Junk quiet in pre-holiday session; Medical Properties Trust off, Valeant up; Kindred ends week up

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 – The high-yield market saw a very quiet, abbreviated pre-holiday session on Friday, market participants said.

Syndicate sources reported no new-deal activity during the day, and, not surprisingly, none expected in the coming week, the final week of 2017.

They said that only two issues, collectively generating $353 million of new dollar-denominated and fully junk-rated new paper, had priced during the week – well down from the totals of recent weeks, and one of the quietest primary weeks of the year.

However, even the relatively small amount of issuance helped boost 2017’s new-deal activity, which was seen closing out the year considerably more robust than last year’s primary.

In the secondary arena, traders reported little actual trading in the shortened session.

The only name that really stood out, in terms of either volume or price movement, was in Medical Properties Trust Inc.; the healthcare REIT MPT Operating Partnership, LP’s notes moved lower, although traders did not immediately see any fresh news out that might explain the move in the credit, which is normally not seen trading around that much.

Among the more familiar issues, Canadian drug manufacturer Valeant Pharmaceuticals International, Inc.’s recently priced eight-year notes were firmer, in what passed for reasonably active trading on a very quiet day.

But trading in the recently priced Mattel Inc. eight-year paper – one of the week’s more active credits – fell off sharply on Friday.

Away from the new deals, Kindred Healthcare Inc.’s bonds were quiet on the session – but were seen ending the week well up from where they had been the previous Friday, after having firmed smartly throughout the week on the news that the hospital and rehabilitation center operator and home healthcare services provider is going to be sold to insurer Humana Inc. and several private-equity firms.

Statistical market performance measures were mixed for a third straight session on Friday, their fifth mixed performance in the last six trading days. They had turned mixed on Wednesday and stayed there on Thursday and again on Friday, after having been lower across the board on Tuesday – which in turn had followed mixed sessions last Friday and again on Monday.

For the week, the indicators ended mixed versus where they had been last Friday, when they had been higher across the board from a week earlier. It was the third mixed week in the last four.

Flat Thursday flows

Amid ultra-thin liquidity in high-yield bond trading, the primary market was shuttered on Friday, with no new issue activity expected before January, according to market sources.

The active calendar was empty heading into year-end, but there is a January pipeline, sources say.

The daily cash flows of the high-yield funds were mixed and essentially flat on Thursday, the most recent session for which data was available at press time.

High-yield ETFs saw $20 million of inflows on the day.

However actively managed funds sustained $60 million of outflows on Thursday.

News of Thursday's daily flows surfaced on the heels of a Thursday afternoon report from Lipper US Fund Flows that the dedicated high-yield funds sustained a substantial $1.112 billion of net outflows during the week to Wednesday's close.

A quieter week, a busier year

The two new issues which priced during the week – from Lonestar Resources US Inc. and Fortress Transportation and Infrastructure Investors LLC – brought the amount of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers that came to market this week to $350 million in two tranches, according to data compiled by Prospect News.

That was down from the $5.19 billion that had come to market in 10 tranches last week, ended Dec. 15, and was way down as well from the roughly $11.2 billion that had priced in 21 tranches the week before that, ended Dec. 8.

This week become the smallest new-issuance week Junkbondland had seen since the weeks ended Aug. 25 and Sept. 1 – a two-week stretch , when no high-yield deals at all were priced. The week’s super-slow pace didn’t even come close to matching what previously was the least-active week seen over the past several months, the week ended Oct. 20, when $960 million of new junk paper had priced in four tranches.

As small as it was, this week’s pricing volume raised the total of 2017 issuance to $282.99 billion in 524 tranches, likely the final volume total for the year – running about 24.8% ahead of the $226.78 billion which had priced in 359 tranches by this point on the 2016 calendar, the Prospect News data indicated.

New Mattel bonds little seen

Traders said that Mattel’s new 6¾% notes due 2025 – one of the most actively traded credits during the week – were virtually untraded on Friday.

One trader said that there were just two large round-lot trades in those notes, along with a few smaller odd-lot trades.

He saw the credit edge up by 1/8 point to finish at 101 3/8 bid.

The El Segundo, Calif.-based toy manufacturer had priced $1 billion of the notes at par last Friday in a regularly scheduled forward calendar issue.

Valeant issue moves up

Going back a little further, Valeant Pharmaceuticals’ 9% notes due 2025 were seen having firmed in what a market source called “relatively decent volume” for an otherwise quiet day of around $7 million.

He saw those notes closing at 105 bid, up 3/8 point.

The Laval, Que.-based drug manufacturer had priced $1.5 billion of those bonds at 98.611 back on Dec. 4, yielding 9.25%.

That quick to market offering priced after having been upsized from an originally announced $1 billion.

It moved up quickly from its discounted issue price, topping the par level later on that same session, and continued to gradually firm over the days and weeks that followed to reach its current levels in a 104½-to 105 bid complex.

MPT Operating tops Actives list

A trader said that the busiest credit of the day was MPT Operating Partnership’s 6 3/8% notes due 2024, which was seen having fallen to 106 bid, a ½-point decline on the day, on a relatively robust $10 million of trading.

He saw no fresh news out about the company or its corporate parent – the Birmingham, Ala.-based healthcare-oriented real estate investment trust Medical Properties Trust, that might explain the movements in the notes, which normally are not seen too often by market participants.

Kinder notes end week higher

Also in that same sector, Kinder Healthcare Inc.’s three series of notes were relatively quiet on Friday, despite having been actively traded during the week.

Its most active issue was the 6 3/8% notes due 2022, which saw perhaps $2 million of round-lot volume on the session, plus some smaller odd-lot trades. Those notes gained ¼ point to close at 102¼ bid.

There was only negligible trading Friday in the company’s 8% notes due 2020 and its 8¾% notes due 2023.

However, all three issues were seen up sharply from their week-ago levels, with the 6 3/8s having jumped to their current level from 94 bid, last Friday, a gain of 8¼ points on the week.

The 8% notes were seen up nearly 7 points on the week, ended at 107½ bid, while its 8¾% notes were seen ending up 5½ points on the week, at 105 3/8 bid.

The paper popped on the news that Louisville, Ky.-based Kindred, which operates hospitals and rehabilitation centers and provides hospice services and home healthcare services, had agreed to be bought a consortium headed by Louisville-based insurance giant Humana Inc. and including the private-equity firms TPG Capital and Welsh, Carson, Anderson & Stowe.

The consortium will pay $9 cash per share for Kindred, a 27% premium to its recent stock price levels, or about $810 million total. Including the assumption or repayment of Kindred’s net debt, the total enterprise value of the deal would be approximately $4.1 billion.

Community Health paper seen mixed

Also in the healthcare realm, traders saw Community Health Systems Inc.’s 6¼% secured notes due 2023 up ¼ bid on the day at 90¼ bid.

But the Franklin, Tenn.-based hospital operator’s unsecured 6 7/8% notes due 2022 lost ¼ point on the day to close at 57¾ bid. Both issues traded around $3 million each.

Indicators stay mixed

Statistical market performance measures were mixed for a third straight session on Friday, their fifth mixed performance in the last six trading days. They had turned mixed on Wednesday and stayed there on Thursday and again on Friday after having been lower across the board on Tuesday, which had followed mixed sessions last Friday and again on Monday.

They were mixed on the week versus where they had finished last Friday, when they had been higher all around. It was their third mixed week out of the last four.

The KDP High Yield Daily index fell for a seventh straight session on Friday, losing 2 basis points for a second day in a row to close at 71.65. It had also fallen by 2 bps on Thursday and by 6 bps on both Tuesday and again on Wednesday.

Its yield meantime was unchanged for a second consecutive session at 5.34%, after having risen over three straight sessions before that, including a 1 bp widening on Wednesday and gains of 2 bps each on Monday and Tuesday.

It was down from last Friday’s 71.86 index reading and the yield was wider than last week’s 5.29%.

The Merrill Lynch High Yield index rose by 0.004% on Friday, its second straight gain, after having ended up 0.042% Thursday, its first advance after having eased by 0.013% on Tuesday and by 0.024% on Wednesday.

The latest gain raised its year-to-date return to 7.272% from 7.267% on Thursday 7.222%. But the cumulative return still remained well down from its 2017 peak level of 7.636%, set back on Oct. 24.

For the week, the index gained 0.029%, its sixth straight weekly improvement.

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