Virgin Media, split-rated Masco deals price, Fortescue shelves offering; energy still fading

By Paul A. Harris and Paul Deckelman

New York, March 17 – The high-yield primary market continued along on Tuesday on the same semi-relaxed pace noted on Monday.

High-yield syndicate sources said there was just one tranche of dollar-denominated, fully junk-rated new bonds priced during the day, a $500 million offering of 11-year notes from British cable, phone and internet provider Virgin Media, which also priced a euro-denominated 12-year issue.

The new dollar bonds traded actively, moving up slightly from their par issue price.

The only other dollar-denominated pricing of the day was not a junk bond, strictly speaking, but a split-rated offering from Masco Corp., a provider of cabinets, plumbing fixtures and other products for home construction or improvement. Its $500 million of 10-year notes moved higher in active aftermarket dealings.

The day’s tally of new junk-only bonds was meanwhile a little bigger than the $400 million that had priced on Monday; that deal, from building materials supplier Vulcan Materials Co., meanwhile firmed smartly in busy dealings.

And there was continued sizable trading in the three huge tranches of bonds that Canadian drugmaker Valeant Pharmaceuticals International Inc. priced on Friday.

One deal that’s not getting priced – at least for now – is Australian iron ore producer Fortescue Metals Group Ltd.’s $2.5 billion seven-year secured offering, with the sources hearing that the megadeal had been postponed.

Recently priced energy names such as Energy XXI Gulf Coast Inc. and more established credits in that same sector such as Chesapeake Energy Corp. continued to get beat up as oil and natural gas prices continued to slide.

Statistical indicators of junk market performance turned lower on Tuesday after having been mixed on Monday. It was the second downside day in the last three sessions.

Virgin Media two-parter

Virgin Media priced the only dollar-denominated tranche of junk to clear the market on Tuesday.

It came in a two-part offering of senior secured notes (Ba3/BB-).

The $500 million tranche of notes due Jan. 15, 2026 priced at par to yield 5¼%, on top of yield talk.

A downsized £525 million tranche of notes due Jan. 15, 2027 priced at par to yield 4 7/8%. The sterling-denominated tranche was downsized from £550 million. The yield printed at the wide end of yield talk in the 4¾% area.

Deutsche Bank was the left bookrunner for the debt refinancing. BofA Merrill Lynch, Barclays, BNP Paribas, Citigroup, Goldman Sachs, HSBC and SG CIB were the joint bookrunners.

IMS Health comes tight

In the euro-denominated primary market IMS Health Inc. priced a €275 million issuer of eight-year senior notes (expected B3/confirmed B+) at par to yield 4 1/8%, at the tight end of yield talk in the 4¼% area.

Goldman Sachs, BofA Merrill Lynch, Barclays, HSBC, J.P. Morgan and Wells Fargo were the joint bookrunners.

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

Masco split-rated deal

In the crossover market, Masco priced a $500 million issue of split-rated non-callable 10-year senior notes (Ba3/BBB/BB+) at par to yield 4.45%.

The yield printed five basis points beneath the midpoint of final yield talk in the 4½% area. Earlier talk was 4½% to 4¾%.

The deal came with early guidance in the mid-to-high 4% range, a market source said.

Citigroup, Deutsche Bank, JPMorgan, RBC and SunTrust were the bookrunners.

The Taylor, Mich.-based manufacturer of products for the home improvement and new home construction markets plans to use the proceeds for general corporate purposes, which may include working capital, debt repayment, acquisitions and investments in new or existing lines of business.

Infor price talk

Looking to the midweek session, Infor (US), Inc. set price talk in its $1.4 billion equivalent two-part offering of seven-year senior notes (B3/B-) on Tuesday.

The dollar-denominated notes are talked to yield 6¼% to 6½%.

The euro-denominated notes are talked to yield 5½% to 5¾%.

The deal is expected to price on Wednesday.

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.

VWR roadshow

VWR Corp. plans to roadshow a €500 million offering of seven-year senior notes on Wednesday and Thursday via sole bookrunner Goldman Sachs.

The Radnor, Pa.-based company plans to use the proceeds to refinance its 7¼% senior notes and its senior secured credit facility, which both mature in 2017, and with added liquidity to support its growth initiatives.

OHL talk

Spanish construction and concessions group Obrascon Huarte Lain SA (OHL) talked a €425 million offering of eight-year senior notes (B1//BB-) to yield 5½% to 5¾% on Tuesday.

The deal was expected to price on Tuesday, however no terms were available at press time, according to a market source.

Joint global coordinator and joint physical bookrunner Credit Suisse will bill and deliver. Royal Bank of Scotland and UBS are also joint global coordinators and joint physical bookrunners.

The Madrid-based company plans to use the proceeds to refinance debt and for general corporate purposes.

Modest positive flows

The most recent news on the cash flows of the dedicated high-yield funds is modestly positive, according to a trader.

On Monday, the most recent session for which data was available at press time, high-yield exchange-traded funds saw $41 million of inflows, while actively managed funds saw $20 million of daily inflows on Monday.

When Tuesday's numbers are reported, look for them to be negative, the trader warned.

To recap, the most recent weekly report from Lipper-AMG for the period encompassing the March 5 open to the March 11 close had dedicated high-yield funds sustaining $1.96 billion of outflows.

Virgin, Masco move up

In the secondary arena, traders saw some upside activity in the two deals that priced during Tuesday’s session – the dollar-denominated portion of Virgin Media’s two-part offering and the split-rated transaction from Masco.

A trader said that he saw the new Virgin Media Secured Finance plc 5¼% senior secured notes due 2026 “wrapped around par” after the Hook, England-based cable, fixed and wireless phone and internet broadband service provider’s $500 million tranche priced at par.

A second trader saw the notes moving around at bid levels between 99 13/16 and 100 3/8, finally settling in a 100 1/8-to100¼ bid context.

“Most of the trades had a par handle,” he said, “with a few prints below par.”

At another desk, a market source saw the new Virgin bonds having gained as much as ½ point on the day after pricing, on volume of over $42 million, making it one of the day’s busiest junk credits.

Building products manufacturer Masco’s split-rated 4.45% notes due 2025 were also seen having firmed in brisk trading, with over $32 million having changed hands. A trader quoted the notes at 100 7/8 bid, while a second saw them get as good as 101 bid before going home wrapped around 100¾ bid.

Vulcan bonds push higher

A trader saw Monday’s deal from Vulcan Materials trading between 100¼ and 100½.

However, a second trader saw those 4½% notes due 2025 having gotten up to 101 bid, a gain of ¾ point, on volume of over $23 million.

The Birmingham, Ala.-based producer of ready-mixed concrete, asphalt mix and construction aggregates such as sand, gravel and crushed stone priced $400 million of the notes at par in a quick-to-market transaction on Monday.

Valeant bonds stay busy

Friday’s giant-sized multi-part offering from Valeant Pharmaceuticals is “still trading pretty heavily,” a trader said Tuesday.

He saw the 5 7/8% notes due 2023 in a 100¾ –to-101 bid context, while its 6 1/8 % notes due 2025 were in the same 101¾-to-102 range where they were on Monday.

“They’re trading on decent volume,” he said, “but the price action has quieted down.”

Another trader said that some $36 million of the 5 7/8% notes were moving around, finishing at 100 5/8 bid, which he called down 3/8 on the session, while more than $32 million of the 6 1/8% notes traded. The latter bonds gained 3/16 point to end at 101 15/16 bid.

Valeant’s 5 3/8% notes due 2020 lost 3/8 point on the day, moving down to par bid, on volume of more than $18 million.

The Laval, Quebec-based drug manufacturer 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 equivalent from an originally announced $9.6 billion equivalent, while also doing a two-part $4.15 billion secured bank loan deal, all to finance the acquisition of Salix Pharmaceuticals Ltd. The junk bond deal was the biggest so far this year and second-biggest junk offering ever.

Energy angst continues

Energy issues continued to get smacked around on investor worries about the sector in the wake of continued oil priced weakness, with benchmark West Texas Intermediate crude for April delivery falling 75 cents, or 1.71%, to $43.13 per barrel on the New York Mercantile Exchange, while Brent crude lost $1.23, or 2.25%, to end at $53.44.

Among the names being pushed lower was the recently priced Energy XXI 11% notes due 2020, which lost ¼ point to end at 92¼ bid on volume of more than $54 million, Junkbondland’s busiest credit of the day. The Houston-based oil and natural gas exploration and production company’s $1.45 billion deal priced at 96.313 on March 5 to yield 12%.

Its fall since then has been typical of energy credits – raising the question of whether that may keep other energy operators from coming to the junk market as long as such conditions are unsettled.

A trader feels the answer is – not necessarily.

“They’re coming in with second-lien deals and other ways to fit debt in there and get their stuff done.

“So they’re finding ways – but with oil down nearly another dollar today, trading with a $43 handle, obviously, that’s not going to do well for energy-related type names. The supply glut we’re seeing in oil is just causing continued pressure – and it could go lower.”

The new deals aren’t the only energy issues getting hammered; established bonds from familiar names like Chesapeake Energy were also pushed lower, with the latter’s 4 7/8% notes due 2022 losing ¼ point on the day to 93¾ bid, with more than $22 million of the bonds traded.

Indicators turn lower

Statistical indicators of junk market performance turned lower on Tuesday after having been mixed on Monday. It was the second downside day in the last three sessions.

The KDP High Yield Daily index slid by 17 basis points on Tuesday to 70.85, its third straight downturn. It had also dropped by 10 bps on Monday after having slid by 16 bps on Friday. Tuesday’s loss was also its 10th retreat in the last 12 sessions.

Its yield meanwhile rose by 7 bps to 5.41%, its third consecutive gain. It had been up by 2 bps on Monday and 5 bps on Friday as well. Tuesday’s gain in the yield was its 10th such widening in the last 12 sessions.

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

The Merrill Lynch U.S. High Yield Master II index saw its third straight loss on Tuesday, dipping by 0.224%, on top of Monday’s 0.115% decline and Friday’s 0.287% retreat. The index has now lost ground in six sessions out of the last eight and in eight sessions out of the last 11.

Tuesday’s setback dropped its year-to-date return to 1.7% from the 1.928% seen on Tuesday, which had been the first time that cumulative return figure finished below the psychologically significant 2% level in exactly one month, having last been there on Tuesday, Feb. 16, when it closed at 1.963%.

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

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