Sabra Health REIT brings add-on deal; new Zebra bonds jump in heavy trading; McClatchy better

By Paul Deckelman and Paul A. Harris

New York, Oct. 1 – The high-yield market opened the year’s fourth and final quarter on Wednesday on a relatively quiet note, with just one smallish deal heard by syndicate sources to have come to market – a quickly shopped $150 million add-on from financing subsidiaries of Sabra Health Care REIT, Inc. to the Irvine, Calif.-based company’s existing 2021 notes.

That deal arrived too late in the session for any kind of secondary dealings.

But there was more than enough aftermarket action to go around from the big deal priced on Tuesday: Zebra Technologies Corp.’s downsized $1.05 billion of new eight-year notes. Traders said the notes were up several points from their issue price, with well over $100 million having changed hands.

Recently priced deals from the likes of Alcoa, Inc., AerCap Holdings NV, Burger King Worldwide, Inc. and WhiteWave Foods Co. were also seen trading actively.

Other than the issues that have already priced, new-deal players were anticipating Halyard Health, Inc.’s $250 million offering of eight-year paper, with pricing possible after order books are closed on Thursday.

Away from the primaryside, traders said that the McClatchy Co.’s bonds firmed in busy dealings after it closed on an asset sale that will bring the publishing and digital media more than $400 million of after-tax proceeds.

The overall market was seen relatively firm, this despite a selloff in equities.

But participants were speculating that fund-flow numbers due on Thursday – a gauge of junk market liquidity trends – will likely be negative, given the flood of redemptions hitting investment fund behemoth Pimco this week following the unexpected resignation of its key bond strategist, company co-founder Bill Gross.

Statistical indicators of junk market performance were higher across the board for a second straight session on Wednesday, after having been lower over the previous three sessions and in five sessions out of the previous six.

Sabra at the rich end

Sabra Health Care LP and Sabra Capital Corp. priced Wednesday's only deal, a $150 million add-on to their 5½% senior notes due Feb. 1, 2021 (Ba3/BB-), which came at 99.5 to yield 5.593%, at the rich end of the 99 to 99.5 price talk.

The existing 5½% notes were trading at 101 bid, so the add-on came at a concession, according to market sources.

Wells Fargo was the left bookrunner for the debt refinancing. Credit Agricole and Citigroup were the joint bookrunners.

Halyard talk 6¼% area

Looking to Thursday's session, Halyard Health talked its $250 million offering of eight-year senior notes (B2/B+) to yield in the 6¼% area.

Official talk comes slightly wide of early guidance of 6% to 6 1/8%, according to a bond trader.

Books close at 12:30 p.m. ET on Thursday.

Morgan Stanley, Citigroup, Deutsche Bank and RBC Capital are the joint bookrunners.

The deal is part of the financing for Kimberly-Clark Corp.’s spinoff of its Halyard Health subsidiary.

DryShips secured notes

Athens-based DryShips Inc. is expected to price $500 million of senior secured notes due in 2017 before the end of the present week, according to a market source.

Sterne Agee is the bookrunner for the debt refinancing. DNB and Cowen are the co-managers.

Sabra not seen

In the secondary market, traders said that they did not yet seen any dealings in the new Sabra Health Care 5½% notes due 2021, given the relatively late hour at which the health care facilities owner’s deal came to market.

However, one said that on Wednesday morning – well before the pricing – he saw the existing notes trading as high as 102¼ bid.

A second market source pegged the existing bonds a little later in the day around 100½ bid, which he said was down 1¾ points from its previous levels above 102.

A Zebra stampede

Tuesday’s megadeal from Zebra Technologies was clearly the star of the secondary market on Wednesday. A trader said that more than $125 million of those notes traded, making Zebra easily the busiest name in Junkbondland.

Several traders saw closing levels above 102 bid.

A second trader said the issue “was wrapped around 102,” with some other market participants seeing the bonds having gotten as good as 102 ½.

The Lincolnshire, Ill.-based printing technologies company priced $1.05 billion of the notes at par on Tuesday, after the deal was downsized from $1.25 billion originally.

The $200 million difference was shifted to the company’s concurrently shopped new term loan facility.

Recent names hanging in

Among other recently priced issues, a trader saw Alcoa’s 5 1/8% notes due 2024 up by 7/8 of a point, at 101¼ bid.

That gain came on the heels of Tuesday’s 3/16 of a point advance.

Over $14 million of the notes traded on Wednesday, on top of Tuesday’s over $25 million of turnover.

The Pittsburgh-based aluminum products manufacturer had come to market with a split-rated (Ba1/BBB-/BB+) $1.25 billion offering on Sept. 17, pricing those bonds at par.

Amsterdam-based commercial aircraft leasing company AerCap Holdings’ new 5% notes due 2021 gained 3/8 of a point on the session to end at 100¼ bid, with over $14 million having changed hands.

The company priced $800 million of the notes at par on Sept. 24, after dropping plans for a tranche of five-year bonds.

Miami-based fast-food giant Burger King Worldwide’s 6% senior secured second-lien notes due 2022 eased by ¼ of a point on Wednesday, a trader said, ending at 99 3/8 bid. More than $11 million of the notes traded.

Burger King had priced $2.25 billion of those notes at par last Wednesday.

WhiteWave Foods’ 5 3/8% notes due 2022 were seen about unchanged at 101¼ bid, on volume of more than $11 million.

The Denver-based consumer packaged food and beverage producer’s $500 million issue had priced at par on Sept 12, after it was upsized from $350 million.

Traders saw little activity in the new iHeart Communications Inc. 9% priority guarantee notes due 2022. They were up by ½ of a point to 99¾ bid, but only on a handful of large-sized trades.

However, there was activity in its established bonds, with its 14% notes due 2021 up 1 point at 93 bid, with over $14 million traded, and its 10% notes due 2018 up 1 5/8 points, to 85¾ bid, with over $17 million traded.

The San Antonio, Texas-based broadcaster and outdoor advertising company had priced $250 million of the 9% notes at 101 last Monday to yield 8.778% as an add-on to the $750 million of those notes that the company had come to market with just weeks earlier.

At that point, it was still known as Clear Channel Communications Inc. prior to its official name change to iHeart.

McClatchy moves up

Away from the new deals, McClatchy’s 9% notes due 2022 were seen by a market source 11 /16 of a point higher, at 109 bid, with more than $18 million traded.

A second trader saw them “definitely up by 1 point or a little more” at that 109 level.

The Sacramento, Calif.-based newspaper publisher and online web page operator’s bonds rose as the company announced that it had closed on its sale of its 25.6% stake in Classified Ventures LLC, which operates the online Automotive shopping website Cars.com, to Gannett Co. for $631.8 million.

McClatchy’s net proceeds from the sale will come to about $408 million. Classified Ventures’ several other owners also sold their stakes in the company to Gannett.

Junk holds its own

A trader who had been off the past few sessions said that he was “just back from vacation and [...] what an ugly greeting,” referring to the plunge in equities.

A second trader, though, suggested, “In general, the secondary held in very well, despite the big sell-off in equities. Our market remained relatively firm, with some things up ¼, others unchanged or down ¼. Given the weakness elsewhere, high yield had a bid under it.”

Waiting for fund flows

Market participants were speculating about what this week’s fund-flow numbers – considered a reliable gauge of overall junk market liquidity trends – would show when they are released on Thursday.

Last Thursday, AMG Data Services, the Arcata, Calif.-based division of Thomson Reuters Corp.’s Lipper analytics unit, reported a $528.2 million net inflow to the domestic, weekly reporting-only managed mutual funds and exchange-traded funds that it tracks during the week ended Sept. 24.

The marked the first such inflow seen after three straight weeks of outflows before that totaling some $2.15 billion, according to a Prospect News analysis of the figures.

Meanwhile, rival fund-tracking service EPFR Global of Cambridge, Mass., whose methodology differs somewhat from AMG/Lipper in that its fund universe includes many funds domiciled outside of the United States, reported a $179 million net outflow – its fourth consecutive weekly cash loss – with global high-yield funds accounting for most of the downturn.

After Friday’s surprise announcement that Pimco co-founder and longtime chief investment officer Bill Gross had resigned from the company amid mounting redemptions from its funds – redemptions which only accelerated once the news hit the markets – some news accounts even floated the theory that the legendary bond king had resigned his powerful post and had jumped ship to join considerably smaller competitor Janus Capital Group to avoid being fired because of the Pimco funds’ recent performance downturn.

The news of the sudden shakeup roiled the capital markets over the next few sessions.

A junk trader opined earlier in the week that while he had not heard any firm estimates from anyone on what Thursday’s fund-flow numbers might show, “I am assuming that if Pimco is seeing [increased] redemptions, then we’ll probably see money flowing out.”

In the wake of Gross’ departure, investors reportedly pulled more than $10 billion out various types of funds run by the Newport Beach, Calif.-based company, with manages more than $2 trillion of assets.

“The fund flows will be interesting,” another trader said. “They probably will be negative, with all of the money coming out of Pimco.”

He noted that during the month of September, prior to Gross’ departure and in the wake of that announcement, Pimco’s funds had seen total outflows for the month of $23.5 billion, “much of that in the last week.”

While acknowledging that Pimco operates a broad range of funds, he theorized that “even if high yield only makes up 10% of the funds they manage, that would still be $2.3 billion out in that time” from its junk funds.

“We could see a very large outflow number.”

Up for grabs

Gross’ sudden exit from the very firm he helped to found back in 1971 and had led for so many years has touched off a mad scramble in the investment world. Rival equity and fixed-income fund operators are taking advantage of the turmoil caused by the news to pitch Pimco’s customers on pulling their money out of that company’s funds and bringing it over to them.

Wednesday’s Wall Street Journal reported that with literally many billions of dollars of invested money potentially up for grabs, Pimco’s top executives have been reaching out to its clients and to the financial advisers who recommend investment choices to them, even personally working the phones to try and convince them to spurn the opportunistic sales pitches from its competitors and leave their money where it is.

They’ve met with financial advisers affiliated with large firms, such as Merrill Lynch and Morgan Stanley, which recommend investment funds to their clients, attempting to demonstrate to them that even with Gross gone, Pimco’s deep bench of analysts and money managers could still do a better job of protecting and growing their clients’ investments.

Indicators hold gains

Statistical indicators of junk market performance were seen higher across the board for a second consecutive session on Wednesday after having been lower over the previous three sessions and in five sessions out of the previous six.

The KDP High Yield Daily index gained 14 basis points to finish at 74.97, on top of Tuesday’s 20 bps rise – its first after six consecutive sessions before that on the downside.

The yield came in by 4 bps, to 5.72, following Tuesday’s 7 bps narrowing, its first after five straight sessions during which it had widened out.

The Markit CDX Series 22 index edged up by 1/32 of a point on Wednesday to close at 105 15/16 bid, 106 1/16 offered. On Tuesday, it had gained 9/16 of a point, breaking a three-session losing streak before that, to end at 105 29/32 bid, 106 offered.

On Monday, the index had lost 17/32 of a point, its third downturn in a row.

The widely followed Merrill Lynch High Yield Master II index advanced for a second session in a row on Wednesday, by 0.159%, which followed Tuesday’s 0.377% improvement, its first following six straight sessions on the downside before that.

The latest gain lifted its year-to-date return to 3.772% from 3.607% on Tuesday. However, the cumulative return remained well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed due to the Labor Day holiday break.

© 2015 Prospect News.
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