Calpine prices new offering, recent issues unchanged; Bausch active; Vivint, Rite Aid gain

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 19 – The domestic high-yield primary market caught many by surprise with one drive-by deal clearing the market.

Just over a week after pricing a benchmark first-lien deal, Calpine Corp. returned to price an upsized $1.4 billion issue of senior unsecured notes.

Meanwhile, the secondary space continued to grind tighter into the year’s end.

While the late December illiquidity was setting in, the continued influx of new paper helped the overall volume.

Calpine Corp.’s new offering sparked activity in the recently priced 4½% senior notes due 2029 (Ba2/BB). However, the notes were largely unchanged.

While activity in Bausch Health Cos. Inc.’s recently priced two tranches of senior notes (B3/B/B) tempered, they remained volume leaders although with little movement in price.

APX Group Inc.’s capital structure jumped in active trading after revised terms for the merger of Vivint and Mosaic Acquisition Corp. were announced.

Rite Aid Corp.’s 6 1/8% senior notes due 2023 also jumped in active trading after a surprise earnings beat.

Unstoppable deal machine

Traditionally Father Christmas brings down the curtain on the high-yield new issue market at the end of the calendar year.

Although 2019 will ultimately be no exception to that rule, this year the old gentleman has been waylaid by the investment banks.

The junk bond market has just been too hot to close, sources say.

Post-Thanksgiving, market sources forecast that issuance for 2019 would wrap up at the end of the Dec. 9 week.

Events overtook that forecast, however, as the new deal machine continued to churn late into the Dec. 16 week.

On Thursday, just over a week after pricing a benchmark first-lien deal, Calpine Corp. returned for a late-year pass at the primary market, this time bringing unsecured notes.

The Houston-based power generator priced an upsized $1.4 billion issue of senior notes due March 15, 2028 at par to yield 5 1/8%, in a drive-by.

The issue size ultimately decreased from $1.9 billion, having been upsized to that amount from $1.25 billion, the size at which the offer was originally announced early Thursday.

Hence, Calpine succeeded in placing $150 million more of the notes than the amount specified in the original offering memorandum, sources said.

The new deal was driven into the market by $500 million of reverse inquiry, according to a bond trader in New York.

The yield printed in the middle of the 5% to 5¼% yield talk (see related story in this issue).

The 5 1/8% notes were largely hovering around their issue price after breaking for trade. They were marked at par bid, par ½ offered, according to a market source.

When will it end?

One might reasonably wonder just how deep into the year the dealers are capable of pushing the new deal machine.

A look at the Prospect News archive reveals that on Dec. 20, 2016 two deals priced. Avison Young (Canada) Inc. priced a $130 million issue of 9½% senior secured notes, and Gogo Intermediate Holdings LLC/Gogo Finance Co. Inc. priced a $65 million add-on to its 12½% senior secured notes.

However, the deal that cleared the market trailing the most tinsel came from SGH Escrow Corp. (Signature Group Holdings, Inc.) which priced a $305 million issue of 10% senior secured notes on Dec. 23, 2014.

How hot is it?

By just about any measure the junk bond market is hot, market sources assert.

However, one metric, in particular, clearly points up that assertion for one bond trader.

The composite yield of the high-yield index ended below 6%, on Wednesday, for the first time since January 2018, the trader said, adding that the all-time low is 5.03%.

Calpine unchanged

Calpine’s latest offering sparked activity in the Houston-based power generator’s recently priced 4½% senior notes due 2029. However, the 4½% notes were largely unchanged.

They continued to trade at par ¾, 101 offered, a market source said.

The bonds saw more than $19 million in reported volume by the late afternoon.

The 4½% notes are secured and Calpine is a strong credit, sources said.

Calpine priced a $1.25 billion issue of the 4½% notes at par on Dec. 10. The notes were in high demand during bookbuilding and the issue upsized from $750 million.

Bausch active

Bausch Health’s recently priced tranches of senior notes remained active in the secondary space, although activity in the issues paled in comparison to Wednesday.

Bausch’s 5% notes due 2028 stood poised to close Thursday at 101 7/8 bid, 102 1/8 offered. The bonds saw more than $28 million in reported volume.

The 5¼% senior notes due 2030 were marked at 102 7/8 bid, 103 1/8 offered. The tranche saw about $18 million in reported volume.

While active, the notes were largely trading sidewise with both reaching their current levels shortly after breaking for trade, a market source said.

The pharmaceutical company priced a $1.25 billion issue of the 5% notes and a $1.25 billion issue of the 5¼% notes at par on Tuesday.

The deal doubled in size with the offering initially announced at $1.25 billion.

While some sources questioned the use of proceeds – with half going to settle securities litigation – others said the deal looked attractive with spreads trailing BB credits by only 100 bps.

APX jumps

APX Group, the parent company of Vivint Inc., was in focus on Thursday with the capital structure making large gains after amended terms for the merger of Vivint and Mosaic Acquisition Corp. were announced.

APX’s 8¾% senior notes due 2020 were among the most actively traded issues in the secondary space.

The notes rose more than 3 points to trade just north of par in the high-volume activity, according to a market source.

The bonds saw more than $44 million in reported volume by the late afternoon.

APX’s 7 5/8% senior notes due 2023 skyrocketed 8½ points to 95 with $11 million in reported volume.

The 8½% senior notes due 2024 rose 5½ points to 103½ with more than $10 million in reported volume.

In the amended merger agreement, Vivint agreed to cut its enterprise value to $4.1 billion and SoftBank unit Fortress Investment Group agreed to invest an additional $50 million in Vivint, according to a company press release.

Net cash proceeds at the closing of the merger are expected to be $790 million with proceeds to be used to pay down Vivint’s debt, according to the release.

Rite Aid’s earnings

Rite Aid’s 6 1/8% senior notes due 2023 jumped in high-volume activity after a surprise earnings beat.

The 6 1/8% notes traded up 3 points to close Thursday at 87½ bid, 88¼ offered, according to a market source.

While up, the notes were closing down from their intraday high of 89 1/8, the source said.

With more than $43 million in reported volume, the notes were among the most actively traded during Thursday’s session.

Rite Aid reported adjusted earnings per share of 54 cents in the third quarter versus analyst expectations for earnings of 9 cents.

The pharmacy company also reported an operating profit of $53.16 million after an operating loss in the third quarter of 2018.

Indexes

Indexes were mixed on Thursday with some flat and others continuing to rise after all have seen a solid week of gains.

The KDP High Yield Daily index rose 7 points to close Thursday at 71.72 with the yield now 4.83%.

The index was up 14 bps on Wednesday, 7 bps on Tuesday and 9 bps on Monday.

The ICE BofAML US High Yield index rose 3.8 bps with year-to-date returns now 14.194%.

The index climbed another 24.3 bps on Wednesday with returns shooting past 14%. The index was up 23.2 bps on Tuesday and 23.1 bps on Monday.

The CDX High Yield 30 index closed Thursday flat at 109.42. The index rose 12 bps on Wednesday, 4 bps on Tuesday and 30 bps on Monday.

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