Valeant, Targa price megadeals; Bombardier drops on plane pause; funds gain $879.5 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 15 – High-yield primary activity intensified on Thursday. A pair of big drive-by offerings priced just hours after they were announced and accounted for $2.1 billion of new bonds in two tranches.

That was more than double the $900 million of new dollar-denominated and fully junk-rated domestic or industrialized-country paper that had priced, also in two tranches, during Wednesday’s session.

Syndicate sources said that Canadian specialty drug maker Valeant Pharmaceuticals International, Inc. gave junk marketeers a $1 billion dose of eight-year notes – but that medicine apparently went down smoothly, because traders saw the new bonds having firmed solidly in aftermarket dealings.

Later in the session, Targa Resources Partners LP, a Houston-based midstream energy limited partnership, did an upsized $1.1 billion of three-year notes. There was no immediate secondary activity seen in those bonds.

Traders did see some continued aftermarket dealings, in brisk trading, in several of the issues priced a little earlier in the week, with the new bonds from Level 3 Communications, Inc. seen about unchanged, Virgin Media Inc.’s dollar paper having moved up and Ziggo Holding BV’s dollar paper moving down.

Away from the new deals, Bombardier Inc.’s bonds dropped sharply, in heavy dealings, along with the Canadian aerospace and transportation equipment manufacturer’s shares after the company said that it was delaying the rollout of one of the business jet lines it is currently testing and announced lower full-year guidance for fiscal 2014.

Statistical indicators of junk market performance turned mixed on Thursday after having been lower on Wednesday. It was the second session in the last three that those market measures have been mixed.

But another numerical gauge – flows of money into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable indicator of overall Junkbondland liquidity trends – turned higher in the latest reporting week, the first positive reading after six straight weeks on the downside.

Targa, upsized and tight

The Thursday session saw a couple of single-tranche, drive-by megadeals.

Two issuers raised a combined total of $2.1 billion, both completing deals that printed with yields in the 5% range.

One deal was upsized.

Both were tight executions that went well and came at the tight ends of talk.

Targa Resources and its subsidiary Targa Resources Partners Finance Corp. launched and priced an upsized $1.1 billion issue of non-callable three-year senior notes (Ba2/BB+) at par to yield 5%.

The debt refinancing deal was upsized from $800 million.

The yield printed at the tight end of the 5% to 5¼% yield talk. Early guidance had the deal coming together with a yield in the low 5% context.

BofA Merrill Lynch, Barclays, RBS Securities, Morgan Stanley & Co. LLC, and J.P. Morgan Securities LLC were the joint bookrunners.

Encouragement amid the chop

The buy side seemed pretty happy to take the Targa three-year paper at a 424 basis points spread to Treasuries, a debt capital markets banker recounted shortly after terms circulated late Thursday.

There is a bit of a buzz in the market that Targa – which has less exposure to the oil price crash than some of its counterparts in the energy sector, according to the source – might eventually become an investment-grade credit, the source added.

Thursday's executions provided the high-yield primary market with some encouragement, the banker asserted, but added that against the backdrop of ongoing volatility in the global capital markets it's difficult to read too much into a couple of good executions.

Big book for Valeant

Valeant Pharmaceuticals priced a $1 billion issue of eight-year senior notes (B1/B) at par to yield 5½%.

The yield printed at the tight end of the 5½% to 5 5/8% yield talk. Early yield guidance was 5½% to 5¾%.

The deal was said to have played to an $8 billion order book, according to a debt capital markets banker who saw bids of par 7/8 and 101 after Thursday's close.

Barclays was the left bookrunner.

RBC Capital Markets LLC, Deutsche Bank Securities Inc., DNB Markets Inc., HSBC Securities (USA) Inc., MUFG and Morgan Stanley were the joint bookrunners.

The specialty pharmaceutical company plans to use the proceeds to redeem its 6 7/8% senior notes due 2018, to repay all or a portion of its revolver and for general corporate purposes including acquisitions.

Euro calendar

The only junk deal on tap for Friday is the Thomas Cook Finance plc €400 million offering of senior notes due June 2021 (/B/B+). The global coordinators are Credit Suisse and Royal Bank of Scotland, and the joint bookrunners are Barclays, BNP Paribas, CM-CIC Securities, DNB, Jefferies, KBC, Lloyds, Nordea and SG CIB.

Meanwhile, the Thursday session saw a pair of roadshow announcements in the euro-denominated primary market.

Hydra Dutch Holdings 2 BV, the Netherlands-based holding company of water and coffee solutions provider Eden Springs, plans to sell up to €160 million of high-yield notes due April 15, 2019 (expected ratings B2/B) during the week ahead.

Credit Suisse is the global coordinator. Rabobank is the joint bookrunner.

And Wisconsin-based Techniplas BV plans to begin a roadshow for a €135 million offering of five-year senior secured notes on Friday.

Barclays and IKB are the physical bookrunners.

New Valeant bonds turn higher

In the secondary market, Valeant Pharmaceuticals’ new issue was seen by several traders having firmed in the aftermarket after the Montreal-based drug company’s quick-to-market issue of 5½% notes due 2023 priced at par.

One trader said that a bid range of 101 to 101½ “should cover it.”

At another desk, a trader said that the new bonds had moved as high as a 101¾-to-102 bid context when they were freed for secondary dealings, “but then they turned down after that” and were seen going home quoted at 100 7/8 bid, 101 3/8 offered.

Given the lateness of the hour at which the bonds priced, traders did not see any initial aftermarket dealings Thursday in Targa Resources Partners’ 5% notes due 2018.

Wednesday deals busy

There was busy trading in Wednesday’s offering of 5 5/8% notes due 2023 from Level 3 Financing, Inc., a funding subsidiary of the eponymous Broomfield, Colo.-based telecommunications company.

A trader said “those bonds continue to hold in there” around a 100½-to-101 context, “where they were trading all day.”

A second trader pegged them at 100 5/8 bid, 100 7/8 offered.

At another shop, a market source said that more than $29 million of the notes had changed hands, putting the issue high up on the Most Actives list, with the bonds left about unchanged on the day at 100 5/8 bid.

That was about where the $500 million quick-to-market issue had gone home after pricing at par.

Virgin up, Ziggo down

A trader said that Virgin Media Finance plc’s 5¾% notes due 2025 “traded a little better today,” having moved back up to the 101 bid level.

“They were wrapped right around there,” he declared.

A second trader said the bonds were finishing at 100¾ bid, which he called a gain of 3/8 point on the day, with more than $14 million having traded.

The company – a financing subsidiary of Virgin Media, a New York-based provider of cable, phone and internet service in the United Kingdom – had priced that $400 million of dollar-denominated notes at par on Tuesday as part of a £925 million three-part issue of 10-year secured and unsecured bonds that also included sterling- and euro-denominated tranches.

The bonds had gotten as good as a 101¼-to-101½ context in initial Tuesday aftermarket dealings but had given up much of their gains on Wednesday, when the issue finished around 100½ to 100¾ bid.

The new 5 7/8% notes due 2025 from Ziggo Holding – a Dutch cable, phone and broadband provider owned, like Virgin Media, by Liberty Global plc – eased by 1/8 point on Thursday to 100 7/8 bid, on volume of $10 million.

On Wednesday, Ziggo had priced $400 million of the notes at par as part of a €740 million two-part transaction that also included a euro-denominated piece. The new Ziggo dollar bonds had gotten as good as 101 bid in aftermarket dealings.

Bombardier gets bombed

Away from the new deals, traders said that the day’s dealings were dominated by Bombardier, whose bonds and shares slid after the Montreal-based aircraft and railroad equipment manufacturer announced a pause in the development of its new Learjet 85 medium-sized business plane, citing weaker demand for the aircraft.

That will lead to the loss of about 1,000 jobs at Learjet factories in Wichita, Kan., and in Mexico.

The company also issued lower guidance for its 2014 fiscal year ended Dec. 31 after taking a $1.4 billion fourth-quarter charge connected with Learjet.

Bombardier’s 6 1/8% notes due 2023 were easily the busiest junk issue of the day, with over $100 million of the bonds having changed hands. They plunged just under 5½ points on the day to finish at about 95¼ bid.

Its 6% notes due 2022 also lost 5 points, closing at 95 bid, with over $25 million having changed hands.

Bombardier’s Toronto Stock Exchange-traded shares nosedived by C$1.07, or 25.85%, to end at C$3.07. Volume of 64.9 million shares was almost 10 times the norm.

On a conference call announcing the suspension of the Learjet 85 program and the lowered guidance, executives said that the company expects cash flow from operating activities in its aerospace division to fall to $800 million from previous estimates of $1.4 billion to $1.6 billion.

They also said that the company had available short-term capital resources of $3.8 billion as of Dec. 31, including cash and cash equivalents of about $2.4 billion.

Market indicators turn mixed

Statistical indicators of junk market performance turned mixed on Thursday after having been lower on Wednesday. It was the second session in the last three that those market measures have been mixed.

The KDP High Yield Daily index moved up by 4 bps to close at 70.64 after having plunged by 18 bps on Wednesday. It was the index’s second gain in the past three sessions.

Its yield came in by 1 bp to 5.62% after having widened by 6 bps on Wednesday. Thursday’s narrowing was the second in the last three sessions.

However, the Markit Series 23 CDX North American High Yield index continued to stumble for a fifth straight session, dropping by 7/16 point on Thursday to finish at 104 13/16 bid, 104 7/8 offered. On Wednesday, it had eased by 1/32 point, which followed a 9/32 point downturn on Tuesday.

The Merrill Lynch U.S. High Yield Master II index posted its second gain in three sessions on Thursday, advancing by 0.097%, in contrast to Wednesday’s 0.27% loss. On Tuesday, it had inched up by 0.002%.

The gain boosted its year-to-date return figure back into the black, up a cumulative 0.023% this year. On Wednesday, the measure had slid into the red, with a 0.27% loss, although that remained less than the 0.59% cumulative loss – the biggest since October 2011 – posted last Tuesday.

The Finra/Bloomberg U.S. High Yield index volume fell to $3.99 billion on Thursday from $5.05 billion at the close on Wednesday.

Funds show gain

Another numerical gauge – flows of money into or out of high-yield mutual funds and ETFs, which are considered a reliable indicator of overall Junkbondland liquidity trends – turned higher in the latest reporting week, the first positive reading after six straight weeks on the downside.

In the week ended Wednesday, the funds showed a net gain of $879.5 million, versus the $922 million more that had left those weekly-reporting-only funds than had come into them the week before, ended Jan. 7.

That snapped a six-week losing streak dating back to early December, during which outflows had totaled $8.05 billion, according to a Prospect News analysis of the figures.

It also cut the year-to-date cumulative outflow to about $42 million from $922 million the week before. (See related story elsewhere in this issue.)

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