MultiPlan leads $2 billion primary, market firms broadly; funds plunge $4.4 billion

By Paul Deckelman and Paul A. Harris

New York, Nov. 16 – After many days of overall softness, the high-yield market turned decidedly firmer on Thursday, taking its cue from a reinvigorated stock market and paced by continued strong new-deal issuance.

High-yield syndicate sources said that just under $2 billion of new dollar-denominated and fully junk-rated paper came to market in three tranches during the session, led by a $1.3 billion offering of PIK toggle notes from healthcare cost management solutions provider MultiPlan, Inc.

Alight Solutions, a provider of benefits outsourcing services, priced a downsized $180 million add-on to an existing issue of 2025 notes. That deal, like MultiPlan, was a transaction off the forward calendar.

There was also one drive-by offering, as medical technologies company Teleflex Inc. did a $500 million 10-year offering.

In the secondary arena, traders saw those new Teleflex notes firm smartly, on market-leading volume, while the new Alight and MultiPlan paper hovered around their respective discounted issue prices.

The traders said that Wednesday’s new deal from oil and natural gas company Centennial Resource Development, Inc. was busy and trading well above its par issue price.

However, they didn’t see much activity in the issues which had come to market during Tuesday’s $3.8 billion bond barrage, other than drugmaker Valeant Pharmaceuticals International, Inc. and power generator Talen Energy Supply, LLC.

Away from the new deals, traders saw most high-yield names firming.

Oil and gas credits like California Resources Corp. and EP Energy Corp. were solidly better, even though crude oil prices continued to fall back.

There was also strength in some recently beleaguered sectors, including wireline telecommunications, retailers and hospital operators.

Statistical market performance measures turned higher across the board on Thursday for the first time in nearly a month, having last been stronger all around back on Oct. 19.

While those performance indicators shot northward, another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – moved sharply deeper into negative territory this week, as $4.44 billion left those weekly reporting-only domestic funds during the week ended Wednesday. It was the funds’ third weekly net outflow in a row, as well as the second-largest cash loss so far this year and the fourth-biggest on record (see related story elsewhere in this issue).

MultiPlan sells PIK notes

In Friday’s primary market MultiPlan priced $1.3 billion of five-year senior holdco PIK toggle notes (Caa1/B-) at 99 to yield 8.751%.

The notes pay an 8½% cash coupon which toggles to 9¼% for PIK payments.

The deal, to fund a shareholder dividend, was talked in the 8½% area with 1 point of OID.

There were revisions to the call features and equity clawback. Call protection was extended to 19 months from 12 months. The first call premium was increased to 104 from 102. The equity clawback was revised to 40% at par plus the coupon during the non-call period. Previously the deal was coming with a 100% equity clawback at 102 during the non-call period.

Goldman Sachs was the left lead. Barclays and BofA Merrill Lynch were also leads.

Big book for MultiPlan

The MultiPlan deal played to $3 billion of orders, according to an investor who was watching it.

The new notes were up a point in the secondary, the source added.

Although PIK toggle holdco notes, issued to fund a dividend, are commonly perceived as a “hot market” paper – whereas the junk market during the past 10 days has been anything but hot – investors were receptive to such a deal from the benefits management services provider, which is pretty steady and well understood on the buyside, the investor remarked.

Teleflex drives by

In drive-by action, Teleflex priced a $500 million issue of 10-year senior notes (Ba3/BB) at par to yield 4 5/8%.

The yield printed in the middle of the 4½% to 4¾% yield talk.

J.P. Morgan, BofA Merrill Lynch and PNC were the joint bookrunners for the debt refinancing deal.

Alight downsizes

Alight Solutions priced a downsized $180 million add-on to the 6¾% senior notes due June 1, 2025 (Caa1/CCC+) issued by Tempo Acquisition, LLC and Tempo Acquisition Finance Corp. at 98.26 to yield 7.051%.

The tap was downsized from $200 million with the shift of $20 million proceeds to an add-on covenant-light term loan B, increasing the loan to $205 million from $185 million.

The reoffer price came at the cheap end of the 98.26 to 99 price talk.

Barclays was the left bookrunner. BofA Merrill Lynch, Citigroup, Macquarie, Morgan Stanley, Deutsche Bank, Goldman Sachs and CIBC were the joint bookrunners.

The Lincolnshire, Ill.-based provider of benefits outsourcing services plans to use the proceeds, together with a $185 million incremental term loan and $25 million of cash on hand, to return capital to shareholders.

Hess talked at 5½% to 5¾%

An active Friday session is on tap in the dollar-denominated primary market.

Dealers set the table for some of the session’s business on Thursday.

Hess Infrastructure Partners LP talked its $800 million offering of 8.25-year senior notes (Ba2/BB) to yield 5½% to 5¾%.

Official talk comes wide of the 5¼% early guidance.

JP Morgan, Wells Fargo, Morgan Stanley and MUFG are the managers.

Welltec talked at a discount

Denmark-based oilfield services provider Welltec A/S talked its $340 million offering of five-year senior secured notes (B2/B-) to yield 9½% to 9¾%, including approximately 1 point of original issue discount.

Official talk comes wide of earlier guidance of 8¾% to 9%, a trader said.

The notes become callable after two years at par plus 75% of the coupon. A special call provision that would have allowed the issuer to redeem 10% of the notes annually at 103 during the non-call period has been struck from the deal.

Joint bookrunner Goldman Sachs International will bill and deliver. DNB and Credit Suisse are also joint bookrunners.

Weight Watchers International, Inc.’s $500 million offering of eight-year senior notes (B3/CCC+) is also expected to price Friday.

The deal, with left bookrunner Citigroup at the helm, is guided in the 7% area, with official talk pending, a market source said late Thursday.

Friday’s business should lighten but by no means empty the pre-Thanksgiving calendar, which features offerings set to clear during the Nov. 20 week’s two full sessions and one abbreviated session running up to the four-day holiday weekend.

Among the deals set to come in that pre-Thanksgiving week, Las Vegas gaming technology provider Everi Payments, Inc. is shopping $375 million of eight-year notes via left bookrunner Jefferies.

The deal has generated considerable buyside interest, an investor said, adding that the early guidance is 7% to 7¼%.

Outflows, but slowing

Daily cash flows for dedicated high-yield funds were negative for the fourth consecutive day on Wednesday, the most recent session for which data was available at press time, a market source said.

High-yield ETFs sustained $178 million of outflows on the day.

Asset managers sustained $305 million of outflows.

The news was out ahead of a report giving the flows of the dedicated junk fund as negative $4.442 billion for the week to Wednesday’s close.

Negative though they are, the outflows have been moderating, the source said, recounting that last Friday, Nov. 10, asset managers sustained a whopping $1.45 billion of daily outflows.

Big outflows notwithstanding, the junk market began rallying into middle part of the present week, sources said.

Prior to that the difficulty was volatility, an investor said.

There was bad news on the technical front, in the form of the above-mentioned outflows, the source recounted.

Also there was negative news on the earnings front, the source said, adding that the unfriendly spotlight fell upon some conspicuously big capital structures and included names from such evergreen high-yield sectors as health care and telecom.

Teleflex trades up

In the secondary sphere, the new Teleflex 4 5/8% notes “really traded well,” said a market source, who pegged those bonds in a 101 to 101 3/8 bid context, up from the par level at which the Wayne, Pa.-based medical technologies provider had priced its quick-to-market issue.

A second market source noted that Teleflex was Junkbondland’s volume leader on Thursday, with more than $66 million of that paper traded, including over $52 million in big round-lot transactions.

It was quoted going home at 101 3/8 bid.

Alight, MultiPlan near issue

In contrast, the traders did not see much initial aftermarket activity in the day’s other two junk deals, from Alight Solutions and MultiPlan.

A trader quoted Alight’s 6¾% add-on notes at 98½ bid on “just a couple of trades,” up slightly from its 98.26 pricing level, while a second saw them in a 98½ to 99 bid context.

But a third saw the notes moving around between 99 and par.

As for MultiPlan’s big new issue of 8½%/9¼% senior PIK toggle notes, a trader saw just one initial trade in the New York-based healthcare cost management solutions company’s new paper, at 99½ bid, up from its 99 pricing level.

Centennial seen surging

Traders said that Centennial Resource Development’s 5 3/8% notes due January 2026 were solidly above their par issue price.

One saw the Denver-based oil and natural gas exploration and production company’s Wednesday deal trading on Thursday between 101½ and 102 1/8 bid, with the day’s final prints between 101¾ and 101 7/8.

A second saw them in a 101¾ to 102¼ context while at another desk Centennial was quoted finishing at 101 7/8.

However, the trader said that this was up perhaps 3/8 point on the day, with most of the gain having occurred in thin initial aftermarket trading on Wednesday after that regularly scheduled forward calendar deal, upsized to $400 million from $350 million originally, had priced.

Thursday volume, though, was a brisk $28 million.

Tuesday deals recede

Going back a little further, a trader said that he “wasn’t seeing much activity” in the new deals which came to market during Tuesday’s huge session, in which $3.8 billion of paper from six issuers had priced in seven tranches.

He said that he did see SRC Energy Inc.’s 6¼% notes due 2025 trade up buy 1 full point, in line with the generally stronger market, finishing at 101½ bid, though he did not see much in the way of volume in the Denver-based oil and gas operator’s new deal.

The company had priced $550 million of those notes at par in a forward calendar offering Tuesday.

Another market source did see “a fair amount of activity” in the new deals from Valeant Pharmaceuticals and Talen Energy Supply.

He saw Valeant’s 5½% notes due 2025 ending at 101 3/8 bid, up ¾ point on the day, with about $19 million traded.

The Laval, Que.-based drug manufacturer had priced its regularly scheduled $750 million add-on offering to its existing $1 billion of those 5½% notes at par.

Allentown, Pa.-based independent power producer Talen Energy Supply’s 10½% senior guaranteed notes due January 2026 meantime jumped 1¾ points on the day Thursday to close at 100¾ bid, on turnover of more than $18 million.

Talen’s quickly shopped $400 million offering of those notes had priced on Tuesday at 96.029 to yield 11¼%. The bonds had firmed to around a 98 to 99 bid context in fairly active trading on Wednesday and continued to improve during Thursday’s session.

A trader said that he did not see much going on in Tuesday’s other new deals, from Miami-based homebuilder Lennar Corp., Denver-based PDC Energy, Inc. and Monaco-based dry-bulk shipping company Navios Maritime Holdings, Inc.

Struggling sectors snap back

Away from the new or recently priced deals, a trader said that he had seen “a lot of snap back” in some names and sectors which had recently been under pressure, helped by the overall strength in the junk market, which itself seemed to gain some inspiration from the big stock market surge Thursday, with the bellwether Dow Jones Industrial Average jumping 187 points on the day.

Another trader quoted an old adage in noting that “a rising tide lifts all boats.”

One big gainer on the day was Murray Energy Corp.’s 11¼% notes due 2021, which had plunged by 6 or 7 points Wednesday in active trading, hurt by the news that the planned takeover of fellow coal mining concern Bowie Resource Partners LLC by a syndicate led by St. Clairsville, Ohio-based Murray had been scrubbed.

On Thursday, though, those notes rebounded sharply from their Wednesday lows around 45 bid, and ended the day at 52 bid, a gain of more than 6 points, with about $10 million traded.

Elsewhere, a trader said that Frontier Communications Corp.’s notes “had really gotten beat up over the past week” – but he saw the Stamford, Conn.-based wireline telecom company’s 11% notes due 2025 up some 2¼ points on the day to 78 bid, with over $49 million traded.

Its 10½% notes due 2022 closed at 80 bid, up 1¼ points on the day, with over $15 million traded.

Monroe, La.-based sector peer CenturyLink Inc.’s 7½% notes due 2024 moved up nearly 1 full point on the day to just over 98 bid, with $20 million having changed hands.

Bonds of Level 3 Communications Inc. – now a CenturyLink subsidiary – were also better after some recently rough sledding, with the Broomfield, Colo.-based internet backbone network operator’s 5 3/8% notes due 2022 finishing up ¾ point at 101 bid.

In the wireless category, Overland Park, Kan.-based Sprint Corp.’s 7¼% notes due 2021 edged up 1/8 point to 106 1/8 bid, with over $27 million traded, while its 6 7/8% notes due 2028 did much better, climbing 1 5/8 points to 101¾ bid, with over $17 million moving around.

Energy up though crude falls

A trader noted that California Resources’ 8% notes due 2022 “had gotten beaten up the last few days, with WTI [West Texas Intermediate crude oil prices] off.”

But he said that the Los Angeles-based exploration and production company’s benchmark issue had firmed by 1½ points on Thursday to close at 71¼ bid, on volume of over $40 million.

Houston-based sector peer EP Energy’s 9 3/8% notes due 2020 were up by around the same amount, ending at just under 76½ bid, with around $13 million of volume.

While the energy names gained, crude continued to struggle Thursday, with West Texas Intermediate off 19 cents a barrel on the New York Mercantile Exchange – its third straight loss – settling at $55.14.

North Sea Brent crude was down for a fifth straight session in London futures trading, ending off 51 cents per barrel at $61.36.

Hospitals, retail rebound

Traders said the hospital names – recently under pressure amid investor fears regarding possible healthcare law changes – were more robust on Thursday, with Franklin, Tenn.-based Community Health Systems Inc. ‘s 8% notes due 2019 up ¾ point on the day at 91¾ bid.

Dallas-based Tenet Healthcare Corp.’s 6¾% notes due 2023 were up 1 full point on the day at 93¼ bid.

In the retailing space, Plano, Texas-based department store operator J.C. Penney Co., Inc.’s 5.65% notes due 2020 surged by more than 3 points on the day to end at 91½ bid, on volume of over $12 million.

Indicators turn stronger

Statistical market performance measures turned higher across the board on Thursday for the first time in nearly a month, having last been stronger all around back on Oct. 19. That upturn followed losses for seven consecutive sessions, starting last Tuesday and continuing through Wednesday of this week. Those losses had followed two straight mixed sessions before that.

The KDP High Yield Daily Index jumped by 18 basis points on Thursday to end at 71.42, its first gain after seven straight losses, including Wednesday’s 28 bps freefall and Tuesday’s 16 bps nosedive.

Its yield came in by 6 bps to 5.44%, its first tightening after having widened out for eight successive sessions. On Wednesday, it had risen by 9 bps, on top of Tuesday’s 6 bps increase.

The Markit CDX Series 29 High Yield Index saw its first gain Thursday after seven losses in a row, improving by more than 9/16 point to close at 107 5/8 bid, 107 21/32 offered. On Wednesday, it had eased by 1/32 point after falling by around ¼ point on Tuesday.

And the Merrill Lynch North American High Yield Master II Index also snapped a long losing streak, posting its first upturn after 10 straight setbacks.

It gained 0.567% after surrendering 0.312% on Wednesday and dropping by 0.24% on Tuesday.

Thursday’s big gain lifted the index’s year-to date return to 6.572% from Wednesday’s close at 5.971%, which had been the first time that the cumulative return has finished below the psychologically significant 6% mark since Aug. 30, when it finished at 5.901%.

However, the year-to-date return still remains well down from the 7.636% posted on Oct. 24 – the peak cumulative return for 2017 so far.

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