DaVita, iStar lead $3.7 billion day; new DaVita firms; RadioShack gyrates after numbers

By Paul Deckelman and Paul A. Harris

New York, June 10 – Junkbondland saw its busiest new-issue day in several weeks on Tuesday, as more than $3.7 billion of new dollar-denominated, fully junk-rated issues came to market in five tranches.

High-yield syndicate sources said that DaVita HealthCare Partners Inc.’s quick-to-market $1.75 billion was the big deal of the day, and traders said that it was also the biggest name in the secondary market, firming a little from issue in very heavy initial aftermarket dealings.

Real estate funding company iStar Financial Inc. brought $1.32 billion in 3.5- and five-year tranches.

Several smaller deals also surfaced during the day.

Canadian soft-drink bottler Cott Beverages Inc. popped the top on a quickly shopped $525 million of eight-year notes, while propane marketer Ferrellgas LP drove by with an addition to its existing 2022 notes.

The $3.745 billion that priced was the most new paper seen in the junk market since May 20, when a whopping $6.075 billion was priced in eight tranches, according to data compiled by Prospect News.

Away from the percolating new-deal realm, traders said that secondary activity remained dull, although there was a little excitement in B/E Aerospace Inc. paper as the aircraft interior components manufacturer announced plans to split the company into two entities.

RadioShack Corp.’s bonds bounced around after the consumer electronics retailer reported another disappointing quarter, while asserting that its turnaround strategy is proceeding on schedule and declaring that it has adequate liquidity to pursue its plans.

Statistical market performance indicators turned mixed on Tuesday after having been higher for a third straight session on Monday.

DaVita prices $1.75 billion

A busy Tuesday primary market saw four issuers price a combined five tranches of dollar-denominated high-yield notes, raising a combined total of $3.745 billion.

One deal priced slightly inside of talk. Two priced at the tight or rich ends of talk. And two priced on top of talk.

There were no upsizings.

DaVita Healthcare Partners priced a $1.75 billion issue of 5 1/8% 10-year senior notes (B1/B+) at par to yield 5.124%.

The yield printed just below the tight end of yield talk set in the 5¼% area.

Wells Fargo was the left bookrunner. Barclays, Credit Suisse, Goldman Sachs, J.P. Morgan, BofA Merrill Lynch, Morgan Stanley and SunTrust were joint bookrunners.

The Denver-based provider of kidney and dialysis services plans to use the proceeds to repay a portion of its current senior secured credit facilities and for general corporate purposes.

iStar’s $1.32 billion deal

iStar Financial priced $1.32 billion of senior notes (B3/B+) in two tranches.

The deal included $550 million of 3.5-year notes, which priced at par to yield 4%. The yield printed on top of yield talk.

In addition, iStar priced $770 million of five-year notes at par to yield 5%. The yield printed at the tight end of the 5% to 5 1/8% yield talk.

BofA Merrill Lynch, Barclays and JPMorgan were the joint bookrunners for the debt refinancing.

Proceeds, along with cash on hand, will be used to repay and terminate the secured credit facility due 2017.

Cott drives by

Cott Beverages priced a $525 million issue of eight-year senior notes (B3/B+) at par to yield 5 3/8% in a quick-to-market transaction.

The yield printed on top of yield talk.

BofA Merrill Lynch, Credit Suisse, Deutsche Bank, JPMorgan and Wells Fargo were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Ferrellgas taps 6¾% notes

Also in a quick-to-market deal, Ferrellgas LP and Ferrellgas Finance Corp. priced a $150 million add-on to their 6¾% senior notes due Jan. 15, 2022 (B2/B+) at 104 to yield 5.877%.

The reoffer price came at the rich end of the 103.75 to 104 price talk.

Wells Fargo was the left bookrunner. BofA Merrill Lynch and JPMorgan were the joint bookrunners for the general corporate purposes and debt refinancing deal.

HEMA prices three tranches

In Europe, Netherlands-based retailer HEMA priced €715 million of notes in three re-sized tranches on Tuesday.

The debt refinancing deal saw €25 million of proceeds shifted to a tranche of fixed-rate secured notes from a tranche of floating-rate secured notes.

Special purpose vehicle HEMA Bondco I BV priced an upsized €315 million transaction of five-year senior secured fixed-rate notes (/B+/) at par to yield 6¼%. The tranche was upsized from €290 million. The yield printed 12.5 basis points inside of yield talk in the 6½% area.

HEMA Bondco I BV also priced a downsized €250 million tranche of senior secured floating-rate notes (/B+/) at par to yield Euribor plus 525 bps. The tranche was downsized from €275 million. The yield printed at the tight end of the Euribor plus 525 to 550 bps spread talk.

A separate special purpose vehicle, HEMA Bondco II BV, issued the unsecured notes, a €150 million tranche of 5.5-year senior fixed-rate notes, which priced at par to yield 8½%. The yield printed on top of yield talk.

Global coordinator Credit Suisse will bill and deliver. ABN Amro, BNP Paribas, Citigroup, JPMorgan and Royal Bank of Scotland were the joint bookrunners.

LMI talk is 7¼% to 7½%

Also on Tuesday, LMI Aerospace, Inc. talked its $250 million offering of five-year senior secured second-lien notes (B3/B) to yield 7¼% to 7½%.

Books close at 5 p.m. ET Wednesday, except for West Coast accounts. The deal is set to price Thursday morning, New York time.

RBC is the left bookrunner. Wells Fargo and SunTrust are the joint bookrunners.

The St. Charles, Mo.-based company plans to use the proceeds to repay its existing term loan and to repay revolver borrowings.

DaVita dominates secondary

In the secondary realm, a market source said that DaVita’s 5 1/8% notes due 2024 were by far and away the most active junk-rated issue, with over $74 million of those notes having changed hands after the drive-by deal priced at par earlier in the session.

He saw the bonds at 100 3/8 bid.

A second trader quoted the notes in a 100 3/8 to 100 5/8 bid context, with “a lot of trading in the 100½ range.”

At yet another shop, a trader pegged the new issue trading between 100½ and 100 5/8, saying that “it seemed to settle right in that ballpark.”

Ferrellgas near issue

Among the day’s other deals, a trader quoted Ferrellgas LP’s 6¾% notes due 2022 in a 103¾ to 104¾ context versus the 104 level at which the Overland Park, Kan.-based propane distributor’s add-on deal had priced.

A second trader, noting its relatively small size of $150 million, opined that it was unlikely to see much in the way of trading.

A trader said there were no immediate aftermarket dealings in Mississauga, Ont.-based soda and juice bottler Cott Beverages’ new 5 3/8% notes due 2022.

He likewise did not see any initial aftermarket activity in either tranche of New York-based real estate funding provider iStar Financial’s big two-part deal.

Recent deals mixed

Among other recently priced bond offerings, a trader said that DFC Finance Corp.’s 10½% senior secured notes due 2020 were up by around ¼ point on the day, at 101 5/8 bid, 10 7/8 offered.

The company – a funding unit of Berwyn, Pa.-based alternative financial services provider DFC Global Corp. – priced its $800 million offering at par on Friday after upsizing the issue from an originally announced $500 million and dropping a planned sterling-denominated tranche.

The bonds had firmed to levels above 101 bid in their initial aftermarket dealings later Friday and continued to trade above that on Monday and again on Tuesday.

Southern Star Central Corp.’s 5 1/8% notes due 2022 were seen off by ¼ point on Tuesday at 101¼ bid, 101½ offered.

The Owensboro, Ky.-based interstate natural gas pipeline operator priced its $450 million issue at par on Thursday off the forward calendar and then traded above 101 bid in the aftermarket, continuing to firm on Friday and Monday before coming off those peaks on Tuesday.

B/E Aerospace busy

Away from the newly priced or recent deals, a trader said that “there didn’t seem to be much of anything else coming across.”

However, several market participants noted brisk activity in B/E Aerospace’s 5¼% notes due 2022, with those bonds seen up as much as 3 points on the session at 109½ bid. One market source said that turnover of more than $18 million placed it right near the top of the high-yield Most Actives list.

Its 6 7/8% notes due 2020 were also trading around that same 109½ bid level, up ½ point on the day, one market source said.

The bonds – particularly the 2022s – rapidly gained altitude after B/E, a Wellington, Fla.-based manufacturer of aircraft interior cabin components, announced plans to split into two independent companies. One of the entities will continue to focus on the company’s core business of manufacturing aircraft cabin interior equipment, while the other will provide distribution, logistics and technical services for the aerospace and energy services markets.

B/E – which has been recently going through a strategic review of various alternatives to unlock shareholder value that included the potential sale of part, or even all, of the company – said that it will continue to “review and aggressively pursue its strategic alternatives to enhance value to shareholders.”

Unlike the bondholders, the shareholders meanwhile seemed to have been underwhelmed by the company’s proposal; its Nasdaq-traded shares dropped by $4.73, or 4.78%, to close at $94.15. Volume of 5.4 million shares was nearly four times the norm.

RadioShack rebounds from lows

Elsewhere, RadioShack’s 6¾% notes due 2019 “rebounded for the lows” of the day after the company reported quarterly results, a trader said.

He quoted the issue as having hit as low as 38½, before going out around 43 bid.

Another market source placed the issue in a 42¾ to 43¾ context, up from opening levels around 38½, but still down from a 48 to 49 range previously.

` Another trader who saw a similar trajectory for the bonds said that there was “not a lot of activity” in the credit, estimating that around $5 million had traded hands.

Its New York Stock Exchange-traded shares also got hit, falling 16 cents, or 10.39%, to end at $1.38.

During the first quarter, same-store sales dropped 14% year over year. Total sales declined 13% to $737 million.

Net loss was $98.3 million, or 97 cents per share. That compared to a net loss of $28 million, or 28 cents per share, the year before.

Excluding certain items, the loss was 98 cents per share. Analysts polled by Bloomberg were expecting a loss of 51 cents per share.

Additionally, the company said it had drawn its credit line down $35 million and that it expected to use more borrowings throughout the year. The Fort Worth-based electronics retailer is also in the process of adding more letters of credit.

Assuming RadioShack is able to cut costs and increase margins, the company has enough cash for the next year.

The results point to RadioShack’s continued struggle to regain market share and increase traffic in its stores. The company is moving forward with its revised plan of shuttering 200 stores this year and another 400 stores over the following two-year period. Initially, the company wanted to close 1,100 stores this year, but creditors refused to consent to that plan.

The company needed creditor approval to move forward with the massive closure or else it would breach certain credit facility covenants.

Despite having failed to reach agreement with its lenders on the store-closure plan, company executives said on the call that they continue to consult actively with the lenders, whom they consider to be an integral part of its turnaround efforts (see related story elsewhere in this issue).

Indicators turn mixed

Statistical junk performance indicators were seen by market sources as turning mixed after having been higher for the previous three consecutive sessions late last week and on Monday.

The Markit Series 22 index eased by 1/ 32 point to end at 108 31/32 bid, 109 1/32 offered; it had been essentially unchanged on Monday after rising for two sessions before that.

But the KDP High Yield Daily index put up its third straight gain Tuesday, ending at 74.99, up 3 basis points on the session. That followed rises of 1 bp on Friday and 5 bps on Monday.

Its yield at Tuesday’s close was 5.04%, as that market measure came in by 2 bps for a third consecutive day.

The widely followed Merrill Lynch High Yield Master II index meantime saw its fifth consecutive gain on Tuesday, edging up by 0.06%, on top of Monday’s 0.121% advance.

The latest gain lifted the index’s year-to-date return to 5.226%, its fourth straight new 2014 peak level, surpassing the previous high point of 5.162%, which had been seen on Monday.

Several index components set new marks for the year on Tuesday. Its average price for issues covered by the index rose to a fourth consecutive new high for the year of 105.7168, up from the previous high mark of 105.6719, set on Monday.

Its yield fell to a third straight new low for the year at 4.978% – the first time in recent memory that the yield has dipped below the psychologically significant 5% level. Its previous low was Monday’s 5.002%.

And its spread to worst continued to narrow, coming in to 365 bps over comparable Treasury issues, a third successive new tight level for the year. The previous tight level was Monday’s 369 bps.

Stephanie N. Rotondo contributed to this review.

© 2015 Prospect News.
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