Morning Commentary: Rite Aid drops 7-plus points as merger falls apart, primary busy

By Paul A. Harris

Portland, Ore., Aug. 9 – Bonds of Rite Aid Corp. dropped 7¼ points on news that Rite Aid and Albertsons Cos. Inc. mutually agreed to terminate their previously announced merger agreement, a trader said.

Meanwhile dealers set the stage for a busy day in the high-yield new issue market.

News that an expected merger between Rite Aid and Albertsons will not go forward sent Rite Aid bonds tumbling, market sources said on Thursday.

Rite Aid’s 6 1/8% senior notes due April 2023 were at 90¾ bid at mid-morning, down 7¼ points from Wednesday, a trader said.

“While we believed in the merits of the combination with Albertsons, we have heard the views expressed by our stockholders and are committed to moving forward and executing our strategic plan as a standalone company,” said Rite Aid chairman and chief executive officer John Standley, in a Thursday press release.

“We remain focused on leveraging our network of conveniently located retail pharmacies, our EnvisionRxOptions PBM and our trusted brand of health and wellness offerings.”

As a result of the decision, a special meeting of Rite Aid’s stockholders, which was to be held on Aug. 9, will not take place, the release stated.

New deals trade well

Away from headline news, recent issues tended to be trading flat or better on Thursday morning, a trader said.

WellCare Health Plans, Inc.’s new 5 3/8% senior notes due August 2026 (Ba2/BB) were up 1 point to 1½ points.

The upsized $750 million issue priced at par on Wednesday. It was increased from $700 million.

WellCare’s offer was halfway circled up by reverse inquiry and was five-times oversubscribed at its original size by Tuesday’s close, according to a trader.

ACI Worldwide, Inc.’s new 5¾% senior notes due August 2026 (B2/BB) were up a point.

The upsized $400 million issue priced at par on Tuesday after being increased from $300 million.

In the energy sector, Matador Resources Co.’s 5 7/8% senior notes due September 2026 (B2/BB-) were wrapped around par.

The upsized $750 million issue priced at par on Tuesday. It was announced at $700 million.

And Vistra Energy Corp.’s 5½% senior notes due September 2026 (Ba3/BB/BB) were up ½ point on Thursday.

The upsized $1 billion issue priced at par on Tuesday.

Busy primary

News volume in the primary market was heavy on Thursday morning.

HCA Inc. plans to sell $2 billion of senior bullet notes (Ba2/existing BB-) in two tranches in a quick-to-market trade on Thursday following a late-morning conference call with investors.

The deal features eight-year notes with initial guidance in the 5 5/8% area and 10-year notes with initial guidance in the 5 7/8% area, a trader said.

Goldman Sachs & Co. is the left bookrunner.

The Nashville, Tenn.-based for-profit operator of health care facilities plans to use the proceeds to redeem all $1.5 billion of its outstanding 3¾% senior secured notes due 2019 and for general corporate purposes which may include funding of all or a portion of previously announced acquisitions.

Meanwhile BMC Software set price talk for $1,825,000,000 sale of eight-year senior notes (Caa2/CCC+).

The offering is coming in tranches of dollar-denominated notes talked to yield in the 9 5/8% area, at the tight end of early guidance in the 9¾% area, and in euro-denominated notes talked to yield 8¼% to 8½%, slightly wide of early guidance in the 8¼% area.

Tranche sizes remain to be determined.

The deal underwent covenant changes bearing primarily upon how the company may disburse cash and incur additional debt.

Books close at noon ET and the LBO deal, via left bookrunner Goldman Sachs, is set to price thereafter.

Marriott Vacations Worldwide Corp. talked its $750 million offering of eight-year senior notes (S&P: BB-) to yield in the 6¾% area.

Official talk comes wide of initial guidance in the 6½% area, a trader said.

Books close at 2 p.m. ET Thursday and the deal is set to price thereafter.

And Herbalife Nutrition Ltd. talked its $400 million offering of eight-year senior notes (B1/BB-) to yield 7¼% to 7½%.

Official talk comes tighter than initial guidance in the mid-to-high 7% area.

Herbalife’s deal, via left bookrunner Jefferies, is also set to price Thursday.

Mixed flows on Wednesday

The daily cash flows for dedicated high-yield bond funds were mixed on Wednesday, a bond trader said.

High-yield ETFS sustained $112 million of outflows on the day.

However actively managed funds saw $38 million of inflows on Wednesday, the trader said.

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