High-yield market ends in ‘bloodbath’; recent new issues pressured; Valeant facing subpoena

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, Sept. 28 – One high-yield bond trader deemed the trading session “a bloodbath” on Monday.

“Everything was down 1 to 3 points, and there’s no bids,” he said. “There’s still some stuff trading, but there weren’t a lot of buyers.”

“A lot of stuff got slaughtered today,” another trader said.

The space was following the broader markets lower amid continuing economic uncertainty – both globally and domestically – as well as concerns of a looming government shutdown if a budget fight cannot be avoided.

No issues were priced during the Monday session in the primary market.

In the secondary, recently priced deals were feeling the weight of the world as the volatile marketplace pushed names like Olin Corp., Altice/Cablevision Systems Corp. and Frontier Communications Corp.

Valeant Pharmaceuticals International Inc. bonds were also being weighed on by news that Congressional Democrats are seeking a subpoena of documents related to price increases that occurred earlier this year.

But one trader noted that a fair bit of the day’s activity was centered on investment-grade names that were possibly falling into high-yield territory.

One such name was Glencore plc, whose stock hit a new low Monday amid a commodity sell-off. A trader said those bonds were off 8 to 10 points on the day.

Alcoa Inc. paper was also on that list of IG names trading into the fringes of high yield. The aluminum producer announced Monday that it plans to split itself into two companies.

As a result, those bonds were off “some 10 to 12 points,” according to a trader.

SunOpta starts offer

SunOpta Foods Inc. commenced marketing a $330 million offering of senior secured second-lien notes due 2022.

The deal is on track to price during the week of Oct. 5.

BMO, Jefferies and Rabobank are the joint bookrunners.

The Toronto-based vertically integrated food company plans to use the proceeds, together with the proceeds from a common share offering and borrowings under its existing credit facilities, to fund the acquisition of Sunrise Holdings (Delaware), Inc.

NN talk 9¼% area

NN, Inc. talked its $300 million offering of eight-year senior notes (Caa1/B) to yield in the 9¼% area.

Books close at noon ET Tuesday, and the offer is set to price thereafter.

SunTrust, KeyBanc and Regions are the joint bookrunners for the acquisition financing.

Recent issues waver

Recently priced deals did not fare any better than their peers in Monday trading.

“The carnage continues,” a market source said.

Olin brought a $1.22 billion two-tranche issue on Friday divided into $720 million of 9¾% senior notes due 2023 and $500 million of 10% senior notes due 2025.

The issue came downsized from $1.5 billion and “at much wider spreads than originally talked,” a trader said.

The trader placed both issues at par ½, down 1½ points.

Altice/Cablevision’s $4.8 billion of notes, a three-tranche issue that also came Friday at par, meantime traded down to 99 “across the three issues,” a trader said.

However, he said the bonds went out up a touch from the intraday lows in a 99½ to 99¾ context.

The issue included 6 5/8% 10-year senior guaranteed notes, 10 1/8% 7.25-year senior unsecured notes and 10 7/8% 10-year senior unsecured notes.

Frontier Communications’ $6.6 billion three-tranche issue from Sept. 11 also continued to be active, though the debt remained weak.

A trader said the 11% notes due 2025 fell “almost 3 points” to 94 7/8.

“Those bonds got hammered,” a second trader said, pegging the 11% notes at 95 bid, 95½ offered, down 1½ points.

The 11% notes were the most active of the three issues, which also include 8 7/8% notes due 2020 and 10½% notes due 2022.

Valeant facing troubles

Valeant Pharmaceuticals could be staring down the barrel of a Congressional subpoena, according to news reports.

Congressional Democrats on the House Committee on Oversight and Government Reform are asking the panel’s chairman, Jason Chaffetz (R-Utah), to come testify next week in regards to the company’s drug price increases that went into effect earlier this year.

The group also wants to see all documents related to that decision, alleging that the price hikes were set in motion after Valeant acquired the rights to congestive heart failure treatment Nitropress and another heart drug, Isuprel.

A trader said the 5 7/8% notes due 2023 declined a deuce to 97½, the 6 1/8% notes due 2025 dropped over 2 points to 97¾ and the 6 3/8% notes fell nearly a point to 101.

“The stock is getting bamboozled,” the trader added.

The equity fell $32.97, or 16.53%, to $166.50 (NYSE: VRX).

A second trader said the 6 1/8% notes traded between 92 and 94 for most of the day, closing toward the high end. Still, he noted that the level was down from levels “closer to par” on Friday.

This isn’t the first time that Valeant has been scrutinized for its pricing strategies.

“Management has long bragged that Valeant’s heavily touted profit strategy actually is founded upon jacking up prices on acquired products while slashing costs by firing most of the target’s employees and decimating R&D – and for several years all the company and the stock market seemed to care about was the steady rise in the stock price,” wrote Gimme Credit LLC analyst Vicki Bryan in an afternoon comment released Monday. “And now that Valeant’s notorious core methodology has come under fire, with lawsuits and investigations piling up and the stock tumbling, we find it disingenuous that management is spinning its playbook to downplay the critical importance of pricing in its strategy and overplay its modest role in actual product development.”

Market goes negative

Given the day’s overall weakness, it was no surprise that high-yield market indicators turned south in Monday trading.

The KDP High Yield Daily index hit a new 52-week low, coming in at 66.04 with a 6.91% yield, compared with Friday’s reading of 66.72 with a yield of 6.68%.

The previous 52-week low was 66.56.

The CDX North American Series 24 High Yield index meantime dropped almost a point to 102.57 bid, 102.77 offered, according to a market source.

A trader remarked that there was a fair bit of ETFs selling off certain issues amid the broader declines.

T-Mobile US Inc. was one such name that got hit in ETF trades, he said, seeing the 6% notes due 2023 slipping half a point to 96¾.

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