Junk primary quiet to close holiday week but high-grade CF prices; funds lose $669 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 10 – The high-yield primary arena closed out a holiday-shortened week on Thursday with no new dollar-denominated and fully junk-rated deals having been priced.

Instead, primaryside players watched as chemical fertilizer company CF Industries, Inc. – a nominally junk-rated company – priced $1.25 billion of investment grade-rated secured bonds, a deal which had generated some interest in Junkbondland.

Syndicate sources meantime saw Envision Healthcare Corp. preparing to hit the road to market a planned $750 million eight-year issue on Monday when the junk market re-opens after Friday’s close in observance of Veterans Day.

Existing healthcare names like Community Health Systems Inc. and Tenet Healthcare Corp. remained under pressure for a second consecutive session in the wake of Tuesday’s U.S. election results and the implications for possible repeal of Obamacare.

Statistical market performance measures turned lower on Thursday after being mixed on Tuesday and Wednesday and higher all around on Monday.

For the week, the indicators were ending mixed after two straight weeks in which the signposts had been lower. It was their third mixed week in the last six.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – stayed mired deep in the red this week, recording their fifth consecutive net outflow, as $669 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday.

The outflow followed four straight weeks of cash declines, including the $4.116 billion loss reported last Thursday during the seven-day period ended Nov. 2 – easily the largest so far this year and the third largest on record, according to a Prospect News analysis of the data (see related story elsewhere in this edition).

CF high-grade deal prices

No high-yield issues priced on post-election Thursday, ahead of the extended Veterans Day holiday weekend in the United States.

However one investment-grade issue that garnered some interest among high-yield accounts did clear the market.

CF Industries priced $1.25 billion of senior secured bullet notes (Baa3/BBB/BBB-) in two tranches.

The deal included $500 million of 3.4% five-year notes that priced at a 190 basis points spread to Treasuries. The spread came inside the Treasuries plus 225 bps official spread talk. Early guidance had the five-year notes coming in the 200 bps area.

In addition CF Industries priced $750 million of 4½% 10-year notes at a 245 bps spread to Treasuries. The spread on the 10-year notes came inside the Treasuries plus 275 bps spread talk. Early guidance had the 10-year notes coming at Treasuries plus 240 bps to 275 bps.

The deal was playing to $9.5 billion of demand as of Thursday morning, according to a high-yield bond trader who added that there was some participation from high-yield accounts.

The notes were priced on the investment-grade desk and will also be traded on the investment-grade desk, the trader added.

The secured notes are rated above the company’s corporate credit ratings of Ba2 from Moody’s and BB+ from S&P.

Goldman Sachs and Morgan Stanley managed the debt refinancing and general corporate purposes deal.

Envision Healthcare roadshow

Envision Healthcare plans to start a roadshow on Monday for a $750 million offering of eight-year senior notes (expected ratings B3/B).

Marketing is set to conclude on Wednesday and the deal is expected to price subsequently.

Barclays is the lead left bookrunner. JP Morgan, SunTrust and Wells Fargo are the joint bookrunners.

Proceeds, together with proceeds from a concurrent term loan financing, will be used to pay off Envision Healthcare’s existing term loan and ABL facility as well as to pay off Amsurg Corp.’s 5 5/8% notes due 2020 and credit agreement. Proceeds will also go towards working capital, capital expenditures and other general corporate purposes.

The way ahead

Uncertainty has hold of the high-yield bond market and is likely to maintain that hold until some clarity on the make-up and agenda of the Trump administration surfaces, market sources say.

Nevertheless there is a decent deal pipeline.

And dealers are likely aiming at the week ahead, which is the final full week of business before the extended Thanksgiving holiday weekend in the United States, set to get underway following the Wednesday, Nov. 23 close, they add.

There should also be a modest amount of activity in the European high-yield primary market next week, a London-based debt capital markets banker said on Thursday.

Notwithstanding uncertainties surrounding Donald Trump’s surprise victory in the U.S. presidential election and Brexit, the United Kingdom’s pending exit from the European Union, there may be enough stability in the near term for issuers to try the market, the banker added.

Meanwhile, aside from the Envision Healthcare deal (above) there is at least one offering on the active calendar for the week ahead.

Sweden’s Perstorp Holding AB plans to sell $1.2 billion equivalent of secured notes, including about $800 million equivalent of five-year first lien notes in dollar- and euro-denominated fixed-rate tranches, as well as euro-denominated five-year floating-rate notes, and $420 million of second-lien fixed-rate notes due September 2021.

Goldman Sachs in the global coordinator.

The roadshow wraps up on Monday.

Elsewhere, the deal from Singapore-based MMI International Ltd., which was announced in late October, has yet to clear the market, sources say, adding that it has been radio silence on the $300 million offering of five-year secured notes (expected ratings B2/B+) via left bookrunner Goldman Sachs.

Week’s issuance falls

With no new deals pricing on Thursday, the week’s issuance total came to just $500 million of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers in a single tranche, according to data compiled by Prospect News.

The week had one fewer trading day than usual because of the scheduled Friday market close in observance of the Veterans Day holiday in the United States.

The week’s small total was well down from the $5.30 billion which had priced in 10 tranches last week, ended Nov. 4, and down still further from the $7.45 billion which gotten done in nine tranches during the week ended Oct. 28.

This week’s lone new dollar deal nudged the year-to-date issuance total up to $198.01 billion in 304 tranches.

That was running 20.6% behind the new-deal pace seen at this time last year, when $249.43 billion had priced in 385 tranches by this point on the calendar, the Prospect News data indicated.

That was wider than the 17.6% gap between this year’s and last year’s issuance which had been seen last week.

Telsat comes off highs

The week’s sole new issue – Wednesday’s offering of 8 7/8% notes due 20204 from Ottawa-based communications satellite company Telesat Canada – was somewhat busy on Thursday, although not quite at the pace seen after that regularly scheduled forward calendar deal priced at par.

“It looks like a fair amount traded,” one market source said, although he added that “it doesn’t look like the top of the pile – but it was active.”

Some $22 million of the notes were seen changing hands on Thursday, putting the credit once again high upon the junk market’s Most Actives list, though that was off from the more than $37 million which had changed hands when the bonds first hit the aftermarket after Wednesday’s pricing.

Traders said that the bonds initially were firmer, moving up to around a 102½ to 102 5/8 bid context from Wednesday’s closing levels around 102.

However, later in the day, they said the issue came off its highs, in line with an overall market softening, and ended around 101 7/8 bid.

Late-session weakness

One of the traders said that the overall market “started out okay this morning but then the market ended softer, just grinding lower, even though stocks were pushing higher.”

He estimated that prices generically were down about 5/8 to ¾ point, “even though stocks were up.”

He suggested that “Treasuries were getting hammered” amid investor fears of a coming rate hike in the U.S. by the Federal Reserve, “so that was pulling fixed income generally lower.”

Healthcare has a relapse

For a second straight session, the traders said, healthcare-oriented names were being pulled lower by investor fears about what the change in U.S. administration will portend for Obamacare, which had enabled many previously uninsured people to get medical coverage and hospitals to be paid for treating them rather than having to write off substantial bad debt expense.

A trader said that Franklin, Tenn.-based hospital operator Community Health System’s 6 7/8% notes due 2022 “were down just over 2 points,” while the company’s 6½% notes due 2020 “were off almost a point” and its 7½% notes due 2022 were 1½ points lower – on top of losses in the 4 to 5 point range on Wednesday, “so there is still pressure on that sector.”

At another desk, a trader pegged Community Health’s 7 1/8% notes due 2020 down 3¾ points at 70 3/8 bid, while seeing its 5 1/8% notes due 2021 at 90½ bid, down 2¼ points.

He saw Dallas-based hospital sector peer Tenet Healthcare’s 8% notes due 2020 – also down multiple points on Wednesday – at 92¼ bid late Thursday, down 4¾ points on the day.

Its 6% notes due 2020 were down 1¾ points at 102¾ bid.

At another desk, a market source saw Nashville-based hospitals giant HCA’s 5 7/8% notes due 2023 off nearly 2½ points at just over 101, while its 5 7/8% notes due 2022 were ending at 107½ bid, down 1¼ points on the day.

Indicators turn lower

Statistical market performance measures turned lower on Thursday. They had shown mixed readings on Tuesday and Wednesday and had been higher all around on Monday.

For the week, the indicators were mixed compared to the previous Friday after two straight weeks on the downside. It was their third mixed week in the last six.

The KDP High Yield Index plunged by 17 basis points on Thursday to end at 70.31, its second straight loss. On Wednesday it had lost 3 bps after being firmer for two straight sessions, including Tuesday’s 7 bps gain and Monday’s 18 bps rise; those gains had followed nine consecutive losses.

Its yield widened by 7 bps to 5.73%, after having risen 2 bps on Wednesday and having come in by 4 bps on Tuesday.

But the index was up from a 70.26 reading last Friday, while its yield was unchanged on the week.

The Markit Series 27 CDX Index saw its first loss after four consecutive gains, which had in turn followed eight losing sessions before that. It was down 19/32 point on Thursday, closing at 103 9/16 bid, 103 19/32 offered, after improving by ¼ point on Wednesday.

For the week, it was up from last Friday’s 102 27/32 bid, 102 7/8 offered finish.

The Merrill Lynch High Yield Index saw its third straight loss as it eased by 0.287% on Thursday, on top of Wednesday’s 0.265% retreat.

That brought the index’s year-to-date return down to 14.657% from 14.981% at Wednesday’s close.

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

For the week, it lost 0.154%, its third consecutive weekly setback.

© 2015 Prospect News.
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