Primary quiet, though American Energy – Permian on tap; new AerCap keeps firming in active trading

By Paul Deckelman and Paul A. Harris

New York, Oct. 19 –The high-yield primary market opened on a quiet note on Monday, with no new issues pricing during the session.

However syndicate sources said that oil and natural gas operator American Energy – Permian Basin, LLC is expected to price a $560 million secured offering on Tuesday. However, the company’s existing paper was off on the expected structural subordination that the new deal will bring.

The sources meantime reported that price talk had surfaced on medical device company Greatbatch Ltd.’s new deal, with pricing of that $360 million unsecured offering also seen likely on Tuesday.

Among recently priced issues, AerCap Holdings NV’s new five-year notes were up solidly on busy volume for a second consecutive session following their pricing on Friday.

Valeant Pharmaceuticals International, Inc.’s bonds traded busily, seen unchanged to firmer as investors apparently ignored all of the negative noise surrounding the Canadian specialty drug manufacturer’s pricing policies and focused instead on the better quarterly profits it reported.

Statistical measures of junk market performance were higher across the board on Monday for a second consecutive session; they had turned higher on Friday, after having been mixed on Thursday and lower all around on Wednesday. Monday’s advance was its fourth in the last eight trading days.

American Energy plans deal

No deals were priced during Monday’s session in the high-yield primary market.

American Energy – Permian Basin disclosed plans to price a $560 million offering of five-year senior secured first lien notes on Tuesday.

The market awaits official price talk. However early guidance has it coming with a yield in the 9% area, a trader said.

Goldman Sachs is the left bookrunner. Jefferies and BofA Merrill Lynch are joint bookrunners.

The independent oil and gas company plans to use the proceeds to repay all borrowings currently outstanding under its revolver, the amount of which was $201 million as of Sept. 30, 2015.

Proceeds will also possibly be used to fund the remaining portion of the pending acquisition of Enduring Resources LLC.

Any additional proceeds will be used to fund drilling and completion activities, infrastructure development and for general corporate purposes.

Greatbatch talked at 8¾% to 9%

Greatbatch talked its $360 million offering of eight-year senior notes (Caa1/B-) to yield 8¾% to 9%.

Talk comes wide of the initial 8% to 8½% guidance, a trader said.

The books close at 10 a.m. ET on Tuesday and the deal is set to price after that.

Credit Suisse and KeyBanc are the joint bookrunners.

The active forward calendar finds just one other high-yield deal on the road.

Verisure Holding AB was scheduled to start a roadshow last Friday for a €700 million seven-year senior secured notes (B1/B).

The roadshow wraps up on Wednesday and the deal is set to price subsequently.

New AerCap bonds keep gaining

In the secondary market, traders saw AerCap’s new 4 7/8% notes due 2020 continuing to build on the solid initial aftermarket gains they enjoyed after pricing on Friday.

One trader pegged the notes at 101¾ bid, up about ¾ point from where he had seen them late Friday and on brisk volume – “it was right up near the top of the Trace volume list,” he said.

A second trader saw the bonds up a more conservative ¼ point on the day, finishing at 101½ bid, 101 7/8 offered.

At another desk, a market source said that the new bonds had firmed to 101¾ bid, which he called up 3/8 point on the day. Volume of over $34 million topped everything else in Junkbondland on Monday, though it was about half of the roughly $68 million that had traded up to around the 101 bid level after pricing on Friday.

The Schiphol, Netherlands-based aircraft leasing company priced the quickly shopped $1 billion issue at par after more than doubling its size from the originally announced $400 million.

The company’s existing 8¾% notes due 2017 were meanwhile seen holding steady at 107¾ bid, with more than $12 million having traded.

Fortescue notes seen lower

Away from the new issues, traders saw Fortescue Metals Group, Ltd.’s bonds off on the day.

“They were pretty active,” one said, “about ¾ point lower on commodity weakness.”

Another trader saw the company’s 9¾% notes due 2022 down more than ¾ point at 101 1/8 bid, with over $20 million having changed hands.

Yet another trader agreed that “the commodities debacle” was the catalyst for the Fortescue bonds moving lower.

He saw its 8¼% notes ending at 87 bid, 87½ offered, while its 6 7/8% notes traded in a 73 to 75 bid context.

Valeant up despite troubles

Valeant Pharmaceuticals “was a busy name, with earnings out and headline news” about the Laval, Quebec-based specialty drug manufacturer’s decision to change its corporate strategy, a trader said.

However, he characterized its bonds as “relatively unchanged.”

At another desk, a trader saw Valeant’s 6 1/8% notes due 2025 trading between 96 and 96¼ bid.

“Ninety six was where they were trading this morning and where they are now.”

A market source saw those bonds up 1/8 point at 96 bid, with over $16 million traded.

He saw over $18 million of its 5 7/8% notes due 2023 move up more than ½ point to 96¼ bid, while its 7½% notes due 2021 gained 5/8 point on the day, with over $11 million had changed hands.

Valeant’s bonds and its New York Stock Exchange-traded shares were gyrating around last week on the news that federal prosecutors had issued subpoenas demanding documents relating to the company’s drug-pricing policies, distribution methods and its programs for helping patients unable to afford its medications.

Some analysts questioned the viability of the company’s business strategy of buying other companies and then greatly raising the prices on the popular drugs that it inherited

The acquisition-minded company’s chief executive officer, J. Michael Pearson, said on the conference call with analysts following the release of third-quarter earnings that Valeant would shift away from its previous strategy of buying companies having what Pearson called “mispriced” drugs that Valeant would then sharply raise the price of; now, he said, he does not anticipate the company raising prices on any one drug by more than 10%.

During the third quarter, Valeant earned $49.5 million, well down from a year ago.

However, its adjusted earnings per share of $2.74 beat analysts’ expectations of around $2.70 per share of profit. Revenues of $2.787 billion were in line with the forecasts.

Valeant issued updated guidance, projecting that fourth quarter earnings would come in between $4 and $4.20 per share, while full-year earnings are expected to come in at $11.67 and $11.87 per share.

It also predicted a fourth-quarter revenue pickup of $3.25 billion to $3.45 billion, with full year revenues projected at $11 billion to $11.2 billion.

However, Valeant’s rosy promises failed to impress the company’s stockholders – its shares plunged by $13.73, or 7.73%, to close at $163.83, on volume of some 9.9 million shares, almost triple the norm.

Indicators remain higher

A secondary market trader characterized Monday’s session as “kind of a quiet day”

However, statistical measures of junk market performance were higher across the board on Monday for a second consecutive session; they had turned higher on Friday, after having been mixed on Thursday and lower all around on Wednesday. Monday’s advance was its fourth in the last eight trading days.

The KDP High Yield Daily Index put up its second successive gain on Monday after having turned higher on Friday; which followed two straight losses on Wednesday and Thursday. It rose by 9 basis points on Monday to end at 67.44. It was the index’s eighth gain in the last 10 sessions and its ninth in the last 12 trading days. On Friday, it had jumped 24 bps.

Its yield came in by 3 bps to close at 6.47%, after having tightened by 10 bps on Friday. It was the yield’s second straight narrowing, its eighth tightening in the last 10 sessions and its ninth in the last 13.

The Markit Series 25 CDX North American High Yield Index posted its third straight gain on Monday, rising by 3/8 point for a second session in a row to end at 102 13/16 bid, 102 7/8 offered. It was the fifth higher finish in the last nine sessions.

The Merrill Lynch North American Master II High Yield Index notched its second straight gain on Monday, having also risen on Friday after three straight losses before that. It advanced by 0.11%, on top of Friday’s 0.278% upturn.

Monday’s rise was also its eighth in the last 11 sessions and its ninth such improvement in the last 13 trading days.

It cut the index’s year-to-date deficit to 0.273% from Friday’s 0.382% loss. Those cumulative loss figures remained well down from the 3.069% year-to-date loss seen on Oct. 2 – the most red ink for the year so far and the index’s lowest level since Oct. 5, 2011, when the market measure had shown a 3.834% year-to-date deficit.

© 2015 Prospect News.
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