Valeant megadeal, Solera drive-by price; new Valeant paper jumps; funds slide by $3.1 billion

By Paul Deckelman and Paul A. Harris

New York, June 27 - The recently slumbering high-yield primary market saw its first megadeal in over a month on Thursday and its largest transaction since late March: Valeant Pharmaceuticals International, Inc. priced a whopping $3,225,000,000 of new dollar-denominated, purely junk-rated paper in a two-part offering.

The Canadian specialty drug maker was heard by syndicate sources to have priced $1,625,000,000 of eight-year notes along with $1.6 billion of five-year paper - potentially a potent antidote for the deadly lassitude that has gripped the high-yield world in the wake of recent volatility spurred by investor angst over feared interest rate rises.

According to data compiled by Prospect News, it was the first purely junk-rated offering of over $1 billion since May 23, when Britain-based global mining concern Vedanta Resources plc priced a total of $1.7 billion of new bonds in a two-part deal.

And it was the biggest new deal seen in Junkbondland since communications satellite operator Intelsat (Luxembourg) SA launched a $3.5 billion three-part bond offering back on March 20, according to the data.

Secondary market traders said that both Valeant tranches firmed smartly when they were freed for what were described as active aftermarket dealings.

The syndicate sources also heard that insurance software provider Solera Holdings, Inc. had priced a quickly shopped and upsized $850 million eight-year deal during the session. Those bonds were quoted late in the day a little bit above their issue price.

Along with the Valeant deal, that swelled the day's new-issue tally to $4,075,000,000 in three tranches - the heaviest one-day primary volume seen since March 20, the day the Intelsat deal took flight, according to the Prospect News data.

Moving in tandem with a revived equity market that seemed to have put aside its recent interest-rate fears, the junk market continued to have an overall better tone on Thursday, traders said, although volume remained restrained.

Statistical measures of market performance were stronger across the board for a second straight session on Thursday.

However, a key statistic stayed in the red on Thursday. Another very big net outflow from high-yield mutual funds and exchange-traded funds was seen in the latest week by one of the major fund-tracking services.

AMG sees $3.1 billion outflow

As Thursday's activity was coming to a close, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, $3.1 billion more left those funds than came into them.

It was the fifth consecutive weekly outflow reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., and represented a far wider loss than the $332.88 million cash exodus seen last week, in the period ended June 19.

This week was the third week in the last five in which gigantic outflows topping the $3 billion mark were seen. The service saw a $3.28 billion cash loss in the week ended June 12, which had followed an even larger money hemorrhage of $4.63 billion in the week ended June 5 - AMG/Lipper's all-time outflow record.

During the five-week skid, which began with an $874.68 million outflow in the week ended May 29, cumulative net outflows have totaled around $12.2 billion, according to a Prospect News analysis of the AMG/Lipper figures.

Those losses swung what was previously a positive year-to-date cumulative net inflow figure deeply into the red. With 26 weeks in the books since the start of the year, there have now been 14 weeks of inflows versus 12 weeks of outflows, and cumulative net outflows have amounted to just over $9 billion, according to the analysis.

As of press time on Thursday evening, weekly high-yield fund-flow numbers from the other major tracking service, Cambridge, Mass.-based EPFR Global, were not immediately available. EPFR's methodology differs from AMG/Lipper's in that its high-yield universe includes a number of non-U.S.-domiciled funds, while AMG/Lipper focuses strictly on the domestic funds. However, although the two services' numbers therefore usually vary widely, their weekly results point in the same direction more often than not.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The sustained flows of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the roughly $1 trillion junk market - have been seen by analysts as a key element behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $350 billion mark.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength that had continued for much of this year's first half before fading in recent weeks on Federal Reserve-related investor worries.

Valeant prices $3.23 billion

Valeant Pharmaceuticals priced $3,225,000,000 of senior notes (B1/B) in two tranches on Thursday.

The deal included a $1.6 billion tranche of five-year notes that priced at par to yield 6¾%. The yield printed on top of yield talk.

In addition, the company priced a $1,625,000,000 tranche of eight-year notes at par to yield 7½%.

The yield printed on top of yield talk. The initial guidance was in the mid-6% range.

A proposed tranche of 10-year notes was withdrawn.

The deal went extremely well, according to an investor whose allocation ended up being about one-half the size of the order.

The book was said to be at least two-times oversubscribed.

The 6¾% five-year notes were trading at 102 5/8% bid, 102 7/8 offered after the Thursday close.

The 7½% eight-year notes were 103¾ bid, 104 offered.

Goldman Sachs & Co. was the left bookrunner. BofA Merrill Lynch, Barclays, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RBC Capital Markets were the joint bookrunners.

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

Solera upsizes

Solera priced an upsized $850 million issue of eight-year senior notes (Ba2/BB-) at par to yield 6%.

The deal was upsized from $700 million.

The yield printed on top of yield talk.

Goldman Sachs ran the books for the debt refinancing deal.

Nord Anglia taps 10¼ notes

England's Nord Anglia Education (UK) Holdings plc priced a $165 million add-on to its 10¼% senior secured notes due April 1, 2017 (expected ratings B3/B) at 106.5.

The reoffer price came at the rich end of the 106 to 106.5 price talk.

Goldman Sachs, Credit Suisse and HSBC managed the sale.

Proceeds will be used to repay the company's bridge loan and for general corporate purposes including possible acquisitions and a paydown of its revolver.

A Valeant victory

In the secondary market, traders said that the big news of the day was clearly the strong performance that the new Valeant bonds turned in after the well-received megadeal was freed for aftermarket activity.

A trader said that the Canadian drug manufacturer's new paper was "definitely stronger." He said that "right out of the gate," the slightly larger tranche of the two-part transaction - its $1,625,000,000 of 7½% notes due 2021 - had jumped out to 102¾ bid, well up from their par issue price just a little while before.

He said that the new bonds got as good as a locked market at 103½ before finally ending at 103¼ bid, 104 offered.

A second trader saw the eight-years at 103¾ bid, 104 offered.

The first trader meantime said that the other half of the deal - its $1.6 billion of 6¾% notes due 2018 - moved as high as 103 bid, 103½ offered, ultimately going home at 102½ bid, 102 5/8 offered.

Another trader pegged the bonds at 102 5/8 bid, 103 1/8 offered, again well up from their par issue price.

The first trader agreed with the suggestion that many, many investors in the recently paper-parched junk market wanted to jump in and get a piece of the action on this dazzling new deal.

He said that "from what we could see, there was definitely a lot of movement in that name." He said that a look at brokers' runs showed that "they were constantly involved" with the new credit, as the bids continued to get lifted.

He further said that he had spoken to people at a couple of the lead dealers involved in bringing the big new deal in and "they were also heavily active."

Solera seen better

One of the traders said that the day's other pricing - from insurance industry software provider Solera Holdings - moved a little higher in the aftermarket, although those bonds were well overshadowed by Valeant.

He saw the Westlake, Texas-based company's 6% notes due 2021at 100½ bid, 101 offered.

That was up from the par level at which that upsized $850 million deal had priced.

Market broadly higher

Away from the new-deal arena, a trader said that the secondary market was up "easily a solid quarter to a half-point," building on the strength seen the previous session and helped along by Wall Street's continuing rebound from its relatively huge losses.

Among the leaders were such familiar credits as Chesapeake Energy Corp.'s 6 7/8% notes due 2020, which were seen up nearly 2½ points, finishing at just under the 109 bid level.

Hospital giant HCA Holdings' 6¼% notes due 2021 also gained 2½ points to close at 102¾ bid.

Ally Financial Inc.'s 7½% notes due 2020 rose more than 3¼ points to go out at 116 bid, while the Detroit-based mortgage and automotive lender and online bank operator's 8% notes due 2031 gained 1¾ points to finish at 119½ bid.

Market indicators gain again

Statistical junk market performance indicators were higher for a second consecutive session on Thursday; they had been mixed on Tuesday, which in turn had followed Monday's across-the-board slide.

The Markit Series 20 CDX North American High Yield index posted its third straight gain, rising by 5/8 point to end at 103 9/32 bid, 103 11/23 offered. On Wednesday, it had advanced by 11/16 point.

The KDP High Yield Daily index rose for a second session in a row on Thursday, jumping by 45 basis points to go out at 72.80. On Wednesday, it had improved by 18 bps, snapping a four-session losing streak, including Monday's 76 bps nosedive.

Its yield meanwhile declined for a second consecutive session Thursday, tightening by 14 bps to finish at 6.44%. That followed Wednesday's 7 bps narrowing, which broke a four-session trend of rising yields.

And the widely followed Merrill Lynch High Yield Master II index also made it two in a row on Thursday, as it gained 0.484%, on top of Wednesday's 0.373% rise, which had ended a skid of five consecutive losing sessions that included last Thursday's 1.281% plunge - its biggest one-day loss for the year.

Thursday's gain lifted the index's year-to-date return back over the psychologically significant 1% mark, to 1.246%. That was up from 0.759% at the close on Wednesday.

© 2015 Prospect News.
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