Envision Healthcare eyed; California Resources remains in focus; Comstock gains; J.C. Penney pares losses

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 22 – The domestic primary market was again dormant on Wednesday with the sole new issue activity belonging to the Nordic market.

Teekay LNG Partners L.P. priced NOK 850 million (approximately $100 million) of five-year senior unsecured bonds on Wednesday.

Iceland-based low-cost air carrier WOW Air is seeking to place three-year senior secured floating-rate notes that will be issued as either euro- or Swedish krona-denominated bonds.

While no new deal activity is expected from the domestic primary market until after Labor Day, market sources are eyeing the anticipated $2.15 billion offering from Envision Healthcare Corp.

The anticipated Envision Healthcare deal is reminiscent of BMC Software’s 9¾% senior notes due 2026 (Caa2/CCC+) which was also an LBO deal driven by KKR’s acquisition of the company.

Meanwhile, trading volume remained light in the secondary space with the lack of an active calendar, a market source said. While the market remained well bid, it was quiet, the source said.

California Resources Corp.’s 8% senior secured second-lien notes due December 2022 remained active in the secondary space as the price of West Texas intermediate crude oil for October delivery jumped more than $2.

Comstock Resources, Inc.’s 9¾% senior notes due 2026 (Caa1/B/B) were active and making gains after S&P upgraded the oil and natural gas company.

J.C. Penney Co. Inc.’s longer duration junk bond pared some of their losses on Wednesday with the notes up about 2 points as the shorter duration bonds leveled after a sell-off last week.

Nordic deals

The Wednesday session saw the completion of a Nordic deal.

Teekay LNG Partners L.P. priced NOK 850 million (approximately $100 million) of five-year senior unsecured bonds that have a dollar fixed-rate coupon of 7.89%.

The deal was significantly oversubscribed, a press release stated.

The global coordinators were DNB Markets and Nordea. The joint bookrunners were Danske Bank and Swedbank.

Proceeds will be used for refinancing existing bonds and/or general partnership purposes.

With Teekay completed, one Nordic deal remains in the market.

Iceland-based low-cost air carrier WOW Air is seeking to place three-year senior secured floating-rate notes, expected to come in euro-denominated bonds or Swedish krona-denominated bonds, via Pareto Securities.

Looking ahead

There was no news in the major currencies new issue market on Wednesday, nor is any new issue news expected ahead of the extended Labor Day holiday weekend which gets underway following the Friday, Aug. 31 close.

Looking beyond Labor Day, September is shaping up to be a big month in the new issue market with high profile merger and acquisition deals expected to appear in the month ahead, sources say.

September could see $20 billion to $25 billion of issuance, a debt capital markets banker said.

Eyeing Envision

Envision Healthcare is the second high-profile, high-leverage deal driven by private equity firm KKR to surface in junkbondland in recent months.

The expected $2.15 billion of high-yield bonds is helping to finance KKR’s acquisition of Envision Healthcare.

The bond deal, likely to be led by Citigroup Global Markets Inc., is expected to come early in the post-Labor Day period amid a sizable and growing pipeline of potential issuance, including merger and acquisition financings and opportunistic deals.

There is a bridge loan backing the Envision Healthcare bonds.

The Envision bridge has not yet been syndicated, according to a debt capital markets banker, who added that while syndication of the Envision bridge remains a possibility, at this point dealers may elect to go straight to market with the bonds.

KKR’s acquisition of BMC Software also brought BMC Software into the market with its $1,825,000,000 equivalent junk bond deal.

The debt financing regimes of both buyouts were aggressively bid by the banks, sources said.

For BMC Software bridge participants, the narrow margin separating the 9¾% initial price talk on the dollar notes and their 10% bridge cap was cause for some apprehension.

However, the BMC Software deal was multiple times oversubscribed with bridge participants perhaps rewarded with better allocations, although the practice is not quid pro quo.

While it is difficult to tell if the rocky ride for BMC bridge participants impacted the appetite for Envision Healthcare bridge debt, the BMC deal is now looked to as an indicator of how things might go when Envision Healthcare makes its pass at the high-yield primary, sources said.

California Resources in focus

California Resources 8% senior notes remained in focus in the secondary space and continued to rise as crude oil marked its fifth consecutive day of gains.

The 8% notes were seen at 88¾ bid, 89½ offered on Wednesday with trades between 88¾ and 89 1/8, according to market sources. The notes stood poised to close the day at 88 7/8.

One source pegged the notes up about 7/8 point.

They were seen at 88 3/8 bid, 88 7/8 offered on Tuesday.

The barrel price of West Texas intermediate crude oil for October delivery rose to $68.11, an increase of $2.27 or 3.45% on Wednesday.

Crude oil has made steady gains over the past five sessions after dropping more than $2 on Aug. 15 due to oil inventories being larger than expected.

The price of crude oil was buoyed on Wednesday with U.S. crude oil inventories dropping more than expected.

Comstock gains

While the rise in crude oil has benefited the energy sector broadly, it was an upgrade from S&P that set Comstock Resources’ junk bonds into motion.

Comstock’s recently priced 9¾% notes traded up in decent volume on Wednesday, a market source said.

The 9¾% notes were quoted at 96 bid, 97 offered and were seen trading up to 97 on Wednesday.

They were quoted at 95½ bid, 96¼ offered on Tuesday. The notes closed Tuesday at 95 7/8.

S&P raised Comstock’s issuer credit rating to B from CCC+ and senior unsecured debt to B from CCC+ due to the company’s successful refinancing transaction, S&P said in a press release. (See related story in this issue)

Comstock priced a $850 million issue of the 9¾% notes due 2026 at 95.988 to yield 10½% on July 20.

Proceeds from the deal were to be used together with a new secured revolving credit facility and cash on hand to retire its existing debt.

J.C. Penney pares losses

J.C. Penney’s longer duration junk bonds were on the rise on Wednesday after a sell off last week that was sparked by a large earnings miss.

J.C. Penney’s 8 5/8% senior notes due 2025 were trading up in decent volume, although the cause for their rise was not clear, a market source said.

The notes were seen trading at 70¾ on Wednesday. They closed Tuesday at 68¾. The notes were trading around 84 prior to the company’s second-quarter earnings report on Aug. 16.

While the beleaguered retailer’s longer duration bonds were making gains on Wednesday, its shorter duration issues had largely leveled off, a market source said.

J.C. Penney’s 8 1/8% senior notes due 2019 were seen at 101 7/8. The company’s 5 5/8% senior notes due 2020 were seen at 90.

The 8 1/8% notes were trading at 104 and the 5 5/8% notes were trading at 98½ in the run up to the earnings announcement.

J.C. Penney reported a second-quarter earnings loss per share of 38 cents versus analyst expectations for a loss per share of 8 cents.

The company also slashed its forward guidance for 2018 with full year losses per shares now expected to be 80 cents to $1, a significant drop from its previous guidance of a loss per share of 7 cents to earnings per share of 13 cents.

Mixed Tuesday flows

The daily cash flows of the dedicated high yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $167 million of inflows on the day.

However, actively managed funds sustained $58 million of outflows.

The dedicated high-yield bond funds were tracking $233 million of net inflows on the week beginning Thursday, Aug. 16 to Tuesday's close, the source added.

Indexes gain

Three benchmarks for the high-yield secondary market posted gains on Wednesday after opening the week either flat or with gains.

The KDP High Yield Daily index was again up 5 basis points on Wednesday to close the day at 70.49 with the yield now 5.8%. The index was also up 5 bps on Tuesday after a 2 bps rise on Monday.

The Merrill Lynch High Yield index was up 10 bps on Wednesday with the year-to-date return now 1.788%. The index was up 9 bps on Tuesday and 10 bps on Monday.

The CDX High Yield 30 index was up 5 bps to close Wednesday at 106.95. The index was up 18 bps on Tuesday and was flat on Monday at 106.72.

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