Summit Materials drives by, Solera sets talk; Valeant rebounds but Intelsat slide worsens; Whiting falls

By Paul Deckelman and Paul A. Harris

New York, Feb. 23 – The high yield primary sphere saw its first new fully junk-rated deal in a week on Tuesday, as cement and asphalt producer Summit Materials, Inc. priced a quickly shopped $250 million offering of seven-year notes.

Priamryside players, meantime said that Solera, LLC set price talk on its $2.03 billion dollar- and euro- denominated eight-year note offering. The automobile insurance claims software provider’s transaction is expected to price on Thursday.

Away from the new deals, Valeant Pharmaceuticals International Inc.’s bonds bounced off their Monday closing lows in heavy trading to recover part of that session’s losses, which had been spurred by the news that the Canadian drug manufacturer would likely have to restate some of its recent financial results.

But there was no such respite for Intelsat SA’s beleaguered bonds, which had fallen sharply on Monday after the communications satellite company released worse-than-expected preliminary fourth-quarter and full-year revenue statistics and announced that it had hired an adviser to assess its financing and balance sheet initiatives – and which slid even further, in heavy trading, on Tuesday.

A downturn in world crude oil prices, as Saudi Arabia ruled out making any production cuts any time soon, helped pull some energy issues lower, among them Whiting Petroleum Corp.

Statistical market performance measures turned mixed on Tuesday after having been higher across the board on Monday, their second mixed session in the last four trading days.

Summit Materials prices wide

Summit Materials, Inc. priced Tuesday's sole deal, a $250 million issue of senior notes due April 15, 2022 that came in at par to yield 8½%.

The yield printed 37.5 basis points beyond the wide end of yield talk in the 8% area.

BofA Merrill Lynch was the left bookrunner for the quick-to-market deal. Goldman Sachs, Citigroup, Deutsche Bank, RBC and Barclays were the joint bookrunners.

The Denver-based supplier of aggregates, cement, ready-mixed concrete and asphalt plans to use the proceeds to fund the acquisition of Boxley Materiasls Co. and to replenish cash used for the acquisition of American Materials Co.

Summit Materials is the first straight-out junk bond deal to price in a week; on Feb. 16 Prestige Brands Holdings, Inc. priced a $350 million issue of senior notes due March 1, 2024 (Caa1/B) at par to yield 6 3/8%.

Solera sets talk

Solera, LLC and Solera Finance, Inc. set price talk in a $2.03 billion equivalent offering of eight-year senior notes (Caa1/B-).

The deal is coming in tranches of dollar-denominated and euro-denominated notes, the sizes of which remain to be determined.

The dollar-denominated notes are talked to yield 10¾% to 11%. That talk comes well wide of earlier guidance of 9½% to 10%, sources said.

The euro-denominated notes are talked to yield in the 25 bps area inside of the yield of the dollar-denominated notes.

Books for the euro-denominated notes are scheduled to close at the end of business, Greenwich Mean Time, on Wednesday.

Books for the dollar-denominated notes are scheduled to close 1 p.m. ET on Wednesday.

The deal is scheduled to price on Thursday.

Goldman Sachs is the left bookrunner. Citigroup, Jefferies, Macquarie, Nomura and UBS are the joint bookrunners.

Beyond Solera the active calendar is empty.

Corus Entertainment Inc. has been quietly marketing a C$300 million offering of seven-year senior notes (/B+/DBRS: B high), sources say.

No roadshow announcements, timing or price talk have been announced.

Preliminary guidance had the deal, via RBC and TD, coming with a yield in the 8% area, according to an investor.

The primary market is sidelined by an earnings blackout set to expire at the end of the month, sources say.

The new issue market is also undergoing a process of repricing, as volatility in the global capital markets, and in crude oil prices exert an erosional force upon investors' appetites for risk, they add.

Valeant bounces back

In the secondary market, Valeant Pharmaceuticals International’s several series of bonds were all sharply higher in heavy trading on Tuesday, recovering at least some of the losses which had been racked up during Monday’s dealings.

A trader saw its VRX Escrow Corp. 6 1/8% notes due 2025 trading in an 85-to-86 bid context, calling that “three points off the lows going out last night.”

At another shop, a market source pegged those bonds up nearly 3 points, going home at just under 86 bid, with more than $46 million changing hands – the busiest issue of the day in Junkbondland.

The source also saw the escrow unit’s 5 7/8% notes due 2023 having firmed by around ¾ point on the day to 85 7/8 bid, with over $36 million traded.

Its 6¾% notes due 2018 closed at 97 bid, up 1½ points on the day, on volume of over $23 million.

“They traded much lower at the end of the day yesterday,” the first trader said, seeing the Laval, Que.-based drug manufacturer’s widely traded 2025 issue having plunged as low as 81½ bid on Monday from prior levels around 88 bid, before finally settling in around 83, down five points, with the other Valeant bonds likewise in retreat.

The notes had foundered after The Wall Street Journal reported Monday that the company would likely restate some of its financial results, following an internal review that the company conducted of its controversial dealings with former specialty pharmacy partner Philidor Rx Services.

Valeant on Monday evening announced that as a result of an ongoing review of its relationship with Philidor being carried out by a special ad-hoc committee of its board of directors, it has determined that some $58 million in net revenues that it had previously recognized in 2014, connected with drug sales to Philidor by Valeant, should have been booked in subsequent periods.

The company said that those revenues should have been recognized only when Philidor actually dispensed the medications to patients, rather than upon delivery to Philidor.

It said that as a result, it expects to reduce its 2014 GAAP earnings-per-share eps by about 10 cents per share and increase its 2015 GAAP per-share earnings by 9 cents per share.

Valeant further said that it expects to delay filing its 2015 10-K year-end report to the Securities and Exchange Commission, pending completion of the review of related accounting matters by the ad-hoc committee and pending Valeant’s ongoing assessment of the impact on its financial reporting and internal controls.

It also announced that it will hold its fourth quarter conference call to discuss its unaudited financial results for the quarter next Monday, Feb. 29.

The first trader opined that “when it was figured out that the numbers they were talking about weren’t as bad as [investors] anticipated, the bonds traded back up.”

Meanwhile, Valeant’s New York Stock Exchange- traded shares – which had plummeted by more than 10% on Wednesday on nearly four times their usual volume – recouped $3.35, or 4.41% in Tuesday dealings, ending at $79.27. Volume of 15.3 million shares was almost double the norm.

However, not everyone in the financial world was as reassured on Tuesday by the company’s announcement as the holders of its bonds and shares apparently were.

Independent investment advisory service Gimme Credit senior analyst Vicki Bryan said in a research note that “not only does this first volley confirm concerns that we and certain others long have raised about Valeant's persistently poor disclosures and liberally opaque and inconsistent accounting, the financial impact to fix the problems could be significant.”

Bryan further said that Valeant's credit profile, “already the weakest of any major drug company, is likely to remain so with leverage still uncomfortably high at 6x versus 3.8x in 2014.” She continued to rate the company’s bonds as an “underperform.”

Intelsat carnage continues

Elsewhere, for a second consecutive session, Luxembourg-based communications satellite company Intelsat’s bonds and shares were in virtual freefall, deepening the losses already recorded on Monday.

A trader said that its Intelsat Jackson Holdings SA notes were off across the capital structure “8 to 10 points” on top of Monday’s losses.

He saw its 7¼% notes due 2019 as “the big mover,” falling some 10½ points, at 67¾ bid, “so there was continued weakness there.”

A little later on in the session, a trader saw those notes wrapping up around 71 bid, calling them down 7½ points on the day, with over $34 million having traded. On Monday, those bonds had plunged 9½ points, with over $35 million traded.

Intelsat’s 5½% notes due 2023 were seen down 7 1/8 points, at 58½ bid, on volume of over $44 million. On Monday, those bonds had nosedived by 9¾ points, with over $39 million traded.

The biggest loser in the Intelsat constellation on Tuesday was its 6 5/8% notes due 2022, finishing down 14 points on the day at 43 bid, with $17 million of turnover.

Intelsat’s New York Stock Exchange shares fell by 25 cents on Tuesday, or 9.19%, settling at $2.47. Volume of 481,000 shares was about 1.5 times the usual volume. On Monday, those shares had slid by 9.63%, with volume more than triple the norm.

The bonds and shares swooned after the company issued its preliminary numbers for the fourth quarter and full fiscal year ended Dec. 31.

Quarterly revenues of $571.26 million were down 7.7% year-over-year from $619 million in the comparable 2014 fourth period, versus average analyst estimates of just under $576 million. Full-year revenues were $2.352 billion, about in line with the estimates but down from $2.47 billion last year.

It also issued full-year 2016 revenue guidance of $2.14 billion to $12.22 billion, down from expectations of around $2.29 billion. Adjusted EBITDA is expected to come in around $1.625 billion to $1.675 billion.

Intelsat also announced on Monday that it had retained Guggenheim Securities to assess what it called “financing and balance-sheet initiatives” – but company executives declined to say what these were, although they indicated that the hire was not a prelude a merger or acquisition transaction or to a Chapter 11 bankruptcy restructuring.

Whiting leads energy lower

Crude oil prices were beaten down on Tuesday, after Saudi Arabia’s oil minister cautioned against expecting production cuts by major global oil producers anytime soon.

Saudi Oil Minister Ali Al-Naimi told oil executives on Tuesday that markets should not view the agreement by four major oil producers, including the Saudi Kingdom and Russia, to freeze output at January levels as any kind of a prelude to actual production cuts.

That sent the benchmark U.S. crude grade, West Texas Intermediate, for April delivery – the new front month – down $1.52 per barrel in New York Mercantile Exchange trading on Tuesday, to $31.87, while global benchmark Brent crude for April delivery sank by $1.42 per barrel on the London ICE Futures Exchange.

Among energy credits, Whiting Petroleum – which is scheduled to release its fourth-quarter numbers after the closing bell on Wednesday – was a major loser.

The Denver-based exploration and production company’s 5% notes due 2019 fell by 5¼ points, to 41½ bid, with over $10 million traded.

Its NYSE-traded shares likewise plummeted 68 cents, or 14.72%, to $3.94 per share, on volume of 23 million shares, 1.5 times the usual daily handle.

But not all energy credits were losers.

Carrizo Oil & Gas, Inc.’s 6¼% notes due 2023 gained 3 points, ending at 64¾ bid.

The Houston-based E&P operator reported fourth-quarter and 2015 full-year earnings on Tuesday. On its conference call, its chief financial officer said Carrizo ended the quarter with a “huge” amount of liquidity,” no near-term maturities and thus, no need to look into raising any kind of capital (see related story elsewhere in this issue).

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday after having been higher across the board on Monday, their second mixed session in the last four trading days.

The KDP High Yield Daily Index fell by 10 basis points on Tuesday to end at 62.51, its first loss after Monday’s 18 bps gain and its second setback in the last three sessions.

Its yield edged up by 1 bps to 7.42%, its third straight widening out after having come in over the four sessions before that.

The Markit Series 25 CDX North American High Yield Index lost 1/8 point on Tuesday to finish at 98 1/16 bid, 98 1/8 offered, its first loss after Monday’s 13/32 point gain and its third loss in the last four sessions.

The Merrill Lynch North American High Yield Master II Index, on the other hand, finished on the upside on Tuesday – but just barely, inching upward by 0.01%, its second advance in a row. It had also improved by 0.506% on Monday, versus Friday’s 0.25% retreat.

The small gain shaved the index’s year-to-date deficit to 2.67% from 2.671% on Monday, and it also remained down from the 5.142% loss seen on Feb. 11, the worst cumulative deficit for the year so far.

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