National Financial, AK Steel price; new Rite Aid struggles; market wary after Bernanke

By Paul Deckelman and Paul A. Harris

New York, June 19 - High-yield new issuance fell off sharply on Wednesday, as just $332 million of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers came to market - about one-fifth of the $1.52 billion of such securities that were offered on Tuesday.

National Financial Partners Corp. priced a downsized $300 million of eight-year bonds, which was seen by traders having firmed in the aftermarket.

And AK Steel Holding Corp. did a $30 million add-on to its existing five-year secured notes via a subsidiary; however, this was not seen in the aftermarket due to its small size, even though the issuer is a very familiar junk-market name.

Another well-known junk name that dropped into the market to price a new issue on Tuesday was Rite Aid Corp. - and traders on Wednesday saw the drugstore operator's upsized new issue definitely under the weather and languishing, despite its familiar status and a relatively generous coupon compared with other recent junk-market pricings.

In the non-dollar market, Dutch data-centers operator InterXion Holding NV priced an upsized issue of seven-year secured notes.

Secondary market activity was muted, as participants awaited the mid-afternoon announcement of any changes in U.S. monetary policy following the latest meeting of the Federal Reserve's policy making committee, as well as any color from central bank chief Ben Bernanke on the Fed's decision. The junk marketeers noted the steep fall in equities following the Fed chairman's remarks on the Fed's QE3 quantitative easing program.

Statistical indicators of secondary market performance closed mixed on the session.

National Financial downsizes

Volatility and confusion held sway in the financial markets leading up to and in the wake of Wednesday's June policy meeting of the Federal Reserve Bank's Federal Open Market Committee.

Nevertheless, two single-tranche dollar-denominated high-yield deals, totaling $332 million, priced during the session.

National Financial Partners brought a downsized $300 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 9%.

The deal was downsized from $337 million, with the company shifting $37 million to its credit facility.

The yield printed at the wide end of the 8¾% to 9% talk.

The deal played to a big book, according to an investor who expected - and received - a reduced allocation, due at least in part to the downsizing.

The deal appeared to be holding in well in the secondary at par ¾ bid, 101¼ offered, the investor said, but added that late in the day it slipped "with the rest of the market" to 99½ bid, par offered.

National Financial's interest expense also rose due to the unfortunate timing of the deal, said the investor, who added that it was originally discussed in a low 8% yield context.

Deutsche Bank, Morgan Stanley, UBS, Credit Suisse, MCS and RBC were the joint bookrunners for the LBO deal.

AK Steel taps 8¾% notes

AK Steel Corp. priced a $30 million add-on to its 8¾% senior secured notes due Dec. 1, 2018 (B1/BB-) at 106.5 to yield 7.017%.

There was no official price talk.

BofA Merrill Lynch ran the books for the quick-to-market add-on.

The West Chester, Ohio-based flat-rolled steel producer plans to use the proceeds for general corporate purposes.

InterXion upsizes

In Europe, InterXion priced an upsized €325 million issue of seven-year senior secured notes at par to yield 6%.

The issue was upsized from €300 million.

The yield printed on top of downwardly revised yield talk. Earlier talk was 6% to 6¼%.

Barclays, Credit Suisse, BofA Merrill Lynch and Citigroup were the joint bookrunners. Barclays will bill and deliver.

The Schiphol-Rijk, Netherlands-based company plans to use the proceeds to fund a tender offer for its 9½% senior secured notes due 2017.

Valeant starts Thursday

Dealers pulled back the curtain on a megadeal during the Wednesday session.

Valeant Pharmaceuticals International, Inc. plans to start a roadshow on Thursday in New York City for a $3.23 billion two-part offering of senior notes.

The deal includes a tranche of eight-year notes that comes with three years of call protection. Initial guidance is in the mid-6% range.

In addition Valeant plans to sell 10-year notes that come with five years of call protection and have initial guidance in the high-6% to low-7% context.

But guidance could back up, depending upon whether or not Wednesday's volatility sparks another round of repricing in the high-yield market, according to an investor who participated in the bridge loan backing the bonds.

The high-yield index dropped by 1.75 points on Wednesday, the investor added.

Goldman Sachs is the left bookrunner for the Valeant deal. BofA Merrill Lynch, Barclays, J.P. Morgan, Morgan Stanley and RBC are joint bookrunners.

Proceeds will be used to help finance the acquisition of Bausch + Lomb.

Headwinds for the calendar

Although the total size of the active forward calendar ballooned to $5 billion on Wednesday with the announcement of the Valeant Pharmaceuticals deal, it won't be an easy calendar to clear, an investor warned.

For openers, pricing levels that issuers and investors were becoming comfortable with will come under review, which could prompt some opportunistic issuers to step back.

"You can't price a calendar when people are raising cash," the investor remarked.

Wednesday's move lower in high yield was no doubt exacerbated by a huge sell-off in Treasuries, sparking a 17 basis points spike in the yield of 10-year government paper, sending it to 2.35%, the investor recounted.

Accounts already suffering from buyer's remorse over long-maturity double B paper were taken for another trip over the coals merely because of the Treasury move, the buysider said.

The H.J. Heinz Co. 4¼% second-lien senior secured notes due October 2020 were at 99 3/8 bid, 99 5/8 offered on Wednesday morning, the source recounted.

But when the full extent of the rout in Treasuries became apparent, the paper, $3.1 billion of which priced at par in late March, fell to 97 bid, 98 offered.

"The market was feeling better over the last two sessions," the investor reflected.

"ETFs were positive, and the market felt like they were going to put in the bid.

"Now you have to wonder whether things are going to start flowing the other way again."

This high-yield investor anticipates disarray on Thursday, even if Treasuries manage to rally back.

National Financial seen firmer

In the secondary market, a trader saw National Financial Partners' new 9% notes due 2021 at 100 5/8 bid, 100 7/8 offered.

The New York-based provider of financial services, including wealth management services for high-income individuals, had priced its offering at par.

A second trader pegged those bonds a little higher, at 101 bid, 101¼ offered.

AK Steel absent from aftermarket

Traders did not see any dealings in AK Steel's 8¾% senior secured notes due 2018, either before or immediately after the steelmaker's pricing of its add-on tranche.

Service Corp. stays up there

Among the bonds that priced earlier in the week, a trader was quoting Service Corp. International's 5 3/8% notes due 2022 at 101 1/8 bid, 101 5/8 offered, while a second saw the bonds at 101¼ bid, 101¾ offered.

The Houston-based funeral home and cemetery operator had priced its quickly shopped $425 million deal at par on Monday.

The new bonds firmed as soon as they hit the aftermarket later that same session and have held above the 101 level since then.

Rite Aid stays under pressure

The biggest deal of the week so far, Rite Aid's 6¾% notes due 2021, continued to be a disappointment, most traders said, seeing the Camp Hill, Pa.-based No. three drugstore chain operator's quick-to-market $810 million deal below its par issue price.

Those quickly shopped bonds had priced at par on Tuesday, after having been more than doubled in size from an originally announced $400 million, and they traded down to a 99 1/8 to 99¼ bid context when they were freed to trade that afternoon.

But a trader said that the initial weakness may have been overdone.

"A lot of people were on the fence, and they decided to wait [Tuesday] because of the Fed and the [anticipated] announcement" as to whether the central bank will keep its QE3 quantitative easing program in order to keep interest rates down or whether it will start tapering off buying Treasury bonds and mortgage-backed securities," he said.

"All of that had nothing to do with Rite Aid."

He also said that "people were hoping that they'd get an even bigger coupon, like 7%, which was getting a little greedy," he said.

"I'm hearing that one major account backed away, so the bonds traded at a discount," quoted at 99¼% to 99 5/8%, or 99 3/8 bid, 99¾ offered.

After that, though, he said that "today, everybody had a different thought - Rite Aid on a relative-value basis doesn't look so bad - 6¾% in this market."

He said that he saw a 99¾ bid in the Street, noting that "if a deal is out there, somebody is bidding par, for size. So somebody out there likes the deal - Rite Aid at 6¾% doesn't look so bad, relative to everything else that's out there, and they started bidding it up a little bit today.

"It was better received the second day than the first day."

But not everyone agreed.

A second trader, while having seen the bonds "straddling par" earlier in the session, said that by the afternoon, they were in a 99 to 99 3/8 bid context, "just like they were [Tuesday]."

At another shop, a trader was more blunt when he was asked why the new Rite Aid bonds had failed to stir much interest or excitement, even with a relatively generous coupon by recent junk-market standards, with Rite Aid a well-known quantity and the defensive nature of pharmacy debt or shares.

He saw the bonds ended "below par - they traded into a 99¾ bid late in the day."

He said the new deal "is not a name I would be buying in this market," noting that it is "a Caa2/CCC credit in a most likely rising interest rate environment. A 6¾% coupon isn't enough of a cushion, not where you would want to put new cash."

He further stated that drugstores "have historically been an underperforming sector and will be the first to fall."

He said that the credit it has is "fairly levered, with a few more coupons to refinance."

With those drawbacks, "a 6¾% coupon just is not enough."

These bonds, he concluded "will go to 95 much quicker than 105. We all have to agree that rates have runs - and we are long overdue for a correction."

Still another trader said that "the bond has moved with the market and traded down off the break. It was quoted up at 99¾ par at midday but traded lower with the rest of the market after the Fed news."

He saw the bonds get as low as 98¼ to 99¼ "right now."

The trader said that "I hadn't heard anything about the deal in terms of pricing, but it is a reasonably large issue - so there were probably a lot of smaller allocations and flippers in the market place, which put pressure on the bonds. Now the market is trading down."

Bernanke statement a wash

While stocks and Treasuries tumbled as Fed chairman Bernanke indicated that the central bank could indeed start winding down its QE3 program - although he gave no concrete timetable - junk was seen a little softer but avoided the carnage of the other two markets.

A trader said that "people took it with a grain of salt. I think the buyers of the market just lowered their bids, hoping that they could buy stuff on any kind of weakness."

But he added, "I don't really think that happened - maybe there were a few trades that traded where they shouldn't have been, but for the most part, I think it was kind of discounted."

Market indicators turn mixed

Statistical junk market performance indicators turned mixed on Wednesday after two consecutive sessions of having been better across the board.

The Markit Series 20 CDX North American High Yield index nosedived by 1 5/8 points, pushed lower by the Fed chairman's remarks. It closed at 102½ bid, 102¾ offered, after having gained 1/16 point on Tuesday, its second straight gain.

But the KDP High Yield Daily index made it four sessions in a row on the upside on Wednesday, gaining 3 bps for a second straight day to finish at 74.33.

Its yield meantime came in for a fourth consecutive session, easing by 2 bps to close at 5.85% after having gone down by 1 bp on Tuesday.

However, the widely followed Merrill Lynch High Yield Master II index lost ground, breaking a three-session winning streak. It retreated by 0.032% on Wednesday, versus Tuesday's 0.023% rise, which had been its third straight gain.

The loss left its year-to-date return at 3.139%, down from Tuesday's 3.172%.

© 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.