Lennar megadeal, Valeant add-on pace $3.8 billion primary day; energy names off on crude oil plunge

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 – The high-yield primary sphere saw its heaviest volume of new issuance since early June on Tuesday, as some $3.81 billion of new dollar-denominated and fully junk-rated paper priced.

Homebuilder Lennar Corp. had the big deal of the day – a quickly shopped $1.2 billion of new notes, split into three- and 10-year tranches.

Valeant Pharmaceuticals International Inc. did a $750 million add-on to the Canadian drugmaker’s existing 2025 secured notes in a regularly scheduled forward calendar transaction.

There were a pair of new deals coming out of the oil and natural gas sector – PDC Energy, Inc.’s $600 million 8.5-year drive-by deal and Denver neighbor SRC Energy Inc.’s $550 million regularly scheduled eight-year issue.

Power generation company Talen Energy Supply, LLC did a quick-to-market $400 million of eight-year notes, while dry-bulk transport ship operator Navios Maritime Holdings, Inc. dropped anchor with an upsized $305 million scheduled offering of 4.75-year paper.

Traders said there was sizable volume in the new Valeant and SRC Energy paper, both up a little from their respective issue prices, as were both tranches of the new Lennar notes. The Navios notes hung in right around their issue price.

Away from the new deals, traders said that energy names such as California Resources Corp., EP Energy Corp., MEG Energy Corp. and Denbury Resources Inc. fell, as did marine energy driller Transocean, Inc. as world crude oil prices were crushed after the International Energy Agency issued a bearish report on anticipated global oil demand.

Hexion Inc.’s notes firmed in active trading after the specialty chemicals company reported a sales surge in the third quarter and expressed optimism on its debt repayment prospects.

Statistical market performance measures were down for a sixth consecutive session on Tuesday; they had turned lower all around last Tuesday after two straight mixed sessions before that and then stayed that way for the rest of last week and on into this week.

Lennar $1.2 billion drive-by

In a Thursday primary market session that generated a high volume of news, Lennar Corp. priced $1.2 billion of senior notes (Ba1/BB+/BB+) in two bullet tranches.

The deal, which was run on the Citigroup Global Markets Inc. investment grade syndicate desk, featured $300 million of three-year notes, which priced at par to yield 2.95%, tight to yield talk in the 3% area, and $900 million of 10-year notes, which priced at par to yield 4¾%, on top of yield talk.

The three-year notes were announced with initial yield guidance of 3% to 3¼%, and the 10-year notes were announced with initial guidance of 4¾% to 4 7/8%.

The Miami-based home builder intends to use the proceeds to fund a portion of its merger with CalAtlantic Group, Inc., and for general corporate purposes.

Oversubscribed Valeant tap

Valeant Pharmaceuticals International, Inc. priced a $750 million add-on to its 5½% senior secured notes due 2025 (Ba3/BB-) at par on Tuesday afternoon.

The reoffer price came on top of price talk, and rendered a 5.499% yield to worst and a 5.498% yield to maturity.

At the time price talk circulated the market, early Tuesday morning, the order book was heard to be three-times oversubscribed, according to a bond trader.

Barclays was the left bookrunner for the debt refinancing deal.

PDC Energy drives by

PDC Energy, Inc. priced a $600 million issue of 8.5-year senior notes (B1/BB-) at par to yield 5¾% in a quick-to-market Tuesday trade.

The yield came at the wide end of the 5½% to 5¾% yield talk.

BofA Merrill Lynch, Wells Fargo, BMO, JP Morgan and TD were the bookrunners.

The Denver-based energy exploration and production company plans to use the proceeds to redeem its 7¾% senior notes due 2022, fund a portion its acquisition of certain properties owned by Bayswater Exploration & Production, LLC, and for general corporate purposes.

SRC Energy at the wide end

SRC Energy Inc. priced a $550 million issue of eight-year senior notes (B3/B+) at par to yield 6¼%.

The yield printed at the wide end of the 6% to 6¼% yield talk.

J.P. Morgan and Credit Suisse were the joint bookrunners.

The Denver-based oil and gas exploration and production company plans to use the proceeds to finance a portion of the acquisition of approximately 30,200 acres in Weld County, Colo., as well as to redeem or repurchase its existing 9% senior notes due 2021, and for general corporate purposes.

Talen prices guaranteed notes

Talen Energy Supply, LLC priced a $400 million issue of 10½% eight-year senior guaranteed notes (B1/B+) at 96.029 to yield 11¼%.

The coupon came on top of coupon talk. The reoffer price came cheap to price talk in the 97 area.

Call protection was increased to four years from three years.

Morgan Stanley was the sole bookrunner for the debt refinancing deal.

Navios discounted to 97

Navios Maritime Holdings Inc. priced an upsized $305 million issue of 11¼% senior secured notes at 97.00 to yield 12.113%.

The notes mature on Aug. 15, 2022. However the maturity springs forward to Oct. 5, 2021 if at least $130 million or more of the company’s existing 7 3/8 % first priority ship mortgage notes due Jan. 15, 2022 remain outstanding on Sept. 5, 2021.

The coupon came at the wide end of the 11% to 11¼% coupon talk. The price came on top of price talk.

The debt refinancing deal was increased from $300 million, with the additional proceeds resulting from the $5 million upsize going to cover the original issue discount.

The call structure was revised: the notes are immediately callable at par plus 75% of the coupon, the call premium having increased from 50%.

There were also covenant changes.

Morgan Stanley, J.P. Morgan and Bank of America Merrill Lynch were joint bookrunners.

MultiPlan PIK holdco dividend deal

Away from the issues that cleared on Tuesday, MultiPlan, Inc. kicked off a $1.3 billion offering of five-year senior holdco PIK toggle notes.

The deal was scheduled to be marketed on a conference call with investors.

Goldman Sachs is the left lead. Barclays and BofA Merrill Lynch are also leads.

The New York-based provider of health care cost management solutions plans to use the proceeds to fund a dividend to its shareholders.

Alight Solutions tapping 6¾% notes

Alight Solutions plans to price a $200 million add-on to the Tempo Acquisition, LLC and Tempo Acquisition Finance Corp. 6¾% senior notes due June 1, 2025 (existing ratings Caa1/CCC+) on Wednesday afternoon.

Barclays is the left bookrunner.

The Lincolnshire, Ill.-based provider of benefits outsourcing services plans to use the proceeds, together with a $185 million incremental term loan and $25 million of cash on hand, to return capital to shareholders.

Elsewhere Five Points Operating Co., LP announced that it plans to offer $400 million of eight-year senior notes, with proceeds to be used for general corporate purposes, which may include funding development activities at its communities.

And Williams Scotsman International, Inc. announced a $300 million offering of senior secured notes due 2022.

The Baltimore-based provider of modular portable storage solutions and remote workforce accommodation management services plans to use the proceeds, together with funds from other sources, to fund its merger with Double Eagle Acquisition Corp., prepay certain third-party and inter-company debt and provide cash for the combined company's balance sheet.

Salt Mobile prints at 4%

In the European market Salt Mobile SA priced a €400 million issue of 10-year senior secured notes (S&P: B) at par to yield 4%.

Credit Suisse is the stabilization manager.

The Renens, Switzerland-based telecom plans to use to the proceeds to partially redeem floating-rate senior secured notes due 2023.

Monday outflows

While not as huge as last Friday's negative flows, the cash flows of the dedicated high-yield bond funds remained strongly negative on Monday, the most recent session for which data was available at press time, a bond trader said.

High-yield ETFs sustained $265 million of outflows on the day.

Actively managed funds sustained $405 million of outflows on Monday.

Those outflows trailed bigger outflows last Friday (much bigger, in the case of actively managed funds).

As reported, actively managed funds saw a whopping $1.45 billion of outflows on Friday, while high-yield ETFs sustained $634 million of outflows on Friday.

Away from the fund flows the market has seen hefty bids-wanted in competition (BWIC) from the high-yield ETFs, the trader said.

During the week to Nov. 10 there were $3.5 billion of BWICs, the trader said, adding that it was a big amount.

On Thursday, alone, there were $1.3 billion of BWICs.

However the tone of the market has improved since mid-to-late in the Nov. 3 week, the source added.

Biggest session since June

Tuesday’s new-deal barrage of $3.81 billion of new junk-rated paper from domestic or industrialized-country issuers, spaced out over seven tranches brought by six issuers, was the heaviest issuance seen in Junkbondland in more than five months, according to data compiled by Prospect News.

It was the most the market had seen since June 5, when some $5.08 billion of new junk bonds were priced in seven tranches, although most of that came in just two mega-deal sized multi-tranche offerings – Dallas-based hospital operator Tenet Healthcare Corp.’s $3.78 billion four-tranche offering and Finnish cellphone maker Nokia Corp.’s $1 billion two-part deal.

Valeant, SRC top actives list

Traders said that the new deals from Valeant Pharmaceuticals and SRC Energy clearly caught the fancy of investors, shooting right to the top of the day’s Most Active issues list

Laval, Que.-based drugmaker Valeant’s add-on to its existing $1 billion of 5½% senior secured notes due 2025 – which had come to market just a little over a month ago – was the volume leader, with a trader saying that he had seen “tons of trades” in it, and another market source estimating a little more precisely that more than $84 million of those notes had changed hands by the close.

Several of the traders quoted those bonds at 100½ bid, up from their par issue price, while another saw them get as good as a 100½-to-100¾ bid context.

But one trader noted that while the bonds had firmed off their issue price, they were still down by ¾ point from where the existing notes had been trading before the new deal was announced.

Valeant’s existing 5 7/8% senior unsecured notes due 2023 – which rank below the new notes in the capital structure – were seen down by more than ¾ point, at 85 3/16 bid, on volume of around $14 million.

Its unsecured 6 1/8% notes due 2025 were down more than ½ point at 84½ bid, on volume of over $11 million.

The new SRC notes meanwhile also traded actively, with over $60 million having moved around.

Those notes firmed to around 100 3/8 bid from their par issue price, several traders said.

New Lennar, Navios notes trade

Traders also saw some aftermarket activity Tuesday in two other of the day’s new deals.

A pair of traders saw the Lennar 2.95% notes due 2020 in a 100 1/8-to-100 3/8 bid range, up from their par issue price, while its 4¾% notes due 2027 had firmed to between 100½ and 101 bid, also up from par.

A market source saw the Navios Maritime 11¼% senior secured 4.75-year notes moving around between 96½ and 97½ bid, straddling the 97 level at which the Monte Carlo, Monaco-based shipping company’s new deal had priced.

The traders did not immediately report any initial aftermarket dealings in the day’s other two new deals —PDC Energy’s 5¾% notes due 2026 or Allentown. Pa.-based independent power producer Talen Energy Supply’s 10½% senior guaranteed notes due 2026, due to the relative lateness of the hour during the session at which those deals had come to market.

Energy issues drop

A trader said that the parade of new deals was the junk market’s main focus on Tuesday, so “it was hard to get people to pay attention to the secondary market” away from that.

Nonetheless, market participants saw the various energy-related issues taking it on the chin, after the International Energy Agency issued a report warning that demand for crude oil would likely fall from previously anticipated levels for the remainder of this year and on into next year.

The IEA lowered its demand forecast by 50,000 barrels per day for the remainder of this year, to 1.5 million and slashed its forecast for demand next year by 190,000 barrels per day, to 1.3 million.

That, in turn, sent crude prices tumbling, with December-contract West Texas Intermediate plunging by $1.06 per barrel on the New York Mercantile Exchange, settling in at $55.70, while North Sea Brent for January delivery likewise slid by 95 cents per barrel in Tuesday futures trading in London, ending at $62.21.

A trader said that bellwether energy sector credit California Resources Corp. 8% notes due 2022 “has been moving down the past few days” after hitting recent highs around the 75 bid level, and it continued to fall on Tuesday, finally bottoming at around 70 before coming off that bottom to end around 70½ bid, which he said still left it down around 1½ points on the day.

Another trader put the Los Angeles-based oil and natural gas exploration and production operator’s notes down 1¾ points at 70¼ bid, with over $49 million having traded.

Elsewhere among the energy names, Houston-based E&P operator EP Energy’s 8% notes due 2025 dropped by 2¼ points, to 67½ bid, on volume of over $27 million.

Plano, Texas-based oil company Denbury Resources’ 6 3/8% notes due 2021 ended at 71½ bid, down 1 point on the day.

Calgary, Alta.-based MEG Energy’s 7% notes due 2024 were down 1¼-point at 89 bid.

International maritime driller Transocean’s 7½% notes due 2026 lost more than 1 point to end at 102½ bid.

Telecom, retail names lower

With the overall market lower, traders said that recently embattled names continued to lose ground on Tuesday.

These included Stamford, Conn.-based wireline operator Frontier Communications Corp., whose 10½% notes due 2022 ended at 78 1/8 bid, down 3/8 point, with over $30 million having traded.

Monroe, La.-based sector peer CenturyLink, Inc.’s 6¾% notes due 2023 were down ¾ point on the day at 95½ bid.

In the struggling retailing sector, Plano, Texas-based department store operator J.C. Penney Co. Inc.’s 5.65% notes due 2020 were down a dollar on the day at 88¾ bid, while Camp Hill,, Pa.-based drugstore operator Rite Aid Corp.’s 6 1/8% notes due 2023 lost 1¼ points to end at 90½ bid.

Hexion heads higher

One of the day’s few upsiders was Columbus, Ohio-based specialty chemicals manufacturer Hexion Inc., which reported third-quarter results, including net sales of $914 million, a 12% increase versus a year ago. It also announced a $40 million cost-reduction program, aimed at restoring the heretofore money-losing company to cash-flow neutrality.

And executives announced on their conference call that the company had $310 million of liquidity at the end of the quarter, considered adequate to meet the company’s needs. They expressed confidence in their ability to repay credit facility borrowings and deal with upcoming 2020 bond maturities (see related story elsewhere in this issue).

Hexion’s 6 5/8% notes due 2020 gained ¼ point, to 88½ bid, on over $19 million traded, while its 9% notes due 2020 firmed by 7/8 point, to 70 5/8 bid, with over $18 million having changed hands.

Indicators continue slide

Statistical market performance measures were down for a sixth consecutive session on Tuesday; they had turned lower all around last Tuesday after two straight mixed sessions before that, and then stayed that way for the rest of last week and on into this week.

The KDP High Yield Daily Index suffered its sixth consecutive loss on Tuesday, nosediving some 16 basis points to close at 71.52. On Monday, it had fallen back by 6 bps, after having dropped by 8 bps in Friday’s trading. Those moderate-sized losses follow a 25 bps swoon on Thursday, when the index had closed below the 72.00 mark for the first time late August, on top of another 16 bps plunge last Wednesday.

Its yield widened out for a seventh straight session, rising by 6 bps to 5.41%. It was also up by 1 bp on Monday and 2 bps on Friday and had ballooned out by 9 bps last Thursday.

The Markit CDX Series 29 High Yield Index saw its sixth loss in a row on Tuesday, falling by around ¼ point to end at 107 1/16 bid, 107 1/8 offered. On Monday, it had retreated around 3/32 point for a second consecutive session, matching Friday’s downturn.

And the Merrill Lynch North American High Yield Master II Index saw a ninth straight setback on Tuesday, surrendering 0.24%, about a ten-fold increase from Monday’s 0.024% easing. On Friday, it had edged downward by 0.005%.

The latest loss dropped the index’s year-to date return to 6.303% from Monday’s 6.558% close.

The year-to-date return also remains well down from the 7.636% posted on Oct. 24 – the peak cumulative return for 2017 so far.

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