Varex prices, skyrockets in aftermarket; PennyMac, Global Medical flat; QTS, HCA improve

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 25 – The domestic high-yield primary market saw one small deal price on Friday.

Varex Imaging Corp. priced a $300 million issue of seven-year senior secured notes (B1/B).

While new deal activity was light on Friday, the week ahead may be busy.

However, with many of the potential issues opportunistic, new deal volume will largely depend on market stability, sources said.

While the secondary space was largely unchanged on Friday after a heavy week, the new paper from Varex skyrocketed in the secondary space.

However, some other recent deals did not fare as well.

PennyMac Financial Services, Inc.’s recently priced 5 3/8% senior notes due October 2025 (B2/B+) and Global Medical Response Inc.’s 6½% senior notes due 2025 (B2/B) were both hovering around par.

However, QTS Realty Trust, Inc.’s recently priced 3 7/8% senior notes due 2028 (Ba3/BB) were improved in active trading on Friday.

HCA Healthcare, Inc.’s 3½% senior notes due 2030 (Ba2/BB-/BB) were also improved, paring some of their losses from the week.

While the market tone improved Friday afternoon as equities roared into the close, the secondary space closed the week with losses.

Spreads widened 40 basis points through Wednesday as funds saw one of the largest outflows in recent history, according to a BofA Global Research Report.

Varex skyrockets

Varex Imaging priced Friday's sole deal, a $300 million issue of 7 7/8% seven-year senior secured notes (B1/B), which came in the middle of talk, and wide to initial guidance (see related story in this issue).

Varex conducted a roadshow of its deal through the late Sept. 21 week's capital markets house of horrors, and watched the price widen.

However, as the ink on its new 7 7/8% notes was drying the market seemed to immediately sense a bargain.

The par pricing notes popped to 103 bid, 104 offered, a trader said.

The week ahead could be busy, although new issue volume is unlikely to regain its feverish post-Labor Day pace, a debt capital markets banker told Prospect News.

There are deals to be done. But the issuers in question tend to be opportunistic, and many of them will likely await a modicum of market stability, the source added.

Flat

While new paper from Varex saw a strong break on Friday, other recent deals continued to see lackluster receptions in the secondary space.

Global Medical’s 6½% senior notes due 2025 continued to hover around par after a weak break on Thursday.

The notes were changing hands in the par to par ¼ context during Friday’s session.

They were marked at 99¾ bid, par ¼ offered heading into Thursday’s close.

Global Medical priced a downsized $600 million issue of the 6½% notes at par on Thursday.

Pricing came at the wide end of yield talk in the 6 3/8% area and in line with initial guidance in the mid-6% area.

The issue size was decreased from $740 million after having earlier been upsized from $500 million.

While above par, PennyMac’s 5 3/8% senior notes due October 2025 also did not see much capital appreciation.

The 5 3/8% notes were marked at par 1/8 bid, par 3/8 offered early in Friday’s session, according to a market source.

PennyMac priced an upsized $500 million issue of the 5 3/8% notes at par on Thursday.

Pricing came in the middle of the 5¼% to 5½% yield talk and wider than initial talk of 5% to 5¼%.

QTS improves

QTS Realty’s recently priced 3 7/8% senior notes due 2028 were improved in active trading on Friday.

The notes gained ½ point to close the day at par ½, according to a market source.

The bonds were active with about $18 million in reported volume.

The 3 7/8% notes initially struggled in the aftermarket.

They traded as low as 98¾ on Thursday before regaining their footing to close the day at par.

While the coupon is low, the owner of data centers is a solid credit, a source said.

QTS priced a $500 million issue of the 3 7/8% notes at par on Wednesday.

HCA pares losses

HCA’s 3½% senior notes due 2030 were also improved in active trading on Friday, paring their losses on the week.

The 3½% notes returned to a 101-handle on Friday and were changing hands in the 101 to 101 3/8 context heading into the market close.

There was more than $17 million in reported volume during Friday’s session.

While the notes were improved on Friday, they were still down about 1 point on the week.

The 3½% notes dropped 2 points on Monday as the broader health care sector sold off following the death of Supreme Court Justice Ruth Bader Ginsburg.

Ginsburg’s death cast fresh uncertainty about the Affordable Care Act and its ability to withstand a legal challenge.

$1.26 billion Thursday outflows

The dedicated high-yield bond funds had $1.26 billion of daily net outflows on Thursday, according to a market source who noted that the funds continue to hemorrhage cash.

Thursday's outflows follow Wednesday's $1.05 billion of daily net outflows.

On Thursday, actively managed junk funds sustained $855 million of outflows, while high-yield ETFs saw $406 million of outflows on the day, the source said.

News of Thursday's daily cash flows follows a report that the combined funds sustained $4.22 billion of net outflows in the week to the Wednesday, Sept. 23 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

That was the biggest weekly outflow since the week ending July 1, which saw $5.55 billion of outflows.

Indexes down

Indexes continued their downward spiral on Friday with all posting losses on the week.

The KDP High Yield Daily index was down another 23 basis points to close Friday at 65.73 with the yield now 5.88%.

The index was down 28 bps on Thursday, 22 bps on Wednesday, 32 bps on Tuesday and 27 bps on Monday.

The index posted a cumulative loss of 132 bps on the week.

The ICE BofAML US High Yield index shaved off another 3.8 bps on Friday with the year-to-date return now negative 1.093%.

The index dropped 54.2 bps on Thursday, 16.1 bps on Wednesday, 14.3 bps on Tuesday and 69.6 bps on Monday.

The index posted a cumulative loss of 158 bps on the week.

The index turned negative in Monday’s sell-off and continued its descent into negative territory throughout the week.

The CDX High Yield 30 index dropped 31 bps to close Friday at 104.23.

The index shaved off 2 bps on Thursday, sank 104 bps on Wednesday and was down 18 bps on Tuesday and 71 bps on Monday.

The index posted a cumulative loss of 226 bps on the week.

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