USG, New Home drive by; Covey Park most active; Pharmaceutical Product nearly unchanged; Petsmart higher

By Colin Hanner and Paul A. Harris

Chicago, May 1 – Monday’s high-yield primary market saw a pair of drive-by deals, while Covey Park Energy LLC had the most active issue of the day in the secondary market, traders said, adding that trading overall was light on the session.

USG Corp. priced a $500 million issue of 10-year senior notes at par to yield 4 7/8%.

New Home Co., Inc. priced a $75 million tack-on to its 7¼% senior notes due April 1, 2022 at 102.75. The issue was upsized from $50 million.

Back in the secondary, “there wasn’t a ton going on, aside from Covey Park,” a trader said.

Recently-issued Pharmaceutical Product Development, LLC saw some activity but was about flat on the day, a trader said.

Pet retailer Petsmart, Inc. rebounded by a round number, ticking closer to a mid-90s handle, traders said.

In the health care and pharmaceutical sphere, Community Health Systems, Inc. and Valeant Pharmaceuticals International, Inc. traded as headlines swirled around both companies.

For Franklin, Tenn.-based Community Health, bonds traded higher ahead of earnings, which came out after the closing bell on Monday. Valeant announced it reduced its senior secured terms loans by roughly an additional $220 million, though that did little to affect its most-traded bond’s movement.

Elsewhere, several idiosyncratic names in the high-yield space traded, though movement was tight, traders said.

USG prices tight

Two issuers brought drive-by deals on Monday.

Both saw notable executions, as one came at the tight end of yield talk while the other came at the rich end of price talk.

USG Corp. priced a $500 million issue of 10-year senior notes (Ba2/BB+/BB+) at par to yield 4 7/8%.

The yield printed at the tight ends of both official yield talk and initial guidance in the 5% area.

Wells Fargo was the left bookrunner for the debt refinancing deal. Citigroup, BofA Merrill Lynch, Goldman Sachs, J.P. Morgan and U.S. Bancorp were the joint bookrunners.

Upsized New Home at rich end

New Home Co., Inc. priced an upsized $75 million tack-on to its 7¼% senior notes due April 1, 2022 (B3/B-) at 102.75.

The issue size was increased from $50 million.

The reoffer priced at the rich end of the 102.5 to 102.75 price talk. Initial guidance was in the 102.5 area.

Credit Suisse was the lead left bookrunner. Citigroup and JP Morgan were the joint bookrunners.

The Aliso Viejo, Calif.-based homebuilder plans to use the proceeds, including those resulting from the $25 million upsizing of the deal, for working capital, land acquisitions and for general corporate purposes.

AV Homes roadshow

AV Homes, Inc. began a roadshow on Monday for a $300 million offering of five-year senior notes.

Initial guidance has the deal coming to yield 6¾% to 7%, the source said.

JP Morgan, Citigroup, Credit Suisse, RBC and US Bancorp are managing sale.

The Scottsdale, Ariz.-based homebuilder plans to use the proceeds to take out its $200 million of outstanding 8½% senior notes due 2019, as well as to repay $30 million currently outstanding under its revolving credit facility and for general corporate purposes, which may include acquisitions.

Elsewhere it was a quiet Monday in the new issue market, a trader said.

The week ahead could be a relatively quiet one with numerous potential issuers having entered blackout periods in which earnings numbers must be refreshed before the issuer is able to bring a new bond deal.

Friday flows

The daily cash flows of the dedicated high-yield bond funds were flat to slightly negative on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $18 million of outflows on the day.

Actively managed funds saw $10 million of outflows on Friday

The dedicated bank loan funds were positive on the day; however, the loan funds saw $35 million of inflows on the day, $7 million of which came into the bank loan ETFs, the source said.

Recent issues trade tight

On Friday, Covey Park priced a $450 million issue of eight-year senior notes (B3/B) that came at par to yield 7½, though finished that session about 1 point over par.

Those 7½% notes due 2025 were inching higher on Monday, a trader said, pegging them at 101¾, up ¼ point on the day.

Away from Covey Park, Pharmaceutical Product Development “wasn’t trading too much,” a trader said.

A market source quoted the 7 5/8% notes due 2022 – a $550 million issue distributed through its subsidiary entity, Eagle Holding Co. II LLC, on Thursday –with a 101 7/8 bid, 102 5/8 offer, nearly unchanged from Friday’s trading.

Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp.’s 5 7/8% senior secured notes due 2025 were down 1/8 point to par, a trader said.

A market source quoted the issue with a 99¾ bid, 100¾ offer.

The par-priced notes came to market on Wednesday.

Petsmart rebounds

Teetering since its acquisition of online pet retailer, Chewy, Inc., Petsmart saw a full-point gain on Monday.

Its 7 1/8% notes due 2023 were up 1 point to 92½, a trader said, while another trader said the notes were up 1½ points to 93. On Friday, they had finished with a 91 handle.

In health and pharma

Ahead of earnings, Community Health’s 6 7/8% notes due 2022 were down 1/8 point to 82 7/8, a market source said.

According to a late afternoon press release from the company, Community Health announced net operating revenue of $4.49 billion and earnings per share of 8 cents, beating market expectations by both accounts.

Loss from continuing operations was $199 million, compared to net income of $11 million during the same period last year. Year-over-year revenue decreased by 10.3%.

Chief executive officer Wayne T. Smith said the company is “making progress with our portfolio rationalization strategy as we work to create a stronger, more sustainable company for the future and further reduce our debt,” according to a press release.

In a similar fashion, Valeant reduced its debt by roughly $220 million on Monday, a press release said. The paydown follows the earlier-than-expected closing of the sale of three skincare brands to L’Oreal and the closing of the divestiture of a manufacturing facility in Brazil, Valeant said.

Its 5 7/8% notes due 2023 were unchanged at 74¼, a trader said.

“There was not a lot of reaction to that,” a trader said. “It would’ve been a bigger disaster if they couldn’t reduce or make the asset sale, and it seems like it’s something that’s been priced into the market already.”

Also unchanged were Tenet Healthcare Corp.’s 6¾% notes due 2023, which finished at 95 7/8.

High-yield one-offs

Overall, movement for several less-traded names in Junkbondland traded tightly on the session, traders said.

Metal and plastic packager and supplier Ball Corp.’s 5% notes due 2022 were up 1/8 point to 107 1/8.

Charter Communications Inc.’s 5 1/8% notes due 2027 were unchanged at 102.

DISH Network Corp.’s 5% notes due 2023 were up 1/8 point to 104 5/8.

And specialty beauty retailer Sally Beauty Holdings, Inc.’s 5 5/8% notes due 2025 were up ½ point to 103 7/8.

Market indexes

The KDP High Yield Daily index was unchanged on Monday, finishing at 72.19 for the second-consecutive session. On Friday, it rose by 3 basis points to end at 72.19, its sixth consecutive gain after seven losses in a row.

Its yield was higher by 2 bps to 5.14%, breaking a streak of six-consecutive tightening sessions.

The Markit CDX Series 28 index was higher by nearly 1/5 point to a 100.755 bid, 100.845 offer. On Friday, it was up around 1/16 point to a 105 5/8 bid, 107 11/16 offer.

Tali Rackner contributed to this review

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