Downsized Telesat Canada bonds price, move up; CF deal on tap; health care dives on Trump win

By Paul Deckelman and Paul A. Harris

New York, Nov. 9 – After three consecutive sessions on the sidelines, the high-yield primary sphere got back to business on Wednesday, as satellite communications company Telesat Canada priced a downsized $500 million of eight-year notes.

Traders said that the new bonds had firmed smartly when they hit the aftermarket, up by around 2 points on the day.

The new-dealers were meantime awaiting Thursday’s anticipated pricing for CF Industries, Inc.’s $1.25 billion two-part secured note offering, which will now be run off the investment-grade desks but which continues to attract considerable interest from investors in Junkbondland.

Away from the new deals, there was considerable activity on the downside in health-care names such as Community Health Systems, Inc., Tenet Healthcare Corp. and HCA Inc. Traders cited market fears that the election of Donald Trump as president could spell trouble for the hospital operators and other health-related names, given his campaign promises to repeal Obamacare.

Statistical market performance measures were mixed on Wednesday for a second straight session.

Downsized Telesat prices

Election week's first junk deal priced Wednesday amid intense volatility in the wake of Trump's victory in the U.S. presidential election.

Telesat Canada priced a downsized $500 million issue of eight-year senior notes (B3/B) at par to yield 8 7/8%.

The deal size was decreased from $750 million. Proceeds were shifted to the term loan, which was upsized to $2.43 billion from $2.18 billion.

The yield printed in the middle of the 8¾% to 9% yield talk. That official talk came wider than earlier guidance of 8½% to 8¾%, the source added.

The bond offer was playing to $800 million of orders as of Wednesday morning, a buyside source said.

J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and Morgan Stanley & Co. LLC were the joint bookrunners.

The Ottawa-based satellite communications company plans to use the proceeds, along with proceeds from the new term loan and cash on hand, to redeem its $900 million of outstanding 6% senior notes due May 15, 2017, to repay all debt outstanding under its existing credit facilities and to fund the previously announced cash dividend to shareholders.

Elsewhere, in a straight high-grade transaction that garnered some high-yield attention, CF Industries is expected to price its $1.25 billion two-part offering of non-callable senior secured notes (Baa3/BBB/BBB-) on Thursday.

The deal is expected to feature a tranche of five-year notes being guided at a spread to Treasuries in the 200 basis points area, the manager said.

A tranche of 10-year notes is being guided at a 240 bps to 275 bps spread to Treasuries.

Tranche sizes remain to be determined.

Official talk was still pending at Wednesday's close, market sources said.

Mixed Tuesday flows

The cash flows of the dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a portfolio manager said.

High-yield exchange-traded funds saw a whopping $786 million of inflows on the day.

However, asset managers sustained $30 million of outflows on Tuesday.

Investors have cash to put to work, the portfolio manager said.

However, the buyside is apt to wait until there is some clarity on how president-elect Trump will form his administration.

“People don't want to jeopardize their 2016 returns,” the manager said.

There is a decent deal pipeline facing a somewhat narrow window for issuance in the run-up to 2017, a debt capital market banker said, reinforcing color heard from other market sources on Thursday.

There could be news on Thursday, ahead of the extended Veterans Day holiday weekend in the United States.

The post-Veterans Day week is the last full week before the extended four-day Thanksgiving holiday weekend, which gets underway following the Nov. 23 close.

Meanwhile the post-election bondscape is a volatile one, the banker said, remarking on the phenomenal capital markets rebound following Tuesday night's precipitous drop in equity futures, as it became apparent that Trump would be the winner by a substantial margin, taking the market by surprise.

Wednesday trading was just what you'd expect, the banker said, noting that the health-care sector sold off dramatically on the outlook that a Republican-controlled government could unwind the Affordable Care Act. And highly regulated sectors including energy (especially coal), finance and telecommunications improved on the outlook that a Trump administration might ease regulations.

“This is Brexit all over again,” the banker remarked, comparing Trump's surprise victory with June's advisory referendum that saw voters in the United Kingdom choose to exit the European Union.

“What's clear is that there is volatility ahead,” the banker said late Wednesday.

Telesat Canada issue climbs

In the secondary market, traders saw a good reception for Telesat Canada’s new issue of 8 7/8% notes due 2024, after the Toronto-based communications satellite operator’s downsized new deal priced at par as a regularly scheduled forward calendar offering.

One trader saw the new deal in a 101½-to-101¾ bid context, while a second saw the notes doing even better than that, trading between 101¾ and 102 3/8 bid.

At another desk, a trader pegged the issue at 102¼ bid.

More than $37 million of the notes traded, putting the credit high up on the day’s Most Actives list.

Hospital names get hurt

Away from the new issues, traders noted the carnage in health-care names, specifically in hospital operators, following Trump’s surprising victory in Tuesday’s U.S. presidential election.

They said the downturn was anything but a surprise, given the candidate’s frequent promise to repeal the Patient Protection and Affordable Care Act, i.e., Obamacare.

Franklin, Tenn.-based hospital company Community Health Systems’ 8% notes due 2019 were among the big losers on the day, falling 7¾ points on the session to end at 80 bid, with over $33 million having changed hands.

The company’s 7 1/8% notes due 2020 also dropped more than 7 points, to 74 1/8 bid, with over $25 million traded.

Dallas-based sector peer Tenet Healthcare’s 6¾% notes due 2023 lost 5 points to close at 88¼ bid, on over $21 million of volume.

Nashville-based HCA’s 5 7/8% notes due 2026 ended at par, down more than 4 points on the day, with about $12 million of volume.

At the Gimme Credit independent advisory service, senior analyst Vicki Bryan wrote in a research note that in the event of an Obamacare repeal, “hospitals will be among the most severely impacted by the looming specter of lost revenue as millions of patients again lose the ability to pay for health services and yet still get sick and injured and need care.”

Bryan said that in such an environment, operators like HCA with stronger balance sheets will do better than others with not-so-strong credit metrics such as Tenet and Community Health.

She rated HCA an “outperform,” while its rivals were underperformers.

Indicators stay mixed

Statistical market performance measures were mixed on Wednesday for a second straight session. They had turned mixed on Tuesday after having been higher across the board on Monday for only the second time in the last 11 sessions. Wednesday was the fourth mixed session in the last five trading days.

The KDP High Yield index lost 3 bps to end at 70.48, after having firmed for two straight sessions, including Tuesday’s 7 bps gain and Monday’s 18 bps rise. Those gains had followed nine consecutive losses, including Friday’s 6 bps downturn.

Its yield widened by 2 bps to 5.66%, after having come in by 4 bps on Tuesday.

But the Markit Series 27 CDX index saw its fourth straight gain after eight losing sessions before that, improving by ¼ point on Wednesday to 104 1/8 bid, 104 3/16 offered. On Tuesday, it had firmed by around 1/8 point, while on Monday, it jumped by nearly 1 full point.

However, the Merrill Lynch High Yield index saw its second straight loss as it eased by 0.265% on Wednesday, following Tuesday’s 0.036% downturn, its third loss in the last four sessions.

That brought the index’s year-to-date return down to 14.981% from Tuesday’s close at 15.287%.

Those levels remain well below its peak level for this year of 16.768%, established on Oct. 25.

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