Microsemi brings year’s first syndicated new deal; market lower, funds lose $809 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 7 – The high yield primary market saw its first syndicated junk bond deal get done on Thursday after spending nearly a month on the sidelines, syndicate sources said. Semiconductor company Microsemi Corp. drove by with a $450 million issue of 7.25-year notes.

It was the first real deal to hit the market since Clear Channel International BV priced $225 million of five-year notes back on Dec. 11.

Although the ice has finally been broken, the sources were cautious about predicting when the next transaction might get done amid current financial market volatility.

However, there were indications of several more prospective deals poised to join the forward calendar.

In the secondary arena, traders did not see very much activity in the new Microsemi bonds.

Existing issues, meantime, were seen mostly on the downside, in line with continued weakness in the stock and crude oil markets.

The latter – trading at their lowest levels in 12 years – continued to weigh on junk energy names like Halcón Resources Corp., Chesapeake Energy Corp. and Energy Transfer Equity, LP.

Away from the beleaguered oil and natural gas sector, weakness was seen in such varied names as Community Health Systems, Inc., Frontier Communications Corp. and Valeant Pharmaceuticals International, Inc.

Statistical measures of junk market performance remained lower across the board on Thursday, their second consecutive weaker session, after having been higher all around on Tuesday; it was the third lower session in the last four trading days.

Another numerical gauge – flows of cash for high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – started the new year off on a negative note. The funds posted their fourth net outflow in the last five weeks, as $809.1 million more left those funds than came into them during the reporting week ended Wednesday.

Microsemi oversubscribed

Microsemi Corp. priced a $450 million issue of 7.25-year senior notes (B2/B+) at par to yield 9 1/8% in a quick-to-market transaction on Thursday.

The first high-yield deal to be syndicated in 2016, it priced at the tight end of yield talk that had been set in the 9¼% area.

By early afternoon it was two times oversubscribed, a trader said.

Reverse inquiry was a big factor in the deal, sources said.

Morgan Stanley, MUFG and Deutsche Bank were the joint bookrunners.

Proceeds will be used to finance the cash portion of the acquisition of PMC-Sierra, and to refinance Microsemi and PMC debt.

Waiting for a window

A sizable backlog of deals could start rolling out soon if volatility in the global capital markets – a lot of it related to the extreme declines in Chinese stocks – subsides, sources say.

High yield is outperforming the stock market, they assert.

Whereas the Dow Jones Industrial Average fell a hefty 2.32% on Thursday, junk was only moderately lower at the end of the day, a trader said. High-yield ETFs were down about 0.5%.

Triple-C bonds are certainly taking a beating, down 0.4% year-to-date, according to a portfolio manager.

However double B bonds are flat on the year.

Dealers are keen to move, should a window of opportunity open, according to a sellside source who added that January – now one week old with just $450 million of issuance in the book – could still easily top the $10 billion mark.

However hard news on the forward calendar remains in short supply.

Acadia Healthcare Co. Inc. is expected to launch $390 million of senior notes in late January, according to an investor who added that BofA Merrill Lynch and Jefferies are the leads for the deal backing the acquisition of Priory Group.

And TreeHouse Foods Inc. announced in a Thursday press release that it plans to complete financing in the high-yield bond market in time to close its acquisition of ConAgra Foods by mid-February.

The company disclosed that the $2.7 billion acquisition will be funded by $1.8 billion of new debt financing and $1 billion of equity.

Little Microsemi activity seen

In the secondary realm, a trader said that he had seen one small initial trade in Aliso Viejo, Calif.-based high-tech manufacturer Microsemi’s new 9 1/8% notes due in April 2023.

He pegged the new notes in a 101¾ to 102 bid context, up from their par pricing level.

“Everything else I’m seeing are just lower bids on that in the Street” but with no real additional trades.

He also had not seen any activity in the new notes from Kraton Polymers LLC.

Word surfaced on Wednesday that the Houston-based specialty chemicals company’s lenders had converted the bridge loan portion of its financing for the purchase of Arizona Chemical Holdings Corp. into $440 million of 10½% notes due in April of 2023.

The company had marketed an eight-year note offering to prospective buyers via a roadshow last month but the deal had subsequently languished on the forward calendar for weeks during the year-end junk drought before finally pricing at 96.225.

“I don’t really know if or how that thing is going to trade,” the trader said, estimating that the deeply discounted price may have boosted the yield to around the 11¼% mark, necessary to finally get the long-delayed deal done.

Market moves lower

The trader called Thursday’s session “just another ugly day, although he allowed that “it was not bad as I would have thought, given what happened to equities.”

That market – with investors made jittery over concerns of global economic weakness, particularly China – was broadly lower on Thursday, with the bellwether Dow Jones Industrial Average nosediving for a second straight day. It lost 392.41 points, or 2.32%, to end at 16,514.10 – some 900 points down from where the widely followed index had closed out 2015 just a week ago. Other, broader stock indexes also tumbled by a similar magnitude.

Back in Junkbondland, the trader said that “the higher-quality stuff seems to be hanging in, but any of the more volatile kinds of names or sectors were continuing to get hit.”

However, he said that “nothing looked like it was jumping out.”

Energy off again

Among specific names, a trader said that the continued turmoil in the energy markets was predictably having a negative impact on that sector’s bonds.

World crude oil prices fell to their lowest levels in 12 years on Thursday, pulled down by the continuing supply glut of both crude and refined product, such as gasoline, amid sagging world demand for the fuel.

The February contract for the benchmark U.S. crude grade, West Texas Intermediate, lost 70 cents, or 2.1% on Thursday – its fourth consecutive loss – to go out at $33.27 per barrel, while the European Brent crude benchmark for February delivery, retreated by 48 cents per barrel, or 1.4%, to $33.75, also its fourth straight setback.

Against that somber backdrop, a trader saw Chesapeake Energy’s recently issued 8% notes due 2022 off by 7/8 point on the session, at 50 7/8 bid. The Oklahoma City-based natural gas and oil company’s issue was the busiest in the junk world, with over $42 million traded on the day.

Elsewhere within that sector, Halcon’s 8 5/8% notes due 2020 were down by more than 2 points on the day, closing at 66¾ bid, with over $11 million traded.

Energy Transfer Equity’s 7½% notes due 2020 were also down a deuce on the day, closing at 92¼ bid, on volume of over $13 million.

Carrizo Oil & Gas Inc.’s 7½% notes due 2020 eased by 1/8 point to around 83¼ bid, with over $11 million traded.

Other names also lower

Away from the volatile energy world, the day’s market heaviness was also felt among non-energy names.

Community Health Systems’ 6 7/8% notes due 2022 dropped by 1¼ points, going home at 91 bid, with over $28 million traded.

Fellow hospital operator HCA Inc.’s 5 3/8% notes due 2025 softened by 1/8 point to 99 3/8 bid, with over $22 million traded.

Valeant Pharmaceuticals’ 6 1/8% notes due 2025 lost ¾ point to 89¼ bid, with over $15 million having changed hands.

Away from healthcare, Frontier Communications’ 11% notes due 2025 were off by ¾ point on the day, ending at 97½ bid on volume of over $24 million.

Charter Communications Inc.’s 5¾% notes due 2026 retreated by 3/8 point to close at 99¼ bid on volume of over $13 million.

Indicators stay lower

Statistical measures of junk market performance remained lower across the board on Thursday, their second consecutive weaker session, after having been higher all around on Tuesday; it was the third lower session in the last four trading days.

The KDP High Yield Daily Index slid by 21 basis points on Thursday to close at 63.64, after having been unchanged on Wednesday and up by 11 bps on Tuesday. It was the index’s second loss in the last four sessions.

Its yield widened by 7 bps on Thursday to 7.14% after having come in on Wednesday. It was the yield’s second widening in the last four sessions.

The Markit Series 25 CDX North American High Yield Index fell by 11/16 point to close at 99 7/16 bid, 99 9/16 offered, its second straight loss and third downturn in the last four trading days. On Wednesday, it had lost 9/16 point, in contrast to its 3/32 point gain on Tuesday.

The Merrill Lynch North American Master II High Yield index was off for a second consecutive session, finishing Thursday down 0.378%, after having eased by 0.001%. The index had risen by 0.322% on Tuesday.

Thursday’s loss widened its year-to-date deficit to 0.378% from 0.004% on Wednesday.

Funds fall by $809 million

Flows for high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – started the new year off on a negative note, posting their fourth net outflow in the last five weeks.

Some $809.1 million more left those funds in the form of investor redemptions than came into them during the week ended Wednesday, in sharp contrast to the $114.1 million inflow which had been reported last Thursday for the week ended Dec. 30. (See related story elsewhere in this issue).

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.