Resolute deal on, then off; Valeant shops add-on; Rite Aid firms; market weakens as daily outflows swell

By Paul Deckelman and Paul A. Harris

New York, Nov. 13 – With the high-yield market continuing to weaken – as illustrated by the growing net outflows traders have seen on a daily basis from junk-rated mutual funds and exchange-traded funds, seen as a proxy for overall market liquidity trends – some issuers are starting to re-think their plans to access the junk market for funds at this time.

Market participants got another indication of this on Monday, as oil and natural gas company Resolute Energy Corp. first announced plans for a $550 million offering of new eight-year notes – but then mere hours later did an abrupt about-face, pulling the deal due to unattractive market conditions.

Prior to that withdrawal, Resolute’s existing notes – due to be taken out with the new-deal proceeds – had firmed solidly in busy trading.

But syndicate sources said that other prospective deals were still on, including drugmaker Valeant Pharmaceuticals International Inc.’s planned $750 million tap of its existing 2025 secured notes, a deal expected to price on Tuesday.

Away from the new deals, traders said that California Resources Corp.’s recently strong benchmark bonds slipped notably on market-leading volume.

Drugstore chain Rite Aid Corp.’s notes improved in brisk trading.

But struggling telecom operator Frontier Communications Corp. remained under pressure.

Statistical market performance measures were down for a fifth consecutive session on Monday; they had turned lower all around last Tuesday after two straight mixed sessions before that, and then stayed that way for the rest of last week and on into this week.

Resolute Energy pulls deal

The only deal expected to clear the dollar-denominated market during Monday's session was pulled.

Resolute Energy Corp. withdrew its $550 million offering of eight-year senior notes (existing ratings Caa1/B-) on Monday, the same day the deal was announced.

“We approached the market as an opportunistic means to refinance our existing 8½% senior notes due 2020,” a company release stated.

“However, the company has concluded that current terms and conditions available in the market were not sufficiently attractive for Resolute to move forward with the transaction.”

The deal had been talked earlier in the day in the 6¾% area and had been expected to price before the Monday close, market sources said.

BMO Capital Markets was the left physical bookrunner.

The Denver-based oil and gas company intended to use the proceeds to redeem its 8½% senior notes due 2020 and for general corporate purposes.

Valeant tapping 5½% notes

Elsewhere Valeant Pharmaceuticals International, Inc. plans to price a $750 million add-on to its 5½% senior secured notes due 2025 (existing ratings Ba3/BB-) on Tuesday.

Barclays is the left bookrunner. Citigroup, Deutsche Bank, Goldman Sachs, DNB Markets, JP Morgan, Morgan Stanley and RBC are the joint bookrunners.

Laval, Quebec-based specialty pharmaceutical company plans to use the proceeds to repay its series F tranche B term loans due 2022.

Centennial Resource roadshows deal

In the wake of the Resolute Energy withdrawal, the active forward calendar remains replete with energy- and energy-related high-yield offerings.

Centennial Resource Development, Inc. announced Monday that it expects to price a $350 million offering of eight-year senior notes on Thursday.

JP Morgan, Wells Fargo and RBC are the joint bookrunners for the debt refinancing and general corporate purposes deal.

Hess Infrastructure Partners LP plans to price $800 million of 8.25-year senior notes on Friday.

JP Morgan, Wells Fargo, Morgan Stanley and MUFG are the managers.

Those two deals, both announced Monday, join offerings already stationed on the calendar heading into last weekend.

SRC Energy Inc. is expected to price its $550 million offering of eight-year senior notes (B3/B+) in the early part of the Nov. 13 week. The deal is talked to yield 6% to 6¼%, a market source said.

And Denmark-based oilfield services provider Welltec A/S is expected to price a $340 million offering of five-year senior secured notes (expected ratings B2/B-) before the end of the week.

Weight Watcher roadshow

Away from the energy sectors, Weight Watchers International, Inc. plans to start a roadshow on Tuesday for a $500 million offering of eight-year senior notes (S&P: CCC+).

Citigroup is the left bookrunner. BofA Merrill Lynch and JP Morgan Securities LLC are the joint bookrunners.

The New York-based provider of weight management services plans to use the proceeds to refinance its term loan B-2.

Salt Mobile announces €400 million

In European primary market news Salt Mobile SA announced in a Monday press release that it has launched a €400 million offering of 10-year senior secured notes via issuing entity Matterhorn Telecom SA.

The Renens, Switzerland-based telecom plans to use to the proceeds to partially redeem its floating-rate senior secured notes due 2023.

And Volvo plans to begin meeting with bond investors on Tuesday ahead of a possible benchmark euro-denominated Regulation S offering of fixed-rate notes.

Citigroup, Deutsche Bank, ING and JP Morgan are the arrangers.

Big Friday outflows

The daily cash flows of the dedicated high-yield bond funds were deep in the red on Friday, the most recent session for which data was available at press time.

High-yield ETFs sustained $634 million of outflows on the day.

Actively managed funds saw a whopping $1.45 billion of outflows on Friday.

Dedicated bank loan funds also ended the day in the red, sustaining $120 million of outflows on Friday, $89 million of which flowed from the bank loan ETFs.

Existing Resolute notes gain

In the secondary market, traders noted that before Resolute Energy announced that it had pulled its planned notes offering, the Denver-based oil and gas company’s existing 8½% notes due 2020 – the issue scheduled to be taken out via a tender offer financed with the anticipated new-deal proceeds – had moved up in fairly active trading.

One market source quoted the bonds finishing at 102¼ bid, which he called up 5/8 points from the last previous sizable trading seen in the issue, which took place on Thursday.

More than $12 million of the notes had traded by the close.

Volume shrinks on recent deals

Meanwhile, the traders saw dwindling volume on some of the new issues which had priced last week, in contrast to Friday, when that paper had traded actively.

For instance, a trader saw Greystar Real Estate Partners, LLC’s 5¾% senior secured notes due 2025 were ending Monday in a 101-to-101¼ bid context, but with less than $5 million traded in sizable lots.

Another pegged the bonds between 101 1/8 and 101 5/8 bid, unchanged on the day.

The Plano, Texas-based owner, operator and developer of luxury apartment communities had priced its regularly scheduled $500 million deal at par on Thursday, after upsizing that issue from an originally shopped $400 million.

A trader said that Platform Specialty Products Corp.’s 5 7/8% notes due 2025 were at 101 /8 bid, 101 5/8 offered, with about $5 million having changed hands.

The West Palm Beach, Fla.-based specialty chemicals manufacturer had priced $550 million of the notes at 99.212 on Thursday to yield 6% in a regularly scheduled offering.

Precision Drilling Corp.’s 7 1/8% notes due in January 2026 were seen having retreated from their hefty initial aftermarket gains, their second straight session on the downside.

The notes finished at 100¾ bid, 101 offered, with about $4 million having traded.

The Calgary, Alta.-based oilfield services provider had priced a scheduled $400 million offering of those 8.25-year notes at par on Thursday, and the new bonds had firmed to better than 101½ bid when they were freed for secondary trading later in that session.

The notes eased on Friday, and then again on Monday.

And Titan International Inc.’s 6½% senior secured notes due 2023 were seen going out at 99¾ bid, par offered, down around ¼ from Friday’s level, on volume of about $5 million.

The Quincy, Ill.-based maker of wheels, tires and undercarriage assemblies for commercial vehicles and heavy equipment had priced its $400 million scheduled forward calendar offering on Thursday at par.

Going back a little further, last week’s QEP Resources Inc. deal was the sole recent issue to see any appreciable volume on Monday, with over $11 million having changed hands.

A trader saw the notes at 101 bid, calling that down ¼ point on the day.

Denver-based oil and gas operator QEP priced a quickly shopped $500 million of those 5 5/8% notes due in March 2026 at par last Monday. The bonds shot up in immediate aftermarket trading to the 102 bid, mark, firmed a little after that last Tuesday, but then started eroding from those peak levels around the middle of last week.

CalRes leads mixed energy sector

Away from the world of new or recently priced deals, California Resources Corp.’s 8% notes due 2022 “were active again – they usually are,” a trader said of the Los Angeles-based oil and gas exploration and production company’s most widely traded issue, seen as a sector bellwether for oil and gas.

He saw the notes “down close to a point,” ending at 72 bid.

Another trader agreed that the notes were down 1 full point, at 72, with volume a very busy $26 million, topping the day’s Most Actives list.

On Friday, the notes had eased by 1/8 point, also on brisk volume.

Elsewhere in the energy sector, a trader said that Houston-based EP Energy Corp.’s 6 3/8% notes due 2023 were down by 2½ points on the day, closing at 56 bid.

Denbury Resources Inc.’s 5½% notes due 2022 were seen bucking the overall negative trend, firming by ¼ point, to 65¾ bid, with about $14 million traded.

Plano, Texas-based Denbury’s 6 3/8% notes due 2021 gained ½ point on the day, closing at 72½ bid.

Rite Aid on the rebound

Away from energy, a trader said that Rite Aid Corp.’s 6 1/8% notes due 2023 gained ¼ point on the day to close at 90 bid, on volume of more than $17 million.

“The bonds got better later in the day,” he said, seeing them up over 1 point on the day.

He said there had been headlines indicating that Amazon.com might not be proceeding immediately with its reported plans of getting into the prescription drug delivery business.

“That’s good for Rite Aid, and for [larger rivals] CVS and Walgreens,” he said, adding that “before, when those stories and rumors were around, you could say these drugstore names were being ‘Amazoned.’ Now, this is their Amazon Bounce.”

Elsewhere in the retailing sphere, a trader saw J.C. Penney Co. Inc.’s 5.65% notes due 2020 “a little lower today,” around 89 bid.

The Plano, Texas-based department store operator’s paper had shot up by more than 2 points on Friday, after reporting smaller-than-expected third-quarter losses and a surprise upturn in same-store sales, a key retailing industry performance metric.

Frontier lower again

In the telecommunications sector, Frontier Communications Corp.’s notes, recently under pressure since the Stamford, Conn.-based wireline operator reported disappointing third quarter results, continued to give up ground on Monday.

“They were weaker and active again,” said a trader who saw Frontier’s 11% % notes due 2025 down 1 point, “plus or minus ½ point” at around 76 bid, with over $18 million traded.

Its 10½% notes due 2022 were also down more than 1 point, at 78½ bid, with about $15 million of turnover.

Indicators continue slide

Statistical market performance measures were down for a fifth consecutive session on Monday; they had turned lower all around last Tuesday after two straight mixed sessions before that and then stayed that way for the rest of last week and on into this week.

The KDP High Yield Daily Index stumbled to its fifth consecutive loss on Monday, falling back by 6 basis points to end at 71.68, after having dropped by 8 bps in Friday’s trading. Those moderate-sized losses follow a 25 bps nosedive on Thursday, when the index had closed below the 72.00 mark for the first time late August, and that swoon came on top of Wednesday’s 16 bps plunge.

Its yield widened out for a sixth straight session, rising by 1 bp to 5.35%. It was also up by 2 bps on Friday, and had 4%, ballooned out by 9 bps on Thursday.

The Markit CDX Series 29 High Yield Index saw its fifth loss in a row on Monday, retreating by around 3/32 point for a second consecutive session to finish at 107 5/16 bid, 107 11/32 offered. Besides the 3/32 point losses on both Friday and Monday, the index has also recently lost 5/16 point on Thursday, 3/16 point on last Wednesday and nearly 9/32 point last Tuesday.

And the Merrill Lynch North American High Yield Master II Index saw an eighth straight loss on Monday, retreating by 0.024%. On Friday, it had eased by 0.005%, following drops of 0.376% on Thursday and by 0.338% on Wednesday.

The latest loss dropped the index’s year-to date return to 6.558% from Friday’s 6.584% close.

The year-to-date return also remains well down from the 7.636% posted on Oct. 24 – the peak cumulative return for 2017 so far.

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