Qorvo megadeal, Team Health close $3.7 billion week; new Team Health jumps; energy slide deepens

By Paul Deckelman and Paul A. Harris

New York, Nov. 13 – Friday the 13th it may have been, but that did not scare away a pair of issuers who brought new high-yield bond deals to market during the session, syndicate sources said.

Qorvo Inc., which provides core technologies and RF solutions for mobile, infrastructure and aerospace and defense applications, did a $1 billion two-part offering consisting of eight- and 10-year notes.

Earlier in the session, Team Health, Inc., which provides outsourced physician staffing services for hospitals, priced $545 million of eight-year notes. That latter deal shot up on heavy volume when the issue moved into the aftermarket following pricing.

The two offerings, totaling $1.55 billion, brought the week’s issuance total up to $3.67 billion of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers that came to market in eight tranches – although that was well down from the $13.94 billion in 15 tranches seen last week, ended Nov. 6 – one of the heaviest volume weeks so far this year.

The week’s new deals, in turn, raised year-to-date Junkbondland issuance to $249.47 billion in 392 tranches, running 13.7% behind the new-deal pace seen last year, when some $289.22 billion of junk bonds had priced in 540 tranches by this time on the calendar.

Back in the present day, traders saw some upside in busy dealings in the new 10.25-year notes that industrial controls manufacturer Sensata Technologies Holding NV had priced during Thursday’s session.

Away from the new issues, oil and natural gas credits like California Resources Corp. and Chesapeake Energy Corp. continued to get hammered during the session as commodity prices for energy products were again on the slide.

Statistical measures of junk market performance were lower across the board on Friday for a second straight session.

And those indicators were lower all around versus where they had performed the previous Friday for a second consecutive week.

Qorvo prices $1 billion

Two issuers priced an overall total of three dollar-denominated tranches in Friday’s market, raising a combined total of $1.55 billion.

Both issuers completed their offerings at the announced sizes and following roadshows.

One tranche priced on top of talk. The other two came well wide of talk.

Qorvo priced $1 billion of senior notes (Ba1/BB+) in two tranches.

The deal included $450 million of eight-year notes which priced at par to yield 6¾%. The yield printed 50 basis points beyond the wide end of the 6% to 6¼% yield talk, according to market sources. Early guidance was in the high 5% yield context.

Qorvo also priced $550 million of 10-year notes at par to yield 7%. The yield for this portion also printed 50 bps beyond the wide end of the 6¼% to 6½% yield talk. Early guidance was in the low 6% yield context.

BofA Merrill Lynch was the left bookrunner. Morgan Stanley, TD Securities and Wells Fargo were the joint bookrunners.

The Greensboro, N.C.-based technology company plans to use the proceeds for general corporate purposes, including share repurchases and the repayment of revolver borrowings.

Team Health oversubscribed

Team Health priced a $545 million issue of eight-year senior notes (B2/B) at par to yield 7¼%.

The yield printed on top of yield talk.

The deal was three-times oversubscribed, according to a trader who added that large orders came in at 7½%.

The acquisition financing deal, which came with yield guidance of 6¾% to 7%, began to attract a crowd as talk moved into the sevens, said the trader.

The new notes broke to 101¼ bid, 101½ offered and were at 101½ bid, 102 offered just ahead of Friday’s close, the trader said.

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

Alliance Data euro deal

In the European market, Texas-based Alliance Data Systems Corp. priced a €300 million issue of unrated eight-year senior notes at par to yield 5¼% on Friday.

The yield printed at the wide end of the 5% to 5¼% yield talk.

J.P. Morgan, BofA Merrill Lynch and Deutsche Bank were joint bookrunners.

The provider of data-driven marketing and loyalty solutions plans to use the proceeds to repay debt under its revolving credit facility and for general corporate purposes.

The week ahead

There were no new deal announcements on Friday.

The Nov. 16 week will get underway to a thin calendar.

Rackspace Hosting, Inc. has been roadshowing a $350 million offering of senior notes due January 2024 (Ba1/BB+).

The deal, via Morgan Stanley, Goldman Sachs and J.P. Morgan, is expected to price in the middle part of the week ahead.

The biggest offering on the calendar is Veritas Technologies LLC’s upsized $2,525,000,000 equivalent offering of notes in four parts.

The deal was increased from $2,275,000,000 equivalent earlier this week when the company shifted $250 million equivalent of proceeds to the secured bonds from its concurrent term loan, which it downsized to $2.21 billion from $2.46 billion.

The bond upsizing came in the two tranches of seven-year senior secured notes (B1/B+) – one each in dollars and euros – which were increased to $750 million equivalent from $500 million equivalent.

The overall size of the eight-year senior unsecured notes (Caa1/CCC+) – also coming in dollar- and euro-denominated tranches – remains unchanged at $1,775,000,000 equivalent.

Individual tranche sizes remain to be determined.

Also American Energy – Permian Basin, LLC remains in the market with a $530 million offering of five-year senior secured first-lien notes (B2/B).

The deal, which was downsized from $560 million, ran a roadshow in mid-October before undergoing covenant changes.

Earlier in the past week both Veritas and American Energy were expected to clear the market ahead of Friday’s close but were subsequently moved into the week ahead.

The Veritas deal is heard to be facing headwinds, market sources say.

With the Merrill Lynch high yield index showing a negative 1.29% year-to-date return heading into Friday’s session, the primary market is more challenging than it was a week ago, a buyside source said.

Nevertheless the new issue market is expected to continue to be open, at least during the early stages of the run-up to the extended Thanksgiving Day holiday weekend in the United States.

Negative flows on Thursday

Cash flows for dedicated high-yield bond funds were negative on Thursday, the most recent session for which data was available at press time, according to a portfolio manager.

High-yield ETFs saw $260 million of outflows on the day.

Asset managers saw $10 million of outflows.

There were also $80 million of outflows from bank loan funds on Thursday, the source added.

Of the $1.8 billion of weekly outflows reported on Thursday by Lipper-AMG, for the week to last Wednesday’s close, 70% came out of ETFs, a market source said.

Team Health trades up

In the secondary realm, traders saw busy dealings in the new Team Health, Inc. 7 ¼% notes due 2023.

“There was some trading in it,” said one market source who saw the bonds going out around 102 bid.

“It kind of legged up pretty quickly.”

A second trader pegged the new bonds in a 101 7/8-to-102 bid context, saying “it looks like they’re doing alright initially.”

At another desk, a trader had the Knoxville, Tenn.-based physician staffing company’s bonds going home at 101 7/8 bid, with over $53 million having changed hands, making it easily the busiest high yield credit on the day.

The traders said that they had not yet seen any initial aftermarket dealings in either tranche of the new Qorvo Inc. bonds, which priced later in the day than the Team Health offering had.

Sensata strengthens

A trader said that Thursday’s new deal from Sensata Technologies was finishing the day ¼ point better, seeing those 6¼% notes due in February 2026 at 100¾ bid on volume of about $19 million.

He said that on Thursday the bonds had firmed to around a 100½ bid level, with over $23 million having moved around in late dealings after the Almelo, Netherlands-based industrial technology company had priced its quickly shopped $750 million offering at par.

Sensata, another trader said, “started out around 100 3/8 to 101 early this morning but then it got firmer as the day went on.”

He saw the bonds ending around 100½ bid without.

Yet another trader, though, called the day’s activity in the credit “relatively tame,” seeing the bonds staying around the 100½ bid level.

HCA softens up

Going back a little further, one of the traders quoted HCA, Inc.’s 5 7/8% notes due February 2026 at around 100 1/8 bid.

He said that the Nashville, Tenn.-based hospital operator’s bonds “did pretty good right out of the gate” on Monday, when the $1 billion drive-by offering had priced at par and then had gotten as good as 100¾. His shop “traded a little in them” that day.

Since then, though, “they’ve come back in a little bit” to their current levels.

A second trader said that the HCA notes were down 1/8 point on the day, leaving them at 100 1/8, though on fairly active volume of over $25 million.

Another trader also saw them in that par to 100¼ bid area going home.

Energy names knocked down

Away from the new or recent deals, a trader noted that “oil got beat up again, down 1 point [i.e. $1 per barrel],” which he said helped to drag energy credits lower.

West Texas Intermediate crude for December delivery fell by $1.01 per barrel, or 2.42%, ending at $40.74.

That put a sour tone on the energy sector, including California Resources’ flagship 6% notes due 2024, which fell by 3 points on the day to 62 bid, with over $34 million of the Los Angeles-based oil and natural gas exploration and production’s bonds having traded.

“What a disaster energy is,” said a second trader, who had seen the bonds fall to 62, which he called down 4 or 5 points on the day.

He also said that a 17% slide in natural gas prices since the beginning of the year was also affecting the bonds of natural gas companies such as Chesapeake Energy, whose 6 5/8% notes due 2020 dropped by 3¼ points on the session to end at 58½ bid, on volume of $25 million.

Indicators remain weaker

Statistical measures of junk market performance were lower across the board for a second consecutive session on Friday.

Excluding Wednesday, when the market was not officially open and some indexes did not publish, Friday would be the indicators’ seventh straight loss and their eighth loss in the last 13 sessions, with several days in that stretch when the various indicators finished either higher or mixed.

Those market gauges were also down all around versus where they had finished the previous Friday for a second straight week; that follows one mixed week and three straight weeks before that on the upside.

The KDP High Yield Daily Index slid by 27 basis points on Friday to end at 66.05. It was the index’s 6th consecutive loss, following one session during which it had been unchanged and two stronger sessions before that.

On Thursday, the index had lost 33 bps.

Its yield rose by 6 bps on Friday to finish at 6.87%, its sixth straight widening after an unchanged session and seventh such gain in the last eight sessions. On Thursday, the yield had risen by 10 bps.

Those levels compare unfavorably with the 67.07 index reading and 6.56% yield seen last Friday, Nov. 6.

The Markit Series 25 CDX North American High Yield Index lost 13/32 point on Friday to end at 101¼ bid, 101 5/16 offered – its second straight loss after one unchanged session and before that, four more straight losses. On Thursday it had declined by 11/16 point.

The index was down from the 102 13/16 bid, 102 15/16 offered level seen the previous Friday.

And the Merrill Lynch North American Master II High Yield index also retreated on Friday, losing ground for a second straight session and for a seventh session in the last eight trading days.

It was down by 0.338%, on top of Thursday’s 0.468% setback.

The index’s year-to-date return slid to negative 1.621% from negative 1.287% previously, although those new year-to-date losses still do remain well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2.

For the week, the index fell by 1.40% – its third straight weekly loss. It had also fallen by 0.353% during the week ended Nov. 6.

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