Upsized Charter drives by, eases; new Numericable again tops actives; funds gain $1.18 billion

By Paul Deckelman and Paul A. Harris

New York, April 7 – The high-yield market’s new-deal parade continued to roll on, although Thursday was considerably calmer on the primaryside than Wednesday’s heavy-volume session had been.

Syndicate sources said just one deal came to market – an upsized $1.2 billion issue of 10-yuear notes from subsidiaries of cable operator Charter Communications, Inc.

Traders said the new bonds traded actively though ending slightly below their issue price.

But for a second consecutive session, French cabler Numericable SFR SA’s behemoth of a bond deal was easily the busiest credit in Junkbondland, trading slightly below the levels at which it had finished on Wednesday, when that $5.19 billion offering of secured 10-year notes had been the key component of the more than $8 billion primary session, the year’s biggest one-day total so far.

The traders also saw trading in the other new deals that had priced on Wednesday, from lenders Ally Financial, Inc. and Springleaf Finance Corp., and from gaming industry REIT MGM Growth Properties LLC. The latter bonds continued to trade at a solid premium to their issue price. Ally’s add-on to its 2025 notes was on the Most Actives list, but lost ground.

Also busy but losing some ground were both halves of last week’s big deal from computer hard-drive maker Western Digital Corp.

Away from the new issues, Valeant Pharmaceuticals International, Inc.’s bonds were both active and higher for a third straight session, as the embattled Canadian drug manufacturer announced that its lenders had approved a credit facility amendment and extended deadlines for making its regulatory filings.

Statistical market performance measures turned lower across the board on Thursday, after having been higher all around on Wednesday. It was indicators’ second downside session in the last three trading days.

But another numerical measure – flows of funds into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – moved back to the upside this week after having seen a net outflow last week, with $1.181 billion more coming into those weekly-reporting-only domestic funds than leaving them.

Charter upsizes

Charter Communications priced Thursday’s sole deal, an upsized $1.2 billion issue of 10-year senior notes (B1/BB-/BB-) that came at par to yield 5½%.

The issue size was increased from $1 billion.

The yield printed on top of yield talk.

BofA Merrill Lynch was the left bookrunner for the debt refinancing deal. Citigroup Global Markets, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co., UBS Investment Bank and Wells Fargo Securities LLC were joint bookrunners.

Oversubscribed

Charter’s deal was oversubscribed, but not massively, sources said.

The buzz in the market had the Charter book size at $1.7 billion.

Everybody spent their cash on Numericable, a portfolio manger said, referring to the massively upsized $5.19 billion issue of 10-year senior secured notes (B1/B+) from Numericable which priced at par to yield 7 3/8% on Wednesday. That deal was increased from $2.25 billion initially.

Numericable was also the biggest tranche ever to price in the junk bond market, according to Prospect News data.

The giant bond was said to play to a $14 billion book, the portfolio manager recounted, but added that one account was said to have received $18 million of a $20 million order of the Numericable 7 3/8% bonds, an allocation which would seem to fly in the face of that massive book size.

The Numericable bonds traded up to 101 bid, then fell back on news that the company launched a $2.6 billion seven-year covenant-light term loan on Thursday, sources said.

The Numericable 7 3/8% notes due 2026 were at par ¼ bid, par ½ offered, away from the dealer, at Thursday’s close, the portfolio manager said.

Quorum sets 12% talk

Looking to Friday’s session, Quorum Health Corp. is on deck with a $400 million offering of seven-year senior notes (Caa1/CCC+).

The deal was talked on Thursday to yield in the 12% area including an original issue discount of approximately 1 point.

Books are scheduled to close at 1 p.m. ET Friday.

Credit Suisse, UBS, BofA Merrill Lynch, Citigroup, J.P. Morgan, Wells Fargo, RBC and SunTrust are the joint bookrunners for the spinoff deal.

LKQ prices tight

The euro-denominated new issue market turned out news on Thursday.

Chicago-based LKQ Corp. priced a €500 million issue of eight-year senior notes (Ba2/BB) at par to yield 3 7/8%.

The yield printed at the tight end of yield talk in the 4% area.

The bonds were up a point in the secondary market, a trader said.

The 4% price talk on the euro-denominated deal seemed rich to some investors, and sent the company’s dollar-denominated bonds, which were trading with a 5% yield on Wednesday, higher, sources said. One trader had the dollar-denominated paper up a point on Wednesday afternoon.

Global coordinator BofA Merrill Lynch will bill and deliver for Thursday’s euro-denominated deal from LKQ. HSBC Bank was also a global coordinator.

BBVA, Wells Fargo and MUFG were joint bookrunners.

The Chicago-based company plans to use the proceeds to repay debt, including borrowings under its revolver, and to repay bond debt of Rhiag-Inter Auto Parts Italia SpA, which it acquired in late March of this year.

Elsewhere in the euro-denominated primary, Peugeot SA was scheduled to hold a conference call with investors on Thursday ahead of a possible offering of euro-denominated seven-year notes.

The deal is expected to price on Friday.

BNP Paribas and HSBC are the global coordinators for the French automotive manufacturer’s Regulation S offer.

Credit Agricole, Natixis, Santander and SG are the active bookrunners.

Wednesday flows were mixed

Cash flows for dedicated high-yield bond funds were mixed on Wednesday, a trader said.

High-yield ETFs sustained $187 million of outflows on the day.

Asset managers saw $80 million of inflows.

That news was trumped late Thursday as Lipper reported that the dedicated high-yield funds saw $1.181 billion of inflows for the week to Wednesday’s close (see related story in this issue).

The market looked somewhat ugly to one portfolio manager on Thursday.

The yield on 10-year Treasuries fell below 1.7%, touching 1.69% at the Thursday close, and the VIX was up 14.69% on the day.

With that combination, taking a header on the market has become a challenging process, the investor remarked.

People are sitting on a fair amount of cash, although not as much as they were sitting on early in the year as volatility sparked by the late 2015 rate hike by the Federal Reserve Bank rocked the markets, the manager said.

New Charter bonds easier

In the secondary market, traders saw brisk activity in the new Charter Communications 5½% notes due 2026.

A market source said that more than $51 million of the notes traded, putting them high up on the Most Actives list.

He pegged the bonds at 99 13/16 bid – down from the par level at which the Stamford, Conn.-based cable, broadband and phone service provider had priced its quick-to-market issue via a pair of funding subsidiaries – CCO Holdings, LLC and CCO Holdings Capital Corp.

At another desk, a trader saw the notes trading between 99 31/32 and par.

Charter’s existing paper, meanwhile, was also active. Its 5¾% notes due 2026 were seen by a trader down 1½ points at 102 bid, with over $17 million of volume.

Its 5 7/8% notes due 2024 lost 7/8 point on the day, finishing at 103¾ bid, with over $13 million having traded.

Numericable tops actives

For a second straight session, Numericable’s new 7 3/8% senior secured notes due 2026 were the most active junk credit.

But unlike on Wednesday, when the St. Denis, France-based broadband and wireless provider’s $5.19 billion deal didn’t have much time to trade before the close following its afternoon (ET) pricing – though it still managed to generate about $63 million of volume – on Thursday, it had a full trading session – and more than $452 million of the new notes changed hands, a market source said.

He saw the bonds finishing at 100 3/8 bid, down 3/8 point on the day.

Another trader saw the bonds “hanging around” 100½, calling that down ¼ point from Wednesday’s closing levels.

The company priced its giant-sized deal at par on Wednesday as a regularly scheduled forward calendar offering after first upsizing it from an originally announced $2.25 billion to $3 billion, and then finally to $5.19 billion – the biggest junk bond deal seen this year so far.

Numericable’s existing bonds were also busy – a trader said that its 6% notes due 2022 were ½ point lower at 87½ bid, while its 4 7/8% notes due 2019 gained about ¼ point, ending at 103 7/8 bid, on volume of $36 million and $23 million, respectively.

MGM adds to gains

Among the other issues that priced during Wednesday’s $8.13 billion primary session – the junk market’s heaviest single day of new issuance since March 2015 – the new MGM Growth Properties 5 5/8% notes due 2024 continued to firm on Thursday, adding to the robust gains the bonds had notched after pricing off the forward calendar on Wednesday.

A trader located the bonds at 102½ bid, 103 offered, calling them up ½ point on the day, while a second saw the bonds at 102½ bid, 102¾ offered.

That was on top of a 2 point gain seen when the bonds first hit the aftermarket Wednesday and went home around 102 bid – well up from the par level at which Las Vegas-based gaming giant MGM Resorts International had priced the $1.05 billion issue via subsidiaries MGP Escrow Issuer, LLC and MGP Escrow Co-Issuer, Inc.; those entities will be merged into MGM Growth Properties, a real estate investment trust being spun off from MGM Resorts.

Ally busy, lower

A trader said that Ally Financial’s 5¾% subordinated notes due in November 2025 lost 3/8 point on Thursday, ending at 97¾ bid, with over $37 million of that paper traded.

Earlier in the day, another trader had seen those notes at 98½ bid.

Detroit-based automotive and residential lender and on-line banking operator Ally had priced an add-on to its existing issue of those bonds on Wednesday; the $300 million addition had priced at 97.476 to yield 6.1%.

Traders saw the bonds firm to 98 1/8 in initial aftermarket dealings Wednesday – up from their pricing level but about 1/8 point below where the existing bonds had been trading before the Ally brought its deal.

The other half of that quickly shopped $900 million two-part offering – Ally’s new $600 million of 4¼% notes due 2021 were seen by a trader on Thursday at 99½ bid, not far from the 99.442 level at which the notes had priced Wednesday to yield 4 3/8%.

Springleaf springs upward

A trader saw the new Springleaf Finance 8¼% notes due December 2020 at 101½ bid – well up from the par level at which the Evansville, Ind.-based consumer finance company had priced its unscheduled $1 billion offering of those notes on Wednesday, after the deal was upsized from an originally announced $400 million.

But he did not see much volume in the notes, despite the deal’s large size.

Western Digital weakens

A trader said that last week’s big issue of bonds from Western Digital was trading at lower levels.

He saw the Irvine, Calif.-based computer disk-drive maker’s 10½% unsecured notes due 2024 down ¾ point at 99¼ bid, on volume of over $42 million.

And he saw its 7 3/8% secured notes due 2023 around 101¾ to 102 bid, down around 5/8 point on the day, with over $30 million traded.

Valeant firm again

Away from the trading in new or recently priced offerings – which dominated the secondary market on Thursday – a trader did see continued upside movement on strong volume in Valeant Pharmaceuticals paper.

It was the third straight session that the Laval, Que.-based drug manufacturer’s bonds had pushed upward.

He saw its 6 1/8% notes due 2025 up 1 point on the day at 82½ bid, with over $47 million changing hands.

Another trader pegged the 5 7/8% notes due 2023 at 82, up a point. More than $31 million moved around.

The 7½% notes due 2021 meantime improved over 3 points, the trader said, ending at 91¼ on $25 million of volume. The 6¾% note due 2018 ticked up 1½ points to 96 as $22 million changed hands.

Also, the term loans C and D were quoted at 97 bid, 97½ offered, up from 96¾ bid, 97½ offered and the term loan E and F were quoted at 96¾ bid, 97¼ offered, up from 96½ bid, 97 offered, the trader said.

Valeant’s debt strengthened after news surfaced that the necessary lender approval has been received for the company’s amendment and waiver to its credit facility, and that the amendment and waiver are expected to close next week.

Under the waiver, the deadline for filing the company’s form 10-K is being extended to May 31 and the deadline for filing its form 10-Q for the quarter ended March 31 will be extended to July 31. Also, the cross-default to Valeant’s indentures that arose when the 10-K was not filed on March 15 is being waived.

The amendment modifies, among other things, the interest coverage covenant and certain financial definitions to gain an additional cushion in the covenants, restricts the company’s ability to make certain acquisitions and other investments and to pay dividends and other restricted payments until the financial statements are filed and certain leverage ratios are achieved, and requires net asset sale proceeds to be used to prepay its term loans.

Indicators turn higher

Statistical market performance measures turned lower across the board on Thursday, after having been higher all around on Wednesday. It was the indicators’ second downside session in the last three trading days.

The KDP High Yield Daily Index eased by 1 basis point on Thursday to close at 65.80 versus the 16 bps jump seen on Wednesday. It was the index’s second loss in the last three sessions.

Its yield, however, atypically came in by 6 bps, to 6.57%, even though the yield usually moves inversely to the index reading, rising when the index falls and vice versa.

That narrowing was its second straight tightening and third in the last 4 sessions. It had also come in by 3 bps on Wednesday after rising on Tuesday.

The Markit Series 26 CDX North American High Yield Index plunged by 11/16 point on Thursday to 101 13/16 bid, 101 27/32 offered, versus Wednesday’s 21/32 point gain. Thursday was the index’s third loss in the last four sessions.

And the Merrill Lynch North American High Yield Master II Index retreated by 0.063%, its second loss in the last three sessions. It had moved up 0.331% on Wednesday.

The latest loss dropped its year-to-date return to 3.431% from 3.497% on Wednesday.

Funds gain $1.181 billion

But another numerical measure – flows of funds into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – moved back to the upside this week after having seen a net outflow last week.

Some $1.181 billion more came into those weekly-reporting-only domestic funds than left them in the latest reporting week.

It was the seventh upturn for the funds in the last eight weeks (see related story elsewhere in this issue).

-Stephanie N. Rotondo and Sara Rosenberg contributed to this review

© 2015 Prospect News.
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