J2 prices; Senate bill drives health higher; Rite Aid lower on report; funds out $128 million

By Colin Hanner and Paul A. Harris

Chicago, June 22 – j2 Cloud Services, LLC priced the day’s sole new issue, an upsized $650 million of eight-year senior notes.

Meanwhile in the secondary the highly-anticipated and, for the better part of two weeks, much-discussed Senate health care bill finally came to light on Thursday, jolting high-yield pharmaceutical and health care bonds upward in trading, though for different reasons.

Among those that saw gains were Laval, Quebec-based Valeant Pharmaceuticals International, Inc. and Franklin, Tenn.-based hospital group Community Health Systems, Inc.

Bonds of drugstore operator Rite Aid Corp. slid as a trade publication said that a member of the Federal Trade Commission will vote no on the company’s planned merger with larger competitor Walgreen Boots Alliance.

Elsewhere, the exploration and production sector caught a break with higher crude oil prices after several downtrodden sessions due to worries surrounding the Organization of Petroleum Exporting Countries’ ability to regulate the global supply glut.

California Resources Corp. and EP Energy Corp. were among the day’s gainers.

And pet retailer PetSmart Inc. continued to slide in three of its issues, with retail woes and company worries fueling the bonds losses.

Three weeks of inflows for high-yield mutual funds and exchange-traded funds came to an end as AMG Data Services Inc. reported that $128 million more left those weekly reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, June 21.

j2 Cloud upsized and tight

On an otherwise quiet Thursday in the dollar-denominated primary market, j2 Cloud Services priced an upsized $650 million issue of eight-year senior notes (Ba3/BB) at par to yield 6%.

The amount was increased from $550 million.

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

Citigroup was the left bookrunner. Jefferies, MUFG, Barclays, Wells Fargo and JMP were the joint bookrunners.

The Los Angeles-based provider of cloud services plans to use the proceeds to redeem all of its outstanding 8% senior notes due 2020 and pay off its existing $225 million credit facility, with any remaining proceeds to be used for general corporate purposes, which may include acquisitions.

The additional proceeds resulting from the $100 million upsizing of the deal will be used as cash on the balance sheet at j2 Cloud Services.

Charter pulls $1.5 billion

Elsewhere Thursday Charter Communications, Inc. announced that it decided not to proceed with a $1.5 billion offering of senior notes due February 2028.

Market sources say bond investors and the company were by no means close in terms of how the deal ought to be priced.

Charter was seeking to raise $1.5 billion at 4 5/8% but was able to generate only $1 billion of orders at 4 7/8%, according to a bond trader.

Another trader said that given initial talk of 4¾%, Charter would likely have been happy to take the deal at 4 7/8% but apparently failed to generate sufficient interest at the higher level.

The Stamford, Conn.-based broadband communications company had planned to use the proceeds for general corporate purposes including funding potential buybacks of class A common stock of Charter Communications, Inc. or common units of Charter Communications Holdings, LLC.

Manutencoop for Friday

The European market generated a steadier news volume on Thursday.

Italy’s Manutencoop Facility Management SpA plans to price €420 million of five-year senior secured notes on Friday.

JP Morgan is leading the debt refinancing deal for the Bologna, Italy-based facilities management company.

Federal-Mogul in euro market

Michigan’s Federal-Mogul, LLC joined the parade of U.S.-based issuers that have raised cash in the euro-denominated junk market thus far in 2017.

The vehicle parts and services company is expected to price €300 million of seven-year senior secured notes on Friday.

The deal was shopped by means of a Thursday investor conference call.

Deutsche Bank is the lead bookrunner for the bank debt refinancing.

Motherson’s five-B deal

Motherson Sumi Systems plans to start a roadshow on Monday for a €300 million offering of seven-year secured bonds, an expected split-rated “five-B” deal set to receive a high-yield execution.

The bonds are rated BB+ by S&P. Fitch Ratings is expected to assign a BBB- rating to the bonds.

Barclays, BNP Paribas, Deutsche Bank and HSBC are managing the offer.

Elsewhere N&W Global Vending SpA brought a €40 million add-on to its 7% senior secured notes due Oct. 15, 2023 via Goldman Sachs.

The Valbrembo, Italy-based manufacturer of coffee machines plans to use the proceeds to fund the cash consideration for a joint venture with Quebec City-based coffee machines manufacturer Les Entreprises Cafection Inc. and to repay debt under the N&W Global revolving credit facility.

Health care bill causes gains

The Senate version of the bill to repeal and replace Obamacare was made public on Thursday, with health care investors rejoicing in the bond market.

In contrast to the several House versions of the Republican-backed health care legislation, which caused hospital and health care operators to fret due to the more-immediate proposal of Medicaid cutbacks, hospital groups surged on the slower paced cuts to Medicaid.

Tenet Healthcare Corp.’s 7% notes due 2025 were up 1¼ points to 98¾, while its 5 1/8% notes due 2025 were up ½ point to par and a 1/8, a market source said.

The 7½% notes due 2022 were up 1/8 point to 108¼.

DaVita Inc., a kidney care provider, saw a ½ point uptick in its 5% notes due 2025, which finished at par and a ¼.

Community Health’s 7 1/8% notes due 2020 were up 3/8 point to 96 and its 6 7/8% notes due 2022 were up 1½ points to 86½.

Community Health’s stock was up 45 cents, or 5.10%, to $9.27. It had spiked as high as $9.67 during intraday trading.

Under the bill, expansion to Medicaid would cut off in 2021 – an additional year as compared to the House bill – and the growth rate of the program would effectively be cut down starting in 2025.

And, according to media reports, $50 billion would be allocated to insurance exchanges, which have come under scrutiny from health care providers in recent months, their worries causing many to drop out of the exchanges as a result.

Four Republic senators have already publicly opposed the bill, which is expected to go under scrutiny by the Congressional Budget Office for the next few days before going before the Senate for a vote later in the week.

Lower drug prices, a frequently-lauded tenet of president Trump’s campaign, were largely left out of the bill, prompting pharmaceutical companies’ bonds to surge.

On Tuesday, The New York Times reported that a draft of an executive order regarding drug pricing, which the news outlet obtained, would largely benefit pharmaceutical companies, including a push for stronger overseas commerce for companies, as well as “scaling back” discounts to low-income patients through a federal program that does just that.

Valeant’s 6 1/8% notes due 2025 were the “most actively traded bond of the day” in the secondary market, traders said, gaining 1½ points to finish at 84.

Its 6 3/8% notes due 2020 were up 1½ points to 97½ and its 5½ % notes due 2023 were up 1¾ points to 84¼.

Valeant’s stock was up $1.82, or 13.30%, to $15.50. It had spiked as high as $15.67 during intraday trading.

Endo International plc’s 6% notes due 2023 were unchanged at 85.

Rite Aid lower as FTC looms

Rite Aid was lower on the day in response to a story from Capital Forum, a political trade publication, which said that a FTC member would recommend a blockade of a Rite Aid-Walgreens merger, a market source said.

The 6 1/8% notes due 2023 were down 1½ points to a 94-95 ZIP code.

“We’re getting more speculation on blogs over what the outcome is going to be,” a market source said.

E&P rebounds as crude steadies

“Oil and gas all bounced back today after oil held steady,” a market source said, referring to West Texas Intermediate crude’s ½-percent increase to $42.78.

This was the first such reprieve since WTI went into the bear market two sessions ago.

California Resources’ 8% notes due 2022 were up 2 points to 59½, though they traded as high as 60, market sources said.

Continental Resources Inc.’s 5% notes due 2022 were up 1 to 96½.

EP Energy’s 8% notes due 2025 were up “2 and change points” to 73¾.

Chesapeake Energy Corp.’s 8% notes due 2025 were down ¼ point to 94¼.

PetSmart lower, again

Pet retailer PetSmart continued to slide on Thursday, with worries about the traditional retail sector undergoing structural changes as well as PetSmart’s own individual issues fueling the selloff.

The 8 7/8% notes due 2024 were down 1½ points to 90½, a market source said, while the 5 7/8% notes due 2024 were down 1 3/8 points to 94½.

Its 7 1/8% notes due 2023 were down ½ point to 87 7/8.

Market indexes mixed

Statistical market performance measures were mixed on the session.

The Markit CDX Series 28 High Yield index was up by more than 3/16 point to end at 106.725 bid, 106.805 offered, an upswing from Wednesday when the index was down by more than 6/16 point.

The KDP High Yield Daily index was down 16 basis points to 72 on Thursday. Its yield was up 6 bps to 5.03%.

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