Mercer prices; McDermott rebound continues; Westcorp drops; Bausch improves; funds lose $1.2 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 29 – The domestic primary market saw its first deal in nearly two weeks price on Thursday.

Mercer International Inc. priced a $350 million issue of senior notes due Jan. 15, 2025 (Ba3/BB-) at par to yield 7 3/8%.

The notes were active in the secondary space and were trading at a slight premium to their issue price.

While there is still a pipeline of deals that may come to market before the year draws to a close, central bank activity may cause many prospective issuers to wait until the new year, sources said.

The European primary market also saw some activity.

Nidda BondCo GmbH, the parent of Nidda Healthcare Holding GmbH, set official price talk for its €250 million offering of seven-year senior notes (Caa2/B-/CCC+).

Cognita was scheduled to wrap up a roadshow for a €255.3 million offering of eight-year senior notes on Wednesday.

There was no official word on the deal on Thursday with sources speculating the company may not move forward with it.

Meanwhile, names in the energy sector were buoyed by a 2.3% bounce in crude oil futures.

McDermott International Inc.’s 10 5/8% senior notes due 2024 (B2/B-) continued to climb on Thursday.

However, California Resources Corp.’s 8% senior secured second-lien notes due December 2022 saw only slight improvement in active trading despite the large bounce in crude oil futures.

In the health care sector, Bausch Health Cos. Inc.’s junk bonds were improved after the company new term loans to fund the tender of its 7½% notes due 2021.

However, Westcorp.’s 8½% senior notes due 2025 saw a 6½ point drop in light trading volume on Thursday.

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall liquidity trends in the junk market – saw outflows of $1.2 billion for the week ended Nov. 28, according to fund-flow statistics generated by AMG Data Services Inc.

The week marked the second consecutive week of outflows with $2.191 billion leaving the space for the week ended Nov. 21.

Mercer prices $350 million

Mercer International priced a $350 million issue of senior notes due Jan. 15, 2025 (Ba3/BB-) at par to yield 7 3/8%.

The yield printed at the wide end of yield talk in the 7¼% area.

Credit Suisse was the left bookrunner for the acquisition financing. Barclays and RBC were the joint bookrunners.

The notes were active in the secondary space with more than $22 million on the tape by the late afternoon.

They were seen changing hands around par 3/8 in the active trading.

“They’re above par,” a market source said. “That’s good.”

The pipeline

There are still deals to be done before the books close on the year 2018, a syndicate banker noted on Thursday.

However, the issuance window between now and the end of the year is small, and the timeframe before the holidays is rife with central bank activity.

Hence most issuers seem to be preparing for early 2019, the banker said.

Nidda talk 7¾% area

Nidda BondCo GmbH, the parent of Nidda Healthcare Holding, talked a €250 million offering of seven-year senior notes (Caa2/B-/CCC+) to yield in the 7¾% area.

The deal was scheduled to wrap up its roadshow on Thursday and is expected to price on Friday.

Deutsche Bank and JPMorgan are the joint global coordinators in a syndicate of banks that also includes Barclays, Citigroup, Jefferies, UBS and SG CIB.

The Frankfurt-based pharmaceutical company plans to use the proceeds to acquire an additional 23.8% stake in operating company Stada Arzneimittel (Stada) from its shareholders, increasing Nidda's stake in Stada to 93.61%.

Elsewhere on the active euro-denominated calendar, Cognita was scheduled to wrap up a roadshow for a €255.3 million offering of eight-year senior notes on Wednesday.

Thursday morning there was no official word on the deal – a bridge refinancing related to the acquisition of the private school operator by Jacobs Holding from Bregal Investments and KKR.

Initial talk was in the low to mid 8% area, according to a market source.

However, the buzz in the market was that the Milton Keynes, England-based company may elect to not go forward with the new issue, sources said on Thursday.

McDermott on the rise

McDermott’s 10 5/8% notes due 2024 continued to climb in active trading on Thursday. The notes rose another 2 points to 87¼, a market source said.

More than $13 million of the bonds were on the tape.

The 10 5/8% notes were also up on Wednesday after a brutal decline throughout November.

The notes rose almost 4 points to 85¼ after news broke the company had been awarded a contract by Shell to install a subsea flowline installation in the Gulf of Mexico.

While on the rise, the notes are still well below their levels prior to the company reporting third-quarter earnings on Oct. 31.

McDermott missed earnings expectations on its top and bottom line and announced a divestiture from its storage tank and U.S. pipe fabrication business.

Prior to the earnings announcement, the 10 5/8% notes were trading around par ½.

The notes were one of the outperformers of 2018.

McDermott priced a $1.3 billion issue of the 10 5/8% notes at 94.75 to yield 11.865% in April.

Energy gains

Crude oil futures were on the rise on Thursday lifting the broader energy sector.

However, California Resources’ 8% senior notes due 2022 saw only nominal improvement. The notes were up about ½ point.

They were quoted at 77½ bid, 78½ offered on Thursday and closed the day at 77 7/8, sources said.

More than $17 million of the bonds were on the tape by the late afternoon.

The barrel price of WTI crude oil for January delivery rose to settle at $51.45, an increase of $1.16 or 2.3%, on Thursday.

Bausch Health improves

Bausch Health, formerly Valeant Pharmaceuticals International, saw its capital structure improve after securing new term loans to fund the tender of its 7½% senior notes due 2021.

The company’s 5½% senior notes due 2025 rose ¾ point to 98¼, a market source said. More than $17 million of the bonds changed hands during Thursday’s session.

The company’s 6 1/8% senior notes due 2025 were up ½ point to 93¾, a market source said. More than $12 million of the bonds were on the tape by the late afternoon.

Bausch announced on Tuesday it had borrowed $1.5 billion of new term B loans.

Proceeds, together with cash on hand, will be used to purchase the 7½% notes tendered through its tender offer.

The company called the remaining outstanding amount of the notes for redemption on Dec. 27.

Westcorp drops

Westcorp’s 8½% senior notes due 2025 saw a precipitous drop on Thursday although there were no headlines connected to the trading activity, a market source said.

The notes were down 6½ points to trade at 81½ with about $10 million of the bonds changing hands during Thursday’s session.

The Omaha, Neb.-based telecommunications company was taken private in 2017 in a buyout by Apollo Global Management.

Mixed Wednesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs saw $68 million of inflows on the day.

However actively managed high yield bond funds sustained $120 million of outflows on Wednesday, according to the source.

Indexes mixed

Indexes were mixed on Thursday after all saw gains on Wednesday.

The KDP High Yield Daily index was up 15 basis points to close Thursday at 68.32 with the yield now 6.59%.

The index was up 7 bps on Wednesday after dropping 4 bps on Tuesday and 2 bps on Monday. The index was down 32 bps on the week last week.

The ICE BofAML US High Yield index crept closer to positive territory on Thursday. The index gained 13.1 bps on Thursday with the year-to-date return now negative 0.083.

The index gained 32.8 bps on Wednesday. The index dropped 18.6 bps on Tuesday after a 12.5 bps gain on Monday.

The index was down 26.5 bps on the week last week.

Returns entered into negative territory for the first time since June on Nov. 15.

The CDX High Yield 30 index saw a slight decline on Thursday after a meteoric rise on Wednesday. The index was down 7 bps to close Thursday at 104.72.

The index jumped 101 bps to close Wednesday at 104.79. The index gained 15 bps on Tuesday and was up 20.12 bps on Monday after a 74 bps drop on the week last week.

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