Valeant bonds crushed as short-seller’s report alleges fraud; Jarden prices; Globo postpones

By Paul Deckelman and Paul A. Harris

New York, Oct. 21 – Jarden Corp. came to market on Wednesday with a $300 million offering of eight-year notes, which priced at par and then moved up by nearly 2 points.

But the big news of the day came out of the secondary sphere, where Valeant Pharmaceuticals International Inc.’s already beleaguered bonds swooned in heavy trading, in line with a plunge in its equity, after a report by a trading firm that specializes in selling short against target companies alleged that the Canadian drug manufacturer was using Enron-style accounting tricks to artificially and fraudulently swell its revenues, a charge that Valeant denied.

Valeant’s troubles, along with recent political criticism of the drug industry, caused other biotechnology and pharmaceutical credits to fall, including Endo International plc and Mallinckrodt plc.

Those drug sector woes also knocked Concordia Healthcare Corp.’s new eight-year notes lower for a second consecutive day. The latter company’s deal had priced on Tuesday and then immediately traded down sharply.

The junk primary meantime heard that British telecommunications company Globo plc had shelved its long-planned $180 million offering of five-year secured paper, citing unfavorable market conditions.

American Energy – Permian Basin, LLC remains in the market with a $560 million offering of five-year secured paper.

Statistical measures of junk market performance were mixed for a second consecutive session on Wednesday, having turned mixed on Tuesday after having been higher across the board Friday and then again on Monday.

Wednesday’s session was the third mixed session in the last five trading days and on a somewhat longer timeframe, its sixth mixed session in the last 11 and eighth mixed session in the last 14.

Jarden prices tight

Jarden priced the Wednesday session's sole dollar-denominated issue, a $300 million issue of eight-year senior notes (Ba3/BB) that came at par to yield 5%.

The yield printed at the tight end of the 5% to 5¼% official yield talk. That talk came on top of initial guidance.

Reverse inquiry figured prominently into the drive-by deal, according to a portfolio manager who spotted the bonds trading at 101¾ bid, 102 offered in the secondary market late Wednesday.

“There's a demand for paper out there,” the manager said.

Barclays was the lead left bookrunner. Credit Suisse Securities (USA) LLC, UBS Investment Bank, Wells Fargo Securities LLC and Credit Agricole CIB were the joint bookrunners.

Proceeds will be used to fund the acquisition of Visant Holding Corp.

In the wake of the Jarden, American Energy – Permian Basin remains in the market with a $560 million offering of five-year senior secured first-lien notes.

The market awaits official price talk. However, early guidance has the deal coming with a yield in the 9% area, a trader said on Wednesday.

There were no updates on either talk or timing on Wednesday, the trader said, adding that there is an expectation in the market that American Energy – Permian Basin's deal will come wider than that early guidance.

There is also a pair of euro-denominated offerings in the market.

Verisure Holding AB has been on a roadshow with a €700 million offering of seven-year senior secured notes (B1/B).

That roadshow was scheduled to wrap up on Wednesday, but there was no word on the deal, according to a market source.

And Madrid-based Ence Energia y Celulosa, SA was scheduled to start a roadshow on Wednesday for a €250 million offering of seven-year senior notes (Ba3/BB-).

The roadshow wraps up Friday, and the deal is set to price thereafter.

Globo postpones

Globo postponed its proposed offering of senior secured high-yield notes due to market conditions.

The London-based telecommunications company began to market a $180 million offering of five-year senior secured notes (B2/BB-) in mid-June.

The deal, via bookrunner Imperial Capital and international co-manager ISM Capital LLP, ran an investor roadshow at that time. (See related story in this issue.)

Inflows on Tuesday

The dedicated high-yield funds saw inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed funds saw a whopping $1.05 billion of inflows on the day.

High-yield exchange-traded funds saw $89 million of inflows on Tuesday.

The ETFs were buyers on Wednesday morning, according to a trader who tracks them closely.

However, by Wednesday afternoon activity among the ETFs was mixed, the source added.

Valeant news overshadows all

In the secondary sphere, a trader said that “Valeant’s news dominated the entire market” after the Laval, Quebec-based specialty pharmaceuticals maker was the subject of a scathing research report put out by a trading house – one that specializes in selling short against the target companies.

“That’s where all of the concentration was.”

He said that the company’s most active issue, its 6 1/8% notes due 2025, dropped by about 15 points at one point during the session from Tuesday’s close in the middle 90s to around 80 bid before coming back to end at 88 bid.

He saw its 6¾% notes due 2018 as also being “among the Most Actives.” He said the notes “were down 10 points at one point during the day, but then they came back,” trading down to 92 bid from prior levels around 102 before finally ending around 96¾, “so they bounced back by 4 points or so,” he said.

There was “heavy volume on both.”

A market source said that more than $180 million of the 6 1/8% notes traded, pegging them down 7¾ points at 87 bid, while over $90 million of the 6¾% notes changed hands. He saw the latter issue ending down 6 points at 96 bid.

The company’s 5 7/8% notes due 2023 ended down 7 1/8 points Wednesday at 87¼ bid, with more than $86 million having traded.

“Obviously, Valeant was the biggest story today,” yet another junk bond trader said. “They traded down 10 or more points, then they came back to end down only 7 to 8 points.

“Valeant was the focus for a lot of accounts today.”

Valeant’s New York Stock Exchange-traded shares meantime plunged as much as 40% on Wednesday before coming off the bottom to end down $28.13, or 19.71%, at $118.61. Volume was 86.8 million shares, more than 21 times the usual activity level.

The bonds and shares gyrated around at lower levels after Citron Research issued a report charging that Valeant's previously undisclosed ties to specialty pharmacies helped the company create “phantom sales” of its products.

The report said that the firm believes that “the whole thing is a fraud to deceive the auditors and book revenue.”

It invoked the name of one of the most notorious fraud-related corporate failures in American business history, as it rhetorically asked, “Is this Enron part deux? These similarities are too close to ignore.”

For its part, Valeant responded with equally vitriolic language, categorically denying the allegations and charging that Citron’s “false and misleading statements about Valeant appear to be an attempt to manipulate the market to drive down Valeant’s stock price.”

It also posted an explanation on its website about its dealings with the specialty pharmacies in an effort to defuse the allegation of fraud.

The bonds and shares rebounded from their lows after Valeant delivered its rebuttal.

Other drug names feel pinch

Valeant’s troubles, as well as recent rumblings coming from the U.S. political sphere castigating “Big Pharma” generally as unscrupulous profiteers, have weighed on its sector peers, especially on Wednesday.

Endo International’s 6% notes due 2023 fell 4¼ points on Wednesday to end at 97 bid, a market source said, while the Ireland-based drug manufacturer’s 6% notes due 2025 were seen down 1¾ points at 98¼ bid.

Volume was brisk at $29 million and $13 million, respectively.

Fellow Irish pharmaceuticals company Mallinckrodt’s 5 5/8% notes due 2023, $750 million of which priced just last month at par, slid by 2¾ points Wednesday to 91½ bid, with over $14 million traded.

New Concordia slide continues

The newly priced 9½% notes due 2022 from Canadian pharmaceuticals manufacturer Concordia Healthcare were another victim of Wednesday’s sour market sentiment towards that sector.

That $790 million of notes had priced at par on Tuesday but then proceeded to plunge below the 96 bid level in very heavy trading later on that session, causing one trader to exclaim that “I find it bizarre that CXR would just drop by almost five points.”

The carnage continued on Wednesday, with a trader seeing the Oakville, Ont.-based drug maker’s new bonds “trading a little bit lower,” around 94 bid going home.

A second trader said that the bonds fell as low as a 90-to-92 bid context early on but then traded between 92 and 95 before finally narrowing toward the close to a 94-to-94¼ range.

More than $60 million of the notes changed hands on Wednesday, with another market source quoting them at 93 1/8 bid, down 2 1/8 points.

Its existing 7% notes due 2023, which had firmed on Tuesday, dropped as low as 80 in early trading Wednesday before finishing around 84 bid, 84½ offered – still down 1 3/8 points, with over $18 million having traded.

New Jarden bonds gain

Away from the beleaguered pharmaceutical issues, a trader saw the new Jarden bonds that priced during the session “kind of around [10]2,” at 101¾ bid, 102 offered, well up from the par level at which the Boca Raton, Fla.-based consumer products company’s deal had priced.

A second trader saw the bonds initially around 100¾ and then saw them move up to 101¼ but said that he had only seen a single round-lot trade.

Greatbatch stays strong

A trader saw Greatbatch Ltd.’s new 9 1/8% notes due 2023 around the 102 bid level.

A second trader saw the paper in a 101½-to-102 context on “only a handful” of trades.

The Frisco, Texas-based medical devices manufacturer had priced $360 million of the notes at par on Tuesday in a regularly scheduled forward calendar offering, and they had traded well above 101 bid in initial aftermarket dealings.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a second consecutive session on Wednesday, having turned mixed on Tuesday after having been higher across the board Friday and then again on Monday.

Wednesday’s session was the third mixed session in the last five trading days, sixth mixed session in the last 11 and eighth mixed session in the last 14.

The KDP High Yield Daily index notched its fourth successive gain on Wednesday, rising by 8 basis points to close at 67.57, on top of Tuesday’s 5-bps firming. Wednesday marked the index’s 10th gain in the last 12 sessions and its 11th gain in the last 14.

However, its yield – which normally moves inversely to the index reading, falling when the index rises and rising when the index falls – atypically also rose on Wednesday, by 3 bps to end at 6.49%. That followed Tuesday’s 1-bp narrowing. Wednesday’s widening was its first after three straight tightenings, its second rise in the last five sessions and its third in the last seven.

The Markit Series 25 CDX North American High Yield index posted its second loss in row Wednesday, retreating by 11/32 point to end at 102 5/16 bid, 102 3/8 offered. That loss came on top of Tuesday’s 5/32 point downturn, which had followed three straight days before that on the upside. It was the index’s fourth loss in the last seven sessions and its fifth loss in the last nine.

The Merrill Lynch North American Master II High Yield index put up its fourth straight advance on Wednesday, finishing up by 0.06%, which followed gains of 0.236% on Tuesday, 0.11% on Monday and 0.278% on Friday.

Wednesday’s rise was also its 10th in the last 13 sessions and its 11th such improvement in the last 15 trading days.

Wednesday’s gain got the index’s year-to-date return back in the black, at 0.023% – its first time in positive territory in exactly one month, since Sept. 21, when the index finished up 0.051% on the year before it slipped into the red the following session. It then remained in the red for the following month, through Tuesday, when it showed a cumulative loss of 0.037%, although that was still well down from the 3.069% year-to-date loss seen on Oct. 2, which was the most red ink for the year so far and the index’s lowest level since Oct. 5, 2011, when the market measure had shown a 3.834% year-to-date deficit.

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