Valeant, American Axle, Charter lead year’s biggest day so far; funds plunge $2.12 billion

By Paul Deckelman and Paul A. Harris

New York, March 9– The junk bond juggernaut continued to roll unstoppably on Thursday, notching a new mark for heaviest new-issuance session of the year for the second time in three trading days.

When the dust had settled, an incredible $6.64 billion of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized country borrowers had come to market in eight tranches brought by six different issuers.

That easily dwarfed Wednesday’s $4.1 billion which had gotten done in six single-tranche transactions, as well as surpassing the previous high point for the year – just set on Tuesday, when five issuers had priced $4.7 billion of new junk paper in six tranches.

It was also the biggest day Junkbondland’s primary had seen since last June, according to data compiled by Prospect News.

A trio of megadeal-sized transactions north of $1 billion paced the day’s frantic new-deal activity, led by Canadian drug manufacturer Valeant Pharmaceuticals International Inc.’s upsized $3.25 billion two-part bond behemoth, consisting of five- and seven-year notes.

Automotive drive-train components maker American Axle & Manufacturing Inc. also did a two-part offering totaling $1.2 billion of eight-and 10-year notes.

Cable and broadband provider Charter Communications, Inc. priced a $1 billion-add-on to its existing 2027 notes.

The bond barrage also included several more modestly sized transactions, including professional services company Aramark Services, Inc.’s $600 million of eight-year notes, Canadian gold miner Iamgold Corp.’s downsized $400 million of eight-year paper and construction materials distributor New Enterprise Stone & Lime Co. Inc.’s $200 million of five-year paper, carrying a fat coupon yielding north of 10%.

In the secondary market, traders saw considerable activity in the new issues from American Axle, Iamgold, Aramark and Charter, as well as Valeant’s existing bonds.

There was also brisk activity in recently priced issues from the likes of Equinix Inc., CHS/Community Health Systems Inc. and Hilton Worldwide Holdings Inc.

Statistical market performance measures were lower across the board for a fourth consecutive session on Thursday. They had turned southward on Monday and continued to move lower on Tuesday and again on Wednesday after being mixed last Thursday and again last Friday.

Another numerical gauge – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – moved deeper into negative territory in the most recent reporting week, its second straight setback after four weeks of gains and the biggest cash loss seen so far this year, as $2.119 billion more left the weekly reporting domestic funds in the form of investor redemptions than came into them during the week ended Wednesday (see related story elsewhere in this issue).

Valeant upsizes

In what was by far the biggest session of the year so far, dollar-denominated junk issuers raised $6.64 billion in eight tranches from six different companies.

Three of the six issuers came with drive-bys.

One issuer upsized while another downsized.

Executions were mixed.

Two tranches came at the tight end of talk. Three came on top of final talk. And three came at the wide end of talk.

Valeant Pharmaceuticals priced an upsized $3.25 billion of senior secured notes (Ba3/BB-) in two tranches.

The deal included $1.25 billion of five-year notes which priced at par to yield 6½% and $2 billion of seven-year notes which priced at par to yield 7%.

Both tranches priced on top of yield talk.

The overall amount of notes was increased from $2.5 billion.

Joint bookrunner Barclays will bill and deliver.

The Laval, Quebec-based pharmaceutical company plans to use the proceeds, including the additional proceeds resulting from the $750 million upsizing of the deal, to repay debt.

American Axle in two parts

American Axle & Manufacturing Inc., a wholly owned subsidiary of American Axle & Manufacturing Holdings Inc., priced $1.2 billion of senior notes (B2/B/BB-) in two tranches.

The deal included $700 million of eight-year notes that priced at par to yield 6¼%. The yield printed at the wide end of the 6% to 6¼% talk.

In addition the company priced $500 million of 10-year notes at par to yield 6½%. The yield printed at the wide end of the 6¼% to 6½% talk.

J.P. Morgan, Barclays, Citigroup, RBC, PNC and U.S. Bancorp were joint bookrunners for the acquisition financing.

Charter taps 5 1/8% notes

CCO Holdings, LLC and CCO Holdings Capital Corp., subsidiaries of Charter Communications, Inc., priced a $1 billion tap of their 5 1/8% senior notes due May 1, 2027 at 99 to yield 5¼%.

The reoffer price came at the rich end of the 98 to 99 price talk. The yield printed at the tight end of the 5¼% to 5 3/8% yield talk.

Deutsche Bank, BofA Merrill Lynch, Citigroup, Wells Fargo, Credit Suisse, UBS and Goldman Sachs & Co. were the joint bookrunners for the debt refinancing.

Aramark drives by

Aramark Services priced a $600 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5% on Thursday, according to a syndicate source.

The yield printed at the wide end of the 4 7/8% to 5% yield talk.

Goldman Sachs was the left bookrunner for the debt refinancing.

Iamgold downsizes

Iamgold Corp. priced a downsized $400 million issue of eight-year senior notes (B3/B+) at par to yield 7%.

The amount was cut from $500 million.

The yield printed on top of revised yield talk set in the 7% area. That was wider than prior yield talk of 6½% to 6¾%.

There were also covenant changes.

Citigroup was the left bookrunner.

The Toronto-based gold-mining company plans to use the proceeds to repay its existing 6¾% senior notes. Because of the downsizing, cash on the balance sheet will be used to complete the refinancing.

New Enterprise prices tight

The session’s highest coupon was printed by New Enterprise Stone & Lime which priced a $200 million issue of five-year senior notes (Caa2/CCC) at par to yield 10 1/8%.

The yield printed at the tight end of yield talk set in the 10¼% area.

Goldman Sachs & Co. was the bookrunner for the debt refinancing.

The calendar

Looking toward the end of the week, New Home Co. talked its $250 million offering of five-year senior notes (B3/B-) to yield in the 7½% area.

Books close at noon ET Friday and the deal is set to price subsequently.

Credit Suisse, Citigroup, J.P. Morgan and US Bank are the joint bookrunners.

Meanwhile Gartner, Inc. plans to start a roadshow on Friday for a $600 million offering of eight-year senior notes, a deal set to price during the week ahead.

Goldman Sachs is the left bookrunner for the acquisition financing.

Alliance Data upsizes

In the European primary market, Texas-based Alliance Data Systems Corp. priced an upsized €400 million issue of unrated five-year senior notes at par to yield 4½%.

The amount was increased from €300 million

Joint bookrunner BNP Paribas will bill and deliver.

Elsewhere Switzerland-based Salt Mobile SA set price talk for a €640 million two-part note offer.

The deal includes €500 million of six-year senior secured floating-rate notes, non-callable for one year, talked at a 350 basis points spread to Euribor, with no Euribor floor, at par.

Salt is also doing a €140 million add-on to the Matterhorn Telecom Holding SA 4 7/8% senior notes due May 1, 2023, which is talked to price at par.

In a restructuring of the deal, proposed Swiss franc- and euro-denominated add-on tranches were withdrawn.

Joint physical bookrunner Goldman Sachs International will bill and deliver. Credit

Biggest session of the year

Thursday’s new-issue total of $6.64 billion was, as noted, the most seen in any one session so far this year, according to data compiled by Prospect News.

It exceeded the $4.7 billion which had gotten done in five offerings with six tranches on Tuesday, a day led by Franklin, Tenn.-based hospitals giant CHS/Community Health Services’ upsized $2.2 billion of seven-year secured paper and McLean, Va.-based lodging and hospitality concern Hilton Worldwide’s $1.5 billion two-part deal, consisting of eight- and 10-year notes.

Thursday was the biggest one-day new issue session seen in Junkbondland since last June 8, a session which saw three separate megadeals get done for a total of $6.75 billion – satellite broadcaster DISH DBS Corp.’s $2 billion of 10-year notes, computer manufacturer Dell Inc.’s two tranches of $1.625 billion each of five- and eight-year paper, and liquefied natural gas company Sabine Pass Liquefaction LLC’s $1.5 billion of 10-year bonds.

New-issue focus

In the secondary market, traders saw the main focus of activity remaining on the cascade of new issues pricing during the day as well as recently priced deals that have come to market since the primaryside came back to life last Thursday.

Traders saw both halves of the deal from Detroit-based automotive drive-train components maker American Axle & Manufacturing trading right around their par issue price. More than $49 million of its 6¼% notes due 2025 and over $29 million of its 6½% notes due 2027 changed hands, putting both credits high up on the day’s Most actives list.

Iamgold’s 7% notes due 2025 were seen by two traders in a 99¾ to par bid context on volume of more than $26 million.

Philadelphia-based food service and uniform supplier Aramark’s new 5% notes due 2025 edged up to around a 100 1/8 to 100¼ bid context, with over $21 million trading.

The add-on to Stamford, Conn.-based cable and broadband operator Charter Communications’ 5 1/8% notes due May 2027 were seen rising 1 point to par after pricing at a discounted 99 to yield 5¼%. But they were down about 1½ points from where the existing paper had been trading before news of the tap. More than $14 million traded.

Equinix most active

Going back to deals from a day or so earlier, traders saw Equinix’s 5 3/8% notes due 2027 as the Thursday’s most active issue, with over $80 million changing hands. The bonds firmed by 1/8 point to end at 100 3/8 bid.

The Redwood City, Calif.-based data centers company’s upsized $1.25 billion issue of 10.2-year notes had priced at par on Wednesday.

Community Health Systems’ 6¼% notes due 2023 closed around 100 1/8 bid, down ¼ point, on volume of over $57 million.

Traders also saw brisk volume in both tranches of the new Hilton Worldwide issue, also around the par level.

Indicators slide badly

Despite the spirited activity going on in the primary sphere, junk bond statistical market performance measures were lower across the board for a fourth consecutive session on Thursday. They had turned southward on Monday and continued to move lower on Tuesday and again on Wednesday, after being mixed last Thursday and again last Friday.

The move downward was pronounced.

The KDP High Yield Daily Index plunged by 49 basis points on Thursday to close at 71.67, its fifth loss in a row after two. On Wednesday, the index had swooned by 28 bps.

Its yield ballooned out by 16 bps on Thursday, ending at 5.27%, its fifth consecutive widening. It had moved up by 10 bps on Wednesday. The stretch of wider yields, dating back to Friday, had been its first widenings in nearly a month, since Feb. 8, with the yield having either come in or been unchanged in all of the sessions since then.

The Markit CDX Series 27 High Yield Index was down by almost 3/16 point on Thursday, closing at 106 31/32 bid, 107 offered, its fourth straight loss. It fell 9/32 point on Wednesday.

And the Merrill Lynch High Yield Index also continued to move deeper on the downside, its sixth retreat in a row after eight sessions before that moving upward. It dropped by 0.458% on Thursday on top of Wednesday’s 0.343% pullback.

The loss cut its year-to-date return to 1.688% from Wednesday’s 2.156% close, marking the index’s first time under the psychologically significant 2.00% level in a month, since it ended at 1.895% back on Feb. 10.

The year-to-date return has thus been nearly cut in half since hitting its 2017 peak level of 3.19% – its eighth consecutive new high – last Wednesday, March 1.

© 2015 Prospect News.
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