Vulcan drives by; new Valeant bonds busy as Endo gives up on Salix; energy slide continues

By Paul A. Harris and Paul Deckelman

New York, March 16 – After Friday’s breathtakingly huge new-deal volume approaching the $9 billion mark, it was virtually inevitable that Monday’s session would be an anticlimax – and so it was.

Just one deal worth $400 million of dollar-denominated, fully junk rated 10-year notes came to market in a quickly-shopped transaction from Vulcan Materials Co., a Birmingham, Ala.-based construction materials producer. The new notes firmed slightly in busy initial aftermarket trading.

But as was the case during Friday, the three parts of Valeant Pharmaceuticals International Inc.’s giant-sized new offering were the most heavily traded Junkbondland credits of the day.

The Canadian drug manufacturer’s new five-, eight- and 10-year notes were seen unchanged to a little higher on the day, against a backdrop of big news in the company’s efforts to acquire Salix Pharmaceuticals Ltd. Valeant announced a sweetened all-cash bid for Salix, causing rival suitor Endo International plc to throw in the towel and withdraw its own takeover offer for Salix.

Valeant’s existing bonds were meantime seen lower with the Salix merger now essentially a done deal, since the company, beside doing its huge bond sale, is also putting several billion dollars of new secured bank debt into its capital structure ahead of those bonds, new and existing, to help finance the merger.

Away from the Valeant saga, there was also some activity in recently priced issues from United Rentals Inc., Energy XXI Gulf Coast, Inc. and Comstock Resources, Inc. The latter two names fell sharply, in line with the overall continued retreat of energy credits including California Resources Corp. and MidStates Petroleum Co. Inc. on another decline in crude oil prices.

Statistical indicators of junk market performance turned mixed on Monday, after having been lower across the board on Friday, higher all around on Thursday and mixed on Wednesday.

Vulcan Materials prices tight

A news-heavy Monday for the primary market saw a single deal price.

In a debt refinancing disclosed in documents filed earlier by the company but done as a drive-by execution on Monday, Vulcan Materials priced a $400 million issue of non-callable 10-year senior notes (Ba3/BB+) at par to yield 4½%.

The yield printed at the tight end of yield talk that had been set in the 4 5/8% area.

BofA Merrill Lynch was the left bookrunner. Wells Fargo, SunTrust and US Bancorp were the joint bookrunners.

Virgin Media in two currencies

Elsewhere the market heard news of deals coming on short timelines.

Virgin Media set price talk for a dual-currency offering of senior secured notes (expected ratings Ba3/BB-).

The deal, which was announced Monday and presented to investors on a conference call later in the day, features a £550 million tranche of senior secured notes due Jan. 15, 2027 talked to yield in the 4¾% area.

A $500 million tranche of senior secured notes due in Jan. 15, 2026 is talked to yield in the 5¼% area.

The debt refinancing deal is set to price on Tuesday.

Deutsche Bank is the left bookrunner. BofA Merrill Lynch, Barclays, BNP Paribas, Citigroup, Goldman Sachs, HSBC and SG are the joint bookrunners.

Fortescue talks $2.5 billion

Australian iron ore producer Fortescue, coming on a timeline similar to that of Virgin Media, talked its $2.5 billion offering of seven-year senior secured notes to yield 8% to 8¼.

The note offer was announced Monday morning after Fortescue withdrew a planned $2.5 billion seven-year term loan from the market.

The bond deal was subsequently shopped on a Monday investor conference call and is set to price Tuesday.

Joint physical bookrunner Credit Suisse will bill and deliver. J.P. Morgan is also a joint physical bookrunner.

The Perth, Australia-based company plans to use the proceeds to fund tender offers for all of its 2017 and 2018 senior notes and a portion of its 2019 senior notes, and for general corporate purposes.

Infor roadshows $1.4 billion

Infor (US), Inc. started a roadshow on Monday for a $1.4 billion equivalent two-part offering of seven-year senior notes (B3/existing B-).

The roadshow wraps up Wednesday and the debt refinancing deal, which is coming in tranches of dollar- and euro-denominated notes, is set to price after that.

Formal talk has yet to surface, but early guidance has the deal shaping up in a 6% to 6¼% yield context, according to a trader.

BofA Merrill Lynch is the left bookrunner. Angel Island, Credit Suisse, Morgan Stanley, Barclays, RBC, Deutsche Bank, Goldman Sachs and KKR are the joint bookrunners.

Paprec starts roadshow

The European market also generated a steady volume of news on Monday.

In addition to the above-mentioned sterling-denominated and euro-denominated tranches from Virgin Media and Infor, respectively, France’s Paprec Holding SA started a roadshow on Monday for a €480 million two-part green bond offering.

The deal includes €280 million of seven-year senior secured notes (expected ratings B1/B+) and €200 million of eight-year senior subordinated notes (expected ratings B2/B-).

The roadshow wraps up on Thursday and the deal is set to price subsequently.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas is also a global coordinator. Credit Agricole, Natixis and SG are joint bookrunners.

The Paris-based provider of recycling services plans to use the proceeds to refinance debt used to finance eligible green projects.

IMS Health roadshow

IMS Health Inc. is planning a roadshow for Tuesday in London to market a €275 million offering of eight-year senior notes (expected ratings B3/B+).

The deal is set to price after.

Goldman Sachs, BofA Merrill Lynch, Barclays, HSBC, JPMorgan and Wells Fargo are the joint bookrunners.

The Danbury, Conn.-based provider of information and technology services to the healthcare industry plans to use the proceeds to partially fund the acquisition of certain customer relationship management and strategic data businesses of Cegedim SA.

New Vulcan bonds firm

In the secondary arena, traders saw Vulcan Materials’ new 4½% notes due 2025 firming modestly when they hit the aftermarket.

One saw the notes at 100¼ – up ¼ point from their par pricing level – with over $24 million of those bonds having changed hands.

Senior analyst Carol Levenson, the director of research at the Gimme Credit investment advisory service, is positive on the new deal.

She said in a research note on Monday that while the company’s debt-reduction phase appears to be over – it had cut debt by more than $500 million last year, funded through asset sales, helping it take its leverage ratio of debt as a multiple of EBITDA down to 3.4 times from 5.5 times – the new deal will still “improve its financial flexibility and lower its interest costs considerably.”

Even though Vulcan’s achievement of its goal of returning to investment-grade status “is not imminent,” Levenson said, she cited the debt reduction that the company has achieved, as well as improved demand, volume and pricing for the aggregates that it sells – i.e. crushed stone, sand and gravel – in declaring “our favorable view of the credit remains intact” and predicting that the new issue will outperform.

Valeant again dominates market

But as was the case on Friday, Valeant Pharmaceuticals International’s new deal was once again the big name in the junk bond secondary market.

The Laval, Quebec-based drug manufacturer’s three tranches of dollar-denominated notes – which had priced on Friday as part of a four-part, $10 billion equivalent dollar- and euro-denominated megadeal, the biggest so far this year and second-biggest junk offering ever – “were active again today, with the news that they upped their cash bid to win the [Salix] takeover,” a trader observed.

He said that “the bonds traded up initially by at least 1 point to 1½ points, then kind of pulled back, so they were up ½ to 1 point on the day.”

He saw its 6 1/8% notes due 2025 finishing at 102 bid, the 5 7/8% notes due 2023 ending right around 101 bid, while the 5 3/8% notes due 2020 “wrapped around 100½.

“All three traded pretty heavy volume.”

A second trader saw the 10-year notes up by ½ point at 101 5/8 bid, 101 7/8 offered, while the other two issues were unchanged – the five-year notes in a 101 1/8 to 101 3/8 bid context, and the eight-years at 100 5/8 bid, 101 offered.

At yet another desk, a market source saw the 10-year notes and the eight-year paper sitting atop the high-yield Most Actives list on Monday, with over $84 million of each having changed hands. He pegged the 10-years at 101¾ bid and the eight-year notes at 101 bid, each up about ¼ point. He also saw the five-year notes at 100 3/8 bid, though that was down marginally from Friday’s trading level. About $43 million of the notes traded on Monday.

Valeant priced $2 billion of the five-year notes and $3.25 billion each of the eight- and 10-year notes at par on Friday, along with €1.5 billion of 4½% notes due 2023, also at par, as it enlarged its regularly scheduled forward-calendar offering to $10 billion from an originally announced $9.6 billion, while also doing a two-part $4.15 billion secured bank loan deal, all to finance the Salix acquisition.

All three dollar-denominated bond tranches had moved up in initial aftermarket dealings on Friday in heavy trading, with the five-years having racked up over $155 million of volume, the eight-years over $250 million and the 10-years more than $285 million of turnover.

Recent United Rentals active

Away from Valeant, a trader saw “a fair amount of activity” in United Rentals (North America), Inc.’s new 4 5/8% notes due 2023, quoting them about 1/8 point higher at 100 1/8 bid, on volume of more than $11 million.

The Greenwich, Conn.-based construction and heavy industrial equipment rental company priced $1 billion of those notes at par in a quick-to-market transaction last Thursday, along with $800 million of 5½% notes due 2025, which also priced at par.

New energy bonds off

There was also busy trading in some recently priced energy issues – which were seen on the downside in line with a continued fall in crude oil prices. The benchmark West Texas Intermediate grade for April delivery slid by $1.06, or 2.36%, to $43.78, on the heels of Friday’s 4% plunge.

A trader saw “good volume” in Energy XXI’s 11% notes due 2020, seeing them “a couple more points weaker” at 92½ bid.

A market source said that more than $29 million of the bonds traded. He also pegged them at 92½ bid, down 2 5/8 points.

The Houston-based independent oil and natural gas exploration and production company priced $1.45 billion of the notes at 96.313 on March 5, yielding 12%.

Comstock Resources’ new 10% notes due 2020 were off by 1½ points on Monday at 93 bid, on volume of more than $15 million.

The Frisco, Texas-based E&P company priced $700 million of the notes at par on March 4.

Besides those new bonds, existing energy issues were mostly lower, including California Resources’ 6% notes due 2024, seen ending off about ¾ point at 84 bid, 84¼ offered, after having been down more than a point earlier. MidStates Petroleum’s 10¾% notes due 2020 lost 2 1/8 points to end at 56¼ bid. Trading in both was brisk, with more than $25 million of the CalRes bonds seen changing hands and more than $17 million of MidStates’ issue.

Oil prices have nosedived, taking energy-related bonds down with them, as investors worry about weak crude prices amid a supply glut.

A trader saw a continuation of last week’s trend of more investors trying to sell oil and gas related credits.

He noted that “Cushing, Okla. – the real storage area – is 70% full.” Since the early 1980s, the central Oklahoma town – which boasts of being “The Pipeline Crossroads of the World” due to the numerous intersecting energy pipelines there and huge oil tank farms capable of storing more than 85 million barrels of crude, has been considered the delivery point for West Texas Intermediate crude oil contracts traded on the New York Mercantile Exchange.

“They’re running out of areas to store stuff [crude petroleum and its refined by-products],” he said. “You’re really going to have to have a slowdown in production because there’s nowhere to store the stuff. So that could be a real problem.”

Referring to recent news reports raising the possibility that the producers might charter tanker vessels from major operators and just have the oil sitting offshore until supplies are drawn down, he said it was possible – but termed it only “a temporary solution to a long-term problem.”

He continued that “even though you’re seeing the rig count continue to drop,” as many producers have announced plans to take drilling rigs offline in order to cut costs and lower production, “you’re really not seeing supplies dwindle at all. Now that they’re running out of storage space, it tells you that it’s probably likely that oil has another leg down.

“You had the drop from $100 [per barrel] to $42 over the last four months. Then it rebounded pretty dramatically to the $55-$60 area, and now you’re back to around $45.

So, could it test the lows again? Definitely.”

Indicators turn mixed

Statistical indicators of junk market performance turned mixed on Monday, after having been lower across the board on Friday, higher all around on Thursday and mixed on Wednesday.

The KDP High Yield Daily Index dropped by 10 basis points on Monday to 71.02, after having slid by 16 bps on Friday. Monday’s loss was its second downturn in a row and its ninth retreat in the last 11 sessions.

Its yield meanwhile rose by 2 bps to 5.44%, its second consecutive gain. It had been up by 5 bps on Friday as well. Monday’s gain in the yield was its ninth such widening in the last 11 sessions.

The Markit Series 23 CDX North American High Yield Index, though, was up by 3/32 point Monday to end at 107 9/32 bid, 107 5/16 offered, its second gain in the last three sessions. On Friday, the index had lost 3/8 point, its fourth such loss over the previous five sessions.

However, the Merrill Lynch U.S. High Yield Master II Index saw its second straight loss on Monday, dipping by 0.115%, on top of Friday’s 0.287% retreat. The index has now lost ground in five sessions out of the last seven and in seven sessions out of the last 10.

Monday’s setback dropped its year-to-date return to 1.928% from 2.046% on Friday – the first time that cumulative return figure has been below the psychologically significant 2% level in exactly one month, having last been there on Feb. 16, when it closed at 1.963%.

Monday’s close also remained down from its peak 2015 level of 3.125%, set exactly two weeks ago, on March 2.

© 2015 Prospect News.
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