Rite Aid, Sensata price deals; new Rite Aid rises; Guitar Center gains; funds lose $1 billion

By Paul A. Harris and Paul Deckelman

New York, March 19 – Rite Aid Corp. came to market on Thursday with a $1.8 billion offering of eight-year notes, and the No. 3 U.S. drugstore chain’s new issue proved to be a pleasant tonic for the high-yield market, with traders seeing the new bonds firming solidly in heavy trading.

Sensata Technologies BV also did a new deal during the session, a $700 million drive-by offering of 10.5-year notes. While there was brisk aftermarket activity in the electronic components maker’s issue, it rose only slightly.

In an uncommon transaction for a domestic issuer, chemical maker Huntsman Corp. priced a 10-year offering of euro-denominated notes.

Wednesday’s new deal from Infor (US) Inc. was seen having moved up.

Away from the new deals, Guitar Center Inc.’s bonds firmed smartly after the musical instrument retailer reported its earnings.

But offshore energy driller Transocean Inc.’s bonds were lower in active dealings after Standard & Poor’s cut its debt ratings to junk, several weeks after Moody’s Investors Service did likewise.

Statistical indicators of junk market performance were mixed for a second consecutive session.

But another numerical market barometer – flows of cash into and out of high-yield mutual funds and exchange-traded funds, considered a reliable guide to overall Junkbondland liquidity trends – saw a second consecutive big downturn in the latest reporting week.

Rite Aid prices tight

The dollar-denominated primary market saw two issuers complete single-tranche deals on Thursday to raise a combined total of $2.5 billion.

Neither of the two was upsized.

One of the deals came as a drive-by.

Both priced at the tight ends of talk.

Rite Aid priced a $1.8 billion issue of eight-year senior notes (B3/CCC+) at par to yield 6 1/8%, at the tight end of yield talk in the 6¼% area.

Citigroup Global Markets Inc., BofA Merrill Lynch, Wells Fargo Securities LLC, Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. were the joint bookrunners.

The Camp Hill, Pa.-based drugstore chain plans to use the proceeds to finance the acquisition of Twinsburg, Ohio-based pharmacy benefit management company Envision Pharmaceutical Services. If the acquisition is not completed by Sept. 24, 2015, proceeds may be used to refinance certain debt, including the tranche 1 and tranche 2 term loans and the 9¼% notes or the 8% notes.

Sensata drives by

Sensata Technologies priced a $700 million issue of non-callable senior notes due Oct. 1, 2025 (exiting ratings Ba3/BB+) at par to yield 5%, at the tight end of the 5% to 5¼% yield talk.

Morgan Stanley & Co. LLC, Barclays, Goldman Sachs, Mizuho Securities USA Inc. and RBC Capital Markets LLC were the joint bookrunners for the debt refinancing.

Cliffs roadshow

Cliffs Natural Resources Inc. plans to price a $500 million offer of first-lien senior secured notes due 2020 (Ba2/BB-) early next week at the conclusion of a roadshow.

An investor call was scheduled to take place on Thursday.

BofA Merrill Lynch, Jefferies LLC, Deutsche Bank Securities Inc. and Credit Suisse are the joint bookrunners.

The Cleveland-based mining and natural resources company plans to use the proceeds to pay off its revolver and for general corporate purposes.

VWR at the wide end

The news flow from the European primary market was considerable on Thursday.

VWR Corp. priced a €504 million issue of 4 5/8% seven-year senior notes (B3/B) at 99.25 to yield 4¾%.

The yield printed at the wide end of the 4½% to 4¾% yield talk.

Goldman Sachs ran the books.

The Radnor, Pa.-based company plans to use the proceeds to refinance its 7¼% senior notes and its senior secured credit facility, which both mature in 2017, and to add liquidity to support its growth initiatives.

OHL, downsized and wide

Spanish construction and concessions group Obrascon Huarte Lain SA (OHL) priced a downsized €325 million issue of 5½% eight-year senior notes (B1//BB-) at 93.866 to yield 6½%, according to a market source.

The deal was downsized from €425 million.

The yield printed at the wide end of the 6¼% to 6½% final yield talk. That final talk had been revised from earlier talk in the 6% area, according to market sources who added that the first official talk had the deal coming at 5½% to 5¾%.

The deal played to an audience of retail investors, according to a London sellside source who added that at its original €425 million size it was a rather large for the retail crowd.

OHL's deals typically have played to institutional investors, the source added.

Joint global coordinator and joint physical bookrunner Credit Suisse will bill and deliver. Royal Bank of Scotland and UBS were also joint global coordinators and joint physical bookrunners.

The Madrid-based company plans to use the proceeds to refinance debt and for general corporate purposes.

Huntsman at the wide end

Huntsman International LLC priced a €300 million issue of non-callable 10-year senior notes (expected B1/confirmed B+) at par to yield 4¼%.

The yield printed at the wide end of yield talk in the 4 1/8% area.

Goldman Sachs, Barclays, BofA Merrill Lynch, Citigroup Global Markets Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, PNC and RBC were the joint bookrunners for the debt refinancing deal.

Paprec talks green deal

Paprec Holding SA set price talk in its €480 million two-part green bond offering.

The issue includes €280 million of seven-year senior secured notes (B1/B+) talked to yield in the 5½% area and €200 million of eight-year senior subordinated notes (B2/B-) talked to yield in the 7½% area.

Pricing is set for Friday.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas is also a global coordinator. Credit Agricole, Natixis and SG CIB are joint bookrunners.

Rite Aid rises in aftermarket

A trader said that Thursday’s junk market saw muted activity, in part because “everyone was waiting around for Rite Aid.”

The big drugstore chain operator’s new $1.8 billion issue of 6 1/8% notes due 2023 finally did get done fairly late in the afternoon as a regularly scheduled forward calendar offering.

Despite the relative lateness of the hour, there was still intense aftermarket action in the new credit, with a market source seeing more than $99 million of the notes changing hands. He quoted the bonds going home at 101¼ bid, well above their par issue price.

Sensata edges up

The day’s other deal – a $700 million drive-by offering from Sensata Technologies, an Attleboro, Mass.-based manufacturer of electronic sensors and controls – also came to market fairly late in the day and saw some secondary dealings, although the activity level was nowhere near that of the new Rite Aid issue.

Its 5% notes due October 2025 priced at par and then firmed slightly to around 100 1/8 bid, a trader recounted. About $17 million of the notes were traded.

Infor issue improves

Wednesday’s deal from Infor was seen by traders to have firmed from the initial aftermarket levels seen after the Alpharetta, Ga.-based enterprise software provider’s $1.03 billion issue priced as a scheduled forward calendar deal.

A trader said that the bonds rose ½ point to finish at 101 bid, 101¾ offered, although he said that he didn’t know “if much was traded in that one.”

A second trader pegged the bonds in a 101-to-101½ bid context, calling them up 3/8 point.

On Wednesday, those bonds had gone home up around ½ point to 5/8 point higher after they had priced at par as part of a $1.4 billion equivalent two-part offering, which also included a €350 million tranche of 5¾% notes due 2022. Like the dollar notes, the latter bonds priced at par.

Valeant stays busy

A trader said that “nothing was really standing out,” although he noted continued aftermarket activity in Valeant Pharmaceuticals International Inc.’s huge new offering, which priced last week.

A market source saw the company’s 6 1/8% notes due 2025 off by 1/8 point at 102¼ bid, 102½ offered, while at another desk, a trader said the bonds were down ¼ point at 102½ bid, on volume of over $20 million.

He saw its 5 7/8% notes due 2023 about unchanged at 101½ bid, on volume of about $12 million, while its 5 3/8% notes due 2020 were steady at 100½ bid, on $13 million of turnover.

The Laval, Quebec-based drug manufacturer priced $2 billion of the five-year notes and $3.25 billion each of the eight- and 10-year notes at par last Friday, along with €1.5 billion of 4½% notes due 2023, also at par, as it enlarged its regularly scheduled forward-calendar offering to $10 billion equivalent from an originally announced $9.6 billion equivalent. That bond deal was the biggest seen so far this year in the high-yield market and the second-biggest junk offering ever.

The company also did a two-part $4.15 billion secured bank loan deal, all to finance its pending acquisition of Salix Pharmaceuticals Ltd.

Sweet music from Guitar Center

Away from the new deals, Guitar Center’s bonds were seen multiple points better during the day. A trader said that “they went up about 7 points or so, on decent earnings.” He quoted its 9 5/8% notes due 2020 having moved up to a 73-74 bid context.

A second trader saw those notes up 7¼ points at 74¼ bid.

A market source saw the Los Angeles-based musical instrument and sound systems retailer’s 6½% notes due 2019 having firmed to 88¼ bid, on volume of more than $18 million.

Downgrade trips up Transocean

On the downside, Transocean’s 6.8% bonds due 2038 slid by more than 3 points on the day, a trader said, ending at just under 74 bid, after S&P lowered its long-term corporate credit rating and senior unsecured debt ratings to BB+ from BBB-.

Its 6% notes due 2018 eased to 95½ bid, on volume of about $20 million.

The downgrade follows an assessment that the Switzerland-based offshore energy driller’s credit measures will weaken beyond expectations for the BBB- rating despite a planned reduction in its dividend.

S&P’s move follows a similar action in late February by Moody’s. Only Fitch ratings still considers Transocean to be high grade – and just barely, at a BBB- rating.

Indicators stay mixed

Statistical indicators of junk market performance were mixed for a second straight session on Thursday. They had turned mixed on Wednesday after having been lower on Tuesday. Thursday was the third mixed session over the last four days and the fourth mixed session out of the last seven.

The KDP High Yield Daily index eased by 2 bps to end at 70.92, its second decline in the last three sessions and fourth in the last five sessions. It had risen by 9 bps on Wednesday.

Its yield, however, declined by 4 bps to 5.48%, even though the yield typically rises as the index reading declines. It was the first narrowing after four straight sessions during which it had widened, including a 1 bp rise on Wednesday.

The Markit Series 23 CDX North American High Yield index eased by 9/32 point to end at 107 19/32 bid, 107 5/8 offered, its first loss after one gain. It had firmed by 5/8 point on Wednesday, its second gain in the prior three sessions.

The Merrill Lynch U.S. High Yield Master II index saw its first gain after four straight lower sessions, rising by 0.294%, versus Wednesday’s 0.016% loss.

That gain raised its year-to-date return to 1.983% from Wednesday’s 1.684%, although it remained down from its peak 2015 level of 3.125%, set on March 2.

Funds see second outflow

High-yield mutual funds and ETFs – considered a reliable barometer of overall junk market liquidity trends – have seen their second consecutive big weekly outflow, market sources said Thursday.

Sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $1 billion more left those funds than came into them during the week ended Wednesday.

This week’s outflow followed the $1.96 billion cash loss reported last Thursday by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended March 11. (See related story elsewhere in this issue.)

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