Primary sees most active week in 2018; Verscend prices; Herbalife, Marriott trade up

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 10 – The high-yield primary market rounded out its most active week so far this year with the pricing of a $1.1 billion deal.

The Aug. 6 week saw a total of $9.83 billion price, the heaviest volume week of 2018, which has seen new deal volume lagging by up to 30% compared to 2017.

Verscend Holding Corp. put the wrapper on the week and priced a downsized $1.1 billion issue of eight-year senior notes (Caa2) at par to yield 9¾% on Friday.

There is a modest forward calendar for the coming week with CURO Group Holdings Corp. in the market with a $675 million offering and Frontdoor Inc. expected to price a $350 million offering.

Envision Healthcare Corp. is expected to bring a $2.15 billion deal after Labor Day.

While trading volume was light on Friday, the $4.63 billion in new paper that priced on Thursday was in focus in the secondary space with mixed results.

HCA Inc.’s 5 3/8% notes due 2026 and 5 5/8% notes due 2028 (Ba2/BB-) were hovering around par in secondary trading.

BMC Software.s 9¾% senior notes due 2026 (Caa2/CCC+) were also largely trading at par, sources said.

The multi-billion dollar deals entered the space on a day that was generally heavy in tone amid light trading volume.

However, Marriott Vacations Worldwide Corp.’s 6½% senior notes due 2026 (S&P: BB-) were trading up in decent volume.

Herbalife Nutrition Ltd.’s 7¼% senior notes due August 2026 (B1/BB-) remained strong in the secondary market with the notes continuing to trade about 1 point over their issue price.

Meanwhile, Sanchez Energy Corp.’s junk bonds continued to fall with the notes seen down another 5 to 6 points on Friday. The notes have been on a steady decline since the company reported second-quarter earnings on Tuesday.

Verscend downsizes

Verscend Holding priced a downsized $1.1 billion issue of eight-year senior notes (Caa2) at par to yield 9 ¾% on Friday.

The deal was cut from $1.15 billion. Meanwhile, Verscend increased its concurrent term loan by $50 million to $3,215,000,000 from $3,165,000,000.

The bond deal printed at the wide end of the 9½% to 9¾% yield talk.

Prior to official talk circulating, earlier whisper was in the context of the 9¼% area and then 9¼% to 9½%, sources said.

The acquisition financing deal also underwent covenant changes bearing primarily upon how the company may disburse cash and incur additional debt, a trader said.

JP Morgan, Deutsche Bank and Macquarie Capital were the joint bookrunners.

2018’s biggest week to date

Just as market watchers were preparing to roll in the awnings on the high yield primary and await its expected reactivation in early September, the first full week of the normally quiet month of August – the Dog Days of the debt capital markets – saw the market’s biggest weekly total of issuance, year-to-date at $9.83 billion.

The Aug. 6 week generated $1.17 billion more than the second biggest week year-to-date, the week of Jan. 15, which saw $8.66 billion.

In fact, the market has not seen a bigger week than the past one since the week of Dec. 4, 2017, which saw $10.45 billion of dollar-denominated issuance.

Thin calendar

Whether the torrid pace of the past week will carry into the week of Aug. 13 remains to be seen.

There is a modest active calendar.

CURO Group Holdings is in the market with $675 million seven-year senior secured notes (B3/B-) via Jefferies.

Early talk is 8% to 8¼% on the deal, which is expected to price early in the week ahead.

And Frontdoor is expected to price a $350 million offering of eight-year senior notes (B2/B-) on Tuesday. JP Morgan has the lead.

Whether the primary market sleepwalks into the Labor Day holiday weekend or continues to crank at the substantial volume of the Aug. 6 week, the post-Labor Day period should be busy, sources say.

One issuer expected to come right after Labor Day is Envision Healthcare with $2.15 billion of high-yield bonds.

In the interim, dealers are expected to attempt to syndicate $2.15 billion of bridge loan debt backing the bonds, which is intended to support the buyout of Envision Healthcare by KKR.

As reported, Citigroup is expected to lead the bridge syndication effort.

Envision Healthcare bears more than passing resemblance to the past week’s deal from BMC Software which saw $1,475,000,000 of 9¾% notes and €301.5 million of 8 3/8% notes price at par after extensive covenant concessions to investors, sources said.

Both are KKR LBO deals and both come with high leverage, sources say.

HCA at par

HCA’s $2 billion two-tranche offering saw a lackluster performance in the secondary space with the notes largely stuck at par.

The 5 3/8% notes due 2026 and 5 5/8% notes due 2028 were seen at 99 7/8 bid, par offered Friday afternoon.

The deal “priced on the screws,” traders said.

HCA priced $1 billion of eight-year notes at par to yield 5 3/8%, The yield printed at the tight end of yield talk set in the 5½% area and inside initial guidance set in the 5 5/8% area

HCA also priced $1 billion of 10-year notes at par to yield 5 5/8%.

The yield printed at the tight end of yield talk announced in the 5¾% area and inside initial guidance announced in the 5 7/8% area.

The deal was said to be “massively oversubscribed” with orders coming in at four times the book size, sources said.

BMC at par

BMC’s dollar-denominated tranche from its $1,825,000,000 equivalent dual-currency offering was also wrapped around par in trading activity on Friday.

While the 9¾% notes due 2026 were seen at par 1/8 bid early in the session, they largely traded at par into the afternoon.

The deal was said to have experienced some pushback and, while there were covenant changes, it did not price excessively cheap, a trader remarked.

The roadshow for the deal ended on Wednesday in Los Angeles, where it played to an enthusiastic audience, the trader said.

BMC priced two tranches of eight-year senior notes (Caa2/CCC+) on Thursday, which included a $1,475,000,000 tranche and a €301.5 million tranche.

The dollar-denominated tranche priced at par to yield 9¾%. The yield printed at the wide end of yield talk announced in the 9 5/8% area and in the middle of initial guidance set in the 9¾% area.

The euro-denominated tranche priced at par to yield 8 3/8%. The yield came in the middle of the 8¼% to 8½% yield talk and at the wide end of initial talk that was set in the 8¼% area.

Marriott trades up

Marriott Vacation’s new 6½% senior notes due 2026 were putting in a strong secondary market performance.

The notes were seen at par ½ bid early Friday. They continued to improve in active trading as the session progressed. The notes were seen at par 5/8 bid, par 7/8 offered later in the afternoon.

Marriott priced a $750 million issue of the notes at par on Thursday.

The yield came 12.5 basis points inside the tight end of yield talk that was set in the 6¾% area but in the middle of initial price talk set in the 6½% area.

Herbalife strong

Herbalife’s 7¼% senior notes due 2026 remained strong in the secondary space on Friday although the notes were down slightly from Thursday’s levels.

While the notes were seen at par 7/8 bid Friday morning, they continued to trade around 101, a market source said.

Herbalife priced a $400 offering of the notes (B1/BB-) at par to yield 7¼%.

The yield printed at the tight end of the 7¼% to 7½% yield talk and tighter than to initial guidance announced in the mid-to-high 7% area.

Sanchez Energy still falling

The clobbering of Sanchez Energy’s junk bonds continued on Friday with the notes down another 5 to 6 points on the day.

Sanchez Energy’s 6 1/8% senior notes due January 2023 were offered at 54½ on Friday morning. They were seen trading as low as 53 but closed the day around 54.

The notes were down about 15 points on the week. They opened Monday at 69¼, according to Trace data.

Sanchez Energy’s 7¾% senior notes due June 2021 were down to 70¼ bid early Friday. They continued to trade down as the day progressed closing the week at 67½.

The notes were down more than 20 points on the week. They opened Monday at 88, according to Trace data.

The notes have been on a steady decline since the company’s second-quarter earnings report on Tuesday.

Sanchez saw a large earnings miss in the second-quarter with a loss of 26 cents per share versus analyst expectations of a loss of 6 cents.

The large loss was attributed to its hedging activities.

Sanchez said in an investor presentation that it has more than 20,000 barrels a day of oil hedged in the second quarter at $52.61 a barrel, well below market prices.

The Houston-based company also reported production declines which it attributed to poor well performance and new completion technology.

Thursday inflows

The daily cash flows of dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, an investor said.

High-yield ETFs saw $72 million of inflows on the day.

Actively managed funds saw $20 million of inflows on Thursday, the source added.

Those daily flow numbers come on the heels of a $828 million amount of net inflows to the dedicated high yield bond funds for the week the Wednesday, Aug. 8 close, according to a weekly report from AMG Data Services.

Factoring that inflow, cumulative outflows for 2018 to date come to $18.39 billion to Wednesday’s close.

There have been 11 inflows and 21 outflows in the 32 weeks to date in 2018, according to the Prospect News analysis.

Indexes down

Three benchmarks for the high-yield secondary market closed the week down after a mixed performance on Thursday.

The KDP High Yield Daily index was down 10 basis points to close Friday at 70.44 with the yield now 5.84%. With the index down 7 bps on Thursday, the gains seen earlier in the week were wiped out.

The index was up 1 bps on Wednesday, 7 bps on Tuesday and 3 bps on Monday.

The Merrill Lynch High Yield index broke an almost two-week stretch of consecutive gains on Friday.

The index was down 15.1 bps with the year-to-date return now 1.479%. The index was up 2 bps on Thursday, 1.9 bps on Wednesday, 15.9 bps on Tuesday and 9.1 bps on Monday.

The CDX High Yield 30 index was down 27 bps to close Friday at 106.83. The index was down 14 bps on Thursday, its first day of losses for the week.

The index was flat on Wednesday, up 10 bps on Tuesday and up 4 bps on Monday.

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