Restructured Solera deal prices; new Lennar busy; Valeant dives on SEC probe, Intelsat off on downgrade

By Paul Deckelman and Paul A. Harris

New York, Feb. 29 – It didn’t get there until “Leap Day” – that once-every four-years-occurrence – but the long-awaited Solera, LLC megadeal finally arrived in Junkbondland, about a week after wrapping up its roadshow.

It arrived considerably different than the offering originally shopped to investors, having first been downsized from the original $2.03 billion size, then further downsized to $1.28 billion, and finally resized at $1.73 billion. Along the way, a planned tranche of euro-denominated notes was dropped, leaving just the eight-year dollar-denominated issue that made it to the finish line – priced well under par to boost its yield to a more attractive level.

Traders did not immediately report aftermarket dealings in the automotive claims software insurance provider’s new issue.

Also on the new-deal front, they saw considerable activity – but not much price change – in Friday’s drive-by offering from homebuilder Lennar Corp.

Away from the issue realm, Valeant Pharmaceuticals International Inc.’s bonds moved sharply lower on news of a Securities and Exchange Commission probe into the Canadian drug manufacturer. The company also delayed its scheduled conference call to discuss its fourth-quarter results and offer guidance for the current fiscal year.

The rebound in Intelsat SA’s bonds from losses posted earlier last week came to an abrupt halt on Monday, hurt by the news of a Moody’s Investors Service ratings downgrade.

On the upside, Freeport-McMoRan Inc. had a strong session.

Statistical market performance measures were higher across the board for a third consecutive session on Monday; they had been up on Thursday and again on Friday after having been lower on Wednesday. Monday marked their fourth higher session in the last six trading days.

Solera prices $1.73 billion

The Monday session saw one deal clear the primary market.

However it was a significant one for several reasons, sources said.

Solera, LLC upsized the dollar-denominated tranche of its eight-year senior notes (Caa1/B-) to $1.73 billion from $1.28 billion as it eliminated a proposed $450 million equivalent tranche of proposed euro-denominated notes.

The new notes were priced at 95 to yield 11.472%.

The reoffer price came at the rich end of the 94 to 95 price talk. The yield printed near the tight end of the 11.47% to 11.67% yield talk.

That price talk had been revised from earlier official talk of 10¾% to 11%.

There were also covenant changes.

In the end the dollar-only deal appeared to have been oversubscribed, a trader said late Monday. In the morning word went around from the dealer that anyone attempting to get into the deal today was going to get shut out, the trader recounted.

The Solera buyout deal hit the market sized at $2.03 billion before $300 million was shifted to the bank loan, reducing the bond to its final $1.73 billion size. The shift of proceeds effected a reduction in senior unsecured leverage which had been a prominent concern among investors, sources said.

Goldman Sachs was the left bookrunner. Citigroup, Jefferies, Macquarie, Nomura and UBS were the joint bookrunners.

Measuring the market

Heading into the pricing of the Solera deal there was little talk among the dealers about how the February-March crossover week might go, in the primary market, sources said.

“They may have some lower-quality deals, and are waiting to see how Solera goes before they move forward on some of that stuff,” a trader remarked.

The J.P. Morgan Global High Yield & Leveraged Finance Conference was scheduled to get underway on Monday and run through Wednesday. With so many market players attending that conference, the week's issuance will be further constricted, sources said.

Nevertheless, a big deal from the health care sector, to be helmed by BofA Merrill Lynch, is expected this week, sources say. No names surfaced on Monday. However HCA Holdings Inc. launched a $2 billion term loan via BofA Merrill Lynch, Citigroup, J.P. Morgan and Wells Fargo on Monday, for the purposes of refinancing bank debt.

Also a deal is expected to surface this week from the retail sector, also to be led by BofA Merrill Lynch.

And Western Digital Corp. could show up with an expected $5.1 billion of investment grade secured notes and junk-rated unsecured notes at the conclusion of, or even during the J.P. Morgan conference, according to a buyside source.

Looking further out along the timeline, ON Semiconductor Corp. is expected to start a roadshow for a $400 million offering of senior notes next week, as part of the financing for its acquisition of Fairchild Semiconductor International Inc. Deutsche Bank, BofA Merrill Lynch, HSBC and SMBC Nikko will be the leads (see related story in this issue).

Bond fund inflows

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

High yield ETFs saw robust inflows of $394 million on the day.

Actively managed funds saw $85 million of inflows on Friday.

However dedicated bank loan funds saw $75 million of outflows on Friday.

New Solera is not seen

In the secondary market, traders did not immediately report any aftermarket activity in the big new Solera offering of 10½% notes due 2024.

They cited the relative lateness of the hour at which the Westlake, Texas-based auto insurance claims software provider’s new deal hit the tape.

Lennar trades busily

Friday’s offering of new 4¾% notes due 2021 from Lennar Corp. were meantime seen busily traded on Monday.

A market source saw the Miami-based homebuilder’s bonds about unchanged on the day at 100½ bid, with over $21 million having changed hands.

A second trader pegged the new deal in a 100¾ to 101 bid context.

Lennar priced $500 million of the notes at par in a quick-to-market transaction on Friday.

Traders quoted the new bonds later in that session between par and 100¼ bid.

Pulte quietly improves

Traders saw some firming – though on quiet dealings – in the new Pulte Group Inc. bonds that priced on Thursday.

A trader quoted its 4¼% notes due 2021 at par bid, 100½ offered, calling that up ¼ point.

He saw its 5½% notes due 2026 at 101 bid, 101½ offered, also up ¼ point from Friday’s levels.

At another shop, the 4¼’s were seen having moved up by 3/8 point, to 100 3/8 bid, on volume of around $8 million.

Its 5 1/2s firmed by around 1/8 point, to 101 3/8 bid, though only about $6 million of that paper changed hands.

Pulte, an Atlanta-based homebuilder, priced both tranches of the bonds on Thursday in a quick-to-market offering. The $1 billion deal was split into $300 million of the 4¼% notes and $700 million of the 5½% issue.

Both tranches priced at par.

Valeant sharply lower

Away from the new deals, a trader said that “Valeant definitely traded off,” citing the news that the Laval, Que.-based drug manufacturer has become the subject of an SEC investigation.

He saw the company’s flagship bond, the 6 1/8% notes due 2025, down “5 or 6 points on the day,” to around an 80-to-81 bid level.

A second trader quoted the bonds going home at 80¾ bid, calling them down by just under 6 points on the day, with over $71 million having changed hands – easily the busiest junk credit of the session.

The company’s 5 7/8% notes due 2023 were also down a half-dozen points on the day, finishing at 81 3/8 bid, on volume of over $25 million.

Its 6¾% notes due 2018 closed at 94¾ bid, down 3½ points on the session, on volume of over $23 million.

Valeant’s 7½% notes due 2021 were 6½-point losers on the day, one of the traders said, falling to 90½ bid, on over $20 million of turnover.

The company’s New York Stock Exchange-traded shares meantime nosedived by $14.85, or 18.41%, to $65.80, on volume of 27.3 million shares, more than three times the norm.

The embattled drug maker –already under heightened investor scrutiny over its former dealings with a controversial specialty pharmacy company, Philidor, confirmed on Monday that the Securities and Exchange Commission is investigating the company.

Valeant did not provide any further details on the probe, nor did the SEC.

The SEC has already been separately investigating accounting and inventory issues at Salix Pharmaceutical, a drugmaker that Valeant bought for $11 billion last year.

Valeant is also being looked at by the U.S. Attorney’s Offices for Massachusetts and the Southern District of New York, as well as by Congress, a company spokesperson confirmed.

Valeant was to have held a conference call to discuss its preliminary fourth quarter 2015 financial results, deliver a business review and provide updated expectations for 2016, but has decided to reschedule that call for a later date. It also withdrew previously offered guidance.

Intelsat debt declines

Intelsat bonds finished the day weaker after the company said it was looking to amend its senior secured credit facility, and Moody’s announced a ratings downgrade.

That brought to an abrupt end a rally seen in the latter part of last week in the Luxembourg-based communications satellite company’s bonds, which had been severely battered earlier last week.

“There was some weakness there, off 2½ points in general,” a trader said.

A second trader said there were “loads of trades” in the 5½% notes due 2023, which he saw closing off 2½ points at 63½. The 7¼% notes due 2019 meantime dropped nearly 3 points to 76¼, he said.

At yet another desk, a trader said the bonds closed off 4 to 6 points after initially heading higher on the news.

He said the 2019 paper traded up as high as 80, but ending up going out around 76. The 7¼% notes due 2020 traded up as high as 72 before coming back to end “closer to 66,” he said.

Company subsidiary Intelsat Jackson Holdings SA saw its term loan moving lower as well.

The term loan was quoted at 89 bid, 90½ offered post-news, down from 90¾ bid, 91¾ offered in the morning and 90 bid, 91 offered on Friday, a trader said.

The trader explained that the debt had been stronger in the morning versus Friday’s levels as a result of an overall better tone in the market, but then fell below Friday’s levels once the amendment request was revealed.

Under the proposal, the company is seeking permission to permit second-lien pledges by Intelsat (Luxembourg) SA over the capital stock of Intelsat Jackson and technical changes confirming its existing ability to refinance term loans with other first-lien debt.

The proposed amendment also outlines that if Intelsat Jackson raises at least $450 million of gross cash proceeds of first-lien debt, the revolving credit commitment will be reduced to $350 million.

Moody’s meantime announced that it had downgraded parent Intelsat SA’s corporate family rating and probability of default (PDR) ratings, respectively, to Caa2 from B3 and Caa2-PD from B3-PD. It also changed the ratings outlook to negative from stable.

The agency said that all of the company's debt instrument ratings at Intelsat Jackson Holdings were also downgraded – its senior secured bank credit facility to B1 from Ba3; senior unsecured guaranteed bonds and debentures, to Caa2 from B3 and its senior unsecured non-guaranteed bonds/debentures, to Caa3 from Caa1.

Subsidiary Intelsat (Luxembourg) S.A.’s senior unsecured regular bonds/debentures were downgraded to Ca from Caa2. Intelsat’s speculative grade liquidity rating was affirmed at SGL-3, indicating adequate liquidity.

Moody’s declared that “the actions were prompted by a combination of business fundamentals and capital structure considerations that, from Moody's perspective, signal the company's debt structure has become unsustainable.”

Freeport firms up

Freeport-McMoRan Inc. debt continued to be actively traded, though not on any credit-specific news. Copper prices, however, did edge higher during the session, which could have been helpful to the country’s largest copper-mining company.

A trader said the 3 7/8% notes due 2023 gained 2½ points to close at 63¼. The 2 3/8% notes due 2018 rose nearly a deuce to 85. The 5.45% notes due 2043 added 5 points for the day, ending at 58, as the 3.55% notes due 2022 pushed up “4 and change” points to 66.

Indicators stay strong

Statistical market performance measures were higher across the board for a third consecutive session on Monday; they had been up on Thursday and again on Friday after having been lower on Wednesday. Monday marked their fourth higher session in the last six trading days.

The KDP High Yield Daily Index rose by 28 basis points on Monday to finish at 63.71, on top of the 68-bps jump seen on Friday and Thursday’s 33-bps gain, which had been its first upturn after two straight losses. Monday was the index’s fourth gain in the last six sessions.

Its yield came in by 9 bps, ending at 7.15%, after having tightened by 12 bps on Friday and another 7 bps on Thursday – which followed four straight sessions in which the yield widened out. It had tightened in the previous four sessions before that.

The Markit Series 25 CDX North American High Yield Index firmed by a little over ¼ point on Monday, going home at 99 1/32 bid, 99 1/16 offered, its fourth gain in the last six sessions. On Friday, it had advanced by 15/32 point, adding to its 7/16 point advance on Thursday. Those gains followed two consecutive losses.

The Merrill Lynch North American High Yield Master II index rose by 0.573% on Monday, its third straight upturn. It had also firmed by 0.709% on Friday and by 0.565% on Thursday. Monday’s improvement was its fifth in the last six sessions.

That cut the index’s year-to-date loss to 1.124% – its lowest level since Jan. 12, when it was down by 0.719% for the year. On Friday, the cumulative deficit stood at1.687%, its first time under 2% since Feb. 1, when it ended down 1.768%. The year-to-date red ink total also remains well short of the 5.142% loss seen on Feb. 11, the worst cumulative deficit for the year so far and the index’s worst level since the 30% plunge recorded at the end of 2008.

Stephanie N. Rotondo contributed to this review.

© 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.