Upsized Community Health, Charter and ServiceMaster mega-deals lead $5 billion-plus session

By Paul Deckelman and Paul A. Harris

New York, Aug. 8 - The high-yield primary market had its biggest-volume session in six months on Wednesday, as a half-dozen issuers priced some $5.2 billion of new junk bonds.

All six of Wednesday's new issues were opportunistically timed, quickly-shopped drive-by transactions, with borrowers looking to take advantage of favorable conditions by suddenly darting into the market. All but one of those deals -- the day's biggest offering, hospital operator CHS/Community Health Systems, Inc.'s $1.6 billion of secured six-year notes - were same-day affairs, pricing just hours after having been announced. And even Community Health Systems' deal had only appeared on junk-player radar screens late in the day on Tuesday.

Besides Community Health Systems, there were two other mega-deal-sized borrowings - cable operator Charter Communications Inc.'s $1.25 billion of 10-year notes and cleaning, lawn care and extermination provider ServiceMaster Co.'s $1 billion of eight-year paper.

There were also new deals from telecommunications provider Frontier Communications Corp., a $600 million borrower, from satellite broadcaster Sirius XM Radio Inc., which did a $400 million deal, and from oil and gas operator EP Energy LLC, coming to market with a $350 million offering. Five out of the six deals - all except Sirius - were upsized to take advantage of investor interest.

Taken together, those six deals produced the heaviest one-day issuance seen in Junkbondland since February, a month which saw several sessions topping the $5 billion mark, according to data compiled by Prospect News, and one of them - the busiest session of 2012 so far, on Feb. 2 - racking up more than $6 billion. Interestingly, ServiceMaster had also done a deal during that record-setting earlier session.

When the new deals were freed for trading, those that came in time for an aftermarket - all but ServiceMaster - firmed from their respective issue prices, particularly Community Health and EP Energy.

Apart from the deals that actually got done, price talk emerged on the offerings for Nuance Communications, Inc. and WaveDivision Holdings LLC; order books on both are scheduled to close on Thursday, with pricing possible anytime after that.

Away from the new-deal realm Warner Chilcott Inc. was the busiest name, after the Irish pharmaceutical company ended efforts to arrange a sale of the company or other strategic transaction.

Community Health a blowout

The primary market saw its biggest day in well over five months on Wednesday as half a dozen issuers, each one bringing a single tranche of notes, raised $5.19 billion.

It was the biggest day since Feb. 28, which turned out $5.58 billion in eight tranches.

Notable executions were the rule on Wednesday.

Five of the six deals were upsized. Three of the six priced at the tight end of price talk. Two priced on top of revised talk which had firmed from earlier talk. And one priced on top of original talk.

And all six deals came quick-to-market.

The biggest transaction was brought by CHS/Community Health Systems, which priced a massively upsized $1.6 billion issue of six-year senior secured notes (Ba3/BB) at par to yield 5 1/8%.

The yield printed at the tight end of price talk which was set in the 5¼% area.

"It was an absolute blowout," remarked one investor who was involved.

The book contained a whopping $8.5 billion of orders, and everyone stayed in when the deal was upsized by $350 million.

"It was senior secured, double-B, short maturity paper, so it was easy to like, and allocations tended to be pretty bad," said the investor, noting that the new CHS 5 1/8% notes due 2018 traded to 102¼ bid, 102 3/8 offered on break

Credit Suisse, Bank of America Merrill Lynch, Citigroup, Credit Agricole, Goldman Sachs, J.P. Morgan, Morgan Stanley, RBC, SunTrust and Wells Fargo were the joint bookrunners for the only one of Wednesday's deals to have been in the market overnight (it was announced late Tuesday).

The Franklin, Tenn.-based acute care hospital operator plans to use the proceeds to refinance a portion of its term loan due 2014.

The additional proceeds will be used to prepay a portion of the company's $2.2 billion of non-extended term loans due 2014 under its credit agreement.

Charter upsizes

Charter Communications, issuing through its CCO Holdings, LLC and CCO Holdings Capital Corp. entities, priced an upsized $1.25 billion issue of 5¼% 10-year senior notes (B1/BB-) at 99.026 to yield 5 3/8%, on top of yield talk.

The amount was increase from $1 billion.

Citigroup was the left bookrunner. Bank of America Merrill Lynch, Credit Suisse, J.P. Morgan,UBS, Deutsche Bank, Barclays and Morgan Stanley were the joint bookrunners for the debt refinancing deal.

ServiceMaster massively upsizes

ServiceMaster priced a massively upsized $1 billion issue of eight-year senior notes (B3/B-) at par to yield 6 1/8%.

The yield printed on top of revised yield talk which had firmed from earlier talk of 6% to 6¼%.

However some investors headed for the exits when ServiceMaster upsized the deal from $300 million and tightened the talk, according to a buyside source.

J.P. Morgan, Credit Suisse, Morgan Stanley, Barclays, Deutsche Bank, Goldman Sachs, Citigroup and Natixis were the joint bookrunners for the debt refinancing.

Frontier prices $600 million

Frontier Communications priced an upsized $600 million issue of non-callable 10.5-year senior notes (Ba2/BB/BB+) at par to yield 7 1/8%, on top of yield talk which had firmed from earlier talk of 7% to 7¼%.

The size was raised from an initial $500 million.

Credit Suisse and J.P. Morgan were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Sirius prices at tight end

Sirius XM Radio priced a $400 million issue of 10-year senior notes at par to yield 5¼%, at the tight end of the 5¼% to 5½% yield talk.

The deal played to $2.5 billion of orders, according to an investor who became involved, and who added that the new Sirius XM 5¼% notes were up about ½ point on the break.

J.P. Morgan and Bank of America Merrill Lynch managed the debt refinancing and general corporate purposes deal.

EP Energy upsizes

EP Energy priced an upsized $350 million issue of 10-year senior notes (B2/B) at par to yield 7¾%, at the tight end of the 7¾% to 8% yield talk.

The deal played to $1.5 billion of orders, according to a high-yield mutual fund manager.

The amount was increased from $300 million.

Citigroup was lead bookrunner. Deutsche Bank, J.P. Morgan, Nomura and Wells Fargo were joint bookrunners for the debt refinancing.

Talking the deals

The dealers also set the table for a reasonably busy Thursday in the new issue market, even if no drive-by business materializes.

Nuance Communications talked its $600 million offering of eight-year senior notes (Ba3/BB-) with a yield in the 5½% area.

Barclays and Morgan Stanley are the joint bookrunners.

WaveDivision talked its $250 million offering of eight-year senior notes (Caa1) to yield 8¼% to 8½%.

Deutsche Bank, Wells Fargo, RBC and SunTrust are the leads.

WaveDivision is a Kirkland, Wash.-based owner and operator of broadband cable systems.

And in the Canadian market Postmedia Network Inc. talked its C$250 million offer of five-year senior secured first-lien notes (Baa3/B+/) in the 8¼% area.

The deal is in the market via Scotia Capital and Morgan Stanley.

Primary: come one come all

An immense technical rally in high yield is causing deals to upsize, and price talk to ratchet tighter, according to a high-yield fund manager.

Nearly every deal is pricing tight and trading higher, the buysider said.

"The market is rich and people are overshooting," the manager remarked.

"There is just too much cash."

In addition to ongoing coupon payments and the fact that investors are being taken out of existing bonds at the same time they are being invited into new deals, and the much-discussed $27 billion of year-to-date cash inflows to high-yield mutual funds, the market is lately attracting the attention of non-traditional junk bond shoppers, the buysider said.

These include high-grade investors and crossover investors.

"The insurance funds appear to have a massive bid in the double-B space," the investor said.

"High-grade investors are coming into the market because, apart from the financials, high-grade corporates are now priced to perfection, and there is nothing left in that space."

Just about every recent deal is trading at a notable premium in the secondary market, the investor said.

One exception is the new Iron Mountain Inc. 5¾% senior subordinated notes due 2024 (B1/B), which priced in an upsized $1 billion issue on Tuesday.

Throughout much of Wednesday those notes were trading below par, with the story being that one account got an allocation that proved too big.

The new Iron Mountain 5¾% notes due 2024 went out at par bid, par ¼ offered, and were actively traded, the manager said.

'A new issue extravaganza'

In the secondary market, there was only one story on Wednesday - the primary market.

"We had a new issue extravaganza," was how one trader put it in looking over the day's activity, which included heavy trading in some of the new deals which priced either on Wednesday or earlier in the week. "That's all you can say."

A check of the Trace trade-reporting system, for instance, disclosed that Tuesday's upsized $1 billion offering of 5¾% senior subordinated notes due 2024 from Iron Mountain, the Boston-based document storage and information technology company, accounted for some $141 million of the roughly $1.6 billion of junk bonds traded, while Wednesday's Community Health Systems offering was in second place, with over $112 million of those bonds having changed hands.

After that, volume fell off, but new deals still dominated the proceedings, with Monday's $650 million offering of 4 5/8% notes due 2023 from Victor, N.Y.-based alcoholic beverage maker and distributor Constellation Brands Inc. holding down third place, with over $38 million traded, and Frontier Communications' 10.5-year deal holding fourth place, with over $32 million traded.

The trader said that "if you back out those four names, that's over $300 million" of the $1.6 billion of total junk trading, or almost one-fifth.

"Guys have money to spend and dealers have bonds to sell," he continued. "Dealers are going to keep upsizing these deals. Most of them are refinancing, so in the current interest-rate environment, it's a benefit for the issuer, it mitigates credit risk on the part of the buyer - and everybody's happy."

Under current conditions, he said, "I don't see anybody expressing any worry about credit right now, for the simple reason that the belief [among most junk bonders] is that anybody that has debt outstanding in the high-yield market should be able to refinance at some level, if they have a credible business."

The exception to that general statement, he said, is "if they have a business that is impaired operationally, then that's the reason they're in distress. But it's only a handful of names."

A second trader, while noting the day's huge barrage of new paper, and the strong issuance levels seen over several recent sessions, took a more cautious and less sanguine view of things, wondering aloud whether "is this the last big 'hurrah' before the window closes?" - at least in terms of the traditional mid-to-late August summertime lull.

Community Health is robust

Among the specific issues which priced during the session, traders agreed that the star of the day was clearly Community Health Systems' 5 1/8% senior secured notes due 2018. Shortly after the Franklin, Tenn.-based hospital operator's $1.6 billion behemoth of a deal priced at par, the new bonds had opened at 102¼ bid, 102¾ offered, and then never looked back.

A second trader pegged that deal at 102 3//8 bid, 102 5/8 offered, "up pretty well" from its issue price.

The company's outstanding 8% notes due 2019 lost ¾ point, ending at 108 bid.

Deals trade near issue price

Looking at the day's other new deals, a trader saw EP Energy's 7¾% notes due 2022 firming solidly to 101¾ bid, 102¼ offered, while a second trader also saw the Houston-based oil and gas exploration and production company's bonds at that level as well.

The former El Paso Corp. unit, sold earlier this year to Everest Acquisition LLC, priced its quick-to-market $350 million deal at par.

However, Community Health and EP Energy seemed to be outliers, with the day's other deals tracking more closely to their respective issue prices.

After St. Louis-based cable operator Charter Communications Inc. priced its upsized $1.25 billion of 5¼% notes due 2022 at 99.026 to yield 5 3/8%, a trader saw the quickly shopped offering trading in a 99 to par context.

A second trader saw the new Charter bonds tightening after that to levels between 99 1/8 and 991/4.

Charter's existing CCO Holdings 6½% notes due 2021 were meantime seen down 1¼ points at 108¼ bid. Volume of over $16 million placed those bonds among the most active junk names Wednesday.

Its 7 5/8% notes due 2020 gained ¼ point to end at 98¼ bid, on more than $11 million traded.

Frontier Communications' 7 1/8% notes due 2023 were seen by a trader at par bid, 101 offered when they began trading around after pricing at par.

A second trader saw the Stamford, Conn.-based telecommunications operator's $600 million deal - upsized from the $500 million announced just hours earlier - trading between par and 100½ bid.

Frontier's 8¾% notes due 2022 fell 1¾ points to 112 bid.

Later in the session, Sirius XM Radio's 5¼% notes due 2022 were seen in a 100 to 101 context, which later gave way to levels between 100¼ and 100¾ bid.

The New York-based satellite radio broadcaster's rapidly marketed $400 million deal had earlier priced at par.

ServiceMaster's massively upsized $1 billion offering of 6 1/8% notes due 2020 came to market too late in the day for secondary dealings.

The Memphis-based residential cleaning, lawncare and extermination service provider's surprise deal priced at par after having been upsized from an originally planned $300 million.

AMD improves

Among other recently priced deals, a trader said that Advanced Micro Devices Inc.'s 7½% notes due 2022 "actually got back up to the 100½ level."

He noted that the Sunnyvale, Calif.-based semiconductor manufacturer's upsized $500 million deal "had drifted down below par, but now there seems to be some interest in the company."

He said that that this was only common sense, since "if you're buying stuff with a 5 1/8% coupon and watching it go right to 4½%" in yield - a reference to the Community Health Systems deal, which priced at par to yield 5 1/8%, but whose yield shrank as the bonds moved above the 102 level - if something has a 7½% coupon, you should really give it another look."

A second trader agreed that the quickly-shopped issue - which had priced at par on Monday after having been upsized from the originally announced $300 million - "was bouncing around" on Wednesday, between par and 1001/2, before going out at 100¼ bid, 100 5/8 offered. On Tuesday, when they were freed for dealings, the bonds had gotten down to a 99 7/8 to par context.

Constellation still shines

Constellation Brands' 4 5/8% notes due 2023 were seen still holding most of the gains which those bonds had notched after pricing at par on Monday. They had moved up to levels between 101½ and 102 bid in the initial aftermarket action, and then held most of those gains on Tuesday.

One Wednesday, a trader saw the bonds still clinging to a 101½ to 101¾ context.

Iron Mountain eases

The day's biggest volume mover, Iron Mountain, was seen by a market source a little lower on the day, with one market source seeing those 5¾% senior subordinated notes due 2024 down ¼ point at 100 1/8 bid.

At another desk, a trader saw the bonds in a 99 7/8 to 100 1/8 context.

"I don't know with that deal," he exclaimed, "it is what it was."

Yet another trader saw the bonds trading "all day" in that same 99 7/8 to 100 1/8 context, before "moving up at the end of the day" to around 1001/4.

Indicators turn mixed

Away from the new-deal sector - which accounted for the bulk of activity on Wednesday - statistical indicators of junk market performance turned mixed after three straight sessions of gains across the board.

The Markit Group CDX North American Series 18 High Yield Index posted its fourth consecutive advance, rising by ¼ point to close at 98 bid, 98 1/8 offered, after having edged up by 1 basis point on Tuesday.

But the KDP High Yield Daily Index's nine-session winning streak came to an abrupt end on Wednesday, as the index retreated by 6 bps to end at an even 74.00, in contrast to Tuesday's 15 bps rise.

Its yield inched higher by 1 bp to 6.10%, the first rise after three straight sessions of contraction including Tuesday, when the yield declined by 8 bps.

However, the widely followed Merrill Lynch U.S. High Yield Master II Index made it an even 10 straight sessions on the upside Wednesday, rising by 0.03%, on top of Tuesday's 0.132% advance.

The latest gain lifted its year-to-date return to 9.838%, a new peak level for 2012, from Tuesday's 9.806%, the previous high point for the index.

Those recent levels are the strongest they have been in the 19 months since the end of 2010, when the market measure returned 15.19%.

The index's yield to worst fell to 6.808% on Wednesday, a new low point for the year, down from Tuesday's 6.814%, the previous nadir.

Warner busy but unchanged

The busiest junk issue on Wednesday outside the new deal arena was pharmaceuticals maker Warner Chilcott's 7¾% notes due 2018, which knocked down over $31 million of volume.

However, the Dublin, Ireland-based company's notes traded in a narrow range and ended around 106½ bid, pretty much unchanged on the session.

The company announced that it was ending its previously announced exploration of possible strategic alternatives, which could have possibly included sale of the whole company. Management instead announced a special dividend for the shareholders, who apparently were underwhelmed by the idea - its Nasdaq-traded shares fell as much as 9.1% during the session and ended down $1.23, or 6.92%, at $16.54, with volume of 20.2 million shares almost seven times the norm.

A trader said that "the stock is getting banged, while the bonds are not trading [lower] because [bondholders] look at it and say 'hey, they still have plenty of cash on the balance sheet and I'm first in line, or second in line [in a restructuring scenario]. They can keep paying their interest - so I'm not worried'."

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