Primary quiet to close out $6 billion week, $9.4 billion month; Thursday deals rise in heavy trading

By Paul Deckelman

New York, Oct. 30 – The month of October closed out on Friday quietly in the primary sphere, with no new deals pricing during the session according to syndicate sources – but there was certainly no shortage of activity in the secondary market for the three new deals which had priced on Thursday.

Traders saw heavy volume in the transactions which had come to market the day before from First Data Corp., Level 3 Communications, Inc. and Lennar Corp. All three moved up from their respective issue prices, particularly First Data and Level 3.

They also saw continued firm trading levels, though not too much activity, in the new deal that L Brands, Inc. brought to market earlier in the week.

With no pricings on Friday, the week closes out with $6.09 billion of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers having come to market in six tranches, a pickup in activity from last week, according to data compiled by Prospect News.

With Friday the last trading day of the month, October ends in Junkbondland with $9.44 billion having gotten done during the month – a fall-off from September’s volume levels and well down from the volume generated a year ago.

Consequently, year-to-date issuance is lagging the pace seen at this time last year by more than 16%, the data suggest.

Primaryside players heard concrete news on one deal, though not in the dollar-denominated market. British transaction processing company Worldpay Group plc announced plans to sell €400 million of seven-year notes after marketing them to investors via a roadshow during the upcoming week.

Meanwhile the syndicate sources reported no developments with the one deal on the junk forward calendar that has been shopped around lately – American Energy-Permian Basin LLC’s $560 million offering of five-year secured notes.

Away from the new-deal world, Friday saw another tumultuous session for Valeant Pharmaceuticals International, Inc.’s battered bonds, which have experienced volatile trading over the past two weeks. The bonds traded up during the early part of the session, apparently helped by the news that the embattled Canadian drugmaker will cut its ties with a controversial specialty pharmacy company that has been the focus of allegations of improper sales and accounting practices – but the bonds later gave up their gains to end little changed on the day, though on heavy volume.

Statistical measures of junk market performance were mixed for a second straight session on Friday; they had turned mixed on Thursday for the first time in a week after having been higher the previous day and lower for two sessions before that, following another higher session.

The indicators also turned mixed versus where they finished last Friday, Oct. 23, the first such mixed week following three straight weeks during which they had been higher on a Friday-to-Friday basis in each of those weeks, and three successive weeks before that during which they had been successively lower.

Quiet primary session

All told, things were quiet in the high yield primary sphere on Friday.

“There’s nothing going on in the primary,” one source declared. “Just a few deals getting lined up for next week.”

The sources reported nothing new going on with the one deal on the forward calendar that has recently been marketed but which has not yet priced – American Energy – Permian Basin’s $560 million of five year first-lien senior secured notes.

The Oklahoma City-based oil and natural gas company – an affiliate of American Energy Partners, LP, an energy company founded by former Chesapeake Energy Corp. chairman and chief executive officer Aubrey K. McClendon – began shopping its deal around to investors earlier this month, holding a conference call on Oct. 19.

The Rule 144A and Regulation S for life offering had been expected to come to market sometime last week after the conference call via left-side bookrunner Goldman Sachs & Co. and joint bookrunners Jefferies LLC and Bank of America Merrill Lynch, but did not.

This week, while no official news on the deal has been heard, sources in the market place say that there has been some tinkering going on with the offering’s covenants and a new offering statement reflecting the changes has been circulating around.

Initial guidance was in the 9% area but there was talk during the week in a 9% to 10% context.

The company plans to use the proceeds from the offering to repay all borrowings currently outstanding under its revolving credit facility – it had $201 million owing as of Sept. 30 – and possibly to fund the remaining portion of its pending Enduring Resources acquisition. Any additional proceeds would go to fund drilling and well completion activities, infrastructure development and for general corporate purposes.

Worldpay hits the road

In the sole fresh news to come out of the primary market during the session, syndicate sources said that Worldpay Group plans to sell €400 million of seven-year senior bullet notes during the coming week.

They said that the deal will be marketed to potential investors via a roadshow that will begin on Monday and run through Friday, with pricing expected after.

The offering will be brought to market via joint global coordinators Barclays Capital Inc., which will handle billing and delivery, BofA Merrill Lynch, Credit Agricole CIB and Credit Suisse, along with joint bookrunners BOC, Goldman Sachs, Lloyds Securities Inc., Medio, Mizuho Securities, RBC Capital Markets Corp., RBS Securities Inc., UBS Securities LLC and UniCredit.

The Rule 144A and Regulation S notes will be issued by a subsidiary, Worldpay Finance plc.

The London-based payments processing company plans to use the proceeds of the note offering, together with cash on hand, to fund the partial prepayment of its £600 million bullet term loan facility.

Solera, Veritas plan bonds

Back in the dollar market, sources heard that a pair of companies were embarking upon financings that will include the issuance of bonds somewhere down the line, though no deals have been formally scheduled yet, with the companies likely to first get their respective bank financings lined up before tapping the bond market.

Solera Holdings Inc. indicated in a filing with the Securities and Exchange Commission that it plans a $2.2 billion senior secured credit facility – a $1.9 billion term loan and a $300 million revolver – along with up to $2.03 billion in senior notes, backed by a commitment for a senior unsecured bridge loan.

Goldman Sachs Bank USA, Citigroup Global Markets Inc., Jefferies Finance LLC, Macquarie Capital (USA) Inc., Nomura Securities International Inc., UBS AG, KKR Corporate Lending LLC, MCS Corporate Lending LLC, Midland National Life Insurance Co., North American Co. For Life And Health Insurance, Guggenheim Private Debt Fund Note Issuer LLC, Security Benefit Life Insurance Co., NZC Guggenheim Fund LLC and Maverick Enterprises Inc. provided the debt commitment, the filing indicated

Proceeds from the financing will be used to help fund the $6.5 billion pending buyout of the San Ramon, Calif.-based provider of software and services to the automobile insurance claims processing industry.

Meanwhile Veritas Technologies Corp., a Mountain View, Calif.-based provider of storage and server management software solutions, will hold a bank meeting on Monday to launch a new U.S. dollar and euro secured credit facility; part of the financing for the planned buyout of the company by Carlyle Group from Symantec Corp. for $8 billion in cash.

The company is expected at some point to issue $500 million of secured notes and $1.775 billion of unsecured notes as part of that financing.

B of A Merrill Lynch, Morgan Stanley Senior Funding Inc., UBS, Jefferies Finance, Barclays, Citigroup, Credit Suisse and Goldman Sachs Bank USA are leading the debt.

First Data hits the aftermarket

In the secondary sphere, traders saw heavy trading in the three new issues which came to market on Thursday.

“With all of the inflows [of investor cash] that we’ve had, the market tone has improved,” one source said. “That money has to go somewhere.”

He said that First Data Corp.’s 7% notes due 2023 “were trading pretty actively,” which turned out to be an understatement. When he was told that more than $212 million of those notes had changed hand, easily topping the day’s Most Actives list, he opined that “that sounds about right – given that it’s a $3.4 billion issue, it’s going to be that active.”

He saw the bonds trading around in a 101½ to 102 bid context.

A second trader saw the bonds between 101¾ and 102¼, with the last prints up around 101 7/8 bid.

Yet another trader pegged the issue at 101 5/8 bid, 102 1/8 offered.

The Atlanta-based electronic transaction payments processor radically upsized its quick-to-market offering to $3.4 billion from an originally announced $750 million before pricing them at par on Thursday. A primary source said that the deal played to as much as $7 billion of orders, leading the company and its underwriters to super-size the deal.

While it was nowhere near the biggest junk bond issue priced so far this year, it was the largest single-tranche transaction so far, easily topping the $2.3 billion of seven-year notes that iron ore miner FMG Resources sold back in April.

The First Data bonds came to market too late in the session on Thursday to trade at that time – but more than made up for it on Friday, market participants said.

Level 3 firms busily

A trader saw Level 3’s new 5 3/8% notes due in January of 2024 “doing pretty well,” quoting them around 101 to 101¼ bid on Friday.

A second trader estimated that the bonds were in a 100 3/8 to 101 5/8 bid context, although he said that “most of the trades took place above 101.”

The final trades of the day, he said, had moved up to the 101¼ to 101 5/8 range.

The Broomfield, Colo.-based fiber-optic telecommunications network operator priced its quickly shopped $900 million of the notes at par via its Level 3 Financing, Inc. subsidiary after enlarging the deal from an originally announced $500 million. Those bonds did trade in the aftermarket later Thursday, initially firming a little and then pushing up further to around the 101 to 101½ bid level on Friday.

Discounted Lennar gains

A trader said that more than $61 million of Lennar Corp.’s 4 7/8% notes due 2023 traded between 99¼ to 100¼ bid, although he saw the last prints of the day taking place in a 99½ to 99¾ context.

A second trader said the bonds ‘did well,” moving between 99 5/8 bid and 99 7/8 offered.

The Miami-based homebuilder’s $400 million issue had priced on Thursday as a drive-by transaction at 99.169 to yield 5% after the issue was upsized from $350 million originally.

L Brands surge continues

Away from Thursday’s new issues, a trader saw Tuesday’s big deal from L Brands “trading up today,” seeing the 6 7/8% bonds due 2035 active between 104 and 104¼ bid, with over $16 million changing hands.

The Columbus, Ohio-based retailer priced $1 billion of the 2035 notes – an unusual tenor for the junk market, which usually sees no deals longer than 10 years, or sometimes maybe 12.

The bonds came at par after the offering was solidly upsized from $400 million originally and a trader saw them immediately “trading up on the break,” to around a 101 to 102 bid level.

They were seen continuing to firm to current levels on Thursday and again on Friday

Valeant gyrates, ends mixed

Away from the new deals, it was “another eventful day” for Valeant Pharmaceuticals’ debt, a trader said Friday.

Early Friday, the company announced that it would cut ties with Philidor RX Specialties LLC, the controversial specialty pharmacy company that has been linked to Valeant’s alleged improprieties.

Philidor then responded that it will shut down operations as soon as possible, consistent with applicable laws.

On the news, the bonds were active, but mixed.

A trader said that more than $314 million of the company’s various series of bonds traded Friday, including $126 million of its 6 1/8% notes due 2025.

He saw the bonds generally lower, “some ¼, some 1 point, some 2 points.”

A trader saw the 6 1/8s rising just ¼ to 85. However, he said the 5 7/8% notes due 2023 fell a shade to 85½, as the 6¾% notes due 2018 slipped ¼ point to 96¼.

At another desk, the 6 1/8s were seen to have firmed to as high as 86 bid from Thursday’s close around 83 5/8 – but at the end of the day “they traded back down” to end up only slightly around 84 bid.

Another market source placed the 7½% notes due 2021 at 91¾ bid, down over 2 points on the day.

In a news release, Valeant also said that it had informed Philidor that to the extent that managed care plans will no longer reimburse prescriptions in process, Valeant will fill them at the company’s expense.

In the third quarter, Philidor represented 6.8% of total Valeant revenue.

The move to separate itself from Philidor comes on the back of a Citron Research report that accused Valeant of fraud and brought into question dealings with Philidor, a specialty pharmacy.

For its part, Valeant has deemed Citron’s report misleading and has requested a Securities and Exchange Commission investigation.

While Valeant’s efforts to assure investors and consumers have been taken rather well, the struggle is not over.

“The fallout from this latest calamity has likely decimated for the foreseeable future all of Valeant’s foundational growth engines, including aggressive, debt-fund acquisitions and excessive pricing,” wrote Gimme Credit LLC analyst Vicki Bryan in a comment published Friday afternoon.

“Valeant’s dramatic deterioration in credit quality has now made high-yield debt formidably expensive currency as acquisition funding and now that it had become the face of drug price gouging in the public eye this dampens its ability to quickly turn expensive acquisitions into quick profit generators.”

Bryan noted that the problem is exacerbated by Valeant’s persistent flat to negative core growth.

Laval, Quebec-based Valeant’s New York Stock Exchange-traded shares plunged by $17.73, or 15.90% on Friday, ending at $93.77. Volume of 44.8 million shares was more than five times the norm.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a second straight session on Friday; they had turned mixed on Thursday for the first time in a week after having been higher the previous day and lower for two sessions before that, following another higher session.

The indicators also turned mixed versus where they finished last Friday, Oct. 23, the first such mixed week following three straight weeks during which they had been higher on a Friday-to-Friday basis and three successive weeks before that during which they had been successively lower.

The KDP High Yield Daily index saw its second loss in a row on Friday, falling by 3 basis points to end at 67.22. It had also weakened by 4 bps on Thursday after having risen by 7 bps on Wednesday to break a two-session slump.

Friday’s loss was thus its fourth in the last five sessions.

Its yield was came in by 1 bp on Friday to 6.46%, after having been unchanged on Thursday and having lessened by 8 bps on Wednesday, making Wednesday its second narrowing in the last three sessions and its third narrowing in the last six sessions.

Those levels compared unfavorably to the 67.46 index reading and 6.44% yield seen last Friday.

But the Markit Series 25 CDX North American High Yield index gained 1/8 point on Friday to close at 103 5/32 bid, 103 7/32 offered, its second rise in the last three sessions. On Thursday, it had lost 5/32 point, which followed a 5/16 point gain on Wednesday.

The index was also up versus last Friday’s 103 1/8 bid, 103 5/32 offered level.

However, the Merrill Lynch North American Master II High Yield index finished down by 0.007, its first loss after two straight advances and its third loss in the last five sessions. On Thursday, it had edged up by 0.013%.

Friday’s setback lowered the index’s year-to-date return to 0.129% from 0.136% on Thursday, although those levels, however modest, still remained well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2, which was the market measure’s lowest level since Oct. 5, 2011, when it had shown a 3.834% year-to-date deficit.

For the week, the index lost 0.089% – its first weekly loss after three straight weekly gains, including last week’s 0.062% improvement, which had lifted its year-to-date return to 0.218% from a negative cumulative reading the week before.

In the 43 weeks since the start of the year, the index has now seen gains in 23 of those weeks and losses in the other 18.

-Sara Rosenberg, Paul A. Harris and Stephanie N. Rotondo contributed to this review

© 2015 Prospect News.
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