Recordati sells upsized €1.3 billion; PHI crashes after ending tender; telecoms gain

By Paul A. Harris and James McCandless

San Antonio, Oct. 12 – The high-yield primary saw a single issue price and that, like the only other deal to come to market during a volatile week, was from Europe.

Italian pharmaceutical firm Recordati SpA priced an upsized €1.3 billion of seven-year senior secured notes (B3/B) in fixed- and floating-rate tranches.

The deal included two €650 million tranches pricing at par, one with a coupon of 6¾%, the other with a coupon of Euribor plus 625 basis points.

Little sustained primary action is expected until the current turbulence subsides, sources said.

In the secondary, PHI, Inc.’s notes crashed after the company announced that it was terminating its cash tender offer for its 5¼% notes due 2019.

Overall the secondary market ended a dour week with some improvement after a rebound in the common stock market.

In the telecom space, Intelsat Jackson Holdings SA and Wind Tre SpA’s bonds were spotted improving.

Meanwhile, HCA Healthcare, Inc.’s junk bonds closed mixed.

Recordati upsized

Only one deal priced Friday and it was one of a mere two issuers that braved the market volatility of the Oct. 8 week.

Recordati priced an upsized €1.3 billion of seven-year senior secured notes (B3/B), at the conclusion of a roadshow.

The deal included €650 million of fixed-rate notes that priced at par to yield 6 ¾%. The yield printed in the middle of yield talk that was set in the 6¾% area. Talk on the fixed-rate tranche widened over the course of the week as the deal was being shopped. Early guidance was 6% to 6½%, with ensuing indications at 6½% to 6¾%.

A €650 million tranche of Euribor plus 625 basis points floating-rate notes also priced at par. The spread came in the middle of talk in the 625 bps area. The reoffer price came on top of price talk.

The deal underwent covenant changes bearing primarily upon how the company may disburse cash and incur additional debt.

The deal was increased from €1.28 billion.

Meanwhile a concurrent revolving credit facility was reduced to €225 million from €250 million.

Joint global coordinator Deutsche Bank will bill and deliver. Credit Suisse and Jefferies were also joint global coordinators.

UniCredit, Banca IMI, Credit Agricole CIB, Natixis, SG CIB and UBI Banca were the joint bookrunners.

The issuing entity is Newco Rossini Acquisition Sarl, a special purpose vehicle controlled by CVC Capital Partners, which intends to use the proceeds from the bond sale to help fund its acquisition of a 51.8% stake in the Milan-based pharmaceutical company. The additional proceeds resulting from the €20 million upsizing, will be used as cash on the issuer’s balance sheet.

Recordati joined Luxembourg-based telecom Millicom International Cellular SA as the week’s only issuers.

Millicom, which has operations in Latin America and Africa, priced a $500 million issue of eight-year senior notes (Ba2//BB+) at par to yield 6 5/8% on Thursday.

Amid Thursday’s capital markets turbulence Millicom’s new 6 5/8% notes traded higher on the break and were sharply higher on Friday morning at 101 1/8 bid, 101 3/8 offered, according to an investor who added that the deal was obviously benefitting from tailwinds lifting the entire market on Friday.

Seeking stability

Bold issuers such as Recordati and Millicom notwithstanding, a genuinely reopened primary market, especially its dollar-denominated section, is waiting for volatility in equities and Treasuries to subside, a syndicate banker in New York said on Friday.

This banker professed no visibility on new issue business in the week ahead.

And the high-yield pipeline is not vast at present, sources said.

In part that is due to the robust technicals in the bank loan market which are luring away potential high-yield issuers, an investor said, adding that whereas three years ago the size of the high-yield market dwarfed the loan market, today they are just about even.

One measure of the technical strength of the two markets may be drawn by comparing year-to-date cash flows, the investor said, noting that whereas high yield bond funds – ETFs and actively managed funds combined – are negative-$29.1 billion thus far in 2018, dedicated bank loan funds have seen $16.6 billion of inflows during that same time period.

Uber’s private $1.5 billion deal

The forward calendar was not exactly empty heading into the weekend.

Uber Technologies Inc. is working on a novel private placement of a $1.5 billion of high yield notes in two tranches, set to price in the week ahead.

And the deal is getting traction, market sources say.

The offering includes a $500 million tranche of five-year notes with initial talk in the 7½% area and a $1 billion tranche of eight-year notes with initial talk in the 8% area.

Order books for both tranches now cover those sizes, a source said on Friday morning.

Initial demand is skewed toward the longer maturity, the source added.

Although the market anticipates the bonds will come with “triple hooks” – triple C ratings from both Moody’s Investors Service and S&P Global Ratings – there is a possibility that S&P will come with a B- rating instead, a trader said.

A deal of that size, with those anticipated ratings, is a novelty in the realm of true private placements, sources said.

However with such an execution Uber aims to circle up a limited number of institutional investors, hoping by such means to exert greater control over the spread of its financial information than would be possible in a more conventional junk bond sale offered to the wider market, a source said.

Elsewhere Brazil-based JBS SA will begin rolling out a dollar-denominated offering of senior notes (expected ratings BB-/BB-) at investor meetings set to get underway on Monday, in Europe and the United States.

High-yield accounts will certainly be involved, a sellside source said on Friday.

Finally, look for United Rentals (North America) Inc. to show up before the end of the month with a chunk of new money senior notes (Ba3) “come hell or high water,” a trader advised.

The equipment rental company is in the leveraged markets to raise cash to finance its $2.1 billion acquisition of BlueLine Rental from Platinum Equity, a deal set to close in the present quarter.

United Rentals’ $1 billion term loan, which is also part of the debt financing, kicked off a week ago.

Mixed Thursday flows

Daily cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, a trader said.

In a distinct reversal of fortune, high-yield ETFs saw $737 million of inflows on the day. In the past week the junk ETFs sustained their two biggest ever daily outflows: $1.6 billion last Tuesday and $1.43 billion on Friday, Oct. 5.

Meanwhile actively managed high-yield funds sustained notable outflows of $360 million on the day, Thursday, the trader said.

News of Thursday’s daily flows follows a report from Lipper US Fund Flows that, combined, the high yield funds sustained $4.928 billion of outflows in the week to Wednesday’s close, the fourth largest weekly outflow on record.

The largest weekly outflow on record is $7.1 billion seen in the week ending Aug. 6, 2014, the trader said. Second is the $6.3 billion that exited in the week ending Feb. 14, 2018. Third is the $5.7 billion seen in the week ending March 15, 2017.

PHI ends tender

PHI’s notes weakened sharply in trading on Friday, traders said.

Its 5¼% notes due 2019 lost 8½ points on the day to close at 83½ bid.

Toward the close, the Lafayette, La.-based offshore air services company announced that it would be terminating a cash tender offer after failing to get sufficient funding for the tender offer for the $500 million of outstanding 5¼% notes.

The offer had previously been extended several times, most recently to 5 p.m. ET on Oct. 12, Prospect News reported.

The company also announced that it has hired Houlihan Lokey as financial advisers to explore other options.

“They replaced one game of wait-and-see with another,” a trader said.

Telecom moves up

Friday saw a better session for telecom names in the secondary, market sources said.

Intelsat’s 8½% senior notes due October 2024, which had begun the day rising as high as par 7/8 bid, settled back down to par 5/8 bid at the end of trading, still ½ point better on the session.

The notes ended Thursday at par 1/8 bid.

A $700 million tap of the notes priced at 100.75 to yield 8.339% on Oct. 2.

Meanwhile, Milan-based fixed and mobile telecom services provider Wind Tre’s paper was also climbing after the company received a ratings affirmation from S&P Global Ratings.

The 5% paper due 2026 picked up ½ point to close at 86¼ bid.

The agency affirmed the long-term issuer credit rating of the company and its wholly owned subsidiary Wind Acquisition Finance, affirming a stable outlook.

On Wednesday, Fitch Ratings upgraded the long-term issuer default rating and also affirmed a stable outlook.

Both updates are in response to CK Hutchinson Holdings Ltd.’s purchase of an additional 50% stake in the company, making it the sole owner.

HCA mixed

In the healthcare space HCA’s notes ended mixed, traders said.

The 5 5/8% notes due 2028 rose about 1 point to close at around 98½ bid. The 5 3/8% notes due 2025 lost about ½ point to end at around par bid.

Indexes

Two high-yield benchmarks showed improvement to close the short week.

The KDP High Yield Daily index gained 7 basis points to close at 69.95 at Friday’s close with the yield at 5.99%.

The index snapped a series of declines, losing 11 bps on Thursday, 18 bps on Wednesday and 21 bps on Tuesday.

The ICE BofAML US High Yield index rose again in the Friday session. The index added 16.2 bps with the year-to-date return now at 1.576%.

The index inched higher by 0.7 bps on Thursday and lost 36 bps on Wednesday.

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