Prestige Brands drives by, bonds firm; Community Health falls on numbers; Freeport gains on asset sale

By Paul Deckelman and Paul A. Harris

New York, Feb. 16 – The high yield market got back to business on Tuesday following Monday’s Presidents Day holiday break, pricing a $350 million issue of eight-year notes from consumer products company Prestige Brands Holdings, Inc.

Traders said that quick-to-market issue was well received, with the new bonds having moved up in initial aftermarket dealings.

The new-deal market was otherwise quiet.

Away from the new issues, Community Health Systems, Inc.’s bonds and shares nosedived after the hospital operator reported disappointing fourth-quarter results and said that it would delay the planned spinoff of its rural hospital holdings until the end of the year, citing unfavorable debt market conditions.

However, at least one credit analyst feels that the recent fall in the company’s bonds was probably overdone and still rates its paper as an “outperform.”

In the energy arena, Whiting Petroleum Corp.’s bonds were seen on the rebound, after Friday’s big drop due to a credit rating downgrade.

Energy and metals mining operator Freeport-McMoRan Inc.’s bonds gained ground on news of a planned asset sale.

Statistical measures of junk market performance were higher across the board for a second consecutive session on Tuesday; they had improved on Friday – their first upturn since Jan. 29 - after having been lower on Thursday and mixed both last Tuesday and Wednesday.

Prestige prices tight

Prestige Brands Holdings, Inc. priced Tuesday's sole deal, a $350 million issue of senior notes due March 1, 2024 (Caa1/B) that came at par to yield 6 3/8%.

The yield printed at the tight end of yield talk in the 6½% area and inside of early guidance in the mid-to-high 6% range.

The order book for the quick-to-market deal was four-times oversubscribed, according to a trader who saw the freshly minted Prestige Brands 6 3/8% notes due 2024 trading on either side of 101, shortly after deal terms were announced late Tuesday.

Barclays was the lead left bookrunner. RBC, Citigroup, Deutsche Bank and Morgan Stanley were the joint bookrunners.

The Tarrytown, N.Y.-based company plans to use the proceeds to partially fund the acquisition of DenTek Holdings, Inc., as well as to redeem all of the Prestige Brands 8 1/8% notes due 2020 and for general corporate purposes.

Elsewhere the primary market was quiet, sources said.

It could remain generally quiet as a lot of market participants with children on spring break are out on vacation, a trader said on Tuesday afternoon.

Mixed flows

The cash flows of the dedicated high yield bond funds were mixed, with ETFs seeing inflows but actively managed funds sustaining outflows, on Friday, the most recent session for which data was available at press time, a market source said.

The ETFs saw $145 million of inflows on the day.

Actively managed funds sustained a substantial $255 million amount of outflows on Friday.

Dedicated bank loan funds were also negative on Friday, with $175 million of outflows.

New Prestige Brands better

In the secondary realm, traders saw the new Prestige Brands Holdings’ 6 3/8% notes due 2024 doing well in active initial aftermarket trading; one market source saw the new notes, issued by the company’s wholly owned Prestige Brands, Inc. subsidiary having jumped to 101 3/8 bid from their par issue price.

The trader said that more than $37 million of the notes traded, putting the issue well up on the day’s Most Actives list.

A second trader two-sided dealings in a 100¾ to 101¾ context.

At yet another desk, a trader pegged the new issue at 101 bid, 101½ offered.

The company’s existing 8 1/8% notes due 2020, which are to be redeemed using the proceeds of the new deal, were quoted at 103 5/8 bid, though with no activity seen on Tuesday.

Recent Charter deal firms

Among other recently priced issues, a trader said that Charter Communications, Inc.’s 5 7/8% notes due 2024 had gained ¾ point on the day to end at par bid.

More than $13 million of the notes had changed hands.

The Stamford, Conn.-based cable operator priced its $1.7 billion of the those notes via its CCO Holdings LLC and CCO Holdings Capital Corp. subsidiaries at par on Feb. 4 after that quick-to-market offering was upsized from an originally announced $1.5 billion.

The bonds had subsequently traded down to around the 98½ bid level, before managing to climb back up to around their issue price.

Community Health clobbered

Away from the new deals, perhaps the biggest loser in an otherwise mostly positive session was Community Health Systems, after the Franklin, Tenn.-based hospital operator reported disappointing fourth-quarter numbers.

“Boy, did they get beat up, a trader said, quoting the company’s 6 7/8% notes due 2022 around 81½ to 82 bid, calling that a loss of 5½ points on “a lot of volume,” with some $60 million changing hands – the most of any purely junk-rated credit on the day.

He also saw its 8% notes due 2019 down some 4½ points, at 93 bid, versus last week’s levels 97 and 97½ bid. More than $28 million of the notes were traded.

And he saw Community Health’s 7 1/8% notes due 2020 drop by 6 points, to 86½ bid, 87 offered, with over $32 million of the notes having traded.

The carnage was not limited to the company’s bonds – its New York Stock Exchange-traded shares swooned by $4.12, or 22.06%, ending at $14.56, on volume of over 27.8 million, almost eight times the norm.

The bonds and shares took a turn for the worse after the company reported weaker-than-expected revenues and earnings in the fourth quarter, its results hurt by, among other things, an additional $169 million reserve it took against bad debt expense, i.e., patients who don’t pay their bills.

It also said that its plan to spin off its rural hospitals into a new company, Quorum Health, would be delayed, due to the uncertain state of the debt markets currently.

However, at the Gimme Credit independent advisory service, senior analyst Vicki Bryan said in a research note that “while we are also not pleased with Community’s fourth quarter results or the surprises noted, it has and is still making modest progress with improving its credit quality metrics,” anticipating that its leverage ratio of debt as a multiple of EBITDA will likely fall to 5.6 times or better from current levels around 6 times even without the anticipated Quorum spinoff.

Bryan said the market was “dramatically overreacting” to Community’s numbers, and she continues to rate it as an “outperform.”

Indicators extend gains

Statistical measures of junk market performance were higher across the board for a second consecutive session on Tuesday; they had improved on Friday – their first upturn since Jan. 29 – after having been lower on Thursday and mixed both last Tuesday and Wednesday.

The KDP High Yield Daily Index gained 30 basis points on Tuesday to end at 61.69, its second straight gain and third in the last four sessions. On Friday, the index had improved by 34 bps, after having nosedived by 55 bps on Thursday to finish at 61.05, a new low for the year and a new 52-week low; it was the index’s lowest close since May 22, 2009, when it finished at 60.97.

The KDP index was not published on Monday due to the Presidents Day holiday.

Its yield came in by 3 bps, to 7.58%, after having tightened by 12 bps on Friday, in contrast to Thursday’s 16 bps rise. Tuesday’s narrowing was its third in the last four sessions.

The Markit Series 25 CDX North American High Yield Index rose by 9/32 on Tuesday, finishing at 97 13/32 bid, 97 7/16 offered, its third consecutive gain after two losses and its fourth gain in the last six sessions.

On Friday, the index had risen by 11/16 point.

On Monday – when the index was published, despite the holiday – it had edged up marginally.

The Merrill Lynch North American High Yield Master II Index improved by 0.487% on Tuesday, its third straight rise and fourth in the last five days.

It had also risen by 0.56% on Friday.

On Monday, when the index was published despite the holiday, it gained 0.067%.

Tuesday’s upturn cut the index’s year-to-date loss to 4.082% from 4.546% on Monday, 4.61% on Friday and from 5.142% on Thursday, which had been its first cumulative loss greater than 5% this year and a new mark for the worst cumulative deficit for the year, topping the old mark of 4.364%, set last Tuesday.

Thursday’s closing loss had also surpassed the year-end 2015 loss of 4.643%, which had been the previous biggest loss the index had seen since it plunged more than 30% in 2008.

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