No pricings, but market awaits Valeant deal; Nord Anglia add-on slates; better tone continues

By Paul Deckelman and Paul A. Harris

New York, June 26 - Just a day after seeing its first new deals price in several sessions, Wednesday's high-yield primary sphere seemed to head back into its recent rut, as syndicate sources saw no pricings of any U.S. dollar-denominated, fully junk-rated paper by domestic or industrialized-country borrowers.

They did see one new deal join the forward calendar, with British educational services provider Nord Anglia shopping around a $165 million add-on to its existing five-year secured notes.

And the sources were anticipating a possible Thursday pricing for Canadian drugmaker Valeant Pharmaceuticals International, Inc.'s $3 billion-plus two-part offering. Assuming that the megadeal gets done as planned without downsizing, it would be the first time any deal that large will have priced in Junkbondland since March, when the market saw deals topping $3 billion from Intelsat (Luxembourg) SA, Metro PCS Wireless, Inc. and H.J. Heinz Co.

In the secondary market, traders saw Tuesday's deals from TransDigm Inc. and Gibson Energy Inc. continuing to hover pretty much around their respective issue prices.

Away from the new or recently priced issues, overall trading remained muted and featureless, although the market's tone continued to recover from the drubbing that it took on Monday.

Statistical performance indicators rose across the board, after having been mixed on Tuesday.

Wednesday's goose egg

The primary market put up a goose egg on Wednesday.

No deals priced. One was announced, however.

England's Nord Anglia announced a $165 million add-on to its 10¼% senior secured notes due April 1, 2017 (B2/B) on Wednesday morning.

Later in the day the tap was talked at 106 to 106.5.

The deal is expected to price before the end of the week.

Goldman Sachs, Credit Suisse and HSBC are the joint bookrunners.

Proceeds will be used to repay the company's bridge loan and for general corporate purposes, including possible acquisitions and a paydown of its revolver.

Valeant book in good shape

Apart from the Nord Anglia price talk, it was all quiet in the primary market on Wednesday.

The market remains closely focused on the Valeant Pharmaceuticals International megadeal.

The Laval, Quebec-based specialty pharmaceutical company has been roadshowing a $3,225,000,000 two-part offering of senior notes (B1/B).

The order books, which were set to close on Wednesday, are in good shape, market sources said late in the day.

Yield talk remains unchanged.

An announced tranche of eight-year notes, which come with three years of call protection, is talked to yield in the 7½% area. The initial guidance was in the mid-6% range.

An added tranche of five-year notes is talked to yield in the 6¾% area.

Tranche sizes remain to be determined.

Meanwhile a planned tranche of 10-year notes was withdrawn from the transaction on Tuesday. Initial guidance for those notes was in the high-6% to low-7% context.

Goldman Sachs is the left bookrunner. BofA Merrill Lynch, Barclays, J.P. Morgan, Morgan Stanley and RBC are the joint bookrunners.

Proceeds will be used to help finance the acquisition of Bausch + Lomb.

Deal chatter

Also in the market is PetroQuest Energy, Inc., which plans to price a $200 million offering of notes mirroring its 10% senior notes due Sept. 1, 2017 (expected ratings Caa1/B).

There is no official price talk yet, but initial guidance is 101.5 to 102.5, according to the trader, who added that the deal is set to price on Friday.

JPMorgan and Wells Fargo are the joint bookrunners.

Also in the market is Hercules Offshore, Inc., which announced its $400 million offering of eight-year senior notes (B3/B) at the beginning of the week.

The deal is being guided in the mid-8% range, according to the trader, who added that books are scheduled to close on Thursday, and the deal is expected to price on Friday.

Deutsche Bank, UBS, Credit Suisse, Goldman Sachs and Pareto are the joint bookrunners.

Meanwhile France-based media technology company Technicolor ran a roadshow last week for its $330 million offering of seven-year senior secured notes (expected ratings B3/B).

The deal is believed to still be in the market, the trader said, but it is being reworked.

Price talk pushed as high as 9½%, the trader added.

JPMorgan, Goldman Sachs and Morgan Stanley are the joint bookrunners.

More outflows anticipated

Market sources expect Lipper-AMG to report on Thursday that the high-yield funds have sustained more cash outflows for the week to Wednesday's close.

It would be the fourth consecutive negative weekly flow, according to the trader, who professed the expectation that it will not be a huge outflow (the present run of negative flows began with a record-breaking $4.6 billion outflow for the week to June 5).

"Over the past couple of days, there has been a better tone out there," the source commented.

"But accounts are selling into it."

However a high yield-investor sounded a bit less sanguine.

Accounts are selling as people are nervous about the magnitude of the mutual fund outflows over the last several days, the investor said.

A few new deals are getting done or will get done, but they are not going to gap up 2 points, he added.

Outflow trend moderating

A secondary market trader indicated that the junk world would probably see another outflow from the high-yield mutual funds and exchange-traded funds for the past week when the numbers are released late Thursday, but he declared that "it's not going to be any $4 billion," a reference to the giant-sized outflow numbers ($4.63 billion, followed by $3.28 billion) that were seen back-to-back in the weeks ended June 5 and June 12.

He noted the fact that the recent turmoil in the financial markets had led to heavier-than-normal activity in ETFs.

"With all of the noise about the Fed [winding down its quantitative easing] and all of the noise about China [central bankers tried to reassure markets about the state of China's economy], and all of the deleveraging that's going on in the global financial system," he said, "you get people sitting on pins and needles."

Enter the ETFs, which "a lot of investors were using as a proxy for high yield. So what's the easiest thing to sell when you start to get [calls for] redemptions? You sell the shares of the ETFs. And by selling the shares of the ETFs, that leads to selling the underlying securities that are in the ETFs, which are the names like Reynolds and Sprint - all of the big-cap names."

When that happens, he continued, "you see all of that stuff get whacked, and that lowers NAVs [net asset values] for the mutual funds, and people start to get spooked there - and it feeds on itself."

But the destructive cycle seems to have been broken, he said, as the junk market "seems to have stabilized" following the losses suffered last Thursday and again on Monday of this week.

"There have still been some outflows as recently as today, in some accounts, but other accounts are getting money in."

TransDigm trades up

Tuesday's $500 million offering of 7½% senior subordinated notes due 2021from Cleveland-based airline components manufacturer TransDigm Inc. was seen by a trader to have firmed solidly on Wednesday, in line with an overall better tone in the market.

He saw the notes at 101 1/8 bid, 101 5/8 offered, well up from 99 7/8 bid, 100 3/8 offered late in the day on Tuesday, after the quick-to-market transaction had priced at par.

At another shop, a trader pegged the bonds at 101¼ bid, 101¾ offered, up more than 1 full point from 100 1/8 bid, 100 5/8 offered late Tuesday.

The company's existing 7¾% notes due 2018 meantime gained 3/8 point to close at 105½ bid. The $11 million volume put it among the day's more active junk issues.

Gibson goes nowhere

On the other hand, Gibson Energy's 6¾% notes due 2021 were trading at 98½ bid, 99½ offered, a trader said, down by ¼ point from where those bonds had finished up on Tuesday.

That's when the Calgary, Alta-based independent midstream operator had priced that $500 million of notes of 98.476 to yield 7%.

That pricing had come in the context of a larger dual-currency deal, which had also included C$250 million of 7% notes due 2020, which priced at 98.633 to yield 7¼%.

Another trader, though, said that in terms of volume, "there was no real trading" in either the new TransDigm issue or the new Gibson bonds.

The latter, he opined, had been "priced to stay put."

Volume lightens up

The trader said that volume-wise, Wednesday's activity "was lighter than it was [Tuesday]."

He said that much of the activity in the market was in split-rated paper primarily of interest to crossover players, such as Ford Motor Co. and its Ford Motor Credit Co. financing arm.

Market indicators improve

Statistical junk market performance indicators turned higher on Wednesday, after having been mixed on Tuesday, which in turn had followed Monday's across the board slide.

The Markit Series 20 CDX North American High Yield index notched its second straight gain, rising by 11/16 point to end at 102 9/16 bid, 102 13/16 offered. On Tuesday, it had bounced back solidly, by 1 3/32 points.

The KDP High Yield Daily index snapped a four-session losing streak on Tuesday, rising by 18 basis points to end at 72.35. On Tuesday, it had retreated by 12 bps, although that was an improvement from Monday's nosedive of 76 bps.

Its yield also came in for the first time in four sessions, declining by 7 bps, after having widened out by 6 bps on Tuesday and by 27 bps on Monday.

The widely followed Merrill Lynch High Yield Master II index also got back into the win column Wednesday after having been down the five sessions before that.

It rose by 0.373%, versus the 0.137% loss on Tuesday, which had followed Monday's plunge of 1.042% - the second-biggest so far this year, exceeded only by last Thursday's 1.281% slide.

The gain lifted its year-to-date return to 0.759% from Tuesday's 0.384%, which had set a new low for 2013, erasing the old mark of 0.417% set on Jan. 2, the very first trading session of the new year.

© 2015 Prospect News.
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