Avison Young, upsized Gogo add-on price; Kinetic Concepts bonds jump on $2.9 billion Acelity unit sale

By Paul Deckelman and Paul A. Harris

New York, Dec.20 – The high yield primary market continued to move toward the expected year-end lull on Tuesday, clearing another name from a now pretty barren new-issue calendar.

Syndicate sources said that Canadian commercial real estate company Avison Young (Canada) Inc. priced a $130 million offering of five-year secured notes at a deep discount to par, after some tinkering around with its covenants to make it more palatable to investors.

They also said that in-flight connectivity services provider Gogo Inc. priced an upsized $65 million add-on to its existing 12½% senior secured notes due 2022 that it sold earlier this year.

Away from the new issues, traders did not see much in the way of trading around in recently priced offerings, which had been dominating the Most Actives list over the past week or so. Only last week’s offering of seven-year notes from offshore energy driller Noble Holding International Ltd. and last month’s five-year issue from Canadian aircraft and railroad equipment maker Bombardier Inc. were seen really generating any volume.

Away from the new or recent issues, Kinetic Concepts Inc.’s bonds jumped in active dealings after the wound-therapy products company’s corporate parent, Acelity LP Inc., announced plans for a $2.9 billion unit sale, with at least some of that big cash haul expected to go to pay down the company’s sizable debt load.

Statistical market performance measures were mixed for a fourth consecutive session on Tuesday; they had turned mixed on Thursday, and have stayed that way since then. Before that, they had been lower last Wednesday – their first negative session this month – and higher across the board last Tuesday. Tuesday was their fifth mixed performance in the last seven trading days.

Avison Young (Canada) Inc. priced a $130 million issue of 9½% five-year senior secured notes (B3/B+) at 98.07 to yield 10% on Tuesday, according to an informed source.

The coupon came on top of coupon talk, a trader said, adding that the reoffer price came near the cheap end of the 98 to 99 price talk, and the yield came at the wide end of the 9¾% to 10% yield talk

William Blair was the bookrunner.

Changes made to the deal include a limitation on additional debt and an offer to repurchase $10 million of the notes per year at 103 starting at the end of year two, unless the company raises $30 million of new equity.

The Toronto-based commercial real estate firm plans to use the proceeds to refinance existing debt, to repurchase a portion of a minority partner's shares and to fund cash on the balance sheet for growth capital.

The issuer is the largest principal-owned and led commercial real estate services firm in the world, offering a full range of services to occupiers, owners and investors in office, retail, industrial, multi-family, hospitality and other types of commercial real estate, according to the source.

Day’s deals not seen

In the secondary market, traders did not immediately report having seen initial aftermarket activity in the new Avison Young (Canada) 9½% notes following their pricing.

They also had not seen any initial activity in the new Gogo Intermediate Holdings LLC/Gogo Finance Co. add-on 12½% senior secured notes due July 1, 2022.

The Chicago-based provider of in-flight internet connectivity services priced its quickly shopped $65 million addition to its existing $525 million of paper, sold in June, at 108 to yield 10.234%, after the tap was upsized from an originally announced $50 million.

Recent deals fall silent

Traders did not see much on Tuesday in the way of trading in such recently priced energy sector deals as Tesoro Corp., Diamondback Energy, Inc. and Gulfport Energy Corp., which had been mainstays on the Most Actives list over the past several sessions.

One recent energy-related deal which did continue to generate at least some volume in the relatively quiet market was Noble Holding International’s 7¾% notes due in January of 2024.

A trader saw those bonds on Tuesday continuing to retreat, losing another 1/8 point on the day to end at 96 3/8 bid, with about $13 million changing hands.

That $1 billion issue priced last Wednesday at 98.01 as a regularly scheduled forward calendar offering, to yield 8 1/8%, after the Cayman Island-based energy drilling company’s deal was doubled in size from an originally shopped $500 million.

But those bonds have struggled in the aftermarket ever since then, continuing to lose a little more ground each session.

On Monday, they had been down by 13/16 point, with over $18 million traded.

A market source said the only other recently priced offering really generating any volume on Tuesday was Bombardier’s 8¾% notes due 2021, which improved by 7/16 point on the day to close at 104 7/8 bid, with over $14 million traded.

The Montreal-based maker of aircraft and railroad transportation equipment priced $1.4 billion of the notes at 99.001 to yield 9% in a scheduled forward calendar offering on Nov. 16.

Kinetic Concepts climbs

A trader said that Kinetic Concepts’ several issues of bonds were all sharply higher, after the San Antonio, Texas-based wound-therapy products company’s corporate parent, Acelity LP Inc., announced plans to sell its Life Cell tissue-repair business to Dublin-based pharmaceuticals giant Allergan for $2.9 billion in cash.

“The bonds were up quite a bit,” he said. “They’re going to use the proceeds to pay down some of that KCI debt.”

The company’s 9 5/8% notes due 2021 jumped to 105½ bid, 106½ offered, a gain of more than 7 points from their previous levels around 98 bid, with over $28 million traded.

Its 12½% notes due 2021 zoomed by almost 14 points, to 104 bid, 105 offered from prior levels around 90, with around $14 million traded.

Its 12½% notes due 2019 gained more than 5 points on the day, ending at 103¼ bid, 104 offered, also on $14 million of volume.

Acelity had some $4.8 billion of long-term debt as of June 30, according to a recent regulatory filing.

Much of that debt was incurred back in 2011 during the company’s $6.3 billion leveraged buyout by private equity company Apax Partners.

Indicators stay mixed

Statistical market performance measures were mixed for a fourth consecutive session on Tuesday; they had turned mixed on Thursday, and have stayed that way since then. Before that, they had been lower last Wednesday – their first negative session this month – and higher across the board last Tuesday. Tuesday was their fifth mixed performance in the last seven trading days.

The KDP High Yield index edged down by 1 basis point Tuesday to 71.24, after having lost 3 bps on Monday. It was the index’s fifth straight setback and its and sixth in the last 16 sessions, which also included a 10-session winning streak.

Its yield rose by 1 bp to 5.52% after having been unchanged on Monday. It was the third such rise in the last four sessions.

However, the Markit Series 27 CDX index continued to improve, posting its fourth consecutive gain. It was up by 1/8 point to close at 106 7/32 bid, 106 9/32 offered, after having moved up by 7/32 point on Monday.

The Merrill Lynch High Yield index meantime posted its second straight advance after breaking out of a three- session slump on Monday, rising by 0.054%, on top of Monday’s 0.105% gain, in contrast to Friday’s 0.036% setback.

Tuesday’s improvement lifted its year-to-date return to 16.825% from 16.763% on Monday.

Those levels remain down from its 2016 peak level of 17.152%, set last Tuesday.

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