Upsized HCA megadeal drives by, bonds rise; new Solera strong; Valeant rebounds, Intelsat fall persists

By Paul Deckelman and Paul A. Harris

New York, March 1 – The high yield market began March on a robust note on Tuesday, riding the momentum seen at the end of February in both the primary and secondary spheres.

The new-deal arena saw giant hospital operator HCA Holdings, Inc. do an upsized, quick-to-market $1.5 billion offering of 10-year secured notes via a subsidiary. When those new notes were freed for aftermarket activity, traders saw them firm solidly on heavy volume.

The primary also saw a euro-denominated offering from German industrial conglomerate ThyssenKrupp AG.

In the secondary realm, traders saw mostly firmer levels and brisk trading in many issues – even with many portfolio managers and other buyside players occupied with the annual J.P. Morgan high yield and leveraged finance conference going on down in Florida.

In addition to the strength seen in the new HCA notes, the traders saw gains in Solera, LLC’s new eight-year notes, which had priced on Monday at a big discount to par after having been delayed, resized and restructured. Some noted that the fact that the difficult deal finally got done, despite its challenges, was a good omen for the overall market.

Away from the new issues, Valeant Pharmaceuticals International Inc.’s bonds – which had nosedived on Monday on news of a Securities and Exchange Commission probe of the embattled Canadian drug manufacturer – were seen on the rebound on Tuesday, in busy trading. The company’s chief executive officer, newly back after a lengthy medical absence, was seen moving aggressively on the damage-control front in an effort to assuage the investment community.

On the other hand, Intelsat SA’s paper – which also fell on Monday – continued to lose altitude on Tuesday after Standard & Poor’s lowered its ratings on the communications satellite company, a day after a similar downgrade by Moody’s Investors Service.

Statistical market performance measures were higher across the board for a fourth consecutive session on Tuesday; they had also been up on Thursday, Friday and again on Monday, after having been lower on Wednesday. Tuesday marked their fifth higher session in the last seven trading days.

HCA upsized and tight

The primary market generated deal terms both in Europe and the United States on Tuesday, as two issuers came with single-tranche drive-by deals that garnered top-tier credit ratings.

HCA Inc. priced an upsized $1.5 billion issue of 10-year first lien senior secured notes (Ba1//BB+) at par to yield 5¼%.

The issue size was increased from $1 million as $500 million of proceeds were shifted from the concurrent term loan, downsizing it to $1.5 billion from $2 billion.

The yield printed at the tight end of the 5¼% to 5 3/8% yield talk. Initial guidance came in the 5 3/8% area.

BofA Merrill Lynch was the left bookrunner. Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley, RBC, SunTrust, UBS and Wells Fargo were the joint bookrunners for the general corporate purposes deal.

ThyssenKrupp two-handle yield

In Europe, ThyssenKrupp AG launched and priced a €750 million issue of 2¾% five-year unsecured unsubordinated notes (expected ratings Ba2/BB/BB+) at a 289.4 basis points spread to mid-swaps.

The spread came tight to spread talk in the 300 bps area.

The reoffer price was 99.425, and the notes yield 2 7/8%.

The yield printed at the tight end of yield talk in the 3% area.

The deal, which was announced earlier Tuesday at benchmark size, played to an order book containing in excess of €2 billion of orders, the source said.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, Mediobanca, MUFG and SG CIB are also joint bookrunners.

Solera lays the groundwork

The hard-fought Solera, LLC deal could is perhaps a cause for encouragement in the new issue market, a trader said on Tuesday morning.

The New Year’s most challenging deal to date, Solera’s new 10½% senior notes due March 1, 2024 (Caa1/B-), was trading persuasively higher at 96¼ bid, heading into the mid-morning, the trader said.

The rejiggered $1.73 billion deal – which ran a roadshow worthy of Homer, was subjected to steadily escalating price talk and extensive covenant changes – priced at 95 on Monday.

The fact that this highly leveraged deal got done lays the groundwork for easier credits to come to the primary market in an easier time, the trader remarked.

Later in the day, other traders confirmed the strength shown by the new Solera notes.

One said that the new issue saw “pretty good volume,” trading up to the 96¾ level from its 95 issue price, which had yielded 11.47%.

At another shop, a trader said that by the end of the session, some $49 million of the Westlake, Texas-based automobile insurance claims software provider’s new paper had changed hands.

He said that during the morning, the new notes had traded in a 95¾-to-96½ bid context.

Later on, he said, they had moved up to a 96 5/8-to-97 context, with the last print at 96 7/8.

Yet another market source, who also saw the bonds go out at 96 7/8, called that a gain of 1 5/8 points on the day.

Strong levels for HCA

The new HCA 5¼% notes due in June of 2026 meanwhile were seen going out at 101 bid in initial aftermarket dealings following their par pricing.

The Nashville-based hospital operator’s quickly shopped bonds were among the very busiest seen on Tuesday in Junkbondland, with over $50 million having traded.

The news that the company was swallowing a great big dose of first-lien notes, which will be senior in its capital structure to HCA’s existing senior unsecured paper, pushed that established paper down.

Its 5 3/8% notes due 2025 were seen down 7/8 point Tuesday at 101 bid, on volume of more than $14 million.

Its 5 7/8% notes due 2026 lost ¾ point to close at 102¼ bid, with over $11 million traded.

However, its 3¾% notes due 2019 closed up 1/8 point at just a shade under 102 bid, with over $13 million of turnover.

Lennar stays busy

Also among recently priced issues, a trader said that Friday’s offering of new 4¾% notes due 2021 from Lennar Corp. ended “wrapped around 101” in Tuesday dealings, on volume of over $15 million.

He said the bonds traded in a 100 3/4-to-01 3/8 range.

A second trader pegged the bonds in a 101 to 101¼ bid context, calling them up ¼ point on the day.

Yet another market source estimated the day’s gain at just over ½ point, citing a closing level of 101 1/16 bid.

Lennar, a Miami-based homebuilder, priced $500 million of the notes at par in a quick-to-market transaction on Friday.

Traders quoted the new bonds later on in that session between par and 100¼ bid.

The bonds firmed to around a 100 ¾-to-101 bid context on Monday, with over $20 million having traded.

Valeant bounces back

Away from the new deals, one of the most active names on the session, for a second straight day, was Laval, Que.-based drug manufacturer Valeant Pharmaceuticals International.

“VRXCN saw very heavy trading today,” one of the market sources said, seeing more than $79 million of its 6 1/8% notes due 2025, calling them up 23 points at just under 84 bid.

He also saw some $42 million of its 5 7/8% notes due 2023 moving around, gaining more than 2½ points to go home at 84 bid, while over $28 million of its 6¾% notes due 2018 traded.

The latter bonds were seen finishing the day at 95¾ bid, up 1 point on the day.

On Monday, those bonds had lost 6, 6 and 3½ points, respectively, also on heavy volume.

The Valeant 6 1/8s “was the most active” credit, another trader said.

He also noted that the company’s New York Stock Exchange-traded shares, which had plunged by more than 18% on Monday, on more than triple the normal volume “was rallying this afternoon as well,” although it was unable to hold those modest gains, ending the session off by 35 cents, or 0.53%, at $65.45; volume of over 41 million shares was more than four times the norm.

He said “there were so many stories and headlines coming out” about the company.

On Monday, the bonds and shares had slid dramatically as the embattled drug maker confirmed that it had received notice that it is the subject of a Securities and Exchange Commission investigation.

The new probe is separate from an ongoing SEC review of accounting and inventory issues at Salix Pharmaceutical, a drugmaker that Valeant bought for $11 billion last year.

Valeant is also being looked at by the U.S. Attorney’s Offices for Massachusetts and the Southern District of New York, as well as by Congress, a company spokesperson confirmed.

Valeant – which has already been under heightened investor scrutiny over its former dealings with a controversial specialty pharmacy company, Philidor – was to have held a conference call on Monday to discuss its preliminary fourth quarter 2015 financial results, deliver a business review and provide updated expectations for 2016, but said that it had decided to reschedule that call for a later date. It also withdrew previously offered guidance.

Valeant on Monday also announced that its chief executive officer, Michael B. Pearson – who had been sidelined for the past two months after having been hospitalized in December with a serious case of pneumonia – was returning to duty immediately.

On Tuesday, the CEO plunged right in, working the phones on a series of one-on-one calls to various sell-side analysts; Pearson pleaded that he needed some time to understand the company’s performance following his two-month absence, but also assured the analysts that Valeant would be filing its annual report as soon as possible.

Several of the analysts indicated in afternoon research notes on Monday that given Pearson’s track record at having built Valeant into a major pharmaceutical player by overseeing an aggressive acquisitions strategy, they would be willing to temporarily cut him a little slack and give him some time – as one put it – “to get his arms back around the business.”

Intelsat losses deepen

While Valeant looked to be on the comeback trail on Tuesday, another one of Monday’s big losers – Luxembourg-based communications satellite operator Intelsat – was having no such good luck.

“Those bonds have just been getting sold off on a daily basis,” one of the traders said.

Its Intelsat Jackson Holdings SA 5½% notes due 2023 were down a deuce on the day at 61½ bid, on volume of over $35 million, while its 7¼% notes due 2019 lost 4¼ points to end at 72 bid, on turnover of more than $15 million. Those issues lost 2 and 3 points, respectively, on Monday.

Its NYSE-traded shares lost 22 cents, or 12.79%, to end at $1.50. Volume of 2.8 million shares was over 7 times the usual daily handle.

Intelsat’s credit ratings – which were downgraded on Monday, by Moody’s – were likewise lowered on Tuesday by S&P.

The agency lowered its corporate credit rating on parent Intelsat SA to CCC from B and removed the ratings from CreditWatch, where S&P had placed them with negative implications on Feb. 22.

The outlook is negative.

At the same time, S&P lowered the issue-level rating on the senior secured credit facility at Intelsat Jackson to B- from BB- previously, although it left the recovery rating unchanged at 1, indicating an expectation for very high (90%-100%) recovery for lenders in the event of a payment default.

S&P opined that “the ratings downgrade reflects our view that the company could consider a subpar debt exchange or redemption as part of its balance sheet initiatives, which in light of Intelsat’s steep debt leverage we would view as a selective default rather than opportunistic.”

JPM conference takes its toll

All told, one of the traders said that there were “just buyers today. You could not get offerings. Names were up 1 to 3 points, depending.

“There was money coming into the market today for sure.”

He did note the annual J.P. Morgan high yield and leveraged finance conference – always a well-attended event which opened on Monday in Miami and which continues through Wednesday.

“A lot of customers are involved in that,” he said, holding activity levels down “a little bit.”

Indicators extend gains

Statistical market performance measures were higher across the board for a fourth consecutive session on Tuesday; they had also been up on Thursday, Friday and again on Monday, after having been lower on Wednesday. Tuesday marked their fifth higher session in the last seven trading days.

The KDP High Yield Daily Index rose by 33 basis points on Tuesday to finish at 64.04, its fourth straight gain and fifth in the last seven sessions. It had also been up by 28 bps on Monday, on top of Friday’s 68-bps jump.

Its yield came in by 10 bps, ending at 7.05%, after having tightened by 9 bps on Monday. Tuesday marked its fourth successive tightening, which followed four straight sessions before that in which the yield had widened out.

The Markit Series 25 CDX North American High Yield Index zoomed by 29/32 point on Tuesday, ending at 99 15/16 bid, 100 offered, its fourth consecutive gain and fifth in the last seven sessions. It had also risen by a little over ¼ point on Monday. The four gains followed two consecutive losses.

And the Merrill Lynch North American High Yield Master II Index also made it four wins in a row on Tuesday, advancing by 0.838% – its second-biggest one-day improvement so far this year, trailing only the 0.984% climb seen on Feb. 22.

On Monday, the index had firmed by 0.573%.

Tuesday’s upturn was the index’s sixth in the last seven sessions.

It sliced the index’s year-to-date loss to 0.296% – its lowest level since Jan. 5, when it was down by only 0,04%for the year.

The cumulative deficit was 1.124% on Monday.

The year-to-date red ink total remains well short of the 5.142% loss seen on Feb. 11, the worst cumulative deficit for the year so far and the index’s worst level since the 30% plunge recorded at the end of 2008.

Another index component – its yield to worst – dipped to 8.915% from 9.117% on Monday. Tuesday marked the first time the yield figure had tightened to below 9% since Jan. 11, when it stood at 8.979%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.