KCI prices, moves up; energy names battered as oil falls; Toys “R” Us trades up

By Paul Deckelman and Paul A. Harris

New York, Feb. 2 – After having taken two days off, the high yield primary market was back in business on Tuesday, as medical products manufacturer Kinetic Concepts Inc. priced a $400 million regularly scheduled forward calendar offering. Traders said the new bonds firmed in fairly busy aftermarket activity.

The traders also saw active dealings in last Thursday’s big two-part issue from Centene Corp.; however, unlike the past few sessions, this time, those bonds were seen having come off their previous peak levels.

Apart from those issues which have actually priced, syndicate sources said Acadia Healthcare Co. Inc. was getting ready to hit the road to market a $390 million bond issue this week.

Crude oil prices plunged for a second consecutive session, taking energy sector bonds such as Chesapeake Energy Corp., Energy Transfer Equity, LP, Energy XXI and California Resources Corp. down along with them.

On the upside, Toys “R” Us Inc.’s debt improved significantly after the company released higher expectations for its fiscal year and also said that it was working with advisers to deal with its capital structure.

Statistical measures of junk market performance were lower across the board for a second consecutive session on Tuesday. Those market gauges had fallen on Monday – their first lower session since Jan. 20 – after having pushed higher all around for a second straight session on Friday.

KCI prices tight

Kinetic Concepts Inc. and KCI USA, Inc., wholly owned subsidiaries of Acelity LP Inc., priced Tuesday's sole dollar-denominated deal, a $400 million issue of five-year first-lien senior secured notes (Ba3/BB-) that came at par to yield 7 7/8%.

The yield printed at the tight end of yield talk in the 8% area.

BofA Merrill Lynch was the left bookrunner. Credit Suisse, SunTrust, Goldman Sachs, Nomura and RBC were the joint bookrunners.

The San Antonio-based provider of wound care therapies plans to use the proceeds to pay off Acelity’s senior term E-2 credit facility due Nov. 4, 2016 and for general corporate purposes.

Acadia roadshow

Acadia Healthcare Co. Inc. plans to roadshow a $390 million offering of eight-year senior notes on Wednesday and Thursday.

The offering is expected to price late this week.

BofA Merrill Lynch and Jefferies are leading the acquisition financing.

Acadia climbs aboard a $1.82 billion active forward calendar containing a fistful of deals set to clear before the end of the week.

These include Endurance International Group Holdings Inc.’s $350 million offering of eight-year senior notes via left bookrunner Goldman Sachs.

The market awaits official talk, however initial guidance has the deal yielding 10 ½% to 11%, a trader said.

Elsewhere Manitowoc Food Service is marketing a $425 million offering of eight-year senior notes with initial guidance of 10%, the trader said.

And Manitowoc Cranes is on the road with a $250 million offering of eight-year senior secured second lien notes with initial guidance of 10½% to 11%, the trader said.

Goldman Sachs is also lead left on both Manitowoc deals.

LeasePlan brings €1.55 billion

In the European primary market Netherlands-based vehicle leasing company LeasePlan Corp. NV plans to start a full cross-border roadshow on Wednesday in Europe for a €1.55 billion three-part offering of senior secured notes (expected ratings B1/BB+/BB-).

The deal is coming in tranches of euro-denominated and dollar-denominated five-year notes, and euro-denominated seven-year notes.

Tranche sizes remain to be determined.

The deal roadshows in the United States in the week ahead.

Marketing is set to wrap up on Thursday, Feb. 11.

Joint bookrunner JPMorgan will bill and deliver. Goldman Sachs, Credit Suisse and ING are also joint bookrunners.

Proceeds will be used to fund the buyout of the Flevoland, Netherlands-based company by a consortium of investors (see related story in this issue).

Alliance Automotive tap

Elsewhere Alliance Automotive Finance plc talked a €50 million add-on to its 6¼% senior secured notes due Dec. 1, 2021 (existing ratings B1/B+) at 101.75 to 102.25 on Tuesday, according to a market source.

Timing was accelerated. Books were scheduled to close at 11 a.m. ET Tuesday, and the deal was set to price thereafter. Previously the offer was expected to be in the market overnight and price on Wednesday.

Although terms had not widely circulated as of the Tuesday close, the buzz in the market held that the deal was done at 102.25, the rich end of talk, a London-based sellsider said late in the London evening.

Credit Suisse is the lead left bookrunner. Royal Bank of Scotland and UBS are joint bookrunners.

Outflows

The cash flows of the dedicated high yield bond funds were negative on Monday, the most recent session for which data was available at press time, according to a trader.

High yield ETFs saw $52 million of outflows on the day.

Asset managers sustained $40 million of outflows on Monday.

Dedicated bank loan funds, meanwhile, saw $155 million of outflows on the day.

KCI bonds climb

In the secondary arena, the new Kinetic Concepts 7 7/8% secured notes due 2021 managed to see some aftermarket action, even though the issue had priced late in the session.

A market source pegged the new bonds at 101¾ bid, well up from their par issue price.

He said that more than $13 million of the issue had changed hands.

Centene bonds stay busy

Among recently priced issues, both halves of last Thursday’s megadeal from Centene Corp. continued to trade busily on Tuesday.

A market source said that its 5 5/8% notes due 2021 were going home around 101 5/8 bid, down 1/8 point on the session. Volume in the issue was about $24 million.

Its 6 1/8% notes due 2024 were meantime seen off ¼ point on the day, at 102½ bid, on turnover of around $17 million. Both were busy enough to end up listed among the day’s most active issues, as had been the case on Monday, when $14 million and $17 million, respectively, had traded about 1/8 point higher on the day.

Centene, a St. Louis-based healthcare company, had priced $1.4 billion of the 5 5/8% notes and $1 billion of the 6 1/8% notes late in the session on Thursday in what primaryside sources widely called “a blowout.”

That regularly scheduled forward calendar offering was upsized from an originally announced $2.27 billion, and both halves of the solidly oversubscribed issue – the biggest high yield issue of the year so far – ended up pricing almost 1 full point tighter than initial price talk, a reflection of avid investor interest.

That interest was also reflected in initial aftermarket dealings in both of the tranches, with over $128 million of the five-year notes and over $152 million of the eight-year paper having traded on Friday, easily dominating the day’s Most Actives list.

The five-year notes moved up to 101 5/8 bid in Friday trading, while the eight-years jumped to 102 5/8 bid.

Market seen lower

Away from the new or recently priced deals, traders said that Tuesday’s market was definitely lower, in line with a slide in equities largely linked to the continued troubles in the energy space – a disappointing spending forecast from global oil major ExxonMobil Corp. and a second consecutive session of sliding crude oil prices. That pulled indexes like the market bellwether Dow Jones Industrial Average down by 295.64 points, or 1.80% , to 16,153.54, its second straight loss after two straight gains before that.

Back in Junkbondland, a trader opined that “the market was weaker – but not too weak, just not trading up.”

With the day’s negative tone, he said that “people are hiding – this market is just so uncommitted.”

At another shop, a trader called the overall market “generically off maybe ½ point or so,” although he pointed out that some issues lost considerably more than that.

One such credit, he said was Frontier Communications Corp.’s 11% notes due 2025, which were “extremely active today, trading off between 1 and 1½ points” and going out with a 94-handle.

He said that the Stamford, Conn.-based wireline telecommunications company’s issue “is one of those high-beta names that we see trade whenever there’s volatility in the market, so it’s usually a pretty good gauge of those beta-type names.”

Another market source also saw busy trading in those FTR 11s, calling them down 1 3/8 points on the day, at 94½ bid, on volume of more than $37 million – tops among the purely junk-rated issues.

Energy on the downside

With crude oil prices once again taking their lumps, most energy credits were being pushed lower.

One of the busiest bonds in that space was Chesapeake Energy’s 8% notes due 2022, which were seen by a market source down ½ point on the day, at 42¼ bid. More than $26 million of the Oklahoma City-based oil and natural gas exploration and production company’s notes changed hands.

Chesapeake’s 3¼% notes – which are scheduled to come due next month, on March 15 – were seen off by 5/8 point, closing at 92 3/8 bid, on volume of over $21 million.

Houston-based midstream operator Energy Transfer Equity’s 5 7/8% notes due 2024 were down by 3 points on the day, going home at 73½ bid, with more than $22 million traded.

Los Angeles-based E&P company California Resources’ 8% notes due 2022 were also down 3 points on the day, finishing at 36 bid, with over $12 million traded.

A trader said that Whiting Petroleum Corp.’s 5% notes due 2019 were off by “4½ points or so,” finishing around the 61 bid mark. More than $17 million of the Denver-based oiler’s bonds were traded.

He also saw Houston-based Oasis Petroleum’s 6 5/8% notes due 2022 off by 2½ bid, in the 56 area.

But maybe the day’s worst performer in the energy space was Energy XXI’s 9¼% notes due 2017, which started the day at a deeply distressed price of 6 – and lost almost all of its remaining value, falling by 5 7/8 points, to just 12.5 cents – on volume of over $12 million.

March West Texas Intermediate crude, the U.S. benchmark grade, plunged by $1.74 per barrel in Tuesday trading on the New York Mercantile Exchange, to $29.88, on top of its $2 per barrel slide on Monday, while global benchmark Brent Crude for April delivery, the new front month, slid by $1.52 per barrel in Tuesday dealings on the London ICE Futures Exchange, settling at $32.72, after having fallen by $1.75 on Monday.

Cenveo on the slide

Late in the session, traders saw a big drop in Cenveo Corp.’s 11½% notes due 2017. The Stamford, Conn.-based printing company’s bonds, which had closed on Monday around the 64 level, had opened 10 points lower and had descended further all the way down to 49¼ bid at the close, a loss of 15 points, with over $10 million traded.

There were no immediate indications of what was driving the big loss.

Toys trades up

One of the day’s few names on the upside was Wayne, N.J.-based toy, game and children’s products retailer Toys “R” Us.

Its term loan B-4 jumped to 80 bid, 83 offered from 77 bid, 79 offered following the company’s disclosure that it has commenced a process to refinance its capital structure, a trader remarked.

In the bonds, a trader saw the 8½% notes due 2017 gaining 3 points to 95½, on “a handful of trades.”

Another market source pegged the 7 3/8% notes due 2018 at 74 bid, up 9 points.

“Toy bonds were a bit better,” yet another trader said, seeing the 8½% notes climbing 3 points to 95.

In a statement out Tuesday, the company said that it is working with BofA Merrill Lynch, Goldman Sachs and Lazard to assist in the refinancing process.

In the news release, the company also disclosed that adjusted EBITDA for the fiscal year ended Jan. 30 is expected to be about $780 million, an improvement of 21% from the prior year’s reported adjusted EBITDA of $642 million.

Same-store sales were up 2% during the holiday season.

The refinancing process is underway “in light of the positive business momentum reflected in the estimated financial results for the fiscal year,” the release added.

Though leverage is still on the high side at over 7 times and over $1 billion in debt maturing in 2017, Gimme Credit LLC analyst Kim Noland said things were looking up for the retailer in an afternoon comment published Tuesday.

“Importantly, management said it will begin to address a capital structure refi in the first half of this year, and the outlook is more positive given the decent holiday performance,” she wrote.

Indicators fall again

Statistical measures of junk market performance were lower across the board for a second consecutive session on Tuesday. Those market gauges had fallen on Monday – their first lower session since Jan. 20 – after having pushed higher all around for a second straight session on Friday.

The KDP High Yield Daily Index lost 29 basis points on Tuesday to end at 62.82 – their second decline in a row after seven straight gains, which, in turn, had followed a seven-session losing streak before that. On Monday, the index had fallen back by 4 bps.

Its yield, meanwhile, jumped by 12 bps on Tuesday, to 7.33%. It was the second consecutive widening after seven straight sessions before that during which the yield had come in. On Monday, the yield had risen by 2 bps.

The Markit Series 25 CDX North American High Yield Index plunged by 1 full point on Tuesday, ending at 98 9/16 bid, 98 5/8 offered, its second loss in a row after two straight gains and its third loss in the last five sessions. On Monday, it had retreated by 5/32 point.

The Merrill Lynch North American High Yield Master II Index posted its second straight loss, after having risen over the previous seven sessions. It was down by 0.504%, after having eased by 0.19% on Monday.

The setback raised the index’s year-to-date loss to 2.263% from Monday’s 1.768%, although the cumulative loss still remains well down from the index’s worst red-ink level for the year so far, the 4.095% deficit seen on Jan. 20.

Stephanie N. Rotondo and Sara Rosenberg contributed to this review.

© 2015 Prospect News.
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