Restructured Kindred megadeal prices; iHeart jumps on asset sale; funds lose $1.89 billion

By Paul Deckelman and Paul A. Harris

New York, Dec. 11 – After a one-day hiatus, year-end pricing activity in the high-yield primary sphere resumed on Thursday, with what will probably be the last megadeal-sized transaction of the year.

Syndicate sources said that Kindred Healthcare Inc. priced its $1.35 billion two-part issue, consisting of five-year and eight-year notes. Traders reported no immediate aftermarket activity in the health-care facilities operator’s new deal, which priced late in the session.

Kindred was the sole dollar-denominated junk deal to price. The syndicate sources also noted that hearing instrument manufacturer Siemens Audiology Solutions priced a downsized euro-denominated eight-year deal.

Back in the dollar market, the sources noted the lingering presence of two more potential issues on the forward calendar, for Global Cash Access Holdings Inc. and Real Alloy Holding Inc., which likely would be the final deals of the year, should they be priced – by no means a certainty given the currently difficult market conditions.

Away from the new deals, the energy names – whose recent slide has been largely responsible for those unsettled market conditions – seemed to take a backseat on Thursday. Only California Resources Corp.’s 2024 bonds were seen among the Most Actives, slipping a little on heavy volume.

Instead, other types of credits were busy, with the standout performer being iHeart Media, Inc.; the broadcaster’s bonds jumped in busy dealings on the news of a sizable asset sale.

Statistical market-performance measures remained lower across the board on Thursday, as they had been on Wednesday.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – meanwhile posted a huge net outflow in the latest week, their second consecutive such large downturn. They were seen down by $1.885 billion in the latest reporting week, on top of the previous week’s $859 million outflow.

Kindred prices $1.35 billion

Two deals priced during the Thursday primary market session.

Kindred Healthcare Inc. completed a restructured $1.35 billion two-part senior notes transaction (B2/B-/).

The final tranche sizes saw $50 million of proceeds shifted to the shorter-duration five-year notes from the eight-year notes.

The deal included an upsized $750 million tranche of non-callable five-year notes that priced at par to yield 8%. The tranche was upsized from $700 million. The yield printed at the wide end of the 7¾% to 8% yield talk.

The five-year notes tranche was announced at the same time the company withdrew a proposed tranche of 10-year notes from the financing.

A downsized $600 million tranche of eight-year notes priced at par to yield 8¾%. The tranche was downsized from $650 million. The yield printed 12.5 basis points beyond the wide end of yield talk in the 8½% area. In a structural change, the first call premium was increased to par plus 75% of the coupon, up from 50%; the notes become callable after Jan. 15, 2018 at 106.563.

Citigroup was the left bookrunner for the acquisition financing. J.P. Morgan, Guggenheim and Morgan Stanley were the joint bookrunners.

Downsized Siemens prices tight

Auris Luxembourg II Sarl, the holding company for Siemens Audiology Solutions, priced a downsized €275 million issue of eight-year senior notes (Caa1/B-) at par to yield 8%.

The deal was downsized from €315 million, with €40 million of proceeds shifted to the term loan B.

The yield printed at the tight end of the 8% to 8¼% yield talk.

Joint bookrunner Deutsche Bank will bill and deliver. Goldman Sachs and UBS were also joint bookrunners.

Proceeds will be used to fund the acquisition of Siemens Audiology Solutions from Siemens AG by a group of investors led by EQT VI and Santo Holding.

Dwindling calendar

Friday might be the final day of new issue activity for 2014, market sources have been warning since late in the Dec. 1 week.

Portfolio mark-downs related to the dramatic collapse of crude oil prices and negative cash flows lately seen by the high-yield funds have incentivized junk bond investors to want to call it a year, sources say.

Coaxing the buyside off the sidelines, at present, is expensive business, they add, explaining that issuers can expect to pay up for trying to sell bonds in the run-up to the new year, in the face of such investor reticence.

Two deals remained on the active forward calendar at Thursday's close.

Global Cash Access Holdings Inc. began roadshowing a $700 million two-part offering of high-yield notes a week ago, aiming to price the deal late this week.

The offering features a $350 million tranche of senior secured notes due March 15, 2021 (B1/B+) and a $350 million tranche of senior unsecured notes due Jan. 15, 2022 (Caa1/CCC+).

BofA Merrill Lynch and Deutsche Bank are the joint bookrunners.

No formal price talk had been circulated as of the Thursday close, sources said.

And the Real Alloy Holding Inc./Signature Group Holdings, Inc. $300 million five-year senior secured notes deal is overdue, according to the timeline set forth when the deal was announced during the Dec. 1 week, sources say.

Again, no formal price talk has circulated.

Meanwhile, they add, other deals that had been contemplated as late 2014 business have been pushed into the New Year due to market conditions.

Kindred not immediately seen

In the secondary arena, traders said the relative lateness of the hour precluded any immediate aftermarket activity in the new Kindred Healthcare Escrow Corp. II notes that priced Thursday afternoon.

The Louisville, Ky.-based hospital and health-care facilities operator’s existing 6 3/8% notes due 2022 were meanwhile seen unchanged at 93¼ bid, a trader said, “with just a couple of million traded.”

The traders did not see a lot of activity among the other deals that priced earlier in the week. All of them eased a little from Wednesday’s levels, in line with a generally softer junk market.

One trader said that CBRE Group Inc.’s 5¼% notes due 2025 were being quoted down about ½ point on the day at 101¾ bid, 102¾ offered.

That still left them above the 101.5 level at which the Los Angeles-based commercial real estate firm had priced its quickly shopped $125 million add-on issue on Tuesday.

Westmoreland Coal Co.’s 8¾% senior secured first-lien notes due in January of 2022 were seen down ¼ point on the day in relatively sparse trading, finishing at 98¾ bid, 99½ offered. At another desk, they were quoted likewise down ¼ point, at 98½ bid, 99 offered, a little off from the 98.708 level at which the Englewood, Colo.-based coal producer had priced its downsized $350 million issue on Monday as a regularly scheduled forward calendar offering to yield 9%.

OneMain Financial Holdings Inc.’s 6¾% notes due 2019 and its 7¼% notes due 2021 were both going home at 99¾ bid, 100¼ offered, a trader said, down ¼ point and ½ point, respectively.

The Baltimore-based consumer lending company – the former CitiFinancial – priced $700 million of the 2019 notes and $800 million of the 2021 notes, both at par, on Monday, coming off the calendar.

Both tranches, along with the new Westmoreland Coal bonds, had been among Junkbondland’s most active issues when they were freed for trading on Tuesday, but activity in all of that paper had trailed off by Wednesday.

Energy relatively steady

In contrast to the trading seen earlier in the week, falling energy issues were not among the volume leaders, with one significant exception.

A market source said that California Resources’ 6% notes due 2024 were among the most active, with over $47 million of those notes having changed hands. He quoted them off ¼ point on the day, at 83¼ bid.

The Los Angeles-based oil and natural gas exploration and production company’s notes were “only down ¼ [point], another trader said, while a third agreed that overall, recently active and volatile energy credits such as Halcon Resources Corp., SandRidge Energy Inc., Midstates Petroleum Co. and Energy XXI Ltd. among the oilers and Cliffs Natural Resources Inc. among the coal names, to cite just a few, were relatively inactive and little changed on Thursday.

While oil bonds were mostly steady, crude oil prices themselves were anything but – the benchmark West Texas Intermediate crude broached the psychologically significant $60 per barrel barrier, falling 2.6% to end at $59.36, its lowest level since July 2009. Brent crude oil dropped 1.4% to $63.34.

Market (hearts) iHeart

With the focus turned elsewhere, at least temporarily, iHeart Media was the star of the session, with several of its bond issues – originally sold when the San Antonio-based broadcasting and outdoor advertising company was still Clear Channel Communications Inc. – seen multiple points higher in active dealings on news of an asset sale.

More than $50 million of its 14% notes due 2021 changed hands, with one market source pegging those bonds up 1¾ points at 78 bid, and another seeing them finishing at just over 78½, calling them up 2 5/16 points.

Its 10% notes due 2018 gained 2¼ points to end the day at 78 bid, with over $17 million traded, although its 9% notes due 2021 actually lost a little ground on the session, closing at 94½ bid, down ¾ point, on $9 million of turnover.

The company announced a sale-leaseback transaction for a select portfolio of its tower assets to Vertical Bridge for up to $400 million. The transaction is subject to due diligence and other customary closing conditions.

The iHeart Nasdaq-traded shares gained 34 cents, or 4.75%, to end at $7.50. Volume of over 14,000 shares was almost three times the norm.

Rayonier is rocked

On the downside, a trader noted that Rayonier A.M. Products Inc.’s 5½% notes due 2024 slid by 8 points on Thursday to end at 84¼ bid, after going as low as 83 7/8. Volume was $7 or $8 million.

He said the plunge in the Jacksonville, Fla-based specialty wood pulp manufacturer’s paper “jumped out of nowhere”; he said its only recent news seemed to be the appointment of a new chief financial officer.

Indicators remain lower

Statistical indicators of junk market performance remained lower on Thursday; they had turned lower on Wednesday after having been mixed on Tuesday. They were down all around for the fourth session in the last five.

The KDP High Yield Daily index suffered its fifth straight loss, as it nosedived by 25 basis points to end at 70.31, its third consecutive new low for the year. On Wednesday, the market measure had fallen by 17 bps, on top of Tuesday’s plunge of 35 bps.

Its yield rose by 7 bps to 6.1%, its fifth straight widening; on Wednesday, it had ballooned out by 21 bps, and it had shot up by 11 bps on Tuesday.

The Markit CDX North American High Yield Series 23 index saw its second consecutive loss, retreating by 7/16 point to 105 3/32 bid, 105 5/32 offered, after having dropped by 23/32 point on Wednesday. Thursday’s setback was the index’s fifth in the last six sessions.

The Merrill Lynch U.S. High Yield Master II index posted its fifth successive downturn on Thursday, declining by 0.245% on top of Wednesday’s 0.399% retreat.

The latest loss dropped its year-to-date return to 1.466% from Wednesday’s 1.716% finish.

Wednesday’s close was its lowest since Feb. 12, 2014, when it ended at 1.442%.

The year-to-date return also remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

Several other index components notched new marks for the year. Its yield to worst rose to a fourth consecutive new high for the year at 6.839% from the previous high of 6.765% on Wednesday.

Its spread to worst rose to 533 bps over comparable Treasuries, its fourth consecutive new wide point of the year. On Wednesday, it had risen to 529 bps.

And its average price fell to 98.26579, its fifth straight new low for the year, from 98.53176 on Wednesday.

According to the Finra-Bloomberg Active US High Yield Bond index, junk market volume rose on Thursday to $4.606 billion from $4.195 billion on Wednesday, which had been its fifth decline in the last six sessions.

Funds fall by $1.885 billion

High yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a huge net outflow in the latest week, their second consecutive such large downturn.

Market sources said that some $1.885 billion more left those weekly-reporting-only funds than came into them during the week ended Wednesday, on top of the $859 million outflow reported the previous Thursday for the week ended Dec. 3 (see related story elsewhere in this issue).

Before the numbers came out, an analyst speculated that the latest week’s outflow would likely come in north of $1.5 billion. A high-yield trader at another shop agreed, saying that “we’ve seen accounts having to raise cash all week – so I’m expecting an outflow number at or bigger than what we saw last week.”

“I would expect it to be a much bigger number, because every day of the week, accounts have been raising cash for redemptions.”

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