Medical Properties brings upsized deal; bonds gain; Freeport notes continue rise; ADT active

By Paul Deckelman and Paul A. Harris

New York, Feb. 17 – A split-rated crossover deal that attracted interest from both high-yield and high-grade investors dominated news in the junk bond primary arena on Wednesday, traders said. Medical Properties Trust, Inc., a health care-oriented real estate investment trust, did a quickly shopped, upsized $500 million issue of eight-year notes.

After the issue priced, traders saw the bonds doing better in the aftermarket in very busy dealings.

Tuesday’s new deal from consumer products company Prestige Brands Holdings, Inc. continued to firm, also on active volume.

Away from the new-issue sphere, traders said that the overall market was higher pretty much all around.

Split-rated Freeport-McMoRan Inc.’s paper dominated the Most Actives list, continuing to rise in the wake of news of a planned asset sale.

Whiting Petroleum Corp.’s bonds continued to rebound after having gotten hammered down on Friday on a huge ratings cut by Moody’s Investors Service.

Also seen on the rebound were Community Health Systems, Inc.’s bonds, which had fallen off on Tuesday after the hospital operator reported disappointing fourth-quarter results and said that it would delay the planned spinoff of its rural hospital holdings until the end of the year, citing unfavorable debt market conditions.

ADT Corp.’s bonds were busy, though at mixed levels, as junk players continued to react to Tuesday’s announcement that the alarm service company is to be bought out.

Statistical measures of junk market performance were higher across the board for a third consecutive session on Wednesday.

Medical Properties upsizes

Wednesday's only action in the primary market came in the form of a crossover deal that garnered attention from both high-grade and high-yield accounts, sources say.

Medical Properties Trust priced an upsized $500 million issue of split-rated eight-year senior notes (Ba1/BBB-) at par to yield 6 3/8% in a quick-to-market transaction.

The debt refinancing deal size was increased from $400 million.

The yield printed on top of yield talk.

By early Wednesday afternoon the deal was playing to $1.1 billion of orders, according to a buyside source who added that the new notes were 101 3/8 bid, 101 7/8 offered at the dealer.

BofA Merrill Lynch was the left bookrunner. Barclays, Wells Fargo Securities LLC, Goldman Sachs & Co., J.P. Morgan Securities LLC and KeyBanc Capital Markets were the joint bookrunners.

Cash, but no calendar

Away from Wednesday's crossover deal from Medical Properties Trust there was no news out of the new issue market.

Look for a $500 million deal from the industrial sector, to be led by Deutsche Bank, that could possibly show up as early as Thursday, a market source said.

Meanwhile there is a sole high-yield issuer on the road.

Solera, LLC is presently marketing a $2.03 billion equivalent of eight-year senior notes in tranches of euro-denominated and dollar-denominated notes. That deal is set to price in the week ahead.

Cash balances are higher than normal, and there's no calendar, an investor remarked on Wednesday, adding that it had been a strong session in the junk bond market, with no offers seen, just bids.

Mixed flows

The cash flows of the dedicated high-yield bond funds were mixed on Wednesday.

High-yield exchange-traded funds saw notable inflows of $520 million on the day.

However, asset managers sustained $120 million of outflows on Wednesday.

Medical Properties issue firms

In the secondary arena, traders saw gains in the new Medical Properties Trust 6 3/8% notes due 2024, including some interest in the Birmingham, Ala.-based health care-oriented real estate investment trust’s new deal from traditional junk bond investors as well as high-yield accounts able to play in split-rated deals to pick up yield.

One trader said that the 6 3/8% coupon was “respectable” by the junk market’s standards.

He saw the bonds at 101 5/8 bid, well up from their par issue price, with over $48 million having changed hands, putting them high up on the day’s Most Actives list.

Another trader saw action between 100½ and 101½ bid.

Prestige Brands better

Tuesday’s new issue of 6 3/8% notes due 2024 from Prestige Brands Holdings was mostly seen adding to the initial gains that those bonds had notched after being freed to trade shortly after they priced.

One trader did see the bonds down 1/8 point in Wednesday activity at 101¼ bid.

However, a second pegged the bonds at 101¾ bid, which he called a 3/8 point gain.

And at another desk, the bonds were quoted around 101 1/8 bid, 101 7/8 offered, also up by 3/8 point.

More than $26 million of the notes traded.

Prestige Brands, a Tarrytown, N.Y.-based distributor of brand-name over-the-counter health care and household cleaning products, priced its quick-to-market $350 million offering at par on Tuesday via its wholly owned Prestige Brands, Inc. subsidiary.

The four-times oversubscribed deal jumped to around 101 3/8 bid, with over $37 million of the new bonds having changed hands.

A trader on Wednesday said that the company’s existing 8 1/8% notes due 2020, which are to be redeemed using the proceeds of the new deal, were trading at 104½ bid, which he said was up by 1 point from where the notes were at the end of last week.

Freeport firming continues

A trader said that pretty much as had been the case on Tuesday, Freeport-McMoRan’s split-rated (B1/BBB-) notes “were active volume-wise, and they moved up.”

He saw the Phoenix-based copper and gold mining company and oil and natural gas producer’s “whole structure up anywhere from 3½ to 4½ points.” The notes were given a big boost by the news that the company plans to sell 13% of its ownership interest in its Morenci unincorporated joint mining venture to its Japan-based partner, Sumitomo Metal Mining Co., Ltd. Freeport will thus reduce its stake in the joint venture to 72% from 85%, with Sumitomo and its affiliates upping their participation to 28% from 15%.

Freeport expects to reap $1 billion in cash from the transaction and use the asset-sale proceeds to reduce its debt.

Freeport also reported another piece of good news – savvy billionaire investor Carl Icahn is buying an additional 4 million shares of the company, bringing his stake to 9%.

Adding to the better than 3-point gains seen on Tuesday, Freeport’s 5.4% bonds due 2034, the company’s most active issue, rose another 2 points on Wednesday to end at 47¾ bid, with more than $50 million of those notes having changed hands.

Its 3.55% notes due 2022, up nearly 2½ points on Tuesday, tacked on another 3¾ points Wednesday to end above 55 bid, on volume of over $32 million.

Its 2 3/8% notes due 2018, which zoomed 6 points on Tuesday, were 3½-point winners on Wednesday, closing at 76½ bid, on volume of over $24 million.

Whiting rebound rolls on

For a second straight session, Denver-based Whiting Petroleum’s bonds were on the rebound after having gotten hammered down on Friday when Moody’s Investors Service dropped the company’s corporate family rating by multiple notches.

A trader on Wednesday saw Whiting’s 5¾% notes due 2021 up 3¾ points, locating the bonds at 45¼ bid, on “fairly active” trading of nearly $20 million.

A second trader had the bonds doing even better, seeing them go home at 47 bid, which he called up 5½ points on the day.

And he said that Whiting’s 5% notes due 2019 rose 4 points on the session to end at 47½ bid, with over $14 million traded.

He had seen the two issues gain 1¾ and 2¾ points, respectively, on Tuesday.

Whiting’s bonds were bouncing back from a badly oversold condition encountered at the end of last week after Moody’s cut its corporate family rating on the company to Caa1 from Ba2. The rating agency cited the likelihood of weak cash flows this year and into the next as hedges start to expire. On top of that, it said that the oil and gas producer has a heavy debt load, increasing the possibility of a debt restructuring.

“While we recognize the steps that Whiting has undertaken in response to weak pricing levels, we believe the ability to further adjust to a lower price environment will be more challenging and the timing and execution of assets sales more uncertain,” Moody’s said in its statement.

Energy issues improve

Whiting was also helped by the upturn in world crude oil prices on Wednesday, as were many other energy issues.

“Energy was active today, with oil making a rebound – a pretty decent move.”

Among the oil and natural gas names seen moving up were Chesapeake Energy Corp.’s 8% notes due 2022, which gained 1 point, closing at 37½ bid, on volume of over $15 million.

A trader saw Denbury Resources Inc.’s 4 5/8% notes due 2023 up ½ point at 18¼ bid. The company’s 6 3/8% notes due 2021 gained a deuce on the day to finish at 25 bid.

California Resources Corp.’s 6% notes due 2024 improved to 12 bid, 13¼ offered, a gain of 1 point on the day.

The news that oil producer Iran would welcome plans by fellow producers Russia and Saudi Arabia to cap crude oil production at January levels helped to drive crude prices higher. Both Brent and West Texas Intermediate posted hefty gains, rebounding from Tuesday’s losses.

WTI for March delivery rose by $1.62 per barrel Wednesday on the New York Mercantile Exchange, settling at $30.66, its second gain in the last three sessions; it had been off by 40 cents per barrel on Tuesday.

Brent crude for April delivery shot up by $2.32 per barrel in Wednesday dealings on the London ICE Futures Exchange, settling at $34.50, in contrast to Tuesday’s $1.21-per-barrel loss.

Community Health recovers

Elsewhere, Community Health Systems’ bonds “saw a little rebound today,” a trader said, seeing the Franklin, Tenn.-based hospital operator’s 6 7/8% notes due 2022 push up to 83 bid, around a 1½-point gain on the day.

“CYH traded a fair amount of volume,” another trader said, with over $32 million of the notes changing hands.

Those bonds had gotten slashed down to 81½ bid – a nearly 6 point loss on the day – in very busy Tuesday dealings of over $60 million after the company reported weaker-than-expected revenues and earnings in the fourth quarter, its results hurt by, among other things, an additional $169 million reserve it took against bad debt expense, i.e., patients who don’t pay their bills.

It also said that its plan to spin off its rural hospitals into a new company, Quorum Health, would be delayed due to the uncertain state of the debt markets.

ADT busy on buyout news

A trader said that ADT “was in the news” after the Boca Raton. Fla.-based security alarm service provider announced Tuesday that it had agreed to be acquired by one of the affiliates of investment management firm Apollo Global Management, LLC in a $2-per-share going-private transaction.

Its 4 1/8% notes due 2019 were up 3/8 point at 105½ bid, a trader said, on volume of over $12 million.

Its 3½% notes due 2022 were nearly ½ point better at 84¾ bid, on top of Tuesday’s nearly 2-point gain. About $13 million of the notes traded Wednesday.

But its most active bond, the 6¼% notes due 2021, ended the day down 2 points at 97½ bid, with more than $18 million traded. The bonds had gained around ¾ point on Tuesday to end just above 99 after having jumped as high as 102 earlier in Tuesday’s session.

Indicators extend gains

Overall, a trader said that “the market in general was up anywhere from ½ to 2 points.”

Statistical measures of junk market performance were higher across the board for a third consecutive session on Wednesday. They had improved on Friday – their first upturn since Jan. 29 – after having been lower on Thursday and mixed both last Tuesday and Wednesday.

The KDP High Yield Daily index gained 45 basis points on Wednesday to end at 62.14, its third straight gain and fourth in the last five sessions. It had risen by 30 bps on Tuesday and by 34 bps on Friday. The KDP index was not published on Monday due to the Presidents Day holiday.

Its yield tightened by 21 bps on Wednesday to 7.37%, its third straight narrowing and its fourth in the last five sessions. It had also come in by 3bps on Tuesday and by 12 bps on Friday.

The Markit Series 25 CDX North American High Yield index rose by 5/8 point on Wednesday, finishing at 98 1/32 bid, 98 1/16 offered, its fourth consecutive gain after two losses and its fifth gain in the last seven sessions.

On Friday, the index had risen by 11/16 point. On Monday – when the index was published despite the holiday – it had edged up marginally. It continued to firm on Tuesday, moving up by 9/32 point.

The Merrill Lynch North American High Yield Master II index improved by 0.791% on Wednesday, its fourth straight rise and fifth in the last six days.

It had risen by 0.56% on Friday. On Monday, when the index was published despite the holiday, it gained 0.067%. It tacked on another 0.487% on Tuesday.

Wednesday’s upturn cut the index’s year-to-date loss to 3.323% from 4.082% on Tuesday, 4.546% on Monday, 4.61% on Friday and 5.142% on Thursday, which had been its first cumulative loss greater than 5% this year and a new mark for the worst cumulative deficit for the year, topping the old mark of 4.364%, set last Tuesday.

Thursday’s closing loss had also surpassed the year-end 2015 loss of 4.643%, which had been the previous biggest loss the index had seen since it plunged more than 30% in 2008.

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