TransDigm, Gibson break junk debt drought; Valeant restructures megadeal; market seems better

By Paul Deckelman and Paul A. Harris

New York, June 25 - The high-yield world saw its first pricings in nearly a week on Tuesday, as a pair of issuers brought nearly $1 billion of new dollar-denominated, fully junk-rated paper to market.

Syndicate sources said that aircraft components manufacturer TransDigm Inc. priced $500 million of eight-year subordinated notes.

And Canada's Gibson Energy Inc. did a $500 million offering of eight-year senior notes in the context of a larger dual-currency deal that also included a tranche of Canadian dollar-denominated paper.

Both deals were seen by traders to have firmed slightly in the aftermarket.

They were the first junk deals of any sort to have priced since last Wednesday, when National Financial Partners Corp. and AK Steel Holding Corp. did dollar deals and InterXion Holding NV came with a euro-denominated transaction.

With the ice finally broken, the syndicate sources saw more deals waiting in the wings, including a two-part offering from Canadian specialty drug manufacturer Valeant Pharmaceuticals International, Inc. that weighs in at over $3 billion. Price talk emerged on the deal, which was restructured.

And energy operator PetroQuest Energy, Inc. began shopping a $200 million offering around.

Both of those deals were seen likely to price later in the week.

With Wall Street firmly on the upside on Tuesday, junk came along for the ride, with traders reporting an overall better tone after Monday's downside debacle.

Statistical indicators, which on Monday had plunged for the second time in three sessions, turned mixed on Tuesday.

Gibson dual-currency deal

Two issuers priced dollar-denominated tranches on Tuesday, raising a combined total of $992 million.

One tranche came at the wide end of talk and the other came wide of yield talk, perhaps reflecting the pressure that has lately come to bear upon high-yield bonds, a sellside source said.

Gibson Energy completed a dual-currency senior notes transaction (Ba3/BB).

Global coordinator and lead bookrunner RBC will bill and deliver. J.P. Morgan was also a global coordinator and lead bookrunner.

The Calgary, Alta.-based independent midstream operator launched and priced a $500 million tranche of 6¾% eight-year notes at 98.476 to yield 7%.

The yield printed 12.5 basis points higher than the wide end of yield talk that was set in the 6¾% area. The reoffer price came in line with discount talk of about 1.5 points.

In addition, Gibson Energy launched and priced a C$250 million tranche of 7% seven-year notes at 98.633 to yield 7¼%. The yield printed on top of yield talk that had the Canadian dollar-denominated tranche coming 25 bps behind the yield of the U.S. dollar-denominated notes. The reoffer price came in the richer part of the range of discount talk of roughly 1.5 points.

BMO, CIBC, Citigroup, Credit Suisse and Nomura were the joint bookrunners for the dollar-denominated notes, and BMO, CIBC, Citigroup and Credit Suisse were the joint bookrunners for the Canadian dollar-denominated notes.

Proceeds will be used to repay the company's term loan B and for general corporate purposes.

TransDigm drives by

The drive-by market revived on Tuesday.

TransDigm priced a $500 million issue of eight-year senior subordinated notes (Caa1/CCC+) at par to yield 7½%.

The yield printed at the wide end of the 7¼% to 7½% yield talk.

UBS was the lead left bookrunner. Credit Suisse, Morgan Stanley, Citigroup, Barclays and RBC were the joint bookrunners.

As reported, last week the company stated in a press release that is was contemplating issuing $700 million of subordinated notes, $200 million higher than the deal that surfaced on Tuesday.

Proceeds from the $500 million notes sale, along with proceeds from a $700 million first-lien covenant-light tack-on term loan C, will be used to fund a special dividend.

The amount of the dividend being considered is in the range of $1 billion to $1.8 billion.

Talk, new structure on Valeant

There were developments on Tuesday on what has become the new issue market's most closely watched transaction.

Valeant Pharmaceuticals set price talk for its restructured $3,225,000,000 two-part offering of senior notes (B1/B).

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 has been withdrawn from the transaction. Initial guidance for those notes was in the high 6% to low 7% context.

Books close on Wednesday, and the deal is expected to price on Thursday.

Earlier in the week, an investor noted that outflows and market turbulence have combined to move momentum over to the buyside, which had been price-takers during the year through April in a white-hot primary market.

However, this investor cautioned against using that momentum to push Valeant pricing too wide, reasoning that should the buyside elect to do so on a benchmark deal, it could push other bonds in the portfolio wider by proximity, resulting in an adverse impact on net asset valuations.

This investor reckoned that the market might extract an additional 50 bps concession from Valeant.

Judging by the 7½% area talk on the eight-year notes, versus the mid-6% guidance that circulated last week, the buyside is pushing for a concession that is nearer to 100 bps, relative to initial guidance, a banker said late Tuesday.

Goldman Sachs is the left bookrunner for the Valeant Pharmaceuticals deal. 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.

PetroQuest mirror notes

PetroQuest Energy plans to start a brief roadshow on Wednesday for a $200 million offering of notes mirroring its 10% senior notes due Sept. 1, 2017 (expected ratings Caa1/B).

An investor call is scheduled at 12:30 p.m. ET on Wednesday.

The deal is expected to price on Friday.

J.P. Morgan and Wells Fargo are the joint bookrunners for the acquisition financing.

Elsewhere, Superior Plus LP is expected to launch C$150 million to C$250 million of seven-year senior notes (/BB-/DBRS: BB) on Wednesday.

The company wrapped up a roadshow on Tuesday.

No pricing guidance was out yet on the notes, but initial talk is in the 6% to 7% yield area.

Scotia and TD are the bookrunners for the debt refinancing and general corporate purposes deal.

TransDigm trades up

When TranDigm's 7½% senior subordinated notes due 2021 were freed for trading, a market source said that the deal had traded into a 100¼ bid. He quoted the bonds going home in a 100 1/8 to 100 3/8 bid context.

A second trader pegged the notes at 100 1/8 bid, 100 5/8 offered, while a third was a tad more conservative, locating the bonds trading between 99 7/8 and 100 3/8.

The Cleveland-based aircraft components producer's quickly shopped offering had priced at par earlier.

The company's plans to use the new deal proceeds, along with the proceeds of a new bank loan, to return capital to its shareholders indicate a more financially aggressive stance by management, according to senior analyst Evan Mann of the Gimme Credit independent research service.

In a note to investors on Tuesday, Mann noted that up till now, the company "has kept leverage in a 4.5-5x range, as EBITDA growth and free cash flow were used to keep the balance sheet in check."

But he cautioned that recent actions, including several acquisitions as well as plans for the equity dividend, "suggest the company is now more willing to push leverage a turn higher to the mid [6%] level."

Mann currently rates its debt at "outperform" - but downgraded the company's outlook to "deteriorating" from "improving" to reflect this apparently more aggressive worldview.

Gibson goes up

The day's other U.S. dollar pricing, from Gibson Energy, was seen by a trader having firmed a little, to 98¾ bid, 99¼ offered.

Those 6¾% notes due 2021 had earlier come to market at a notably discounted 98.476 price.

Recent deals remain lower

Going back to some of the deals that had priced before Junkbondland went into its primaryside freeze last week amid extreme market volatility in the wake of the Federal Reserve announcement, some of those deals were a little better on the session, in line with the overall market. But they were still well down from where they had originally priced.

A trader saw Brookfield Residential Properties Inc.'s 6 1/8% notes due 2022 up¼ point on the day, to 96¾ bid, 97¾ offered.

But those levels were still well down from the par level at which the Calgary, Alta.-based landowner and homebuilder had come to market last Tuesday with its quickly shopped $500 million offering, upsized from an originally announced $400 million.

He saw Barry Callebaut Services NV's 5½% notes due 2023 at 97½ bid, 99½ offered, calling them up½ point on the day.

But the Zurich, Switzerland-based chocolate manufacturers' $400 million of bonds were still trading below the 98.121 level at which that deal had priced back on June 13, yielding 5¾%. The pricing came after the transaction was sharply downsized from an originally planned $600 million.

Rite Aid Corp.'s 6¾% notes due 2021 went home at 95¼ bid, 96¼ offered - down a quarter-point on the day and well down from par, where the Camp Hill, Pa.-based No/ 3 U.S. drugstore chain operator had priced its sharply upsized $810 million drive-by offering of those bonds last Tuesday after more than doubling its size from the initially announced $400 million.

Unlike the other recent deals, which seemed to either be a little better on the session or, like Rite Aid, only slightly easier, Regal Entertainment Group's 5¾% notes due 2023 tumbled by 3 points on Tuesday, a trader said, to end at 95 bid, 96 offered.

The Knoxville, Tenn.-based movie theater operator's $250 million quick-to-market issue had priced at par back on May 29, but had been able to hold most of its value since then, having been quoted on Monday still in a 98-99 context.

Ball Corp.'s battered 4% notes due 2023 had a rare upside move on Tuesday, firming about a half a point to close at 90¾ bid. Volume of over $33 million was one of the heaviest turnovers on the day in Junkbondland.

But the Broomfield, Colo.-based packaging concern's bonds were still well down from the par level where that unscheduled $1 billion deal had priced back on May 9, after the transaction was upsized from an originally announced $600 million to meet investor demand.

Traders said the extremely small coupon proved to be a major turn-off for investors once interest rates, represented by Treasury bond yields, began to back up around the middle of last month.

Better tone seen

A trader said that overall "it seemed like things were starting to right [themselves] a little bit. Our secondary world was probably up a solid 3/8 to a half-point."

He also noted that "volumes were a little bit better than the last couple of days, when people were just pretty much sitting on their hands watching everything, in sync with the equity world."

But he said that there were "no major news items, just random trading in general. Just a hodge-podge of names."

That was in contrast to, say, the action on Monday seen in the bonds of Vanguard Health Systems Inc. and Tenet Healthcare Corp., which were seen to have gyrated around on the news that Dallas-based Tenet will acquire its smaller, Nashville-based industry rival Vanguard in a $4.23 billion deal, consisting of $1.7 billion of cash and the assumption of $2.5 billion of Vanguard debt.

That news had boosted Vanguard's debt, like its 8% notes due 2018, which jumped by 1 5/8 points on Monday to end at 105¾ bid, on volume of more than $24 million. On Tuesday, those bonds were seen about unchanged, and volume had dwindled to around $4 million.

Tenet's 6¾% notes due 2020 had swooned by more than 7 points on Monday to end around 95 bid, on volume of over $5 million. They too were seen about unchanged on Tuesday, with around the same level of volume. A trader said there was "not too much volume" in the company's other paper, "maybe $1 million here of $2 million there."

Market indicators mixed

Statistical junk market performance indicators turned mixed on Tuesday, after having slid badly on Monday for the second time in three sessions.

The Markit Series 20 CDX North American High Yield index bounced back solidly on Tuesday after having eased on Monday, jumping by 1 3/32 points to end at 101 15/16 bid, 102 1/15 offered. On Monday, it had been down by 5/8 point.

But the KDP High Yield Daily index saw its fourth straight loss Tuesday, retreating by 12 basis points to close at 72.17, although that was an improvement from Monday's nosedive of 76 bps.

The yield also widened out for a fourth straight session on Tuesday, rising by 6 bps to 6.65%, although there, too, it was far less of a jump and the 27 bps widening seen on Monday.

The widely followed Merrill Lynch High Yield Master II index was down for a fifth straight session on Tuesday, losing 0.137%, versus Monday's plunge of 1.042%, which was the second-biggest so far this year. It was exceeded only by Thursday's 1.281% slide.

The latest loss dropped its year-to-date return to 0.384%, marking 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. On Monday, the index had finished at 0.522%. Its yield to worst hit a fourth consecutive new high for the year Tuesday, ending at 6.853%, up from the previous high of 6.818% set on Monday.

The index's spread to worst also hit a fourth straight new wide point for the year on Tuesday, rising to 536 bps over Treasuries from Monday's previous high of 535 bps.

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