Merge Healthcare add-on prices; primary otherwise still; secondary sags; NewPage off again

By Paul Deckelman and Paul A. Harris

New York, June 15- Merge Healthcare Inc. brought a small, quickly shopped add-on to its existing senior secured notes due 2015 to market on Wednesday, high-yield syndicate sources said. But after the software and medical information management services provider's deal priced, the primaryside went into an early summer snooze, with no other new deal announcements or pricings seen.

And neither Merge's $52 million add-on nor even the existing $200 million of bonds was seen trading around.

Secondary dealings, in fact, were seen as slow outside of a few select names like NewPage Corp., and mostly to the downside, as Junkbondland seemed to take its cue from stocks, which fell on investor fears about the Greek debt debacle and disappointment with U.S. economic data released during the morning.

Paper manufacturer NewPage's bonds topped the most actives list for a third consecutive session and continued to retreat on no firm news, although several market players wondered aloud whether the fall was linked to investor speculation about if the company would have any trouble meeting an upcoming coupon payment.

Meanwhile, a missed coupon payment pushed OPTI Canada Inc.'s 2014 notes lower.

Chrysler Group LLC's recently priced two-part megadeal was heard by traders to be still stuttering along in the breakdown lane.

Merge $52 million add-on

Merge Healthcare priced a $52 million add-on to its 11¾% senior secured notes due May 1, 2015 (B2/B) at 103 to yield 10.771% on Wednesday, according to an informed source.

The reoffer price came on top of the price talk.

Morgan Stanley ran the books.

The Milwaukee-based medical software developer plans to use the proceeds to redeem and retire all of its outstanding series A preferred stock.

The original $200 million issue priced at 97.266 to yield 12½% on April 19, 2010, so Merge Healthcare realized a healthy 1.73% of interest savings with the add-on versus the yield printed on the original notes.

Tide has turned

As with Tuesday's $175 million deal from Universal Hospital Services, Inc., Wednesday's sole issue was a quick-to-market add-on from an issuer in the health care sector.

The fact that health care is perceived as a defensive sector may have helped both Universal Hospital Services and Merge Healthcare, a sellside source said on Wednesday.

Be that as it may, the high-yield market, having accommodated issuers splendidly for months with low rates - as well as structures and covenants that seemed to grow friendlier by the week - has undergone a change, according to market sources on both the buyside and sellside.

The tide has now turned in favor of the buyside.

Investors, who until a fortnight ago were keenly focused on the new deal calendar, now are turning their backs on that calendar and are bargain shopping in the secondary market.

"People who played the calendar in May are looking to claw back their losses by taking advantage of current prices in the secondary market," a banker said late Wednesday.

Now, a market that had been issuer-friendly at the close of May is perceived to be less so in mid-June, sources say.

As a result, it could be "slow ahead" in the primary market, some syndicate officials warn.

Some said that there are no plans to launch high-yield bond deals for the remainder of the present week. One, however, declined to rule out bringing a deal before the Friday close.

Arch Coal still cooking

With next to nothing in the way of new deals coming to market this week - besides the Merge Healthcare add-on - the domestic dollar market only saw Tuesday's quick-to-market $175 million add-on from Edina, Minn.-based medical equipment rental company Universal Hospital Services. Even trading in recently priced bonds has pretty much dried up.

However, one exception was Arch Coal Inc.'s $2 billion two-part behemoth, which priced last week.

A trader on Wednesday quoted both tranches a little better than the par issue price at which the St. Louis-based coal operator brought both its $1 billion of 7% notes due 2019 and its $1 billion of 7¼% notes due 2021 to market last Wednesday. He pegged both tranches in a 1001/4-to100½ context.

He noted that despite the company's B1/B+ rating on those bonds, Arch seens "closer to investment grade; I would guess they went up with the governments."

Chrysler continues skid

Quite a different story was the recently priced behemoth of a bond deal from Chrysler Group. The trader saw still more erosion on Wednesday in the $3.2 billion offering of senior secured eight-year and 10-year notes, which have steered steadily lower after a little bit of short-lived upside movement immediately following their May 19 pricing.

He saw its $1.5 billion of 8% senior secured notes due 2019 at 94¼ bid, 94¾ offered and its $1.7 billion of 8¼% senior secured notes due 2021 at 94¾ bid, 95¼ offered. On Tuesday, a trader had seen both of those tranches trading on either side of 96 bid.

When the Auburn Hills, Mich.-based No. 3 U.S. automaker priced its two-part megadeal, both halves came to market at par. The offering had originally been announced as a $2.5 billion transaction, which was then upsized to $3.5 billion, only to be whittled back down to $3.2 billion total at the pricing.

After that par pricing for both tranches, the eight-years had initially moved up to 100½ bid, 100¾ offered, while the 10-years firmed to 100¾ bid, 101 offered, but both have since skidded off into a ditch and languish at current lower levels, with no end to the misery in sight.

Market backs off - for now

A trader said that "with the market getting weaker, even if you are a buyer, you're saying 'eh -I'll wait to see if I can buy [new bonds] cheaper,' and sort of spend the cash opportunistically. Rather than putting it right to work."

High-yield mutual funds, considered a good proxy for overall junk market liquidity trends, saw back-to-back net outflows from those funds over the last two weeks of $237 million in the week ended June 1 and $671 million in the week ended June 8.

"I think with the calendar slowing down and a pause in cash coming into the marketplace, it's easy for accounts to do that. Even when spreads weren't at their historic tights, rates were historically low, and that kind of got cash slowing down, finally," he said.

However, he added: "On the other hand, we don't know how long that will last because [interest] rates overall are about as low as they've been, and I don't think anyone's projecting them to go higher in the short-term - long-term, maybe, but I don't think in the short term. So it seems to me that there are shorts in the marketplace, and when guys unload the positions, they want to unload, I don't know that there's any shock that's going to make the market continue to go lower in the near term."

But he's not looking for any quick return to the kind of busy primary action we were seeing just a few weeks ago, explaining that "even if you wanted to do something [in the way of bringing a new deal], you would want to wait until after all of the bad news that's been in the market, the economic numbers that have come out [to fade] - you might want to wait for some decent news before you announce a deal."

Bad news bears

There was little decent news to be found in the financial markets on Wednesday. Even though consumer prices rose just 0.2% in May, helped by falling energy prices - the smallest increase in six months - core inflation, excluding food and energy prices, exceeded Wall Street's expectations, rising the most in nearly three years. On top of that, economic activity remained sluggish, with a report on manufacturing in the New York area coming in well below forecasts.

New unrest in Greece over the latest efforts by the government there to rein in runaway spending with austerity measures sparked further fears about the burgeoning European debt crises and helped push U.S. stocks lower, with the benchmark Dow Jones Industrial Average plunging 174.84 points, or 1.48%, taking the widely followed index below the psychologically significant 12,000 mark to end at 11,897.27.

In the junk market, meanwhile, a trader said, "it was kind of an awful day. Everything in the world was going south. Oil really got smacked, down over $4, the CRB index was off by 8. People are throwing in the towel over this Greek situation; nobody thinks that they have the political will to do what they need to do."

A second trader said, "The clouds from Europe were hanging over the market," dampening investor enthusiasm.

"It sure seems like a drinking night," he quipped.

"Everything was weaker," yet another trader said. "Everyone was watching the [equity] meltdown between stocks, Europe, commodities, cats and dogs."

Market indicators move down

Among statistical indicators of secondary sphere performance, which seemed to have improved a little on Tuesday, that progress was erased during Wednesday's session.

A trader said that the CDX North American Series 16 HY Index was down three-quarters of a point to finish at 99½ bid, 99¾ offered, after having ended up 5/8 point on Tuesday.

The KDP High Yield Daily Index dropped by 13 basis points on Wednesday to end at 75.09, after having risen by 4 basis points Tuesday. Its yield rose by 3 bps to 6.84%, after having come in by 2 bps on Tuesday.

And the Merrill Lynch High Yield Master II Index was lower for a 10th consecutive session on Wednesday0.044%, on top of Tuesday's 0.063%, retreat.

That dropped the index's cumulative return to 4.914% from Tuesday's 4.96%, which had been the first time the index finished below the psychologically significant 5% mark since April 21, when its trajectory was heading the opposite way. It also retreated further from its year-to-date peak level of 6.071% reached on May 20.

"It seems like the most active stuff came in a little," a trader said, "but there was no huge panic, no one shouting 'fire!' in a crowded theater."

NewPage negative again

Among specific issues on the downside, New Page's bonds were once again the heaviest-trading purely junk bonds on Wednesday.

A trader said that the Miamisburg, Ohio-based coated-paper manufacturer's bonds "seemed to have a lot of activity today. Those things were kind of bouncing all over the place."

He saw the company's 10% second-lien senior subordinated notes due 2012 last "kind of hugging" the 30 bid level, down 2 points on the day, on over $60 million traded. He noted that "two weeks ago, they were hugging 40-41."

The trader saw the company's 11 3/8% first-lien senior secured notes due 2014 around the 91¾ level, calling that off by "maybe one-quarter [point]"on close to $50 million traded.

A second trader - who also saw those levels - additionally said that the company's floating-rate notes due 2012 ended around 29 3/8 bud, which he said was pretty much unchanged, with $10 million of turnover.

At another desk, a market source said that some $67 million of the 10s has changed hands during the session, down a deuce on the day at an even 30 bid, while over $47 million of the 11 3/8s had traded on Wednesday, ending down 1 point at 91 bid.

Wednesday's dealings marked the third consecutive session that both series of the bonds had dominated the high-yield most actives list while losing multiple points on no fresh news.

On Monday, the 10s dropped anywhere from 3 to 5 points, depending upon whom you spoke to, with $40 million traded, and the 11 3/8s were 2 points lower on busy volume of $35 million.

The 10s had also fallen around 2 points on Tuesday with $40 million traded, and the 11 3/8s had eased by less than a point with $35 million of turnover.

There was still no fresh negative news seen out about the company that might explain the aggravated slide in the bonds and nothing in the way of new regulatory filings. The most recent filing was the week-ago 8-K notice to the Securities and Exchange Commission announcing the appointment of Jay Epstein as the company's chief financial officer, replacing interim CFO Curtis Short, who in turn had replaced then-CFO David Prystash when the latter left the company in April to pursue other opportunities.

Despite their ostensibly senior secured status, the 10% second-lien bonds trade several dozen points behind the 11 3/8% first liens on a market perception that there is not enough asset coverage for both issues in the event of a debt restructuring.

Several market participants attributed the latest drop in the company's two series of actively traded bonds to rumors and speculation - at this point strictly unofficial scuttlebutt not confirmed by the company - that the financially stressed papermaker might have trouble making the $91 million interest payment due on the $1.6 billion of 11 3/8s on June 30. The first trader ironically allowed that "not making an interest payment," should it happen, "even in this market, is still a big deal."

Another trader said that speculation about the coupon "seems to scare some folks." He saw the 10% notes as low as 29 bid, 30 offered near the end of the day, with the 11 3/8s at 91½ bid, 92½ offered. "There was a lot of quotes, a lot of trading - and they're all down."

The trader also said that NewPage sector peer Catalyst Paper Corp. "was also down, definitely, though on not as much volume" as the NewPage notes.

He saw the Richmond, B.C.-based paper manufacturer's 7 3/8% notes due 2014 fall 1 or 2 points to end at 58 bid, 59 offered, while its 11% senior secured notes due 2016 eased a point or two to 88½ bid, 89½ offered from previous levels in a 90-91 context.

OPTI off on missed coupon

Elsewhere, a trader said that OPTI Canada Inc.'s 8¼% notes due 2014 fell to 43 bid, 44 offered, down some 2½ points on the day, on "a lot of quotes and volume." This occurred after the market got a chance to digest the troubled Calgary, Alta.-based oil-sands energy operator's Tuesday evening announcement in which it warned that it will not make the $71 million of scheduled interest payments due on Thursday on the 81/4s and on OPTI's 7 7/8% notes also due in 2014, instead invoking the standard 30-day grace period through July 15 for making those payments.

At the same time, OPTI did say that it would make the scheduled $24 million interest payment due Thursday on its first-lien notes.

A market source said that with the missed coupon, the bonds were trading flat, or without their accrued interest.

Clear Channel gets clocked

A trader said that Clear Channel Communications Inc.'s 10¾% notes due 2016 "were down a good bit" at 87½ bid, 88 offered. He said that there were "a lot of quotes" in the San Antonio, Texas-based media company on Wednesday, though only "moderate [trading] volume, not a lot of volume, but down a couple of points."

He also saw its 11% notes due 2016 "same thing, down a couple of points" at 86 bid, 87 offered, "but not a whole lot of trading, though."

Sino-Forest falls silent

A trader saw little in the way of dealings in the recently volatile bonds of Sino-Forest Corp., which had risen a little on Tuesday after the Canadian-Chinese timber company released first-quarter results pretty much in line with market expectations. It swung to a net loss in the latest period versus a year-earlier profit and continued to defend itself against a recent research report's allegations that Sino-Forest's business model was unsustainable and its accounting fraudulent.

He said "not enough" of the 6¼% notes due 2017 traded to be meaningful, while seeing its 10¼% notes due 2014 up 2 points, at 70 bid, on "one trade" of any size.

A market source at another desk, while seeing the bonds at 70, pronounced them actually down 1 point on the day, noting that after that trade, there had been several smaller trades dropping levels as low as 66 bid, though without the size needed to make them meaningful .

Sino-Forest "seemed quiet," yet another trader said, pegging the 9 1/;8% notes slated to come due on Aug. 15 at 90 bid, the 101/4s at 63 bid, 64 offered and the 61/4s at 52 bid, 55 offered, which he said was about where they had been.

"Maybe the converts were down a couple," he said, seeing the 5% notes due 2013 at a wide 54-58 context, and the 4¼% notes due 2016 at 46 bid, 48 offered, "down a couple on the converts."

The company's Toronto Stock Exchange-traded shares, which have dropped by more than 80% since the June 2 publication of the scathingly critical research report by short-seller firm Muddy Waters LLC, despite company denials of the allegations contained therein, fell by another 15% in intraday dealings before finally closing down 14 Canadian cents on the day, or 4.17%, to end at C$3.22 each. The shares had traded at C$18.21 on June 1, the day before the report was unveiled.

Wednesday's volume of 4.3 million shares was more than five times the norm.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.