Navient prices add-on to cap nearly $6 billion week; new HCA firms in busy trading; Rite Aid slide continues

By Paul Deckelman and Paul A. Harris

New York, June 9 – The high-yield primary sphere – which began this week pricing one of the biggest bond deals ever – ended it on Friday by pricing one of the smallest, as loan servicing company Navient Corp. did a quickly shopped $52 million add-on to its existing 2021 notes.

That deal – which was not seen in Friday’s aftermarket – brought the week’s total of new U.S. dollar-denominated and fully junk-rated paper up to just under the $6 billion mark, around three times the volume of new debt seen last week, according to data compiled by Prospect News.

Traders meantime saw active dealings at solidly firmer levels in the new HCA Inc. 30-year secured bonds, which priced on Thursday Even though the hospital operator’s megadeal was split-rated, they said a surprising number of junk investors were buying the paper alongside crossover high-grade accounts.

The traders also said that aftermarket activity finally slackened off in HCA sector peer and competitor Tenet Healthcare Corp.’s huge new four-part offering, which priced on Monday and then had been actively traded all week.

Away from the new issues Valeant Pharmaceuticals International Inc.’s bonds remained well-bid-for over a second straight session on the news of an asset sale by the debt-laden Canadian drug manufacturer.

But drugstore chain operator Rite Aid Corp.’s securities were headed in the opposite direction for a second day in a row following a report that indicated the Federal Trade Commission remains opposed to its planned merger with larger competitor Walgreen Boots Alliance.

Statistical market performance measures turned mixed on Friday, after having fallen across the board for the previous three straight sessions.

But those numerical measures were seen to have moved lower all around from where they had finished last Friday, their first week on the downside after two straight higher weeks and two mixed weeks before that.

The week ahead

Primary market news slowed to a thin trickle on Friday.

The June 12 week is set to get underway with a meager calendar, some of it comprised of off-the-run names targeting specialized investor audiences, sources say.

Brand Energy & Infrastructure Services, Inc. (unsecured ratings Caa2/CCC+) is set to start a roadshow for a $700 million offering of eight-year senior notes on Monday.

The acquisition financing, via left bookrunner Barclays, and joint bookrunners Goldman Sachs, Natixis, ING, SG and Credit Agricole, is set to price late in the week ahead.

Oppenheimer Holdings Inc. is guiding its $200 million offering of five-year senior secured notes to yield in the 6½% area.

The deal is expected to price on Wednesday.

Oppenheimer is running the books for its own deal, sources say.

Pressing deeper into the reaches of off-the-run deals, Australia's Pilbara Minerals is guiding $80 million of five-year secured notes in the 12% area, according to a bond trader.

Word on the deal, which is being managed by Pareto Securities, circulated more than a week ago, with the mining and exploration company said to be in the market with up to $100 million of the notes. Proceeds will be used to fund the development of its Pilgangoora lithium and tantalum project in Western Australia.

Back toward the middle of the fairway, Albertsons Companies LLC might show up in the week ahead, according to a sellside source.

The company has announced that it would use proceeds from the sale of new guaranteed senior notes to fund $500 million of tender offers that it announced on Monday.

The dealer manager for the tender is BofA Merrill Lynch.

The notes would be issued via the Boise, Idaho-based food and drug retailer's subsidiaries Safeway Inc. and New Albertson's, Inc.

The early tender date is June 16.

And the European new issue market is expected to see at least some activity in the week ahead also, sources say.

A save-the-date memo for Monday, from Credit Suisse, circulated on Friday, a London-based source said. The bank is expected to roll out a deal from the transportation sector.

New issue drought dilemma

More deals are expected to surface in the week ahead, sellside sources said on Friday.

However the calendar is not expected to fatten substantially in the near term.

That's creating a little bit of a feedback loop in the market, a trader said on Friday.

The thin to non-existent new issue calendar is driving motivated real-money investors into the few new deals that do surface, fattening order books and enabling dealers to grind pricing tighter and tighter, so that issues tend to price so tight their secondary market performances are mediocre at best.

Tenet, Hertz and PetSmart are names that have surfaced in conversations about this particular dynamic.

Nevertheless, when the next big on-the-run deal surfaces, investors tend to dive right back in, the trader said.

On May 25 PetSmart priced $1.35 billion of senior first-lien notes (Ba3/B+) at par to yield 5 7/8%, at the tight end of yield talk in the 6% area, a trader recounted, adding that when the deal was announced earlier in the week, guidance on the first-lien notes was 7%.

If investors' appetites were whetted, earlier in the week, with a 7% yield, the serving that ultimately turned up at the table yielded 5 7/8%.

Thursday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs sustained $271 million of outflows on the day.

Actively managed funds were flat to slightly negative, seeing $5 million of outflows on Thursday.

Dedicated bank loan funds, however, were moderately positive on the day, seeing $35 million of daily inflows on Thursday.

New Navient not seen

In the secondary market, traders did not immediately report any initial aftermarket dealings in Navient Corp’s $52.11 million add-on offering to its existing 5 7/8% senior notes due 2021.

The Newark, Del.-based loan-servicing company’s tap of those bonds will be fungible with the original $500 million that priced at 99.379, yielding 6%, back on March 25, 2015.

Prior to Friday’s add-on, the company did one other addition to the issue – bringing a $93.04 million add-on to market on March 14 of this year.

A busier week

Friday’s smallish add-on offering from Navient brought the amount of new U.S. dollar-denominated and fully junk-rated paper pricing this week up to some $5.89 billion in 11 tranches, according to data compiled by Prospect News.

The week’s total was up from the $2.05 billion that priced in just three tranches last week, ended June 2.

Last week was one session shorter than usual due to the full shutdown of the debt markets on Monday, May 29, in observance of Memorial Day in the United States.

The week’s total was still down from the $9.7 billion of such paper from domestic or industrialized-country borrowers, which had priced in 18 tranches the week before, ended May 26, which had been the biggest new-issuance week seen in Junkbondland since the week ended March 10, the biggest primary week ever, when some $17.54 billion of junk bonds had priced in 26 tranches.

This week’s primary activity pushed year-to-date issuance for 2017 so far up to $132.26 billion in 246 tranches – considerably more than the $105.67 billion that had priced in 149 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Full-year issuance in 2016 finished at $226.78 billion in 359 tranches –which ran 12.9% behind the $260.02 billion which had gotten done in 408 tranches in 2015.

HCA heads higher

Traders said that the new 5½% senior secured bonds due 2047 from HCA Inc., which priced on Thursday, firmed smartly during busy Friday dealings.

A trader said that HCA was 102½ bid late Friday morning.

Another market source declared that the unusually tenured 30-year bonds “seemed to be pretty well- received.”

He said that “the breakdown of the [order] book was approximately 50/50” between investment-grade accounts and high-yield accounts – a relative rarity for a split-rated deal (Ba1/BBB-BB+), most of which get snapped up by high grade investors looking for some yield, with junk marketeers usually ignoring such credits for the most part.

The source said the new deal “attracted a lot of insurance-type money.”

He also speculated that “there appears to be some conviction that company will eventually have straight investment grade ratings.”

At another desk, a trader quoted the bonds going home at 102¾ bid, calling them up more than 2 points on the day, with over $76 million seen having changed hands,

And a fourth market participant called it “amazing” that a bond with such a long maturity could be trading so well.

Nashville-based hospital operator HCA priced $1.5 billion of those long bonds at par on Thursday in a quick-to-market transaction.

Tenet trading slacks off

Trading in the gigantic new four-part deal that HCA sector peer and competitor Tenet Healthcare Corp. brought to market on Monday appeared to finally be slackening off on Friday after having been busy all week.

A market source said that only one of the four tranches – the 5 1/8% senior secured second-lien notes due 2025 – even broke as much as $10 million in round-lot trades on Friday. He said the notes went home up 3/16 point on the day, at 99 13/16 bid.

A trader at another desk saw those notes at 99 5/8 bid, 99 7/8 offered.

He saw the two tranches of 4 5/8% senior secured first-lien notes due 2025 ending at 99 7/8 bid, 100 1/8 offered, while its 7% unsecured notes due 2025 were at 99 bid, 99½ offered.

All of the $3.78 billion of new bonds that the Dallas-based hospital operator priced on Monday came to market at par, but subsequently eventually traded below that point.

Valeant continues climb

Away from the new issues, Valeant Pharmaceuticals International’s paper remained busy and well-bid for, traders said, extending the gains notched on Wednesday after the Laval, Que-based drugmaker announced that it had agreed to sell its iNova Pharmaceuticals business for $930 million to a company co-owned by Pacific Equity Partners and the Carlyle Group.

Proceeds from the asset sale, and other potential divestments, will go toward whittling down the company’s more than $28 billion of balance-sheet debt.

In Friday’s dealings, the company’s 6 1/8% notes due 2025 were seen about unchanged at 80 5/8 bid, the level to which they had risen on Thursday. But volume was brisk, at more than $19 million.

Valeant’s 6 3/8% notes due 2020 rose by 1 1/16 points, to 95¾ bid, with over $12 million having traded.

Rite Aid retreat deepens

On the downside, Rite Aid Corp.’s 6 1/8% notes due 2023 were seen down a deuce in the day’s trading, at 93¼ bid.

More than $12 million of the notes changed hands.

Those bonds had also been off by more than 2 points, on about the same volume, in Thursday’s dealings, amid several days of negative news coverage on the prospects for Rite Aid’s pending $15 billion acquisition by larger sector peer Walgreen Boots Alliance.

The deal is now before federal anti-trust regulators amid speculation they could kill the transaction on anti-trust grounds.

On Friday, the Capital Forum reported that the Federal Trade Commission's staff was prepared to recommend that the agency file a lawsuit to stop the deal.

Rite Aid’s New York Stock Exchange-traded shares slid by 53 cents, or 15.01% on Friday, ending at $3.

Rite Aid and Walgreen first announced their proposed combination more than a year-and-a half ago, in October of 2015.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday, after having fallen across the board for the previous three straight sessions.

But those numerical measures were seen to have moved lower all around from where they had finished last Friday, their first week on the downside after two straight higher weeks and two mixed weeks before that.

The KDP High Yield Daily index lost 4 basis points on Friday, ending at 72.44, its fourth consecutive loss; on Thursday, the index was down 5 bps. It had also plunged by 15 bps on Wednesday, after easing by 1 bp on Tuesday.

Its yield rose by 1 bp to 4.93%, its third straight widening. On Thursday, it had widened by 2 bps, and it had increased by 3 bps Wednesday after having been unchanged on Tuesday.

Those levels compared unfavorably to last Friday’s 72.68 index reading and 4.88% yield.

But the Markit CDX Series 28 High Yield index firmed by 3/32 point Friday to end at 107 17/32 bid, 107 19/32 offered, after having been unchanged on Thursday and down over the previous three straight sessions.

However, the index was down from the 107¾ bid, 107 7/8 offered finish it had posted last Friday.

The Merrill Lynch North American High Yield index turned upward on Friday after three straight losses, improving by 0.065%. On Thursday it had declined by 0.098%, on top of Wednesday’s 0.096% retreat.

The gain raised the index’s year-to-date return to 4.928% from 4.86% on Thursday, although it remained below Monday’s 5.074%, which had been its sixth straight new 2017 peak cumulative return.

For the week, the index was down by 0.093%, its first weekly loss after four consecutive weekly gains, including last week’s 0.325% advance.

© 2015 Prospect News.
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