Centene prices two-part megadeal; Freeport falls; funds up $883 million, first gain this year

By Paul Deckelman and Paul A. Harris

New York, Jan. 28 – The high-yield market primary sphere hit several important milestones on Thursday.

It saw its biggest junk bond deal of the new year so far, its first mega-deal sized offering and its first transaction consisting of more than one tranche of bonds – all rolled into one.

The landmark deal was healthcare operator Centene Corp.’s upsized $2.4 billion two-part offering, consisting of $1.4 billion of new five-year notes plus $1 billion of eight-year notes. The offering, priced through a financing subsidiary, was a regularly scheduled forward calendar transaction.

Market participants also noted a second big deal that got done, with Crown Castle International Corp. bringing a quickly shopped $1.5 billion offering of five- and 10-year notes to market – but they said that the communications antenna tower operator’s split-rated (Ba1/BBB-/BBB-) offering would probably mostly be of interest to high-grade accounts rather than junk investors. The company’s existing bonds were meanwhile slightly lower on the session.

Away from the new issues, Freeport McMoRan Inc.’s bonds were hammered down across its capital structure after the mining and energy company’s credit ratings got a four-notch downgrade from Moody’s Investors’ Service.

Other energy names such as Oasis Petroleum Inc. and Whiting Petroleum Corp. firmed smartly, in line with the continued upturn in world crude oil prices.

Continuing their recent pattern of choppiness, statistical measures of junk market performance turned higher across the board on Thursday after having been mixed on Wednesday. It was their second higher session in the last three trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – turned positive on Thursday. The funds posted their first inflow on the year so far, breaking a string of three straight outflows, as $883.3 million more came into those weekly-reporting-only domestic funds than had left them during the week ended Wednesday.

Centene a blowout

Centene priced Thursday’s sole deal, an upsized $2.4 billion of senior notes (Ba2/BB) which came in two tranches.

The transaction included $1.4 billion of five-year notes which priced at par to yield 5 5/8%. The yield printed on top of revised yield talk that had tightened from earlier talk of 5¾% to 6%.

Centene also priced $1 billion of eight-year notes at par to yield 6 1/8%. The yield came on top of yield talk, which had tightened from earlier talk of 6¼% to 6½%.

The overall amount of issuance was increased from the originally announced $2.27 billion.

The deal was a blowout, according to a portfolio manager.

Beginning on Wednesday the market was watching for talk on the deal to tighten.

And tighten it did.

Initial guidance had the five-year notes coming at 6½% and the eight-year notes at 7%, according to the portfolio manager. Hence both tranches came in 87.5 bps below the initial guidance.

Wells Fargo was the left bookrunner for the deal which was shopped on a Wednesday investor call. Barclays, Citigroup and SunTrust were the joint bookrunners.

The St. Louis-based managed care and specialty health care services provider plans to use the proceeds to help fund the acquisition of Health Net Inc. and to refinance debt.

With Centene clearing on Thursday, only one deal remained on the active calendar.

Endurance International Group Holdings Inc. was scheduled to start a roadshow on Thursday in New York for a $350 million offering of eight-year senior notes via left bookrunner Goldman Sachs.

That roadshow carries into the week ahead.

However Acadia Healthcare Co. Inc. is expected to show up shortly with a $390 million offering of senior notes in a deal that will be led by BofA Merrill Lynch, according to a portfolio manager who expects to see it launch Friday or Monday.

Centene not seen

In the secondary realm, traders did not immediately report any initial aftermarket dealings in the big new Centene Escrow Corp. two-part offering, owing to the relative lateness of the hour at which that regularly scheduled forward calendar offering had priced.

Nor was there much activity seen in the new Crown Castle International 3.40% notes due 2021, which priced at 99.977, or its 4.45% notes due 2026, which came at 99.671.

A trader noted that the Houston-based wireless communications antenna tower operator’s split-rated issue “will mostly have the IG guys looking at that,” as opposed to junk investors, given the relatively slim coupons.

A market source meantime said that the company’s existing 5¼% notes due 2023 were down around ¼ point at 105½ bid, on over $21 million traded.

However, he also saw Crown Castle’s 4 7/8% notes due 2022 having firmed by around 1 point to the 105 bid level, with over $35 million traded.

Hub holds its own

Among the recently priced new issues, a trader said that Hub International Ltd.’s 9¼% senior secured second-lien notes due 2021 had moved up in Thursday trading, anchored around the 103 bid mark in morning dealings.

Later on in the day, a second trader pegged the Chicago-based insurance brokerage company’s new deal trading between 102 and 103 bid.

That quick-to-market $300 million offering had priced at par on Wednesday and had firmed to above the 102 bid level in initial aftermarket dealings.

Among other recently priced credits, a trader said that the GCP Applied Technologies Inc. 9½% senior notes due 2023 “are actually doing quite well,” seeing those bonds having climbed to a 104 to 105 bid context.

The Columbia, Md.-based provider of specialty construction chemicals, building materials and packaging technologies, in the process of being spun off from chemical giant W.R. Grace & Co., priced $525 million of those notes at par last Friday in a scheduled forward calendar deal. Soon after pricing, they had moved as high as 103 bid, and continued to firm from those levels in active trading, particularly on Monday and again on Tuesday.

Freeport McMoRan falls

Away from the new or recently priced deals, a trader said that “the big name today” was Freeport McMoRan, whose bonds fell after Moody’s Investors Service on Wednesday dropped its senior unsecured ratings by four notches, to B1 from Baa3 previously “completely bypassing the BB level,” he said. “They missed that tier altogether.”

Moody’s said the big downgrade “reflects the deterioration in FCX’s debt protection metrics and increase in leverage as a result of the more precipitous drop in copper prices in 2015, particularly in the last six months of the year as well as the collapse in oil prices, with prices continuing to be pressured downward in 2016.”

The other two major ratings agencies continue to rate the Phoenix-based natural resource company at investment grade – for now.

The trader said that “depending on how far out along the curve its bonds are,” the company’s debt was down anywhere from ½ point to 4 points, adding that: “I don’t think it came as any big surprise, based on where those bonds have been trading and where their yields are.”

The company’s most active issue – its 4.55% notes due 2024 – was down more than 4¼ points at 40½ bid, with over $129 million having changed hands.

Freeport’s 3.55% notes due 2022, on the other hand, eased by 1/8 point to 41 bid, with over $67 million traded.

Its 6 7/8% notes due 2023 lost ¼ point to go home at 48 bid, with over $35 million traded.

Freeport engages in the acquisition of mineral assets, and oil and natural gas resources and primarily explores for copper, gold, molybdenum, cobalt, silver, and other metals, as well as oil and gas.

Oil issues gain

Among more pure-play energy companies, however, Thursday was a strong session, spurred on by rising oil prices.

Houston based exploration and production operator Oasis Petroleum – whose issue of 6 7/8% notes due 2022 “is sort of benchmark for the sector,” one of the traders said – was up across the board. Those 2022 bonds were better by more than 2½ points on the day, at 56 bid, on volume of over $30 million.

Meanwhile, its 6½% notes due 2021 gained more than 3¼ points to 57½ bid, with more than $27 million having changed hands.

Denver-based Whiting Petroleum, whose bonds, like Oasis, have recently been hit hard amid the oil price slump seen earlier in the month – was also improved; its 5% notes due 2019 jumped by 5 points to 64¾ bid with over $18 million traded.

Whiting’s 6¼% notes due 2023 were up nearly 4 points on the day at 62¼ bid, on turnover of more than $15 million.

The bonds were seen basking in the glow of firmer oil prices, spurred by reports that global producers Russia and Saudi Arabia were in talks about possibly mutually curbing their respective outputs to battle the current supply glut.

West Texas Intermediate crude for March delivery strengthened by 92 cents per barrel Thursday on the New York Mercantile Exchange, settling at $33.22, while Brent crude gained 79 cents to $33.89 per barrel in London futures trading.

Indicators turn higher

Continuing their recent pattern of choppiness, statistical measures of junk market performance turned higher across the board on Thursday after having been mixed on Wednesday. It was their second higher session in the last three trading days.

The KDP High Yield Daily Index rose by 18 basis points on Thursday to end at 62.99, its sixth straight gain and seventh such advance in the last 14 sessions, a stretch that included a seven-session losing streak; on Wednesday, it had been up by 10 bps.

Its yield, meantime, came in by 5 bps on Thursday to close at 7.24%, its sixth consecutive narrowing and seventh such tightening over the last 14 sessions. It had eased by 2 bps on Wednesday.

The Markit Series 25 CDX North American High Yield Index rose by 9/16 point on Thursday, bouncing back from Wednesday’s ¼ point loss to go out at 99 5/16 bid, 99 7/16 offered, its second advance in the last three sessions.

The Merrill Lynch North American High Yield Master II Index notched its sixth consecutive gain and its eight rise in the last nine sessions, firming by 0.246%, on top of Wednesday’s 0.175% gain.

That cut the index’s year-to-date loss to 1.925% from 2.166% on Wednesday – the first time that the year-to-date loss figure was under 2% since Jan. 14, when it had finished at 1.691%. The loss figure thus continued its improvement from the 4.095% deficit seen last Wednesday – its worst level for the year so far.

Funds gain $883 million

Flows of investor cash into or out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned positive on Thursday, posting their first inflow on the year so far, breaking a string of three straight outflows.

Some $883.3 million more came into those weekly-reporting-only domestic funds than had left them during the week ended Wednesday (see related story elsewhere in this issue).

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