Radian prices, new bonds jump, recent deals steady; Valeant dives on default warning, lower guidance

By Paul Deckelman and Paul A. Harris

New York, March 15 – Shakespeare famously warned to “beware the Ides of March” – and investors in Valeant Pharmaceuticals International Inc. must have felt like the doomed Julius Caesar on Tuesday, as the embattled Canadian drug manufacturer’s bonds and shares were both viciously slashed to ribbons in heavy trading by an unforgiving market, as the company warned that it could face default on some of its debt and reduced its guidance, including its projections for debt repayments.

Elsewhere, mortgage insurance company Radian Group Inc. came to market with an upsized $350 million issue of five-year notes. Traders heard the new bonds had firmed smartly when they reached the aftermarket, on robust volume.

Also pricing were a pair of euro-denominated offerings – from German industrial conglomerate ThyssenKrupp AG and French construction materials company ParexGroup. French automotive equipment supplier Faurecia SA began shopping a bond offering around to prospective investors.

Back in the domestic market, the three new deals that priced on Monday – from Avis Budget Car Rental, LLC, Clean Harbors, Inc. and CNH Industrial Capital LLC – were seen at or slightly below the levels at which they had finished on Monday, on active volume.

Traders saw the overall high yield market featureless and muted, with investors staying cautious as the Federal Reserve began its two-day policy-setting meeting on Tuesday.

Statistical market performance measures turned lower across the board on Tuesday, after having been mixed on Monday and having finished higher across the board for two consecutive sessions on Thursday and Friday. It was their second such lower session in the last six trading days.

Radian upsized and tight

After a torrid Monday session in the dollar-denominated high yield new issue market, the Tuesday session was muted, with just one deal pricing.

Radian Group Inc. priced an upsized $350 million issue of non-callable five-year senior notes (Ba3/BB-) at par to yield 7%.

The issue size was increased from $325 million.

The yield printed at the tight end of yield talk in the 7 1/8% area.

The deal appeared to go well, according to a trader in New York, who saw the new Radian 7% notes due 2021 at 101½ bid, 102 offered, following Tuesday's close.

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

The Philadelphia-based provider of private mortgage insurance, risk management products and real estate services to financial institutions plans to use the proceeds, together with shares of its common stock, to purchase its 2019 convertible notes and for general corporate purposes, which may include repurchases of common stock and 2017 convertible notes.

Parex prices atop talk

The European primary market generated a greater volume of news on Tuesday.

ParexGroup priced a €150 million issue of Euribor plus 550 basis points seven-year senior secured floating-rate notes (B1/B) at 99.00.

The spread to Euribor and the reoffer price came on top of talk.

Timing on the deal was accelerated, as the roadshow had been expected to run through a substantial portion of the Tuesday session.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas and Credit Suisse were also joint bookrunners.

Proceeds, together with cash on the balance sheet, will be used to partially repay shareholder loans.

ThyssenKrupp taps 2¾% notes

ThyssenKrupp AG launched and priced a €100 million add-on to its 2¾% unsubordinated unsecured fixed-rate notes due March 8, 2021 (Ba2/BB/BB+) at 100.573 to yield 2 5/8%.

The yield printed on top of yield talk.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, Mediobanca, MUFG and SG were also joint bookrunners.

Faurecia talk is 3¾% to 4%

Faurecia SA talked its €500 million offering of senior notes due June 15, 2023 (Ba3/BB-) to yield 3¾% to 4%.

The deal is set to price on Wednesday.

Global coordinator Citigroup will bill and deliver. Credit Agricole and HSBC are also global coordinators.

JPMorgan and MUFG are joint bookrunners.

Substantial inflows

The cash flows of the dedicated high yield bond funds were strongly positive on Monday, the most recent session for which data was available at press time, a portfolio manager said.

High yield ETFs saw $623 million of inflows on the day.

Asset managers saw $330 million of inflows on Monday.

Dedicated bank loan funds saw $190 million of inflows on the day.

Valeant bonds vanquished

In the secondary realm, the plunge in Valeant’s paper was clearly the story of the day, with a trader saying that the Lavale, Que.-based drug manufacturer was “down big time.” He saw the company’s most widely traded issue, its 6 1/8% notes due 2025, off more than 10 points, falling to a 76 to 77 context.

“That was the biggest mover and the most active bond.”

A second trader agreed fully with that characterization, pointing out that the 6 1/8s generated more than $196 million of trading, easily topping the Most Actives list.

He saw the bonds finish down 10 11/16 points on the session, at 76 3/8 bid.

Valeant’s other bonds followed a similar downward trajectory.

A market source said that the company’s 5 7/8% notes due 2023 lost an even 10 points, on volume of over $88 million.

Its 6¾% notes due 2018 and its 6 3/8% notes due 2020 were seen somewhat better, losing “only” 7½ and 5 points each to end at 91½ bid, and 86¾ bid, on volume of over $80 million and over $50 million, respectively.

Valeant’s New York Stock Exchange-traded shares meantime surrendered more than half their value, plunging $35.53, or 51.46% from Friday’s close to end at $33.51. Volume of over 138.9 million shares was more than 12 times the norm.

Valeant’s bonds and shares got hammered after the company released its unaudited 2015 fourth quarter results and 2015 guidance – and warned that its delay in making its required regulatory filings while an ad hoc committee of its board of directors looked into accounting issues that came to light late last year could produce defaults on some of its debt (see related story elsewhere in this issue.)

If Valeant does not file its 10-K by March 30, a default will occur under its credit agreement, although the company will have 30 days, or until April 29, to cure this credit default by filing the 10-K.

Meanwhile, if the 10-K has not been filed before Wednesday, a breach-of-reporting event occurs under the indentures governing its junk bonds. While the failure to make the filing before Wednesday won’t have any immediate implications under its bond indentures, it does result in a cross-default under the credit agreement.

While those lenders do not immediately have the right to accelerate the maturity of the credit agreement on account of such a cross-default, Valeant’s ability to borrow under the revolving credit agreement would be restricted while such a default continued.

A company executive said on Valeant’s conference call following the release of its results that the company intends to launch an amendment process next week with its lenders to waive such a cross-default and also to extend the time period for the delivery of the 10-K and the company’s 10-Q report for the first quarter, which normally would be filed shortly after the end of the quarter on March 31.

Valeant also released downwardly revised revenue and EBITDA guidance for 2016 and said it expects to pay down $1.7 billion of its permanent debt this year – versus the $2.25 billion projected debt paydown figure the company had released back in December.

Radian bonds on the rise

The dramatic drop in Valeant’s paper “completely overshadowed” the day’s primary market activity, a trader said, as well as the aftermarket action in the new issue that priced.

That would be Radian Group’s 7% notes due 2021, which were heard to have moved up from their par issue level in robust trading.

A trader quoted the bonds at 101½ bid and estimated volume in the new issue at over $47 million.

A second saw the new notes at 101 1/8 bid, 101 5/8 offered, while a third saw them in a 101¼ to 102 bid level.

Monday deals holding steady

Traders saw the three new issues that priced on Monday pretty much staying around or perhaps slightly below the levels where they had been seen going home on Monday.

Avis Budget Car Rental’s 6 3/8% notes due 2024 traded Tuesday morning around 100 1/8 bid, 100 5/8 offered.

By the afternoon, the bonds were at 100½ bid, 100¾ offered, which a trader called unchanged on the day.

Another market source saw the Parsippany, N.J.-based vehicle rental company’s notes at 100 3/8 bid, calling them unchanged on the day, with over $12 million having traded.

Avis Budget had priced $50 million of the notes at par on Monday, after that quickly shopped offering was upsized from an original $300 million.

Clean Harbors’ add-on to its existing 5 1/8% notes due in June of 2021 was seen by a trader at 100¾ bid, 101¼ offered, about unchanged from late Monday’s level.

A second trader called the bonds ¼ point lower, at 101 bid, with over $17 million traded.

The Norwell, Mass., environmental and energy concern priced $250 million of the notes in a quick-to-market offering that was upsized from $200 million. The notes priced at 100.25 to yield 5.068%.

CNH Industrial Capital’s 4 7/8% notes due 2021 were seen down 1/8 point on the day at 99 3/8 bid, with over $50 million traded.

The Racine, Wis.-based company – a captive financing unit for London-based heavy machinery and truck manufacturer CNH Industrial NV – priced $500 million of the notes at 99.48 to yield 5% in a drive-by transaction.

Indicators turn lower

A trader said that “there were a couple of specific news-related situations, like Valeant, but otherwise, things were muted.”

Statistical market performance measures turned lower across the board on Tuesday, after having been mixed on Monday and having finished higher across the board for two consecutive sessions on Thursday and Friday. It was their second such lower session in the last six trading days.

The KDP High Yield Daily index plunged by 24 basis points on Tuesday to end at 65.34, in contrast with Monday’s 12 bps rise. Tuesday’s loss followed three straight gains and was the third loss in the last six sessions.

Its yield rose by 4 bps to 6.75%, its first widening after two straight sessions in which the yield had come in, including Monday, when it tightened by 3 bps. Tuesday was the yield’s third widening out in the last six sessions.

The Markit Series 25 CDX North American High Yield index fell by 9/16 point on Tuesday to end at 101 21/32 bid, 101 11/16 offered. It was the index’s second straight losing session and third in the last six trading days; it had fallen 9/32 point on Monday.

The Merrill Lynch North American High Yield Master II index posted its first loss after three straight advances, easing by 0.315%, versus Monday’s 0.264% gain. Tuesday’s loss was its third in the last six sessions.

Tuesday’s setback cut the index’s year-to-date return to 2.464% from Tuesday’s 2.788%, which had been its third consecutive new peak level for the year so far.

© 2015 Prospect News.
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