Valeant leads pharma, hospitals rebound; Asbury Auto add-on closes $1.65 billion primary week

By Paul Deckelman and Paul A. Harris

New York, Oct. 23 – After several sessions of being whipsawed around at lower levels on questions about its drug-pricing policies and its distribution channels, the holders of Valeant Pharmaceuticals International, Inc.’s bonds finally caught a break on Friday as the beleaguered Canadian drug manufacturer’s badly oversold paper bounced off its Thursday closing levels to move higher across the board.

That helped to pull up some of the sector-peer credits that had also gotten beaten up over the past few sessions, including Endo International plc and this week’s new deal from Concordia Healthcare Corp.

There was likewise a rebound seen in Community Health Systems, Inc.’s bonds on Friday, a day after that paper had fallen sharply in response to the hospital operator having issued preliminary third-quarter results that were considerably weaker than analysts had previously forecast.

That turnaround also helped the bonds of sector peer Tenet Healthcare Corp., which fell along with Community Health Systems on Thursday, as well as HCA Holdings, Inc.

With the lately struggling pharmaceutical and hospital names seen higher, traders said that Friday’s big loser in an otherwise mostly positive session was Platform Specialty Products Corp., whose bonds fell in very active trading after the chemicals company announced plans for its chief executive officer to retire, although Daniel H. Leever will stay on board until a suitable successor is found.

In the primary sphere, Asbury Automotive Group, Inc. priced a quickly shopped $200 million add-on to the 2024 subordinated bonds that the car dealership and collision repair shop chain operator sold late last year. The new bonds were seen having driven higher in initial aftermarket activity.

The Asbury deal brought the week’s tally of new dollar-denominated, fully junk-rated bonds from domestic or industrialized-country issuers up to $1.65 billion in four tranches, according to data compiled by Prospect News. That was up from the $1.3 billion that priced in two tranches last week.

This week’s issuance, meanwhile, raised the year-to-date tally to $229.22 billion of new paper in 365 tranches, according to the data, although that was down by 15.1% from the $270.14 billion that had come to market by this point on the calendar last year.

Statistical measures of junk market performance turned higher across the board on Friday after three consecutive mixed sessions before that. Friday’s session was the third session in the last six in which the indicators were higher all around and the fifth such stronger session in the last 12 trading days.

The indicators were also all higher versus their levels the previous Friday for a third straight week, the fourth week in the last seven and the fifth week in the last nine.

Asbury taps 6% subordinated notes

Asbury Automotive Group completed Friday's sole dollar-denominated deal, a $200 million add-on to its 6% senior subordinated notes due Dec. 15, 2024 (B1/BB) that priced at 104.25 to yield 5.276%.

The reoffer price came at the cheap end of the 104.25 to 104.5 price talk but 75 basis points rich to the 103.5 initial guidance, sources said.

The deal played to $650 million of orders.

J.P. Morgan Securities LLC, BofA Merrill Lynch and Wells Fargo Securities LLC were the joint bookrunners for the general corporate purposes deal.

Verisure prices tight

The European primary market saw a higher volume of news than was the case in its dollar-denominated counterpart.

Verisure Holding AB priced a €700 million issue of seven-year senior secured notes (B1/B) at par to yield 6%.

The yield printed at the tight end of the 6% to 6¼% yield talk.

Joint global coordinator Goldman Sachs International will bill and deliver. Morgan Stanley, BofA Merrill Lynch, Nomura and Nordea Securities AB were also global coordinators.

Barclays, Citigroup, Credit Suisse, Deutsche Bank and HSBC were joint bookrunners.

Proceeds will be used to help fund the acquisition of a 46% stake in the Malmo, Sweden-based provider of monitored alarm solutions by Hellman & Friedman from Bain Capital and to refinance debt.

Ence at the tight end

Also on Friday Madrid-based Ence Energia y Celulosa, SA priced a €250 million issue of seven-year senior notes (Ba3/BB-) at par to yield 5 3/8.

The yield printed at the tight end of yield talk in the 5½% area.

Global coordinator JPMorgan will bill and deliver.

BBVA, CaixaBank and Santander are active bookrunners.

Bankia, Citigroup, Sabadell and Bankinter are bookrunners.

The pulp producer plans to use the proceeds to redeem all of its 7¼% senior notes due 2020.

Autodistribution starts Monday

France-based Autodistribution Group plans to start a roadshow on Monday for a €237 million offering of five-year senior holdco pay-if-you-can notes (expected ratings Caa1/CCC+).

The roadshow wraps up on Thursday, and the buyout deal is set to price thereafter.

Global coordinator JPMorgan will bill and deliver. Credit Suisse is also a global coordinator. BNP Paribas is the lead manager.

Inflows on Thursday

The cash flows of the dedicated high-yield funds were positive on Thursday, the most recent session for which data was available at press time, according to a portfolio manager.

Asset managers saw $300 million of inflows on the day.

High-yield exchange-traded funds saw $61 million of inflows on Thursday.

The week ahead

Provided the market remains positive, the week ahead should produce a meaningful amount of business in the new issue market, sources said on Friday.

Charter Communications Inc. could show up if the market is accommodating, the manager said.

The Stamford, Conn.-based provider of cable, internet and phone service is expected to offer $3.5 billion of senior notes via Credit Suisse to help fund the acquisition of Time Warner Cable Inc.

And Match Group Inc. might appear with a $500 million offering of seven-year senior notes (BB-) via BofA Merrill Lynch and JPMorgan, the source added.

Match Group's $800 million term loan is set to launch at a Tuesday bank meeting.

Proceeds will be used to help fund a distribution to IAC/InterActiveCorp, the parent company, in connection with the spinoff of the online dating service.

Meanwhile, it has been radio silence on American Energy – Permian Basin, LLC's $560 million offering of five-year senior secured first-lien notes, which was scheduled to price during the middle part of the Oct. 19 week but has been pushed into the week ahead, sources say.

The deal was being guided in the 9% area but is now undergoing a process of price discovery, possibly moving talk into the double digits, according to a sellside source.

New Asbury bonds improve

In the secondary arena, a trader quoted the new Asbury Automotive 6% senior subordinated notes due 2024 add-on notes at 105 bid, 105¾ offered.

That was up from the 104¼ level at which the Duluth, Ga.-based car-dealership and collision repair-shop chain operator had priced its quick-to-market offering.

Recent deals hold gains

Among the other deals that priced earlier in the week, a trader said that Jarden Corp.’s 5% notes due 2023 were 1/8 point higher on the session at 102 1/8 bid, 102 5/8 offered.

The Boca Raton, Fla.-based consumer products company priced $300 million of the notes at par on Wednesday as a regularly scheduled forward calendar offering in support of its $1.5 billion planned acquisition of Visant Holding Corp., a Minneapolis-based provider of high school and college class rings, yearbooks and other educational keepsakes. The notes traded actively on Thursday, reaching a 101½-to-102 bid context.

A trader said that Greatbatch Ltd.’s 9 1/8% notes due 2023 gained ¾ point on Friday to finish at 102 1/8 bid, 103 1/8 offered.

The Frisco, Texas-based medical devices manufacturer priced $360 million of the notes at par off the forward calendar on Tuesday. The new bonds moved above the 101 bid level when they were freed to trade later in the session and continued to push up to around the 102 bid level as the week went on. However, traders did not see a lot of activity in the credit.

Valeant bounces back

Traders said that as has been the case for most of the week, the session’s big name was Valeant Pharmaceuticals – but for the first time in four sessions, the Laval, Quebec-based drug maker’s paper wasn’t heading downward.

“Everything was better today around 1½ to 2 points” a trader said, quoting its most actively traded credit, the 6 1/8% notes due 2025, around the 88 bid level.

A second trader also saw those notes “straddling 88,” while a third saw them trading between 87 and 88½.

More than $78 million of the notes changed hands, making them the busiest junk credit of the day.

Those notes had been trading as high as the par level earlier in the month but had already been hammered down to around a 95ish context last week on the news that federal prosecutors had subpoenaed documents and other information related to the company’s drug pricing and distribution policies.

They stayed in the mid-90s as the week began but plunged as low as 80 bid on Wednesday after short-seller Citron Research released a scathing report accusing the company of fraudulently booking “phantom sales” though a shadowy network of specialty pharmacies. The bonds came off those lows to settle in around the 87-88 level towards the end of the week, with over $180 million traded on Thursday after Valeant denied the accusations and said the trading house was using false and manipulative data. It scheduled a conference call for Monday to explain its side of things.

Other bonds in the Valeant capital structure also ended the week having come off their earlier lows, though still down from the levels they had held at the beginning of the week.

Its 5 7/8% notes due 2023 jumped more than 3 points from their lows earlier in the week to close at 87 5/8 bid, with over $44 million having changed hands.

Its 6¾% notes due 2018 rose about 1½ points to the 94 5/8 bid level, on volume of over $34 million.

Pharma names recover

Friday’s turnaround in Valeant’s bonds had a ripple effect across the pharmaceutical and biotech sector. Even apart from Valeant’s specific troubles, the sector has generally been a favored target of late of politicians blaming “Big Pharma” for inflated health-care costs, although those concerns have been magnified in the wake of all of the negative news about Valeant.

Sector peer Endo International’s 6% notes due 2023, which had slumped by several points in heavy trading around mid-week along with Valeant’s paper, rose on Friday by about ¾ point to 99 bid. More than $21 million of the Irish drug manufacturer’s paper changed hands.

Concordia Healthcare’s 9½% notes due 2022 were likewise better on Friday. A trader quoted them up nearly 1 point at 96½ bid, with over $38 million having traded. Some $790 million of the notes priced at par on Tuesday but were then seen trading in a 96-to-97 bid context, falling even further into the low 90s in heavy trading around midweek, at least partly due to fellow Canadian pharmaceutical name Valeant.

Another trader, seeing them at 96½-97 on Friday, opined that contrary to the narrative heard in some quarters that the bonds had plunged to around the 96-97 level after their pricing, “I think they got placed there from the start, at 96 and change,” even though the bonds were ostensibly issued at par. He suggested that “it was a hung deal,” with the underwriters forced by the market to just resell the bonds at those lower levels to move them out, “but they’ll still make money off it.”

Hospitals feeling better

A similar rebound was seen in the names of hospital operators following the sector-wide plunge seen Thursday after Franklin, Tenn.-based Community Health Systems released its preliminary third-quarter results, predicting revenues and earnings per share well below what Wall Street had been anticipating.

The company’s main issue, the 6 7/8% notes due 2022, had fallen at least six or seven points on Thursday, down to around the par level, with market-leading volume of over $129 million.

On Friday, those bonds were seen up about ½ point, a trader said, pegging them at 100½ bid, with over $70 million traded.

Another trader saw them up as much as ¾ point, to 101 bid, 101¼ offered.

Other hospital credits that had fallen along with Community Health were also seen on the mend on Friday, including Dallas-based Tenet Healthcare, whose 6¾% notes due 2023 rose ½ point on the day to 98 bid, with over $45 million traded, while its 8 1/8% notes due 2022 firmed smartly to 105 1/8 bid, up more than 1 point, on volume of over $14 million. HCA Holdings’ 7½% notes due 2022 were up 1 point on the day, ending at 114½ bid.

Platform pummeled on CEO plans

On the downside, a trader said that “one of the most active names was Platform Specialty Products,” whose bonds swooned after the West Palm Beach, Fla.-based specialty chemicals manufacturer announced that CEO Daniel Leever plans to retire, although he will stay on the job until a suitable replacement is found.

He said that the company’s 6½% notes due 2022 had closed Thursday at 91¾ bid, fell as low as 87½ bid on Friday morning and finally went home at 88¼ bid. More than $37 million traded.

Indicators up on day, week

Statistical measures of junk market performance turned higher across the board on Friday after three consecutive mixed sessions before that. They had turned mixed on Tuesday after having been higher across the board last Friday and then again on Monday.

Friday’s session was the third session in the last six in which the indicators were higher all around and the fifth such stronger session in the last12 trading days.

The indicators were also all higher versus their levels the previous Friday for a third straight week, a fourth week in the last seven and a fifth week in the last nine.

The KDP High Yield Daily index rose by 11 basis points on Friday to end at 67.46 after having declined by 22 bps on Thursday, which had snapped a four-session winning streak. Friday was its fifth gain in the last six sessions, its 11th gain in the last 14 sessions and its 12th advance in the last 16 trading days.

Its yield came in by 5 bps on Friday to 6.44% after having been unchanged on Thursday at 6.49% and having widened by 8 bps on Wednesday. Friday was the fourth time the yield had narrowed in the last six sessions, its 10th tightening in the last 14 and its 11th in the last 16 trading days.

Friday’s levels compared favorably with the 67.35 index reading and 6.50% yield seen last Friday, Oct. 16.

The Markit Series 25 CDX North American High Yield index posted its second consecutive gain on Friday, improving by 7/16 point to end at 103 1/8 bid, 103 5/16 offered, on top of the 3/8 point gain seen on Thursday. Friday marked the index’s fifth gain in the last seven sessions and its seventh gain in the last 13 trading days.

For the week, the index was up from the 102 15/32 bid, 102½ offered level at which it had closed last Friday.

And the Merrill Lynch North American Master II High Yield index rose by 0.281% on Friday after having weakened by 0.086% on Thursday, snapping a streak of four straight advances before that. Friday’s rebound marked the index’s fifth gain in the last six sessions, its 11th gain in the last 15 sessions and its 12th in the last 17 trading days.

Friday’s improvement lifted the index’s year-to-date return back into the black, with a 0.218% year-to-date return, versus the 0.063% cumulative loss seen on Thursday. The index’s return moved back on the plus side this week for the first time since late September. Earlier this month, it had established its worst 2015 year-to-date deficit, 3.069% on Oct. 2. It was the index’s lowest level since Oct. 5, 2011, when that market measure had shown a 3.834% year-to-date deficit.

For the week, the index rose by 0.602%, its third consecutive weekly gain and its sixth such upturn in the last eight weeks. The index has now improved in 25 weeks over the 42 weeks since the start of the year and has worsened in 17 weeks. Last week, it edged upward by 0.068%, leaving the year-to-date return with a 0.382% loss.

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