Quality Care, Vertiv price to top off $3 billion week, new issues firmer; Steak n Shake gone

By Paul Deckelman and Paul A. Harris

New York, Sept. 30 – The high-yield market closed out the week on Friday – as well as the month of September and the calendar third quarter – by pricing a pair of new issues.

Both transactions were regularly scheduled forward calendar offerings.

Quality Care Properties Inc., a healthcare services provider, priced $750 million seven-year secured notes.

And Vertiv, which provides hardware and services to the data centers and telecommunications industries, came to market with a tranche of eight-year notes, also sized at $750 million.

But another prospective new deal that had been expected to price at the end of this week – a $400 million seven-year secured note issue from restaurant chain operator Steak n Shake, Inc. – is no longer on the Junkbondland menu, according to a regulatory filing by the company.

In the secondary arena, traders said that the new Quality Care bonds firmed smartly from their par issue price once the issue hit the aftermarket.

They also saw improved levels on other new deals that priced during the week, from issuers such as Crescent Communities, LLC, inVentiv Health, Inc. and Mohegan Tribal Gaming Authority.

Statistical market performance measures were trending higher on Friday after being mixed on Thursday. It was the indicators’ second upside session in the last three trading days.

For the week, the indicators were higher versus where they had been last week, their second consecutive stronger week, after being all around on a Friday-to-Friday basis for two weeks in a row before that.

Vertiv at the wide end

The junk bond new issue market saw $1.5 billion of issuance come in two tranches from two issuers on Friday.

Both deals came at the conclusions of roadshows.

One priced in the middle of talk and one at the wide end, as sources characterized the Friday session as a bifurcated one, which saw the fortunes of the junk market sag early, then rise on the expectation that Deutsche Bank would settle with the U.S. Justice Department for $5.4 billion instead of the previously expected $14 billion amount.

Vertiv (Cortes NP Acquisition Corp.) priced a $750 million issue of eight-year senior notes (B3/B) at par to yield 9¼%.

The yield printed at the wide end of the 9% to 9¼% yield talk. Initial guidance had the notes pricing with a high 7% to 8% yield, sources said.

There were also covenant changes.

BofA Merrill Lynch, J.P. Morgan, Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley were the bookrunners for the acquisition financing.

Quality Care second-lien deal

Quality Care Properties priced a $750 million issue of seven-year senior secured second-lien notes (B3/BB-) at par to yield 8 1/8%.

The yield printed in the middle of the 8% to 8¼% yield talk.

Morgan Stanley, Barclays and Deutsche Bank were the joint bookrunners.

The Irvine, Calif.-based health care services provider plans to use the proceeds for general corporate purposes, including the purchase of equity interests in a subsidiary of HCP Inc. that owns, indirectly, the spinoff assets, and the repayment costs in connection with the spinoff of HCP’s HCR ManorCare portfolio of skilled nursing and assisted living assets, as well as certain other assets, into an independent, publicly traded real estate investment trust.

Lions Gate starts Monday

Lions Gate Entertainment Corp. plans to start a full roadshow on Monday for a $520 million offering of eight-year senior notes (expected ratings B2/B-), according to a bond trader.

Initial guidance has the deal coming with a 6¼% yield.

The acquisition deal is expected to price on Oct. 12.

J.P. Morgan, BofA Merrill Lynch, Deutsche Bank, Credit Suisse, RBC, Barclays, BNP, MUFG and SunTrust are the joint bookrunners.

Looking to the Oct. 3 week, new issue activity could be somewhat subdued by factors including the upcoming Jewish holidays, sources say.

Alliance One International is on the road with $275 million, expected to price in the week ahead.

Also on the road is CBS Corp. with $460 million.

Virgin Australia Holdings Ltd. plans to sell a to-be-determined amount of five-year senior notes in the week ahead.

And Confie is in the market with $350 million of six-year senior notes. That deal had been expected to price on Friday. However no terms were available at press time.

Steak n Shake pulls deal

Steak n Shake, Inc. withdrew its $400 million offering of seven-year senior secured notes (B2/B-) on Friday.

The deal, which was in the market via bookrunner Jefferies LLC, had been talked to yield in the 8½% area.

Proceeds were to have been used to repay the existing senior secured credit facility in full and to make a cash distribution of $230 million to the parent, Biglari Holdings, Inc.

Word in the market was that a sufficient book never came together. In response the company elected to cut the dividend and lower the deal size to $370 million.

However in the end the San Antonio-based burger chain did not cross the finish line.

DEA at the wide end

Friday action in the European primary market included DEA Deutsche Erdoel AG (/BB-/BB), which priced a €400 million issue of six-year senior notes at par to yield 7½%.

The yield printed at the wide end of the 7¼% to 7½% yield talk.

Deutsche Bank ran the books on the debt refinancing.

Sarens taps 5 1/8% notes

Sarens Bestuur NV priced a €125 million add-on to its 5 1/8% senior notes due Feb. 5, 2022 (BB-) at 98.5 to yield 5.525%.

The reoffer price came at the cheap end of the 98.5 to 99.5 price talk.

ING, BNP Paribas and Degroof Petercam NV were the joint bookrunners.

The Wolvertem, Belgium-based provider of heavy lifting and specialized transport equipment plans to use the proceeds to refinance debt, including its subordinated bonds due December 2016, as well as to repay its revolver and short-term borrowings, and for general corporate purposes.

The Sarens deal was oversubscribed and went well despite investor nervousness surrounding the European banking system, especially in Germany, according to a source close to the Sarens deal.

Global University taps 8s

Global University Systems BV priced a £77.3 million add-on to the Lake Bridge International plc 8% senior secured notes due July 23, 2020 (B3/B+) at 97.

The reoffer price came on top of price talk.

Goldman Sachs ran the books.

The Amsterdam-based private higher education provider plans to use the proceeds to fund its 2016 acquisitions, including Arden University Ltd. and I.B.A.T. Ltd, and to repay amounts drawn under its bridge facility.

Thursday inflows

Cash flows for dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw a very healthy $399 million of inflows on the day.

Actively managed funds saw $160 million of inflows on Thursday.

Dedicated bank loan funds saw $130 million of inflows on the day.

Week’s issuance off

Friday’s two new deals brought the amount of new U.S.-dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers which priced this week up to $3.18 billion in six tranches, according to data compiled by Prospect News.

That was down from the $4.70 billion which had come to market in 10 tranches last week, ended Sept. 23, and well down from the $9.85 billion which had gotten done in 12 tranches the week before that, ended Sept. 16.

This week’s new deals brought the year-to-date issuance total up to $178.32 billion in 269 tranches.

That was running 20.7% behind the new-deal pace seen at this time last year, when $224.96 billion had priced in 354 tranches by this point on the calendar, the Prospect News data indicated.

That was a slight widening from the 20.2% gap between this year’s and last year’s issuance which had been seen last week.

Quality Care notes rise

Among specific issues, traders said that the new Quality Care Properties 8 1/8% senior secured second-lien notes were doing well once they were freed for secondary dealings, “up almost 2 points,” one of them said.

He saw the issue trading at bid levels between 101½ and 101¾, well up from its par issue price, with the last trades that he saw going off at around 101¾.

A second trader said that during the time they traded the bonds moved from 100¾ bid at the break up to 102, and “were all over the place” between 101½ and 101¾ bid.

He said that more than $36 million of the new notes changed hands.

On the other hand, traders did not report any immediate initial aftermarket dealings in Columbus, Ohio-based telecom equipment and services provider Vertiv’s new 9¼% notes due 2024, which priced at par late in the session.

Recent deals doing better

Among the new issues that came to market on Thursday, traders said that Crescent Communities’ new 8 7/8% senior secured notes due 2021 had moved up to 101¼ bid, better by about 1/8 to ¼ point from their closing levels on Thursday, when the Charlotte, N.C.-based real estate developer’s $400 million issue had priced at par.

More than $20 million of the notes changed hands.

The traders said that Mohegan Tribal Gaming’s 7 7/8% notes due 2024 gained nearly ½ point to end at 100 1/8 bid on volume of more than $14 million. The Uncasville, Conn.-based gaming operator priced $500 million of the notes at 99.271 on Thursday to yield 8%.

And inVentiv’s 7½% notes due 2024 were seen about unchanged on the day at 102 bid, still well up from the par level at which the Burlington, Mass.-based provider of clinical and commercial services to the healthcare industry had priced its $675 million issue after it was downsized from $720 million originally.

Overall market firm

Overall, a trader said, “obviously we saw some weakness yesterday with the Deutsche Bank news,” with reports that some of the big European bank’s credit derivatives counterparties were concerned about its capital adequacy.

But he said that on Friday, “there were rumors that a deal was getting cut” that would result in the bank having to pay lower fines to the U.S. Justice Department than originally feared, “although nothing was really official. Equities firmed up a couple of hundred points on the back of that and we kind of firmed a little bit off that as well.”

He also said that “energy in general had a pretty good week, with OPEC reaching their so-called production cut agreement. We’ll see if that happens. But that definitely spurred that space a little bit, so we saw it firmer.”

Indicators turn better

Statistical market performance measures were trending higher on Friday, after having turned mixed on Thursday. It was the indicators’ second upside session in the last three trading days.

For the week, the indicators were higher versus where they had been last week. It was their second consecutive stronger week, after having been lower all around on a Friday-to-Friday basis for two weeks in a row before that.

The KDP High Yield Index gained 4 basis points on Friday to end at 70.86, its 10th straight gain after six consecutive losses. On Thursday, the index had jumped by 13 bps.

Its yield came in by 2 bps to end at 5.22% after having come in by 3 bps each on Wednesday and Thursday. Friday was its seventh narrowing in the last nine sessions.

Friday’s levels compared favorably with the 70.58 index reading and 5.28% yield at which the index had ended last Friday.

The Markit Series 27 CDX Index finished up more than 9/16 point on Friday at 104 3/8 bid, 104 13/32 offered, rebounding from its loss Thursday of more than 7/16 point. It was the second rise in the last three sessions.

Markit this week “rolled” its index into a new series utilizing a slightly different roster of company CDS contracts followed, which is routinely done twice a year, in late March and late September, so this week’s index is not directly comparable to last week, when the Series 26 index closed at 104 5/8 bid, 104 21/32 offered, up from 103 21/32 bid, 103 11/16 offered the previous Friday.

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