Acelity drive-by caps $5.4 billion week, well below last week; Elizabeth Arden up on Revlon news

By Paul Deckelman and Paul A. Harris

New York, June 17 – The high-yield market saw one new deal price on Friday – its first new issue in three sessions – as medical products provider Acelity LP Inc. did a quickly shopped $190 million add-on to its outstanding secured notes due in February 2021.

Acelity’s offering raised the week’s tally of new issues to $5.39 billion in nine tranches – well down from the $14.01 billion of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers that had come to market the previous week, ended June 10. That week was the most productive new-issue week so far this year, according to data compiled by Prospect News, surpassing the week ended May 27, when a total of $11.2 billion had priced in 20 tranches.

The week’s new issuance raised the year-to-date total to $115.10 billion in 158 traches, although that continued to lag some 34.1% behind the pace seen a year ago, when $174.59 billion had priced in 279 tranches by this point on the calendar, according to the data.

Traders saw some activity in Acelity’s existing Kinetic Concepts, Inc. secured notes due 2021, seeing them going out above the new bonds’ issue price, but off their pre-deal highs.

But the day’s big news happened away from the new-deal sphere, as cosmetics maker Elizabeth Arden Inc.’s bonds shot up in heavy trading on the news that sector peer Revlon will purchase it in a transaction valued at $870 million, including debt assumption.

Statistical market performance measures were mixed for a third straight session on Thursday, after having been lower for three consecutive sessions before that.

For the week, the indicators were lower all around, after having been higher last week.

Acelity richer than talk

Acelity LP priced Friday’s sole deal, a $190 million add-on to the 7 7/8% first-lien senior secured notes due Feb. 15, 2021 (Ba3/BB) issued by Kinetic Concepts, Inc. and KCI USA, Inc. The bonds came at 105.25 to yield 6.239%.

The reoffer price was 25 cents richer than the rich end of the 104.75 to 105 price talk.

BofA Merrill Lynch was the left bookrunner for the debt refinancing. SunTrust Credit Suisse, Nomura, RBC and UBS were the joint bookrunners.

Quiet ahead

There is a deal pipeline, sources say.

But most if not all of it will await the United Kingdom’s Brexit vote on June 23.

There are sizable amounts of debt on the horizon, sources said on Friday. However some or all of it is apt to materialize in the lately red hot leveraged loan market.

Prospective issuers include Apollo Education Group, Inc., a portfolio manager said.

Toys ‘R’ Us, Inc. is expected to show up in the leveraged markets looking to raise $850 million, the source added.

And Mallinckrodt plc is seeking to raise $1.1 billion. Deutsche Bank will be at the helm for the Dublin-based pharmaceutical company which has headquarters in St. Louis.

Lower cash percentages

There is still cash to be put to work in high-yield bonds, sources continued to say on Friday.

The high-yield accounts are lately carrying less cash, a portfolio manager said.

Accounts are now thought to be 3¼% to 4% cash, whereas not long ago those cash balances were nearer to 5%.

The junk yield-to-worst has climbed recently, perhaps in response to Brexit jitters, the source said.

The yield-to-worst of the JP Morgan index was 7.91% on Friday, up from 7.8% on Thursday and from recent tights of 7.53% on June 8.

But Friday’s 7.91% should be taken in context, the manager insisted, pointing out that on Feb. 11 of this year, with the price of crude oil skittering along the very bottom of its dramatic price crash, the yield to worst was 10.44%.

Thursday outflows

Cash flows for dedicated high-yield bond funds were negative on Thursday, the most recent day for which data was available at press time, sources said.

High-yield ETFs sustained a whopping $683 million of outflows on Thursday. However the ETFs were buyers on Friday morning, a trader said, adding that a few offers-wanted-in-competition (OWIC) lists were circulating the market, whereas earlier in the week there was nothing to be seen except bids-wanted-in-competition (BWIC) lists.

High-yield actively managed accounts were also negative on Thursday, sustaining $40 million of outflows on the day.

The news trails a weekly report from Lipper-AMG that the dedicated high-yield bond funds saw $1.8 billion of outflows during the week to Wednesday's close.

Kinetic Concepts gyrates

In the secondary market, traders saw a fair amount of activity in the Kinetic Concepts 7 7/8% secured notes due in February 2021 on the news that the San Antonio, Texas-based provider of wound-care therapies would be bringing its new add-on deal.

A market source said that more than $22 million of the notes traded, putting the issue well up on the junk market’s Most Actives list.

He saw the bonds going home at 106¼ bid late in the day – up from the 105.25 level at which the add-on had priced.

But he said that level was still down by ¾ point from where the existing bonds had been trading on Thursday, before news of the new deal hit the market.

Dell deal active

Traders did not see very much activity on Friday in the offerings which have recently priced in Junkbondland.

Perhaps the only exception was the two tranches of new Dell Inc. bonds that had come to market last week.

Dell’s 7 1/8% notes due 2024 were seen up ¾ point on the day at 102 bid, on volume of over $215 million.

Its 5 7/8% notes due 2021were 3/8 point better at 100 3/8 bid, with about $12 million changing hands.

The Round Rock, Texas-based computer giant had priced $3.25 billion of new paper – $1.625 billion of each series of notes – at par on June 8 as a regularly scheduled forward calendar transaction.

Elizabeth Arden up on buyout

Away from new issues, traders said the big news of the day was the sharp rise in the bonds of

Miramar, Fla.-based cosmetics firm Elizabeth Arden, whose 7 3/8% notes due 2021 jumped to around 102¼ bid – well up from their prior level in the mid-70s.

They were propelled by the Friday-morning news that larger sector peer Revlon, Inc., will be acquiring Elizabeth Arden for $419.3 million, with a total transaction valued at $870 million, including debt.

A trader said that volume was over $125 million, including about $95 million in round-lot trades.

Another trader said the deal is “a home run for the RDEN bondholders.”

He noted that their paper has a 101 change-of-control put feature.

Indicators stay mixed

Statistical market performance measures were mixed for a third straight session on Friday, after having been lower for three consecutive sessions before that.

For the week, the indicators were lower all around, after having been higher last week.

The KDP High Yield Daily Index fell by 6 basis points on Friday to end at 67.38, its sixth straight loss and ninth downturn in the last 14 sessions. On Thursday, it had retreated by 13 bps.

Its yield widened by 2 bps Friday, to end at 6.23%, after rising 6 bps on Thursday and being unchanged on Wednesday following three straight widenings.

Those levels compared unfavorably with the 68.11 index reading and the 5.78% yield recorded at the end of trading last Friday, June 10.

The Markit Series 26 CDX North American High Yield Index managed to eke out a small gain of 1/32 point on Friday to end at 102 bid, 102 1/16 offered, its second consecutive gain after five straight losses.

On Thursday, the index had edged up by around 3/32 point.

For the week, though, the index finished off from last Friday’s 102¾ bid, 102 13/16 offered close.

The Merrill Lynch North American High Yield Master II Index remained choppy, pushing up by 0.299% on Friday, after having lost 0.433% on Thursday, while on Wednesday, it had gained 0.16%.

Friday’s gain raised its year-to-date return to 8.344% from 8.021% at the close on Thursday, although it remained well down from its peak level for the year so far of 9.433%, set last Wednesday.

For the week, the index lost 0.724% – its first weekly loss after five straight weeks of improvement, including the 0.873% rise seen last week.

For the year so far, though, the index has seen gains in 17 weeks, with losses seen in seven weeks.

© 2015 Prospect News.
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