Downsized Change Healthcare megadeal caps $5.7 billion week, bonds gain in heavy trading

By Paul Deckelman and Paul A. Harris

New York, Feb. 3 – The high-yield primary sphere was quieter Friday after two busy days – but still managed to put up a $1 billion deal.

Syndicate sources said that Change Healthcare Holdings, LLC came to market with a downsized $1 billion offering of eight-year notes which priced at par.

Secondary traders said that when the San Francisco and Nashville-based health care information technology company’s new paper hit the aftermarket it moved solidly higher in heavy trading.

The day’s new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers brought this week’s tally of new bonds up to the $5.7 billion mark in 10 tranches, according to data compiled by Prospect News, up from roughly $5 billion which priced in 14 tranches the week before.

That performance continued to swell the year-to-date new-deal stats, which remain far ahead of year-ago levels, the data indicated.

Traders meantime saw Thursday’s new bonds from greeting-card maker American Greetings Corp. continuing to firm smartly in active dealings.

But they said another one of Thursday’s issues, from Dutch aluminum products company Constellium NV, remained essentially tethered to its issue price, though on busy volume.

Overall, though, they said that Junkbondland had a firm tone on the day.

Statistical market performance measures were higher across the board for a third consecutive session on Friday. They had turned higher on Wednesday and stayed there on Thursday after being lower for one session and mixed for three sessions before that.

The indicators were meantime higher all around versus where they had ended last Friday, their second straight stronger week, which followed a lower week before that.

Change Healthcare prices tight

A quiet Friday in the primary market saw Change Healthcare Holdings price a downsized $1 billion issue of eight-year senior notes (B3/B-) at par to yield 5¾%.

The issue size was decreased from $1,235,000,000, with proceeds shifted to the term loan.

The yield printed at the tight end of yield talk set in the 5 7/8% area

In a structural change, the merger financing deal’s contested equity clawback provision was replaced with a conventional equity clawback that allows for 40% of the issue to be clawed back at par plus the full coupon, i.e. 105.75, until March 1, 2020.

The previous structure, which engendered investor pushback, would have allowed the issuer to take out 100% of the issue at graduating fractions of the coupon, beginning at 25% of the coupon for the first nine months, but ending with a conventional 40% clawback at par plus the full coupon from the 25th month through the 36th month, a source said.

Had the contested 100% equity clawback remained in the deal, the issuer was looking at perhaps a 50 basis points higher coupon, a trader said.

Goldman Sachs was the left bookrunner. BofA Merrill Lynch, Barclays, Citigroup, RBC and SunTrust were the joint bookrunners.

Elsewhere on Friday, sources were watching for terms on Vertiv Intermediate Holding Corp.’s $600 million offering of five-year PIK toggle notes (Caa1/B-).

However no terms were available at press time.

Proceeds from the deal are earmarked to pay a cash dividend to the company's owner and repay $100 million of outstanding term loan debt.

Late in the week the deal, a “PIK toggle holdco dividend” play that market watchers had taken to calling a hot-market deal, had gone silent.

However as late as Friday morning the dealer was canvassing accounts, at trader said.

Price talk has climbed a ladder since mid-week, a source said.

Recently talk in the 12½% area has been heard, up from earlier guidance of 10¼% to 10½%.

The week ahead

The Feb. 6 week is set to get underway with a couple of sizable offerings on the new issue calendar.

Peabody Energy Corp. is shopping a $1 billion offering of five-year first lien senior secured notes (Ba3) on a roadshow that wraps up on Wednesday.

Goldman Sachs is the left bookrunner for the deal that comes in connection with the bankruptcy restructuring of the St. Louis coal producer.

Symantec Corp. is on the road with a split-rated $1 billion offering of eight-year senior notes (Baa3/BB+/BB+).

The deal is pricing on the high-yield desk and one trader said that it will enter high-yield indexes.

BofA Merrill Lynch and J.P. Morgan Securities LLC are leading the acquisition deal.

And Ferroglobe plc is scheduled to continue marketing a $350 million offering of five-year senior notes (B3//B+) into the midweek period.

Goldman Sachs is the sole bookrunner.

Pressed for deal tips on Friday, sources turned out empty pockets, but said that the primary market is apt to stay reasonably busy in the week ahead.

One trader noted a “get it while you can” feel emanating from the dealers who appear anxious to complete as much business as possible ahead of a possible Fed move, all the while keeping a weather eye on the treacherous march of headlines out of Washington, D.C.

Marcolin, tighter and tighter

In the European primary market, Milan-based eyewear designer Marcolin SpA applied considerable torque to the interest rate screws on Friday.

Marcolin priced a €250 million issue of six-year senior secured floating-rate notes (B2/B) at par to yield Euribor plus 412.5 basis points.

The spread to Euribor came at the tight end of revised talk in the Euribor plus 425 bps area. That talk had tightened from earlier talk of 475 bps.

The reoffer price came on top of price talk.

Timing was accelerated. The deal had previously been expected to remain in the market into the week ahead.

Credit Suisse, Deutsche Bank and UniCredit were the bookrunners for the debt refinancing.

The European primary market will be active in the week ahead, a London-based debt capital markets banker said, declining to furnish names.

None of the European business expected in the week ahead will be huge, the banker said.

Thursday inflows

Cash flows for dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $283 million of inflows on the day.

Actively managed funds saw $20 million of inflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that the dedicated junk bond funds saw $413 million of net inflows for the week to Wednesday's close.

Meanwhile dedicated bank loan funds saw $195 million of inflows on the day, Thursday.

A busier week

Friday’s primary market activity raised issuance to $5.76 billion in 10 tranches, as measured by the amount of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers that had priced during the week, according to data compiled by Prospect News.

That was up from the $4.98 billion in 14 tranches last week, ended Jan. 27.

This week’s primary activity brought year-to-date issuance up to $27.56 billion in 48 tranches – more than triple the $7.59 billion which had gotten done in 13 tranches by this point on the 2016 calendar, he Prospect News data indicated.

Change bonds better

In the aftermarket, traders said that the new Change Healthcare 5¾% notes had moved up on heavy volume after pricing at par earlier in the session. A trader saw the bonds in a 101 to 101½ bid context.

A second said there was “good activity” in the bonds, which he pegged in a 101 1/8 to 101½ range.

And a third trader saw the bonds during the session trading at bid levels between 101 and 101½, but said that the final prints of the day were between 101 1/8 and 101 3/8, on volume of over $83 million, topping the Most Actives list among the purely junk-rated credits.

American Greetings surge continues

Among Thursday’s new deals, traders saw continued strength in American Greetings Corp.’s new 7 7/8% notes due 2025.

That $400 million regularly scheduled forward calendar deal had priced at 99.272 on Thursday to yield 8%, after it was upsized from an originally announced $375 million, and the bonds racked up handsome gains in initial secondary market dealings after that, opening on the break well up from their discounted issue price at 100¾ bid and then adding another point on to that to go out at 101¾, on volume of more than $62 million.

There was somewhat less activity in the Cleveland-based greeting card manufacturer’s new deal on Friday, with a trader estimating volume at about $35 million.

But he saw the bonds surge to levels between 102½ and 102 7/8 bid.

A second trader said that Thursday’s paper was “all moving up” and located the American Greetings issue in a 102¾ to 103 bid context, while a third saw them finishing between 102½ and 103¼ bid.

Elsewhere among the Thursday deals, Harland Clarke Holdings Corp.’s 8 3/8% senior secured notes due in August 2022 were seen by a trader to have firmed to a 101¼ to 101 5/8 bid context.

The San Antonio, Texas-based check producer and payment systems company had priced its $350 million regularly scheduled deal at par after the issue was upsized from $300 million. The bonds moved up to 100¾ bid by Thursday afternoon.

However, traders said that Thursday’s largest deal – Amsterdam-based aluminum products manufacturer Constellium’s 6 5/8% notes due 2025 – did not match the strength shown by the American Greetings and Harland Clarke deals.

“They didn’t go as well,” one said, seeing the notes in a tight par to 100 1/8 bid context.

Another was even more blunt, saying the bonds “traded like [expletive].” He saw them during the day trading between 99 5/8 and 100 1/8 bid but said that “they were mostly below par,” though on brisk volume of more than $69 million.

A market source at another desk also saw the notes below their issue price, between 99½ and 99 7/8 bid.

Constellium had priced that $650 million forward calendar deal at par after upsizing it from $625 million originally and the notes had firmed slightly in initial aftermarket dealings later Thursday to around 100½ bid.

Indicators stay strong

Statistical market performance measures were higher across the board for a third consecutive session on Friday. They had turned higher on Wednesday and stayed there on Thursday after being lower for one session and mixed for three sessions before that.

The indicators were meantime higher all around versus where they had ended last Friday, their second straight stronger week, which followed a lower week before that. It was the indicators’ third strong week out of the last five.

The KDP High Yield Index gained 8 basis points on Friday to close at 72.12, its third straight rise and fourth improvement in the last five sessions, including Thursday, when it had moved up by 2 bps.

Its yield came in by 3 bps to end at 5.12%, its first narrowing after two consecutive sessions on Wednesday and Thursday during which it had been unchanged and Tuesday’s 1 bp widening.

Friday’s levels compared favorably with last Friday’s 71.95 index reading and 5.16% yield.

The Markit Series 27 CDX Index zoomed by nearly 1 full point on Friday, ending at 107 7/16 bid, 107 offered, the index’s third straight gain. On Thursday, it had moved up by 3/32 point.

The index was up from last Friday s close at 106 11/16 bid, 106 23/32 offered.

The Merrill Lynch High Yield Index gained 0.23% on the day, its third straight gain and seventh advance in the last nine sessions, bringing its year-to-date return up to 1.792%, its third straight new peak level for the year.

It was up by 0.357% on the week, its second consecutive weekly advance.

© 2015 Prospect News.
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