No pricings, but Novolex on tap, Icahn on the road; Sabine Pass up on ratings boost, Valeant on asset sale

By Paul Deckelman and Paul A. Harris

New York, Jan. 10 – For a third straight session, no new issues were priced on Tuesday in the high yield market – but syndicate sources said one of the deals currently being marketed had a good chance of appearing during Wednesday’s session.

They said that price talk surfaced on packaging company Novolex Holdings, Inc.’s planned $625 million issue of eight-year notes, with the books scheduled to close on that deal during the afternoon on Wednesday and pricing expected soon thereafter.

New-deal players were also expecting to soon see physician services organization Team Health Holdings, Inc.’s $1.015 billion of eight-year paper, a deal said to already be well oversubscribed.

And billionaire investor Carl Icahn’s eponymous diversified holding company, Icahn Enterprises LP, was heard to have begun a roadshow for a $900 million two-part offering of five- and seven-year notes.

Away from the new deals, split-rated Sabine Pass Liquefaction LLC’s several series of notes easily dominated the day’s Most Actives list after Fitch Ratings raised the liquefied natural gas company’s ratings to investment grade status, with its shorter-dated paper mostly higher on the day, while its longer-dated bonds gave up ground.

Valeant Pharmaceuticals International, Inc.’s bonds shot up in active trading on the news that the Canadian drug manufacturer has lined up about $2 billion of asset sales as one step in whittling down its massive debt load.

On the downside, oil and natural gas names such as California Resources Corp., Denbury Resources Inc. and Devon Energy Corp. were all lower, along with drilling-company names such as Transocean Ltd. and Weatherford International plc, as crude oil prices slid badly for a second consecutive session.

Statistical market performance measures were mixed for a fourth straight session on Tuesday; those indicators had turned mixed on Thursday, after having been stronger across the board over the previous four consecutive trading days, and have stayed mixed since then.

Novolex talk 7% to 7¼%

The Jan. 9 week has yet to see its first high yield bond deal price.

However the stage is set for an active back half to the week heading into the extended holiday weekend ahead, commemorating the memory of Dr. Martin Luther King Jr.

Nearest at hand are a pair of triple-hook deals – triple C ratings from both Moody's and S&P – that are on the road, both said to be significantly oversubscribed.

Official price talk of 7% to 7¼% surfaced Tuesday on the Novolex Holdings, Inc. $625 million offering of eight-year senior notes (Caa1/CCC+).

Books close at 2:30 p.m. ET on Wednesday, and the deal – which is going well, market sources say – is set to price thereafter.

Books are three-times deal size, according to a portfolio manager.

Official talk came inside of initial guidance in the mid-7% area, according to a market source.

Credit Suisse, Deutsche Bank, Morgan Stanley and Jefferies are the joint bookrunners for the LBO financing.

The other triple-hook LBO deal presently on the road is the Team Health Holdings, Inc. $1,015,000,00 offering of eight-year senior notes (Caa1/CCC+/B-), via left bookrunner Barclays.

Team Health is also said to be playing to a book that is three-times deal size, according to an investor.

Much of the deal is expected to be taken by accounts that participated in the syndication of the bridge loan backing the bonds, sources say.

Initial guidance has the notes coming with a 6¾% yield.

Should that pricing materialize, the yield will be lower than the leverage which is above seven-times EBITDA, an investor said, adding that at present the yield to worst of the JP Morgan index's CCC sector is 11.6%.

High yield investors traditionally like the yield to be higher than the leverage, the investor said.

In its ratings analysis of Team Health's bond and bank debt Moody's wrote that pro forma adjusted debt to EBITDA will be approximately 7.5 times, and is expected to decline to around 6.5-times over the next 12 to 18 months.

Icahn $900 million two-part

Icahn Enterprises LP and Icahn Enterprises Finance Corp. were scheduled to begin a roadshow on Tuesday in New York for a $900 million two-part offering of senior notes.

The debt refinancing deal is coming in tranches of five-year notes which come with early guidance of 6¼% and seven-year notes coming with 6¾% early guidance, a trader said.

Tranche sizes remain to be determined.

The Jefferies deal is scheduled to continue roadshowing on Wednesday and Thursday.

Amigo Loans roadshow

In the sterling-denominated primary market Amigo Loans plans to start a roadshow on Wednesday for a £250 million offering of seven-year senior secured notes (expected ratings B1/B+).

Joint bookrunner JP Morgan will bill and deliver. Jefferies and NatWest Markets are also joint bookrunners.

The Bournemouth, United Kingdom-based financial technology company plans to use the proceeds to repay its revolver and partially repay a shareholder loan.

Amigo Loans take a place alongside TalkTalk Telecom Group plc's £300 million offering of five-year senior notes (expected ratings BB-/BB-), which was scheduled to begin its roadshow on Tuesday.

Mixed flows on Monday

The cash flows of the dedicated high yield bond funds were mixed on Monday, a market source said.

High yield ETFs sustained significant outflows of $203 million.

However asset managers were modestly positive, seeing $20 million of inflows on Monday.

Dedicated bank loan funds were also positive on Monday, with $115 million of inflows.

Sabine Pass volume soars

In the secondary market, traders said that Sabine Pass Liquefaction was clearly the busiest name of the day, its activity given a boost by Monday’s announcement by Fitch Ratings that it was rating the Houston-based liquefied natural gas company’s ratings at BBB-.

Fitch said that the rating and its stable outlook reflect stable cash flows supported by long-term revenue contracts with investment grade counterparties that effectively pass-through fixed and variable expenses for this liquefaction facility.

“It was my understanding that a lot of investment-grade guys started buying that today,” a trader said.

He said that “the shorter end was up, but the longer end wasn’t doing so well.”

Indeed, the company’s 5% notes due 2027 were its busiest issue, with over $139 million traded. Those notes were down ½ point on the day, at 105½ bid.

Its 5 5/18% notes due 2025 were marginally lower at just under 109½ bid, with over $80 million changing hands.

But its 6¼% notes due 2022 gained 7/8 point to end at 112 bid, also with over $80 million of volume.

Its 5¾% notes due 2024 firmed by 5/8 point to 110 bid, on $46 million of turnover, while its 5 5/8% notes due 2023 were the big gainers on the session, up more than 1 point to end at 109¼ bid, with over $44 million traded.

Fitch thus joins Standard & Poor’s, which in September attached a BBB- rating to an upcoming bond issue.

Moody’s Investors Service currently rates Sabine Pass’s paper at Ba1.

The trader opined that Moody’s “will likely follow suit and be upgrading them at some time in the near term.”

Valeant jumps on asset sale

The news that Laval, Que.-based pharmaceutical firm Valeant had announced a pair of asset sales generating about $2 billion gave that company’s bonds a shot in the arm.

Its 6 1/8% notes due 2025 jumped by some 2 3/8 points, to 78 3/8 bid, with over $88 million traded, while its 6 3/8% notes due 2020 zoomed by 3¾ points to 91¼ bid, with over $28 million traded.

The company’s 6¾% notes due 2018 closed at 99 bid, up 2 3/8 points, with over $23 million having changed hands.

And its New York Stock Exchange-traded shares soared by $1.05, or 6.84%, finishing at $16.40. Volume of 42 million shares was more than twice the norm.

Valeant said that it will sell three skin-case brands to French cosmetics giant L’Oreal SA for $1.3 billion, and will also sell its Dendreon Pharmaceuticals unit to Chinese conglomerate Sanpower Group Co. for about $820 million.

Valeant plans to use the proceeds from the deals to reduce its nearly $30 billion debt load.

Energy names off again

A second straight day of lower crude oil prices pushed most energy names lower.

Among these were California Resources’ 8% notes due 2022, finishing off 1¾ points at just over 89, a trader said.

Denbury Resources’ 4 5/8% notes due 2023 were down around the same amount, ending at 82¼ bid, while Devon Energy’s 5% bonds due 2045 were off by 5/8 point at 101½ bid.

Swiss-based energy drillers Weatherford and Transocean were also lower, the former’s 7¾% notes due 2021 falling about 1 3/8 points to just under 103 bid, the latter’s 7¼% paper due 2031 ending down more than 1 point at 85 bid.

Crude prices fell more than $1 per barrel on major exchanges on Tuesday, on top of the $2-plus decline seen on Monday.

Indicators stay mixed

Statistical market performance measures were mixed for a fourth straight session on Tuesday; those indicators had turned mixed on Thursday after having been stronger across the board over the previous four consecutive trading days, and have stayed mixed since then.

The KDP High Yield index lost 1 basis point on Monday to close at 72.12 – its second consecutive loss after seven straight sessions on the upside. On Monday, the index had fallen by 2 bps.

Its yield was unchanged at 5.13% after having risen by 1 bp on Monday – its first widening out since Dec. 20. It had come in over the previous four sessions, including Friday’s 2 bps tightening.

The Markit Series 27 CDX index stayed on the downside for a fourth day in a row, ending down by 3/16 point on the day Tuesday to close at 106½ bid, 106 9/16 offered. It had lost 5/32 point on Monday.

But the Merrill Lynch High Yield index continued to buck the negative trend, posting its 15th successive advance. It improved on Tuesday by 0.107%, on top of Monday’s 0.046% rise.

Tuesday’s upturn raised its year-to-date return to 1.081% – its fifth consecutive new high for the new year, and its first time over 1%. That eclipsed the prior cumulative mark of 0.973%, set on Monday.

The index had closed out 2016 with a total return of 17.489% – its best showing since 2009’s record-setting 57.512% jump. In 2015, the index had lost 4.643% on the year.

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