No pricings, but Hercules slates deal; Vanguard Health Systems up; Tenet down on merger news

By Paul Deckelman and Paul A. Harris

New York, June 24 - The high-yield primary market remained stymied on Monday by recent market volatility in the wake of last week's announcement by the Federal Reserve of its plans to throttle back on its expansive quantitative easing monetary stimulus program. No issues were priced for a third consecutive session.

However, there was a glimmer of hope for a return to normalcy on the horizon, as Houston-based Hercules Offshore, Inc., a provider of shallow-water drilling and marine services to the energy industry, announced plans for a new $400 million bond deal. It was the first such addition to the forward calendar in several sessions.

There was also some primaryside chatter about Air Canada possibly doing a Canadian-dollar deal.

In the secondary market, the day's big news was that hospital operator Tenet Healthcare Corp. will acquire smaller rival Vanguard Health Systems Inc. for $1.73 billion in cash and the assumption by Tenet of $2/5 billion of Vanguard debt. That debt was up solidly in response to the news, but Tenet's bonds were suddenly under the weather at the prospect of big new debt issuance to finance the transaction.

Elsewhere, traders saw another mostly down session, continuing the trend of weakness seen at the tail end of last week. Such recent news deals as Rite Aid Corp. and Brookfield Residential Properties Inc. were seen lower, as was last month's megadeal from Ball Corp., recently a favorite whipping boy for investors.

Statistical market performance measures were solidly in retreat on all fronts, after having turned mixed on Friday.

Hercules plans $400 million

The primary market remained generally quiet on Monday, as volatility continued to rock financial markets around the world.

Hercules Offshore plans to price a $400 million offering of eight-year senior notes (existing ratings B3/B) toward the end of the present week.

Deutsche Bank, UBS, Credit Suisse, Goldman Sachs and Pareto are the joint bookrunners.

Proceeds, together with cash on hand, including $104 million expected from the sales of its inland barge rigs, domestic liftboats and related assets, will be used to fund the acquisitions of shares of Discovery Offshore SA and for the final payment of $333.9 million due for Discovery Triumph and Discovery Resilience.

Air Canada mulls C$300 million

In addition to the Hercules announcement, the market learned that Air Canada may bring a Canadian dollar-denominated deal.

The company plans to meet with investors on Wednesday ahead of a possible C$300 million offering of six-year notes (B2/B/).

An ensuing deal would be subject to market conditions.

Citigroup is the lead.

In addition to the bonds, Air Canada is also doing a U.S. dollar-denominated term loan.

Eye on the Fourth of July

Some cash bonds were down as much as a point on Monday morning, before regaining some of the lost ground later in the session, according to a high-yield syndicate official.

The late lift suggested to this sellsider that some value hunting had been taking place.

There were no announcements of deal postponements during the session. The last dollar deal to be officially pulled was American Equity Investment Life Holding Co.'s $250 million offering of senior notes, which was yanked on Friday.

The new issue market remains keenly focused on the Valeant Pharmaceuticals International, Inc. $3.225 billion two-part offering of senior notes (B1/B), wondering if the market will be able to digest a deal of this size, with high-yield cash flows having been decidedly negative for nearly a month now.

However, the Monday session produced no news on the deal, sources said.

Early guidance that circulated late last week - mid-6% range for the tranche of eight-year notes and high 6% to low 7% range on the 10-year notes - has not been officially revisited, according to a bridge loan participant.

On Monday afternoon, that bridge loan player professed the expectation that talk ultimately will back up with the rest of the market, perhaps by as much as 50 basis points.

Junk investors have to be careful about pushing around a deal like Valeant too much or they will end up adversely impacting other bonds in their portfolios, which will widen with the index, the investor cautioned.

"Right now they ought to shut down the primary market and let us figure out where things should be trading," the investor asserted, but added the Valeant deal, proceeds from which will be used to fund the acquisition of Bausch + Lomb, must move forward or else the bridge loan will be funded at rates that are substantially higher.

Elsewhere, a debt capital markets banker also suggested that it could be time for the primary market to take a header.

"Right now people are starting to eye the Fourth of July, which is going to end up being a four-day weekend for a lot of people. You can't expect much to happen on Friday (July 5), even if the markets are open," he said.

"Given how low issuance has been, how much cash has moved out of the market and how much volatility we're seeing, it's hard to imagine that a lot is going to happen before the Fourth of July."

A trader said that "stuff was trading down. Everything is re-pricing right now, so the market took another leg down today."

He said the cash market was down, on average, by half [a point] to a point.

"It might be off its lows from this morning, but it's still down for the day."

He suggested that "the more liquid, on-the-go names, like Charter [Communications Inc.], have high-betas, so they're probably going to be selling off more."

He said the CDX index "opened up a lot weaker," down 1 point in the morning before it "kind of tried to come back with the equity market towards the end of the day," although stocks ultimately fizzled out and ended lower, as did the index.

Vanguard victorious

A trader saw Vanguard Health Holding II's 8% notes having recorded "a lot of trades today," jumping to 105 bid, 106 offered from prior levels around 103 7/8 bid, 104 1/8 offered, on the news that Vanguard and Tenet Healthcare had reached an agreement under which Dallas-based hospital operator Tenet will acquire Nashville-based industry rival Vanguard in a deal valued at $4.23 billion.

Under the terms of the deal announced on Monday, Tenet will buy Vanguard for $1.73 billion in cash, or $21 per share.

Tenet will also assume $2.5 billion of Vanguard debt.

The company said that it had secured fully committed financing from Bank of America Merrill Lynch.

The deal is expected to be accretive to earnings in the first year. Anticipated annual synergies are $100 million to $200 million.

A second market source quoted the Vanguard bonds at 105¾ bid, calling them up 1 5/8 points.

A source at another desk, meanwhile, said that mid-afternoon volume in the Vanguard bonds was over $16 million, making it one of the busiest names in Junkbondland on Monday

While Vanguard's bonds sizzled, Tenet's paper fizzled, traders said. The Tenet 8% notes due 2020 were seen down as much as 6 points on the session, at102½ bid.

A second market source also saw the bonds having declined multiple points, quoting them going out at 105 bid, down 3½ points.

A trader said that its 6¾% notes due 2020 slid all the way to 96 bid, versus last week's levels around 104 3/8 bid.

Recent deals trade off

Apart from the merger-driven rise in Vanguard Health's bonds, traders saw the market mostly broadly lower, including many recently priced new issues.

For instance, a trader saw Rite Aid's new 6¾% notes due 2021 at 96 1/12 bid, 97½ offered, down about a point from where they had been on Friday.

The Camp Hill, Pa.-based No. 3 U.S. drugstore chain operator had priced its quick-to-market $810 million offering of those notes at par last Tuesday, after having upsized the offering from an originally announced $400 million.

The trader also saw Brookfield Residential Properties' new 6 1/8% notes due 2022 at 95½ bid, 96¼ offered, calling them down 1 point on the session.

On Friday, the bonds had been quoted at 97½ bid, 98½ offered.

The Calgary, Alta.-based land owner and homebuilder, along with its Brookfield Residential U.S. Corp. subsidiary, had priced $500 million of the notes at par last Tuesday. The quickly shopped deal had been upsized from an original $400 million.

Ball Corp. battering continues

Among the long list of names that were seen lower on Monday was Ball Corp., whose $1 billion drive-by offering of 4% notes due 2023 has been pounded down incessantly by the market almost since its May 9 pricing.

The Broomfield, Colo.-based packaging company's deal was sharply upsized from an initial $600 million to meet investor demand, but soon after, the bond slipped below their par issue price and has continued to head south ever since.

Traders say the ultra-low 4% coupon has been a major factor in the drop.

On Monday, a trader said that Ball Corp. slipped below the psychologically potent 90 bid mark, moving down to 89¾ bid at point during the day, although he saw them going out at 90¼ bid.

"Maybe they're off their lows - but it's still down for the day."

Another market source saw the bonds get even lower, down to 88¾ bid, 89¾ offered around mid-day, before moving up from that low by ¾ of a point to finish up at 89½ bid, 90½ offered.

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