Upsized Level 3, other drive-bys pace $2.5 billion session; Windstream busy on REIT plan

By Paul Deckelman and Paul A. Harris

New York, July 29 – After a sleepy Monday, the high-yield primary sphere caught fire on Tuesday, led by a parade of opportunistically timed and quickly shopped offerings, syndicate sources said.

By the time the dust settled, some $2.5 billion of new dollar-denominated, fully junk-rated paper had priced in six tranches – all drive-bys but for one smallish deal. That was more than 10 times the volume that had been recorded on Monday, when only two deals, totaling $223 million of proceeds, had gotten done.

Tuesday’s big deal was an upsized $1 billion offering of eight-year notes from Level 3 Communications, Inc. via a funding subsidiary. But despite brisk aftermarket volume, the Broomfield, Colo.-based fiber-optic telecommunications provider’s megadeal failed to generate much investor enthusiasm, trading a little below its issue price.

King of Prussia, Pa.-based hospital operator Universal Health Services, Inc. did a two-part, $600 million offering of five-year and eight-year notes.

Ladder Capital Finance Corp., a New York-based commercial lender, brought an upsized $300 million issue of seven-year notes to market via a financing subsidiary.

Out of the energy patch, Pittsburgh-based oil and natural gas operator Consol Energy Inc. did an upsized $250 million add-on to its existing 2022 notes, while Oklahoma City-based oilfield services provider Compressco Partners, LP priced $350 million of eight-year notes. That latter deal was the session’s sole transaction that had been marketed via a roadshow process rather than as a same-day offering.

Consol’s offering was quoted slightly above its issue price. Other than Level 3 and Consol, the day’s other pricings were not seen in the aftermarket.

Away from the new issues, there was a fair amount of activity Tuesday in Windstream Corp.’s bonds after the telecommunications company announced plans to spin off some of its assets in the form of a real estate investment trust and to cut its more than $8 billion debt load by over $3 billion.

Radiation Therapy Services Inc.’s bonds were better after the health-care company now known as 21st Century Oncology Holdings, Inc. reached agreements with its noteholders on support for a recapitalization plan.

Statistical market performance indicators were down across the board for a third consecutive session on Tuesday.

Level 3 upsizes to $1 billion

A busy Tuesday session in the primary market saw $2.5 billion of proceeds raised in six tranches from five different issuers.

Three of the six tranches were upsized.

Five of the six came as drive-bys.

Level 3 Escrow II, Inc. priced an upsized $1 billion issue of eight-year senior notes (B3/B/BB) at par to yield 5 3/8%.

The quick-to-market deal, which was upsized from $600 million, priced on top of yield talk.

Citigroup was the left bookrunner. BofA Merrill Lynch, Morgan Stanley, Barclays, Goldman Sachs, Jeffries and J.P. Morgan were the joint bookrunners.

The Broomfield, Colo.-based provider of fiber-based communications services plans to use the proceeds to finance the cash portion of its merger consideration with tw telecom and to refinance certain tw telecom debt.

Universal Health’s two-parter

Universal Health Services priced $600 million of senior secured notes (expected ratings Ba1/BB+).

The quick-to-market debt refinancing deal came in two $300 million tranches.

A tranche of non-callable five-year notes priced at par to yield 3¾%, at the tight end of yield talk in the 3 7/8% area.

A tranche of eight-year notes priced at par to yield 4¾%, at the wide end of yield talk in the 4 5/8% area.

JPMorgan, BofA Merrill Lynch, Goldman Sachs and SunTrust were the joint bookrunners.

Compressco at a discount

In the only one of Tuesday's six tranches to have been shopped by means of an investor roadshow, Compressco Partners priced a $350 million issue of 7¼% eight-year senior notes (B2/B) at 98.508 to yield 7½%.

The yield printed at the wide end of the 7% to 7½% initial guidance, according to a buyside source.

BofA Merrill Lynch was the left bookrunner. Barclays, Credit Suisse, JPMorgan, RBC and Wells Fargo were the joint bookrunners.

Proceeds, along with $400 million expected to be raised in an equity offering and a draw on the company's revolver, will be used to fund a portion of the pending acquisition of Compressor Systems, Inc. as well as to repay borrowings, if any, under the existing revolver.

Ladder Capital upsizes drive-by

Ladder Capital Finance priced an upsized $300 million issue of seven-year senior notes (Ba3/B+/BB) at par to yield 5 7/8%.

The quick-to-market debt refinancing deal was upsized from $250 million.

The yield printed on top of yield talk.

Deutsche Bank was the left bookrunner. JPMorgan, Wells Fargo, BofA Merrill Lynch and Citigroup were the joint bookrunners.

Consol taps 5 7/8% notes

Consol Energy priced an upsized $250 million add-on to its 5 7/8% senior notes due April 15, 2022 (B1/BB) at 102.75 to yield 5.308%.

The debt refinancing deal was upsized from $200 million.

The reoffer price came at the rich end of the 102.5 to 102.75 price talk.

Goldman Sachs ran the books.

Talking the deals

Looking ahead to Wednesday's session, talk circulated on a pair of deals that are expected to price.

Mallinckrodt International Finance SA and Mallinckrodt CB LLC talked their $900 million offering of eight-year senior notes (B1/BB-) to yield 5½% to 5¾%.

Joint bookrunner Barclays will bill and deliver. Deutsche Bank, Citigroup and Wells Fargo are also joint bookrunners.

And PaperWorks Industries, Inc. upsized its offering of five-year senior secured notes (B3/B-) to $270 million from $250 million and talked the notes to price with a yield in the 9½% area.

Jefferies and Macquarie are the joint bookrunners.

Level 3 trades actively

In the secondary realm, traders saw active dealings in Level 3’s new 5 3/8% notes due 2022, although the issue traded below its par pricing level.

A trader said that when they were freed for aftermarket dealings, the telecom company’s bonds opened at par, then traded into a 99¾ bid, and quoted them left in a 99¾ to par context.

A second trader pegged the notes in a 99¾ to 99 7/8 context.

And yet another trader had them trading between 99½ and par.

One of the traders opined that he “thought it was a bad deal – it was priced too tight, it never really did well and [the underwriters] wound up stuffing people.”

Yet another market source saw the bonds going home at 99¾ bid on volume of more than $47 million.

Consol up slightly

A trader saw Consol Energy’s add-on to its 5 7/8% notes at 102 7/8 bid, 103 3/8 offered, a little above its 102.75 issue price.

A second trader, though, noted that those bonds had been trading as high as 104¼ bid as recently as a week ago and called the 102 7/8 level down about 1 1/8 from those recent highs.

And a third saw no trace of the new bonds in the aftermarket.

Consol’s existing 8¼% notes due 2020 gained ¼ point to end at 107¼ bid.

Traders saw no immediate aftermarket dealings from Tuesday’s other issuers: Universal Health Services, Ladder Capital Finance Holdings LLLP or Compressco Partners, LP.

Monday deals unseen

Among the issue priced in recent days, traders saw no aftermarket dealings in the two quickly shopped and downsized add-on deals that priced on Monday – the $175 million of 9¼% notes due March 1, 2021 from Harland Clarke Holdings Corp., a San Antonio-based check printer and producer of credit, debit and ATM cards, and the $45 million 7½% notes due Feb. 15 2019 from Unifrax I LLC, a Niagara, N Y.-based supplier of high-temperature insulation products.

Harland Clarke’s notes priced at 101 to yield 9.014% after the deal was reduced in size from its original $200 million. Unifrax’s notes priced at 102 to yield 6.976% after the issue was downsized from $50 million originally.

Micron stays busy

Last week’s offering of new 5½% notes due Feb. 1, 2025 from Micron Technology, Inc. remained one of the most active high-yield issues on the day, a market source said.

He saw over $21 million of the notes changing hands, putting them well up on the Most Actives list. He quoted them at 100¼ bid, down 1/8 point.

Micron, a Boise, Idaho-based semiconductor manufacturer, priced $1.15 billion of the notes last Wednesday at par after the quick-to-market issue was sharply upsized form an originally announced $750 million.

Windstream active on REIT news

Away from the new deals, Windstream’s notes were among the busiest issues of the day, with volume levels given a boost by the news that the Little Rock, Ark.-based telecommunications company plans to spin off its copper-wire and fiber-optic networks, real estate and other assets into a new real estate investment trust, a transaction that is expected to close early next year.

Windstream executives said on a conference call Tuesday that the transaction would be “modestly credit-positive,” with the company poised to shed $3.2 billion of its more than $8 billion of total debt, bringing its leverage ratio of debt as a multiple of OIBDA (operating income before depreciation and amortization) down to 3.3 times from 3.8 times currently, with an eventual target level of 3.0 times (see related article elsewhere in this issue).

A trader said that the company’s 7½% notes due 2023 and its 6 3/8% notes due 2023 “ranked Numbers 3 and 4” on the Trace volume rankings. “They were two of the more active issues, as guys figured they were going to get taken out of that debt – the guys that play that kind of paper for a potential call or tender. They were all over that one.”

A second trader said that he had seen “a few pieces of their structure trading in the Street – but there was no order flow from this desk.”

A market source saw over $32 million of the 7½% notes trading around 107 bid but said that seemed about unchanged.

He also saw more than $28 million of the 6 3/8% notes in play, quoting them at 99 11/16 bid, up 3/16. Its 7¾% notes due 2022 were quoted at 108 7/16 bid, unchanged.

One of the traders noted that besides the activity in Windstream, there was some action in such Windstream sector peers as Frontier Communications Corp. and CenturyLink Inc., because investors “were expecting all of these to do the same thing” by unlocking value via a REIT conversion transaction, coupled with deleveraging.

21st Oncology boosted

Elsewhere, a group of 21st Century Oncology noteholders has agreed to a plan to reduce the company debt as well as provide additional liquidity, the company said in a regulatory filing on Tuesday.

On the news, the company’s 9 7/8% notes due 2017 were “up smartly,” gaining “almost 5 points” to end around 78, according to a trader.

Another market source placed the 9 7/8% notes at 78 as well, also deeming that up about 5 points. Over $12 million of the notes traded.

As for the 8 7/8% notes due 2017, those closed at 101 3/8 bid, 101 5/8 offered, according to the source. That compared to 96 3/8 bid, 96½ offered previously. Over $26 million changed hands.

A group of ad hoc noteholders agreed to support a plan that would require the Fort Myers, Fla.-based provider of radiation therapy to seek an additional liquidity – either through an equity infusion or through the sale of subordinated debt – by Oct. 1. Alternatively, the company can also look to recapitalize its debt, which it might have to do if it cannot find additional capital by Aug. 31, according to the agreement.

If a recapitalization occurs, subordinated noteholders would receive 95% of new equity in the reorganized company, while existing stockholders would get the remaining 5%.

Stockholders would also receive warrants for another 10% of the equity.

Certain members of the noteholder group consented to provide additional funding in the interim. That funding will consist of an $8.5 million tranche A term loan, to be used for working capital and general corporate purposes, and a $9 million tranche B term loan, which will be used to fund purchases of equipment needed to conduct business.

Market holds its own

A trader said that overall, Tuesday’s session was characterized by “more of the same,” as has recently been seen in Junkbondland – “people trying to talk the market lower, or screaming that ‘the sky is falling.’”

He said that he had told someone during the session that “yeah, the market must be in pretty [crummy] – shape – we’re only going to price more than $2 billion today.”

Market indicators down again

Statistical indicators of junk market performance were lower across the board for a third consecutive session on Tuesday; they had fallen on Friday and again on Monday, after having been mixed on Thursday and higher on Wednesday.

The KDP High Yield Daily index lost 9 basis points on Tuesday to end at 73.90, its weakest level of the year so far and its lowest level since Oct. 17, 2013, when it closed at 73.83. It was the third straight loss for the index, which also went down by 6 bps on Monday and 4 bps on Friday after having been unchanged on Thursday.

Its yield rose by 3 bps to 5.27%, its second straight widening out; it had also been up by 2 bps on Monday.

The Markit CDX Series 22 index posted its fourth straight loss, falling by 1/16 point on Tuesday to 107½ bid, 107 5/8 offered. That followed a 3/32 point dip on Monday.

The widely followed Merrill Lynch High Yield Master II index lost ground for a third straight session on Tuesday, having also turned lower on Friday and again on Monday after three gains in a row through Thursday before that. It went down by 0.097%, on top of Monday’s 0.009% loss and Friday’s 0.038% dip.

Tuesday’s downturn dropped the index’s year-to-date return to 5.064% from Monday’s 5.166%, and it remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

Stephanie N. Rotondo contributed to this review.

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