected to price mid-to-late in the week ahead.

Light Tower starts Wednesday

Light Tower Rentals, Inc. plans to start a roadshow on Wednesday for a $300 million offering of five-year senior secured notes.

Jefferies is the left bookrunner. RBC is the joint bookrunner.

The Odessa, Texas-based provider of oilfield equipment and services plans to use the proceeds to refinance debt and fund a distribution.

Covenant Surgical roadshow

Co-issuers Covenant Surgical Partners, Inc. and Consolidated Pathology, Inc. began a roadshow on Tuesday for a $120 million offering of senior secured notes due 2019.

Imperial Capital is the sole bookrunner.

Proceeds will be used to refinance debt, to fund future acquisitions and for general corporate purposes.

Summit Midstream via Deutsche

Summit Midstream Partners, LP announced in a Tuesday press release that it plans to sell $300 million of senior notes due 2022.

The public offer is expected to be transacted on a quick-to-market timeline and will possibly price on Wednesday, a market source said late Tuesday.

Deutsche Bank, RBC, RBS and Wells Fargo are the joint bookrunners.

The Dallas-based limited partnership plans to use the proceeds to pay down its revolver.

American Energy’s $1.4 billion

American Energy – Permian Basin, LLC, an affiliate of American Energy Partners, LP, announced in a Tuesday press release that it plans to sell $1.4 billion of senior notes in tranches with maturities in 2019, 2020 and 2021.

Goldman Sachs will lead will lead the private offer, according to a market source who added that Deutsche Bank will be involved.

The acquisition financing and general corporate purposes deal is not expected to be an a.m.-to-p.m. drive-by, the source added.

New Calpine bonds unseen

In the secondary market, a trader said that much of the day’s focus was “waiting for Calpine.”

However, by the time the deal finally priced, just hours after its original announcement, it was too late in the session for any kind of aftermarket dealings.

There was not much activity seen in the company’s existing notes, even though the proceeds from the bond deal will be used to redeem one series of bonds and fund tenders for two others.

One of those being tendered for, the 7½% senior secured notes due 2021, were seen by a market source having firmed to 111½ bid, the approximate take-out price, from recent levels around 109. But volume in the credit was amazingly light, with only about $1 million or so of round-lot dealings.

Calpine’s other outstanding notes series were not seen trading around, the market source said.

Add-on deals seen firmer

While Calpine was a no-show in the aftermarket, a trader said that both of the day’s other transactions had moved up from their respective pricing levels.

He saw Magnetation’s 11% add-on notes due 2018 trading in a 109½ to 109¾ range, up from their 108.75 issue price.

And he saw Walter Energy’s 9½% senior secured add-on notes due 2019 at 100¼ bid versus the 99 level at which they had priced.

However, at another shop a trader saw the Birmingham, Ala.-based metallurgical coal producer’s bonds “off a little bit with the add-on,” deeming the 9½% notes off 1½ points around par.

The trader also saw Walter’s 11% senior secured second-lien PIK toggle notes due 2020 at 81, which compared to an 82½ to 83½ context previously.

“There wasn’t a lot of trading in the unsecureds – but they were quoted lower,” he added.

Another trader said that “all the Walter paper got hit today on that [add-on],” pegging the 9½% notes at 99¾ bid, par ¼ offered.

That compared to 101 bid, 102 offered on Monday, he said.

A market source said that Walter’s paper was among the busiest names of the day in the junk market, with over $21 million of the 9½s in circulation. He located the bonds down as much as 1¾ points from their recent levels.

He meantime saw more than $10 million of the 11% notes having changed hands during the session.

The new issue is an addition to the original $450 million of the 9½% paper, which came to market last September at 99.425. A $200 million add-on priced at 101.5 on March 19.

On the heels of the latest addition, Moody’s Investors Service downgraded Walter to Caa2 from Caa1.

Moody’s rated the new deal at B3.

Walter intends to use the proceeds to improve its liquidity position. However, in undertaking the new deal, it reduced its revolver capacity to $77 million from $314 million. Of that amount, $43 million will be used at closing for letters of credit.

As such, Moody’s said it was basing its downgrade on the belief that the company will burn through about $300 million in the next year, assuming current coal prices stay roughly the same. And any draws on the revolver could be restricted by the springing first-lien ratio.

New GM Financial notes busy

The new General Motors Financial notes that came to market on Monday were parked right at the top of the high-yield Most Actives list on Tuesday.

A trader said that its 3½% notes due 2019 traded in a par to 100¼ context on “pretty good-sized volume” of over $58 million, while the 2 5/8% notes due 2017 moved around between 100 1/8 and 100 3/8, with over $34 million having changed hands.

The Fort Worth-based captive auto-finance arm of Detroit giant GM brought the $1.5 billion of new bonds to market Monday in an opportunistically timed and quickly shopped “drive-by” transaction. It did $700 million of the 2 5/8% notes and $800 million of the 3½% notes, with both tranches pricing at par.

The trader said that while Trace was showing considerable activity in the new bonds, how much of it was attributable to high-yield investors was doubtful despite the bonds’ nominally junk ratings; most of the paper was seen going to investment-grade investors.

“We really haven’t seen it quoted in high yield,” he said.

Radiation Therapy off again

Away from the new deals, the sharp fall in Radiation Therapy’s 9 7/8% notes due 2017 that was seen on Monday was continuing on Tuesday, while its 8 7/8% notes due 2017 were also on the slide.

Several traders suggested the downturn was due to investor expectations that Medicare and Medicaid reimbursement rates for companies such as Radiation Therapy – the Fort Meyers, Fla.-based radiation oncology services company now officially known as 21st Century Oncology Holdings – will likely be cut for the upcoming fiscal year, which begins Oct. 1.

The 9 7/8% notes lost 3½ points on the day to end at 77, although most of the activity was in smallish odd-lot trades; there was only one significantly sized round-lot trade during the day, at 77 bid.

Those bonds had gone home at the end of last week trading in a 91-92 context, but after opening around those same levels Monday morning, they began dropping into the 80s, hammered down to as low as 83 bid in a series of smallish odd-lot dealings.

Then on Monday afternoon, there were several big round-lot trades that left the bonds bid at 80½.

Its 8 7/8% notes were among the most active junk issues, a trader said, with over $11 million having changed hands. He saw the bonds ending down 3 7/8 points at 97 3/8 bid, after having started at 101¼.

Those bonds had started on Monday at 102¾ bid, then fell 1½ points to 101¼, with over $6 million traded Monday, setting the stage for Tuesday’s continued downturn.

Market indicators head south

Statistical indicators of junk market performance were down across the board on Tuesday after having risen over the previous four consecutive sessions.

The KDP High Yield Daily index lost 5 basis points to close at 74.83 after having dropped by 2 bps on Monday. Tuesday’s setback was its fourth in a row.

Its yield rose by 1 bp to 4.98%, its third straight widening. On Monday, it had also risen by 1 bp.

The Markit CDX Series 22 index slid by 19 bps on Tuesday to close at 108 11/16 bid, 108 ¾ offered, its third straight loss. It had fallen by 21 bps on Monday.

And even the widely followed Merrill Lynch High Yield Master II index ended the day on the downside after having been up over the previous six sessions.

It declined by 0.026% to end with a year-to-date return of 5.723%. In contrast, on Monday it had firmed by 0.051%, lifting its year-to-date return to 5.751%, a new peak level for 2014.

Stephanie N. Rotondo contributed to this review.

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