Post Labor Day pipeline eyed; Tenet Healthcare bounces off lows; Teva drops; Goodyear Tire rises

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 13 – The domestic high-yield primary market was quiet on Tuesday with no deals pricing or joining the forward calendar.

While the dog days of August may have descended upon the primary market, sources were eyeing a healthy pipeline of merger and acquisition financing deals that are expected to materialize in the second half of the year.

Meanwhile, the secondary space screamed higher on Tuesday with the market lifted by news of a thawing in trade tensions between the U.S. and China.

Tenet Healthcare Corp.’s newly priced tranches of senior notes (Ba3/BB-) were in focus with the notes initially trading below par only to bounce off their lows and close the day with a slight premium, according to a market source.

Goodyear Tire & Rubber Co.’s 5% senior notes due 2026 were on the rise alongside other high beta trade-related names.

While the overall market was up, not all sectors shared in the gains with the energy and pharmaceutical space weak, a market source said.

While the notes rallied off their intraday lows, Teva Pharmaceutical Industries Ltd.’s junk bonds still closed the day with losses.

Dog days

The dog days of August, so-called because of the late summer prominence of the celestial constellation Canis Major and the dog star Sirius, typically generates very little news in the high-yield new issue market.

And, indeed the dog days may have already arrived in the primary market, sources said Tuesday.

Late last week syndicate bankers professed visibility on possible new issue business for the Aug. 12 week.

However, it's also possible that summer issuance has run its course, a debt capital markets banker said, on Tuesday afternoon.

Monday's Tenet Healthcare drive-by megadeal, which received a good execution despite the fact that the $4.2 billion three-part junk bond sale took place as most of the industrialized world's stock indexes were deep in the red, shows that the market remains open for high quality supply, the banker said.

Tenet priced three tranches of senior secured first-lien notes (Ba3/BB-) in the middle of price talk.

The deal saw significant “roll” from investors who were being taken out of senior secured first-lien notes with near-term maturities and who put in orders for the new bonds because they wished to retain exposure to the credit, an asset manager told Prospect News.

Such opportunistic financings, again from high quality issuers, are still possible in the run-up to Labor Day, the banker said, but added that he had no visibility on any such transaction.

Post-Labor Day pipeline

The committed backlog of merger and acquisition financings expected to take place in the run-up to 2020 is OK, but by no means overwhelming, the banker said, adding that he has visibility on $20 billion to $25 billion of possible M&A junk issuance for the remainder of 2019.

Some of that business is known to the market, the banker said, citing a Centene Corp. $8.35 billion senior unsecured bridge loan backing Centene's acquisition of WellCare Health Plans Inc., expected to close in first half of 2020.

At least part of that bridge is expected to be taken out by means of high-yield bonds, possibly coming in the post-Labor Day period, the banker said.

Also, Zayo Group Holdings Inc. has a $2,775,000,000 senior unsecured bridge backing the buyout of the company by Digital Colony Partners and the EQT Infrastructure IV fund, also expected to close in the first half of 2020, and also possible post-Labor Day business.

There are a few other M&A deals in the pipeline, the banker said.

Also, given some stability, the market should continue to see opportunist debt refinancing deals of the kind that Tenet brought on Monday, the banker said, adding that the present low rates, which could even go lower, ought to entice high-yield issuers to consider refinancing.

And even though investors have plenty to think about, with present rumblings of global economic slowdown, gyrating asset prices and the trade war, the fact remains that away from junk there is really nowhere for fixed-income investors to find much yield, the banker asserted.

Tenet Healthcare in focus

Tenet Healthcare’s newly priced tranches of senior notes were in focus on Tuesday with the notes starting the day below par but closing the day at a slight premium to their issue price.

Each tranche was below par at the start of the session until headlines broke about the resumption of trade negotiations and U.S. President Donald Trump delaying the imposition of tariffs on Chinese goods.

Tenet’s 4 7/8% senior notes due 2026 and 5 1/8% senior notes due 2027 were largely trading at the same level with the notes closing the day at par ¼ bid, par ½ offered.

Tenet’s 4 5/8% senior notes due 2024 reached the highest level in secondary trading and closed the day at par ¾ bid, 101 offered, according to a market source.

Tenet priced a three-tranche $4.2 billion offering of senior secured first-lien notes in a massive refinancing deal on Monday.

The deal consisted of a $600 million tranche of the 4 5/8% notes, a $2.1 billion tranche of the 4 7/8% notes and a $1.5 billion tranche of the 5 1/8% notes – all of which priced at par.

The yield on the 4 7/8% notes and the 5 1/8% notes came at the midpoint of price talk.

Goodyear gains

Goodyear Tire’s 5% senior notes due 2026 traded up 1¼ point on Tuesday, according to a market source. The notes closed the day just north of par.

Goodyear is one of several high-yield issuers sensitive to trade war headlines and was trading up alongside other high beta names with exposure to tariffs.

The notes are also in the ETF basket and have a significant amount of short interest, a market source said.

Teva drops

Teva’s junk bonds were trending lower on Tuesday alongside the broader pharmaceutical space, despite a strong day for the market.

While the notes rallied about ½ point off their intraday lows, Teva’s 6¾% senior notes due 2028 still closed the day down 1 point, a market source said.

They were seen at 84¾ bid, 85¼ offered at the end of Tuesday’s session. The notes saw more than $20 million in reported volume during Tuesday’s session.

Teva’s 6% senior notes due 2024 were also down 1 point to close the day at 88½, according to a market source.

The bonds saw more than $15 million in reported volume during Tuesday’s session.

Modest Monday inflows

The daily cash flows of the dedicated high-yield bond funds were modestly positive on Monday, the most recent session for which data was available at press time, a market source said.

High-yield ETFs saw $10 million of inflows on the day.

Actively managed high-yield funds saw $35 million of inflows on Monday, the source said.

With three of the present reporting week's five sessions in the tally, the combined funds are tracking $26 million of net outflows for the week that will conclude with Wednesday's close, the source added.

Indexes gain

Indexes were on the rise on Tuesday after a mixed start to the week.

The KDP High Yield Daily index rose 18 bps to close Tuesday at 71.14 with the yield now 5.65%. The index was up 11 bps on Monday.

The ICE BofAML US High Yield index again crossed the 10% return threshold on Tuesday. The index was up 20.7 bps with the year-to-date return now 10.085%.

The index shaved off 5.3 bps on Monday. The index slid below the 10% return threshold amid the market sell-off on Aug. 5.

The CDX High Yield 30 index soared 85 bps on Tuesday to close the day at 106.39. The index was down 56 bps on Monday.

© 2015 Prospect News.
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