Primary stays quiet, Telesat Canada downsizes, CF deal seen high-grade; Valeant, Hertz dive on numbers

By Paul Deckelman and Paul A. Harris

New York, Nov. 8 – The high yield market again stayed quiet on the pricing front on Tuesday, and participants awaited the outcome of the presidential and other elections in the United States.

Primaryside players, though, heard that Telesat Canada had downsized its formerly $750 million of eight-year notes to $500 million, shifting the difference to a concurrent term loan deal the communications satellite company is also doing.

And those sources also said that the pending big deal for CF Industries will now be run off the investment-grade desks – but that two-part, $1.25 billion secured note offering continues to attract considerable interest from investors in Junkbondland.

Among recently priced deals, Lamb Weston Holdings Inc. was seen among the busiest credits and holding onto its recent gains.

Away from the new deals, Valeant Pharmaceuticals International, Inc.’s bonds and those of Hertz Global Holdings, Inc. were both sharply lower in very busy trading, after the drug manufacturer and the car-rental company reported bad third-quarter numbers and reduced guidance.

Statistical market performance measures turned mixed on Tuesday after having been higher across the board on Monday for only the second time in the last 11 sessions. It was the third mixed session in the last four trading days.

Telesat Canada downsizes

For the second consecutive session the primary put up a goose egg, as the new issue market awaits the conclusion of nationwide elections in the United States which were underway on Tuesday.

At least one offering is on deck for Wednesday.

Telesat Canada downsized its offering of eight-year senior notes (B3/B) to $500 million from $750 million.

Concurrent with the decrease in the notes offer the company upsized its term loan to $2.43 billion from $2.18 billion.

The notes are talked to yield 8¾% to 9%, wide to earlier guidance of 8½% to 8¾%.

Books close at 11 a.m. ET on Wednesday, and the deal, via J.P. Morgan, Credit Suisse, Goldman Sachs and Morgan Stanley, is set to price thereafter.

CF Industries straight high grade

In a deal that will be priced and traded on the investment grade desk, but has been followed by players in the junk market, early spread guidance surfaced on CF Industries, Inc.’s proposed $1.25 billion two-part offering of non-callable senior secured notes (Baa3/BBB/BBB-).

The deal is expected to feature a tranche of five-year notes being guided at a spread to Treasuries in the 200 basis points area, the manager said.

A tranche of 10-year notes is being guided at a 240 basis points to 275 bps spread to Treasuries.

Tranche sizes remain to be determined.

Goldman Sachs and Morgan Stanley are the leads.

The secured bonds are rated above CF Industries’ speculative grade corporate credit ratings: Ba2 from Moody's and BB+ from Standard & Poor's.

Com Hem krona deal

NorCell Sweden Holding 3 AB, a subsidiary of Com Hem Holding AB, announced that it has mandated joint bookrunners DNB and Nordea to arrange meetings with fixed income investors on Wednesday, ahead of a possible offering of krona-denominated 5.25-year senior notes.

Proceeds from the contemplated notes sale would be used to help fund the redemption of SEK 2.5 billion 5¼% senior notes due 2019 at 102.625.

The financing could also include new credit facilities and a draw on existing credit facilities, the company said.

Looking beyond the elections, there should be a decent deal calendar heading into mid-November, a syndicate banker said on Tuesday.

Asset managers see big Monday outflows

The cash flows of the dedicated high yield bond funds were mixed on Monday, the most recent session for which data was available at press time, according to a portfolio manager.

Asset managers sustained a whopping $620 million of outflows on the day, the manager said.

However high yield ETFs saw solid inflows of $335 million on Monday.

Dedicated bank loan funds were also positive on Monday, seeing $30 million of inflows on the day.

Valeant takes a dive

In the secondary sphere – even though many investors were seen continuing to hug the sidelines as the U.S. election season came to a close on Tuesday – a trader said that “volume was fairly decent,” estimating total market turnover at about $3.4 billion

He said that the “the main culprits of pain” were the bonds of Canadian drug-manufacturer Valeant and car-rental giant Hertz, both down on weaker quarterly earnings.

Laval, Que.-based Valeant’s busiest issue, its 6 1/8% notes due 2025, were seen down nearly 3 points, at 75.20 bid, with over $69 million traded, with more than $69 million having changed hands.

The company’s 6¾% notes due 2018 were down more than 1 5/8 points, at just over 96½ bid, with over $62 million traded.

Its 6 3/8% notes due 2020 swooned by 4 points, to 85¾ bid, with over $57 million traded.

The bonds – and Valeant’s New York Stock Exchange – traded shares, which plunged by $4.15, or 21.69%, to $14.90 – fell after Valeant posted a $1.22 billion loss for the quarter and cut its adjusted earnings to $5.30 to $5.50 a share on $9.55 billion to $9.65 billion in sales, from estimates of $6.60 to $7 a share and revenue between $9.9 billion and $10.1 billion.

Moody’s Investors Service said it downgraded the ratings of Valeant and subsidiaries, including the corporate family rating to B3 from B2 and probability of default rating to B3-PD from B2-PD. The downgrade reflects Valeant’s challenges in turning around its specialty pharmaceuticals business, resulting in weak earnings trends and financial leverage remaining above the agency’s earlier expectations.

With higher financial leverage, Valeant will become more vulnerable to any significant operating setbacks or legal liabilities arising from government investigations, the agency added.

The company has made headlines recently for a federal probe into former executives for possible accounting fraud; the sale of Paragon Holdings on Tuesday to settle Federal Trade Commission charges, according to a report by Forbes; and the potential sale of Salix Pharmaceuticals Co. to Takeda Pharmaceuticals Co. for around $10 billion.

Hertz is hurtin’

Also on the downside on Tuesday was car-rental giant Hertz, which likewise reported disappointing earnings.

The Estero, Fla.-based company’s 5 ½% notes due 2024 fell back “by several points,” to 90 bid, a trader said, estimating volume in the issue at over $67 million.

Its 6¼% notes due 2022 skidded by nearly 6 [points on the session, to 95¾ bid, with over $41 million traded, while its 5 7/8% notes due 2020 were down 5¾ points, at 96¾ with over $15 million traded.

The company’s NYSE-traded shares also got hammered, losing $8.04, or 22.50, to end at $27.70, on volume of 107.9 million shares, more than 84 times the usual trading volume.

Lamb Weston holds gains

On the plus side, Lamb Weston Holdings’ 4 5/8% notes due 2024 “were very busy today,” a trader said, seeing over $14 million traded. He pegged the bonds around 101 to 101 3/8 bid, calling them unchanged, while a second trader said the issue was up 3/8 point on the day at 101½ bid.

Lamb Weston – being spun off from Chicago-based agribusiness and food processing giant ConAgra Inc. – priced $833 million the bonds at par last Tuesday as a regularly scheduled forward calendar offering. The new bonds shot above the 101 bid mark when they first hit the aftermarket, but had given up some of their initial gains around mid-week and ended last week around there, before improving on Monday and again on Tuesday.

Indicators turn mixed

Statistical market performance measures turned mixed on Tuesday after having been higher across the board on Monday for only the second time in the last 11 sessions. It was the third mixed session in the last four trading days.

The KDP High Yield index was up by 7 basis points on Tuesday, ending at 70.51, after having jumped by 18 bps on Monday – its first gain after nine consecutive losses, including Friday’s 6 bps downturn.

Its yield came in by 4 bps, to 5.63%, after having tightened by 6 bps on Monday. Those two tightenings followed nine straight sessions of widening, including edging up by 1 bp on both Thursday and again on Friday.

The Markit Series 27 CDX index firmed by around 1/8 point on Tuesday, ending at 103 29/32 bid, 103 15/16 offered, its third straight gain; on Monday, it jumped by nearly 1 full point.

But the Merrill Lynch High Yield index eased by 0.036% on Tuesday, its second loss in the last three sessions, in contrast to Monday’s 0.538% gain.

That brought the index’s year-to-date return down to 15.287% from Monday’s 15.328%.

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

Colin Hanner contributed to this review.

© 2015 Prospect News.
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