HCA megadeal drives by, trades actively, Team Health, Contour Global slate; market moves lower

By Paul Deckelman and Paul A. Harris

New York, Nov. 9 – After a one-day pause, the high-yield primary sphere on Monday resumed the kind of high-volume pricing activity seen for most of last week.

Just one offering of dollar-denominated, fully junk-rated paper was heard by syndicate sources to have come to market during the session, but it was a sizable one, as giant hospital operator HCA Inc. did a quickly shopped $1 billion of 10.25-year notes.

Traders said the new HCA bonds were among the day’s busiest but were up only slightly from their issue price. The company’s existing notes, meantime, retreated, also in active trading.

The market sources said that overall, the junk market was lower, taking its cues from the battering that stocks received as investors began worrying about the prospect of a Federal Reserve move next month to start pushing up interest rates following stronger-than-expected October jobs numbers reported on Friday.

Among the issues backpedaling on Monday were new deals from Charter Communications, Inc. and First Data Corp. that had come to market on Thursday as well as other recently priced offerings from the likes of Goodyear Tire & Rubber Co. and Huntington Ingalls Industries, Inc.

Away from the new deals, it was another tough day for Men’s Wearhouse Inc.’s investors as the apparel retailer’s bonds and shares continued the slide begun on Thursday.

Pharmaceutical companies – whose recent troubles have been overshadowed the last few days by the Men’s Wearhouse story – were back in the spotlight on Monday. Mallinckrodt plc’s bonds and shares plunged as Citron Research, the same short-seller whose negative research report on Valeant Pharmaceuticals International Inc.’s operations caused that drug maker’s bonds and shares to tank, said in a tweet that Mallinckrodt was in some ways worse and promised more details.

Statistical measures of junk market performance were meanwhile lower across the board for a fourth straight session on Monday.

HCA $1 billion drive-by

HCA priced a $1 billion issue of 10.25-year senior bullet notes (expected B1/expected B+/confirmed BB) at par to yield 5 7/8% on Monday.

The yield printed at the wide end of the 5¾ % to 5 7/8% yield talk.

The quick-to-market debt refinancing deal was marketed by means of an internet roadshow. There was no investor call.

Barclays was the lead left bookrunner. BofA Merrill Lynch, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, SunTrust Robinson Humphrey Inc., UBS Investment Bank and Wells Fargo Securities LLC are the joint bookrunners.

Elsewhere on Monday NewStar Financial, Inc. priced an $80 million add-on to its 7¼% senior notes due May 1, 2020 (existing ratings /BB-/BB-) at 99.01, trailing a late-morning conference call with investors.

JPMorgan is the bookrunner for the deal, which was upsized from $50 million.

ContourGlobal to tapping notes

ContourGlobal Power Holdings SA scheduled an investor conference call for late Monday morning to discuss a $100 million add-on to its 7 1/8% senior secured notes due June 1, 2019 (B3/BB-/BB-).

The deal is expected to price on Tuesday, according to a market source.

Goldman Sachs International is the bookrunner for the offer, which is being marketed to both high yield and emerging markets accounts.

Proceeds, together with cash on the balance sheet, will be used to repay all amounts outstanding under the company’s $150 million senior secured bridge term loan facility.

Team Health

Team Health, Inc. started a roadshow on Monday in New York and New Jersey for a $545 million offering of eight-year senior notes.

Citigroup is the left bookrunner for the acquisition financing. BofA Merrill Lynch, JPMorgan, Barclays, Goldman Sachs and RBS are the joint bookrunners.

HCA, old and new, busy

In the secondary realm, traders said that the new HCA 5 7/8% notes due February 2026 were among the day’s busiest issues in Junkbondland, even though they had priced fairly late in the session.

One trader said that over $34 million of the 10.25-year paper had changed hands by the close; he saw the notes up 1/8 point from issue at 100 1/8 bid.

A second trader saw a two-sided market at par bid, 100 1/8 offered.

There was little actual price movement in the new notes despite their heavy volume. The same could not be said for the Nashville-based hospital operator’s existing 5 3/8% notes due 2025; one of the traders said that those bonds slid by nearly 1½ points on the day on the news of the new deal, finishing around the par level, with over $28 million having moved around.

Recent deals seen lower

A trader said that “new issues remained the focus” on Monday, just as they had been over the previous several sessions, characterized as they were by busy new issuance.

However, he added that “the market was softer in general, with rates where they were” in the wake of renewed fixed-income market fears that the Federal Reserve may finally begin tightening interest rates next month for the first time in nearly a decade – since June 2006, to be more precise. The yield on 10-year Treasury paper moved up by 1 basis point on the session to 2.35%, while the 30-year long bond’s yield swelled by 3 bps to 3.12%.

He also noted the softness in equities. The benchmark Dow Jones industrial average slid by 179.85 points, or 1%, to 17,730.48.

Accordingly, “high yield was definitely softer today. Everything was off.”

These included such recently priced deals as Charter Communications’ 5¾% notes due February 2026.

The Stamford, Conn.-based cable and internet service provider priced $2.5 billion of the notes at par in a quickly shopped offering on Thursday via its CCOH Safari LLC unit, and the bonds had initially traded around par when they began trading on Friday.

But on Monday, a trader pegged the notes at about 99¼ bid, down ¾ point on the day, on volume of over $43 million.

A second trader located the bonds at 99 1/8 bid, 99½ offered, calling them down by 5/8 point on the day.

Also on the downside were both tranches of First Data’s upsized $3.2 billion of new notes, which had also priced at par in a drive-by transaction late Thursday.

A trader said its 5% first-lien notes due 2024 were down by 5/8 point on Monday at 98¾ bid, 99 offered.

He also saw the Atlanta-based transaction processing company’s 5¾% second-lien notes due 2024 plunge by 1 1/8 point on the session to 98¼ bid, 98¾ offered.

A second market source said that the latter bonds had retreated by 7/8 point to end around 98 5/8 bid, with over $14 million traded.

Molina backpedals

Molina Healthcare, Inc.’s 5 3/8% notes due 2022 were being quoted around 101 bid, 101½ offered, a trader said. That was well down from the aftermarket levels around 101½ to 102 at which the Long Beach, Calif.-based health management organization’s new bonds had traded at the end of last week after the upsized $700 million scheduled forward calendar deal had priced at par on Thursday.

Another trader saw the notes at 100¾ bid, 101½ offered, calling them down ¼ point.

Going back a little further, Goodyear’s 5 1/8% notes due 2023 were seen down ¾ point on the session at 101 1/8 bid, with over $15 million having changed hands.

The Akron, Ohio-based tire giant had priced $1 billion of the notes at par in a quick-to-market offering last Monday, and the bonds had gotten as good as the 102 bid level in initial aftermarket dealings.

Huntington Ingalls Industries’ 5% notes due 2025 were down by ¾ point on Monday, a trader saw, seeing them going home at 100¼ bid, on volume of over $14 million.

The Newport News, Va.-based builder of warships for the U.S. Navy had sailed in with its unscheduled $600 million offering last Monday, pricing the notes at par. They had initially firmed smartly later that session to around the 102 bid level but subsequently eroded down to their current trading levels.

Men’s Wearhouse remain weak

Away from the new or recently priced deals, bonds of Men’s Wearhouse were “down again” on Monday, a trader said – their third straight session on the slide.

He saw the Houston-based men’s apparel retailer’s 7% notes due 2022 closing around 84 bid – well down from Friday’s closing levels around 88 bid, which itself was a sharp fall from the high 90s on Thursday. The notes had traded as high as 104 bid on Wednesday.

Another trader said the issue was “very active,” falling nearly 3 points to 85¾.

Trading volume was over $18 million, said a market source who saw the bonds losing nearly 4 points Monday to close at 84 5/8 bid.

Its New York Stock Exchange-traded shares meantime lost 70 cents, or 3.08%, to close at $22.00, on volume of 3.9 million shares, or almost triple the usual volume. They had plunged more than 43% on Friday.

The slide in the company’s bonds and shares started after it reported preliminary results for its Jos. A. Bank brand late Thursday. In that update, the company also lowered its earnings per share forecast for the year.

In the third quarter, same-store sales at Jos. A. Bank declined by 14.6%, well below what the company had previously anticipated. The drop was blamed on a decline in traffic due to the company moving away from its “Buy One, Get Three Free” promotions.

Still, same-store sales as Men’s Wearhouse and K&G improved by 5.3% and 3.7%, respectively.

The gains were attributed to higher transactions per store.

But as sales at Jos. A. Bank are expected to recede 20% to 25% in the current quarter, the company lowered its earnings per share forecast to 46 cents to 51 cents in the fourth quarter, down from 87 cents previously.

For the year, earnings per share are expected to be between $1.75 and $2.00, down from $2.70 to $2.90.

Men’s Wearhouse will release its full quarterly report on Dec. 9.

Mallinckrodt targeted

After several consecutive sessions in which Men’s Wearhouse had been “the disaster of the day,” as one trader put it, pharmaceuticals were back under critical scrutiny on Monday.

After having taken Canada’s Valeant Pharmaceuticals down recently, Citron Research has a new target: Mallinckrodt.

On Monday, Citron, – led by shortseller Andrew Left – tweeted, “At these prices [Mallinckrodt] has signif [sic] more downside than [Valeant] – far worse offender of the [reimbursement system] – more to follow. [Valeant] can’t live in a vacuum.”

On the heels of the tweet, the Irish drug maker’s 5½% notes due 2025 dropped “close to 10 points,” a trader said, ending around 82.

Its 5 5/8% notes due 2023, $750 million of which had priced at par back on Sept. 9, slid by 9½ points to 84½ bid, with over $14 million traded.

The company’s NYSE-traded shares meantime plunged by $11.88, or 17%, to end at $58.01, with over 12.3 million having changed hands, more than four times the norm.

Mallinckrodt has previously been scrutinized for similar issues as Valeant, such as acquiring older drugs and then increasing the prices. Mallinckrodt does not have any stakes in specialty pharmaceutical companies but does have certain contractual agreements with such parties for its H.P. Acthar Gel.

In August, management said during a conference call that it was catching flak from some insurers over reimbursements for the gel and some other products.

Indicators remain weaker

Statistical measures of junk market performance were lower across the board for a fourth straight session on Monday and their fifth loss in the last 10 sessions. They had had declined on Wednesday for the first time in more than a week, since Sept. 27, with a number of higher or mixed sessions in between.

The KDP High Yield Daily index plunged by 25 bps on Monday to end at 66.82, its third straight loss. It had also swooned by 20 bps on Friday and by 13 bps on Thursday after having been unchanged on Wednesday, which followed two straight gains before that.

Its yield rose by 9 bps on Monday, its third straight widening; it had also increased by 3 bps on Friday and by 7 bps on Thursday after having been unchanged on Wednesday. It was the yield’s fourth rise in the last five sessions, having also risen by 3 bps on Tuesday.

The Markit Series 25 CDX North American High Yield index lost 13/32 point on Monday to finish at 102 7/16 bid, 102½ offered. It was its fourth straight loss after three straight higher sessions and thus its fifth downturn in the last eight sessions. The index had also declined by 9/32 on Friday.

And the Merrill Lynch North American Master II High Yield index fell for a four straight session on Monday after two higher sessions before that, making the day’s loss its fifth in the last seven trading days.

The index dropped by 0.377% on top of Friday’s 0.39% retreat.

Monday’s loss sent the index’s year-to-date return further into the red with a 0.60% cumulative loss, having deepened from Friday’s 0.224% cumulative loss. The year-to-date return had moved back into negative territory on Friday for the first time since Oct. 22, when it showed a 0.063% cumulative loss. The new year-to-date losses do remain well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2.

Stephanie N. Rotondo contributed to this review

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