HCA split-rated deal prices; recent issues mostly easier; Valeant up on asset sale; funds gain $586 million

By Paul Deckelman and Paul A. Harris

New York, June 8 – The high-yield primary market continued to coast along for a third straight session on Thursday, following the intense activity that opened the week.

No new U.S. dollar-denominated and fully junk-rated issues priced during the session, although there was one sizable split-rated crossover issue which got done – hospital operator HCA Inc.’s $1.5 billion of 30-year secured long bonds.

Traders meantime said that while there was still a fair amount of activity going on in some of the recently priced junk offerings, including those from Tenet Healthcare Corp., Hertz Corp. and PetSmart, Inc. – those issues were all lower on Thursday.

Away from the new deals, traders said that Canadian drug manufacturer Valeant Pharmaceuticals International Inc.’s bonds moved up on the news that underperforming Valeant will sell one of its divisions for close to $1 billion, the proceeds expected to be used to pay down some of its massive debt.

On the downside, Rite Aid Corp.’s bonds fell amid media speculation that the drugstore chain operator’s planned acquisition by larger rival Walgreen Boots Alliance may not come to fruition due to potential antitrust issues.

Statistical market performance measures fell across the board for a third straight session on Thursday; they had turned lower on Tuesday and then stayed down there, after having been mixed on Monday and stronger all around last Thursday and Friday.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered to be a reliable barometer of overall junk market liquidity trends – extended their gains this week, posting a second consecutive weekly upturn after having stumbled two weeks ago, according to numbers released on Thursday. Some $586 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, on top of the $521 million net inflow seen last week. Those cash gains contrasted with the $568 million net outflow seen two weeks ago, during the week ended May 24.

HCA 30-year deal

Although straight junk bond issues were priced on Thursday, a split-rated 30-year deal was transacted as a high-yield execution, in a drive-by.

HCA Inc. priced a $1.5 billion issue of 30-year senior secured bullet notes (Ba1/BBB-/BB+) at par to yield 5½%

The yield printed on top of yield talk in the 5½% area. Initial guidance was also in the 5½% area.

Citigroup was the lead left bookrunner. Barclays, Deutsche Bank, Goldman Sachs, J.P. Morgan, BofA Merrill Lynch, Morgan Stanley, RBC, SMBC, SunTrust, UBS and Wells Fargo were the joint bookrunners.

The Nashville, Tenn.-based for-profit operator of health care facilities plans to use the proceeds for general corporate purposes including announced acquisitions.

Brand Energy starts Monday

Brand Energy & Infrastructure Services, Inc. (unsecured ratings Caa2/CCC+) plans to start a roadshow on Monday for a $700 million offering of eight-year senior notes.

The acquisition deal is being teed up to price late in the week ahead.

Barclays is the left bookrunner. Goldman Sachs, Natixis, ING, SG and Credit Agricole are joint bookrunners.

Superior Industries prices tight

In the euro-denominated primary market Michigan-based Superior Industries International, Inc. priced an upsized €250 million issue of eight-year senior notes (Caa1/B-) at par to yield 6%.

The issue size was increased from €240 million.

The yield printed at the tight end of the 6% to 6¼% yield talk and in line with initial guidance in the low 6% area.

Joint bookrunner JP Morgan will bill and deliver. Citigroup, RBC and Deutsche Bank were also joint bookrunners.

The Southfield, Mich.-based supplier of aluminum wheels plans to use the proceeds to repay a €240 million bridge loan that was entered into in conjunction with its purchase of outstanding shares of Uniwheels AG.

Negative Wednesday fund flows

The daily cash flows of the dedicated high-yield bond funds were negative on Wednesday, the most recent session for which data was available at press time, according to an investor.

High-yield ETFs sustained a noteworthy $455 million of outflows on the day.

Actively managed funds saw $45 million of outflows on Wednesday.

The dedicated bank loan funds were positive on the day, seeing $60 million net daily inflows on Wednesday, the investor said.

HCA quoted better

In the secondary market, a trader was quoting the new HCA 5½% bonds due 2047 as being offered at 100¾, after the quickly shopped issue had priced at par.

Although most of the activity in the split-rated issue was seen coming from high-grade accounts, he observed that “the high-yield guys are still showing them.”

Taseko, Cal Atlantic little traded

A trader said that the new Taseko Mines Ltd. 8¾% senior secured notes due 2022 were offered in morning trading at 99¾, though after that, “I didn’t see much of them,” he said.

He saw the notes later in the day, though, around 98¾ bid.

The Vancouver, B.C.-based copper miner priced $250 million of those notes at 99 on Wednesday in a regularly scheduled forward calendar offering, to yield 9.003

He also did not see much activity in Irvine, Calif.-based homebuilder CalAtlantic Group, Inc.’s 5% notes due 2027, calling them unchanged to “maybe down ¼” in a 100-to-100 1/8 bid context.

CalAtlantic priced $350 million of the notes at par on Tuesday after the quickly shopped issue was upsized from $300 million originally.

Tight pricings, lackluster secondaries

Market participants observed on Thursday that recently priced issues provide little in the way of solace; junk bond sources note an ongoing tendency toward tight-pricing executions, among the dealers – in some cases upsizing issues and pricing them at the tight ends of talk.

Lately investors are seeing some issuers showing up with sizable offers featuring secured and unsecured tranches, with the secured tranches generating far greater excitement among investors, a trader said.

On May 25 PetSmart, Inc. showed up with $2 billion of eight-year notes in secured and unsecured tranches.

The PetSmart 5 7/8% first-lien notes due 2025 were trading 98 1/8 bid on Thursday morning, the trader said. The deal came at par – at the tight end of final yield talk in the 6% area – in a $1.35 billion tranche.

Talk on the PetSmart first-lien notes started out at 7%, the trader noted.

The San Diego-based specialty retailer’s 8 7/8% unsecured notes due 2025 were meantime being gradually hammered down to Thursday levels around the 95 bid area.

The more recently priced Tenet Healthcare 7% unsecured notes due 2025 were trading in a context of 99 5/8 bid, par offered on Thursday morning, the trader said.

The $500 million tranche, the only unsecured portion of a massive $3.78 billion four-part deal which came last Monday, priced at par.

Tenet’s new bonds, which all priced at par on Monday, were all seen trading below that issue price on Thursday, a market source said.

He saw the Dallas-based hospital operator’s 4 5/8% first-lien senior secured notes due 2024 at 99 7/8 bid, down 1/8 point on the session, observed the 5 1/8% senior secured second-line notes off 3/8 point, at 99 5/8 bid, while the 7% notes were at 99½ bid – actually up by 1/8 point on the day.

Another recent laggard has been Hertz Corp.’s 7 5/8% notes due 2022, $1.25 billion of which priced at par in a May 31 drive-by offering; the Estero, Fla.-based car-rental company’s bonds have been skidding lower ever since, finishing on Thursday gown 7/8 point at 97 3/8 bid, with over $29 million changing hands, tops in Junkbondland.

A lot of hedge funds have been shorting the big liquid issues, especially where they see that there isn't a great deal of support from the underwriters, the trader said.

Valeant up on asset sale

Away from the new issues, Valeant Pharmaceuticals International’s paper popped, a trader said, after the embattled Canadian drug manufacturer “sold some assets.”

He saw its 6 7/8% notes due 2025 up ¼ point, at 80 5/8 bid.

More than $18 million of those notes were traded.

Its 5 3/8% notes due 2020 gained 5/8 point, at 93 5/8 bid, with over $16 million of volume.

And its 6 3/8% notes due 2020 gained 11/16 point, ending at 94 11/16 bid, with over $15 million traded.

The bonds rose on the news that Laval, Que.-based Valeant will sell its iNova Pharmaceuticals business for $930 million to a company co-owned by Pacific Equity Partners and the Carlyle Group.

Rite Aid in retreat

An M&A offering which may be in trouble was seen as the catalyst for Thursday’s plunge in Rite Aid Corp.’s paper such as its 6¾% notes due 2021.

A trader saw the bonds down more than a deuce on the day at 99 bid, on volume of over $13 million traded.

A market source noted “several days of negative news coverage” on the prospects for Rite Aid’s pending $15 billion acquisition by larger sector peer Walgreen Boots Alliance.

The deal is now before federal anti-trust regulators amid speculation they could kill the transaction on anti-trust grounds. Rite Aid and Walgreen first announced their proposed combination more than a year-and-a half ago, in October of 2015.

Oil names continue slide

A second straight session of lower oil prices sent bonds of that sector lower, also for a second day in a row.

A market source said that California Resources Corp.’s 8% notes due 2022 remained in the upper 60s, to which the bonds had plunged on Wednesday, when they lost 5 points in the day. More than $21 million traded.

Chesapeake Energy’s 8% notes due 2027 slid by 1 ¼ points, to 95 ½ bid, with over $18 million changing hands.

EP Energy’s 8% notes due 2025 were down by 2 points at 79 ½ bid, while its 9 3/8% notes due 2020 were 1 point lower, at 87¼ bid, on volumes of $20 million and $14 million, respectively.

The energy company’s bonds lost ground as crude prices continued to add to the losses they suffered on Wednesday, when they plunged by some 5%, or more than $2 per barrel, on unexpectedly strong U.S. crude petroleum inventory figures.

In Thursday’s dealings, West Texas Intermediate for July delivery slipped by 8 cents per barrel on the New York Mercantile Exchange, ending at $45.64.

Brent crude for August delivery ended 20 cents lower, at $47.86 per barrel.

Indicators stay lower

Statistical market performance measures fell across the board for a third straight session on Thursday; they had turned lower on Tuesday and just stayed down there, after having been mixed on Monday and stronger all around last Thursday and Friday.

The KDP High Yield Daily index lost 5 basis points on Thursday, ending at 72.48, their third consecutive loss; on Wednesday, the index had plunged by 15 bps, after easing by 1 bp on Tuesday.

Its yield was rose by 2 bps to 4.92%, its second straight widening. On Wednesday, it rose by 3 bps, after having been unchanged on Tuesday.

The Markit CDX Series 28 High Yield index was unchanged on Thursday at 107 7/16 bid, 107½ offered. It had been down from the previous three sessions, including Wednesday’s loss of 3/16 point.

The Merrill Lynch North American High Yield index was off for a third day in a row, closing off by 0.098%, on top of Wednesday’s 0.096% retreat.

The latest loss cut the index’s year-to-date return to 4.86% from 5.054% on Wednesday, and down as well from Monday’s 5.074%, which had been its sixth straight new 2017 peak cumulative return.

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