Post-holiday market quiet, though Perstorp four-parter on tap; market retreats as Treasuries dive

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 – It was back to work for the high yield market on Monday, following Friday’s market close in observance of Veterans Day, although not much seemed to be happening, at least on the surface.

Just as had been the case on Thursday, no pricings of new U.S. dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers were seen to have taken place during the session.

However, syndicate sources said that things were bubbling just under the surface.

Price talk and tranche sizes emerged on Swedish specialty chemicals company Perstorp Holding AB’s $1.2 billion equivalent four-part offering, which will include dollar-denominated tranches of fixed-rate first- and second-lien notes as well as euro-denominated first-lien fixed- and floating-rate tranches. That big deal is expected to price early in the session on Tuesday.

Also expected Tuesday is healthcare cost management solutions company MultiPlan Inc.’s scheduled $460 million add-on to its existing 2024 notes.

Several junk issuers were heard to have hit the road to market new deals to prospective investors, including upcoming Xerox Corp. spinoff Conduent Inc.’s $750 million of eight-year notes, high-tech firm Genesys Telecommunications Laboratories, Inc.’s $700 million of eight-year notes and timeshare provider Hilton Grand Vacations Inc.’s $300 million of eight-year notes.

Away from the new deals, traders saw the overall junk market lower, in line with a slide in Treasury issues sparked by inflation fears generated by the incoming U.S. Trump administration’s ambitious spending plans and expectations that the Federal Reserve will boost interest rates when its policy board meets next month.

They said that rate-sensitive higher-quality credits with a sensitivity toward interest rates such as Hanesbrands Inc. widened out notably.

But they also said that last week’s slide in healthcare-related names such as Community Health Systems Inc., sparked by fears of a Trump-threatened Obamacare repeal, seemed to have run its course.

Statistical market performance measures turned lower all around on Monday, their second such weaker session in the last three days.

Perstorp four-part deal

No new issues priced on Monday, however the active deal calendar saw a meaningful buildup.

Sweden-based Perstorp Holding AB set price talk and projected tranche sizes for its $1.2 billion equivalent offering of five-year senior secured notes.

The deal includes three tranches of first-lien notes (B3/CCC+).

The first-lien tranches are shaping up to include €275 million to €300 million of fixed-rate notes talked in the 7½% area at par, $325 million of fixed-rate notes talked in the 8% area at par, and €150 million to €175 million of floating-rate notes talked in the Euribor plus 750 basis points area, with a 0% Euribor floor, also at par.

In addition Perstorp is offering $420 million of second-lien fixed-rate notes (Caa2/CCC-) talked at 97 to yield 11%.

The deal, which is being led by global coordinator Goldman Sachs, is set to price at the Tuesday New York open.

Elsewhere Medical Properties Trust, Inc. was scheduled to make presentations to fixed-income investors on Monday ahead of an expected benchmark offering of split-rated senior notes (Ba1/BBB-).

High yield accounts, investment grade accounts and crossover accounts are expected to be involved, a market source said.

Credit Agricole and Goldman Sachs arranged the meetings.

The notes are expected to have an eight-year maturity.

MultiPlan tapping 7 1/8% notes

MultiPlan Inc. plans to shop a $460 million add-on to the MPH Acquisition Holding LLC 7 1/8% senior notes due June 1, 2024 on a Tuesday investor call and price the deal later in the day.

Goldman Sachs is the left bookrunner for the add-on. Barclays, BofA Merrill Lynch, Citigroup and UBS are the joint bookrunners.

The New York-based provider of health care cost management solutions plans to use the proceeds to make a $455 distribution to equity holders, and for general corporate purposes.

The original $1.1 billion issue priced at par on May 25, 2016.

Conduent roadshows $750 million

Conduent Inc. began a roadshow on Monday for a $750 million offering of eight-year senior notes (expected ratings B2/B+/BB).

The roadshow wraps up on Friday, and the deal is set to price thereafter.

BofA Merrill Lynch, JP Morgan, BNP Paribas, Citigroup, Credit Suisse, Goldman Sachs and Mizuho are the joint bookrunners.

Proceeds will be used to help fund the company’s spin-off from Xerox Corp.

Genesys Telecommunications Laboratories

Genesys Telecommunications Laboratories, Inc. began a roadshow on Monday for a $700 million offering of eight-year senior notes (Caa2).

Initial guidance has the deal coming with a yield in the low 9% area, a source said.

Goldman Sachs is the left bookrunner. BofA Merrill Lynch, Citigroup and RBC are the joint bookrunners.

Proceeds, together with proceeds from a new credit facility, will be used to fund the acquisition of Interactive Intelligence Group, Inc., as well as for general corporate purposes including debt repayment.

Hilton Grand Vacations roadshow

Hilton Grand Vacations began a roadshow on Monday in New York and New Jersey for a $300 million offering of eight-year senior notes (Ba3/BB).

Initial price guidance is in the mid 6% area, a trader said.

Goldman Sachs, BofA Merrill Lynch, Deutsche Bank, Barclays, JP Morgan, SunTrust and Wells Fargo are the joint bookrunners.

The deal is coming in conjunction with Hilton Worldwide Holdings Inc.'s spinoff of its timeshare division.

Treasuries and the primary market

Professing visibility on at least three near-term transactions – primarily drive-by business – thought to be day-to-day pending market conditions, a syndicate official said that the big post-election move in Treasuries could impede the kind of quick-to-market action that played out through late summer and early fall.

Ten-year government paper was going out with a 2.26% yield on Monday, up from 1.85% just before the election, the official said.

That move has triggered big price drops in some of the better-rated (double B, single B/double B and high single B) drive-by deals that came recently, the source added.

For example, the Netflix Inc. 4 3/8% senior notes due Nov. 15, 2026 (B1/B+) were 95 bid at Monday's close. The $1 billion issue priced at par on Oct. 24.

The United Rentals (North America), Inc. 5½% senior notes due May 15, 2027 (B1/BB-) were 97½ bid late Monday. The $750 million issue of 10.5-year paper also priced at par Oct. 24.

The Centene Corp. 4¾% senior notes due Jan. 15, 2025 (Ba2/BB) were 95¼ bid late Monday. The $1.2 billion issue of 8.25-year notes priced at par on Oct. 26.

High yield investors, smarting from such mark-downs and keen to protect year-to-date returns that are solid and better, are likely to demand significantly higher rates from prospective issuers that come in the run-up to 2017, the official said.

Treasuries lead market slide

In the secondary market, a trader said that credits were down “anywhere from 1 to 3 points.”

Junkbondland, like the rest of the fixed-income world, was trailing along as U.S. Treasury issues moved notably lower on Monday.

Yields on the government paper backed up to their highest rates since January, with the 10-year notes rising by 8 basis points to 2.24% and the 30-year long bond widening by 13 bps to 3.06% – spurred by a combination of market unease over expectations that the incoming Trump administration will stoke inflation by raising spending on infrastructure and other priorities, combined with planned tax cuts.

Meanwhile, already established expectations that the Federal Reserve’s Open Market Committee will lift interest rates when it meets on Dec. 13 and 14 also weighed on the market.

Back in the junk space, the trader noted that “names that were more rate sensitive – higher BB names – were affected by the backup in rates.”

One such name, he said, was Winston-Salem, N.C.-based apparel manufacturer Hanesbrands, whose 4 7/8% notes were down a deuce on the day, ending around the par level.

Another name in retreat, he said, was the recently priced 4 7/8% notes due 2026 from frozen-potato products producer Lamb Weston Holdings, Inc., which fell by at least 1 point, “or maybe a little bit more,” to around 98 bid.

That was down from the par level at which the company – being spun off by Chicago-based consumer-foods giant ConAgra Inc. – priced $833 million of those notes on Nov. 1, along with an identically sized tranche of 4 5/8% notes due 2024, which also priced at par. Both of those tranches firmed smartly in the aftermarket almost from the get-go, eventually climbing above the 101 bid level, only to gradually come down to present levels in recent days.

Hospitals get some relief

One area which was not being pounded down on Monday seemed to be the healthcare names – which had been in bad shape last week, immediately after the U.S. elections, on fears that the incoming administration’s vow to dismantle Obamacare would leave hospital operators and other healthcare providers in the emergency room with gaping holes in their revenue streams.

However, after several sessions of post-election carnage, a trader said, some of the bleeding seemed to have subsided on Monday.

For instance, he said that Franklin, Tenn.-based hospital operator Community Health’s 6 7/8% notes due 2022, “usually kind of a benchmark for the industry,” were about unchanged on the day, holding just under 70 bid, as “healthcare didn’t look like it was too affected today, like it had been last week.”

Indicators lower all around

Statistical market performance measures turned lower across the board on Monday, their second such weaker session in the last three days.

The KDP High Yield index plunged by 65 basis points on Monday to end at 69.66, its third straight loss. On Thursday, it had fallen by 17 bps. The index was not published on Monday due to the Veterans Day holiday market close.

The Markit Series 27 CDX index dropped by 19/32 point on Monday to 102 31/32 bid, 103 offered. On Thursday it had seen its first loss after four consecutive gains, which had in turn followed eight losing sessions before that, also losing 19/32 point on Thursday. On Friday, the index published despite the holiday, but was unchanged on the day.

The Merrill Lynch High Yield index plummeted by nearly a full point on Monday, losing 0.934%. On Thursday, it had seen its third straight loss as it eased by 0.287%. On Friday, the index was published despite the holiday, but firmed by 0.018%.

Monday’s big loss dropped the index’s year-to-date return down to 13.606% from 14.657% on Thursday and from 14.678% on Friday.

Those levels remain well below its peak level for this year of 16.768%, established on Oct. 25.

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