Lonestar prices to clear calendar; new Mattels busy but easier; Kindred gains continue

By Paul Deckelman and Paul A. Harris

New York, Dec. 19 – In what may have been the final high-yield pricing of 2017, oil and natural gas exploration and production company Lonestar Resources US Inc. came to market on Tuesday with a $250 million five-year note issue.

Syndicate sources said that transaction cleared the forward calendar.

Some market sources speculated that the junk primary sector could still see an unscheduled and quickly shopped drive-by deal or two before the curtain finally comes down on this year, while others believe that new-issue activity for the year has already wrapped up.

In the secondary market, traders saw continued brisk volume in Mattel Inc.’s eight-year megadeal, which topped the Most Actives list for a second consecutive session. As had been the case on Monday, the new notes finished off from the previous day’s closing level.

The toy manufacturer’s existing bonds meantime were little traded on Tuesday, but unlike Monday, they were seen once more losing ground.

Outside of the new-deal arena, Kindred Healthcare Inc.’s bonds firmed in active trading for a second session in a row, as the company made official what had only been reported speculation on Monday – it will be bought by insurer Humana Inc. and a pair of private equity companies in a transaction valued at around $4 billion, including debt.

In that same sector, hospital operator Tenet Healthcare Corp.’s notes firmed, though on light volume, on the news that it plans to sell its Conifer debt collection unit and will expand its cost-cutting efforts in order to improve its financial performance, including lowering its leverage.

PetSmart Inc.’s recently beleaguered bonds were seen better for a second straight session.

Statistical market performance measures turned lower across the board on Tuesday, their second weak session in the last four trading days. They had been mixed on Friday and again on Monday, after having lost ground all around on Thursday.

Lonestar prices, calendar clear

Lonestar Resources US Inc. priced a $250 million issue of five-year senior notes (Caa2/B) at par to yield 11¼% on Tuesday.

It was the session's only business.

The price and yield printed on top of talk. Earlier talk was 10¾% to 11%.

In an investor friendly structural change call protection was increased to three years from two years.

JP Morgan, Citigroup, Jefferies, RBC and Seaport were the joint bookrunners.

The Fort Worth-based oil and natural gas company plans to use the proceeds to pay off its 8¾% senior notes due 2019.

With the Lonestar deal done the 2017 active forward calendar was clear, heading into Wednesday, with some market sources forecasting that new issue activity has concluded for the year.

ETF outflows on Monday

High-yield ETFs sustained $290 million of daily outflows on Monday, the most recent session for which data was available at press time, according to the trader.

Actively managed funds were absolutely flat on the day.

Dedicated bank loan funds sustained $60 million of outflows on Monday, the trader added.

New Lonestar not initially seen

In the secondary sphere, traders did not immediately report any initial aftermarket activity in the new Lonestar Resources 11¼% notes due Jan. 1, 2023, following its pricing at par.

New Mattel again leads actives

For a second consecutive session, Mattel, Inc.’s new 6¾% notes due 2025 were the most actively traded credit in Junkbondland, with over $63 million of the El Segundo, Calif.-based toy manufacturer’s deal seen having changed hands, on top of the more than $134 million that traded on Monday.

And for a second straight trading day, those new notes were seen having come in from the prior day’s levels.

A trader pegged the bonds at par, calling that down 5/8 point on the session.

A second called the notes “down about ½ point or so, and busy.”

On Monday, the notes had traded at 101 5/8 bid, down 5/8 point on the day from where they had finished their initial aftermarket action on Friday.

That regularly scheduled forward calendar $1 billion bond deal had priced at par on Friday and then moved up to around 102¼ bid on initial volume of more than $40 million, before falling back from those peak levels in Monday’s action.

Existing Mattel paper off

The company’s existing notes, which had gotten clobbered all of last week following multiple ratings-agency downgrades but which were seen to have rebounded from their lows on Monday, were back on the losing side of things again on Tuesday.

A trader said that its 2.35% notes due 2019 were down ¼ point Tuesday, to 99 bid, while its 5.45% long bonds due 2041 lost 1 full point to end at 83 bid.

“They popped yesterday [Monday],” he said, but called Wednesday’s lower levels “a kickback from yesterday.”

He said its 3.15% notes due 2023 were “unseen,” locating them in an 86-to-86½ bid context.

Whiting, Continental notes trade

Among recently priced issues, a trader saw Whiting Petroleum Corp.’s new 6 5/8% notes due Jan. 15, 2026 up by 1/8 point, at 101 5/8 bid, on volume of more than $12 million.

The Denver-based oil and natural gas E&P company had priced $1 billion of those notes at par last Tuesday, after that quick-to-market offering was upsized from an originally announced $750 million.

Continental Resources, Inc.’s 4 3/8% notes due Jan. 15, 2028 were seen going home at 98½ bid, down ½ point from their most recently traded round-lot levels at the end of last week.

Volume was around $9 million.

The Oklahoma City-based energy company priced a quickly shopped $1 billion of that paper at par back on Dec. 4, after upsizing the deal from $750 million originally.

The bonds have traded below their issue price pretty much uniformly since then.

Kindred climb continues

For a second session in a row, Kindred Healthcare Corp. was seen solidly on the upside, in active dealings, spurred on by news on the mergers and acquisitions front.

“They were up big yesterday [Monday],” a trader said, “and are up again today [Tuesday].”

A second trader called “the whole [capital] structure” up 1 to 2 points Tuesday, on top of the 5-point surge that took place on Monday.

The company’s 8¾% notes due 2023 were up 1¼ points on the day Tuesday, ending at 106¼ bid, on volume of more than $28 million.

Its 8% notes due 2020 jumped by another 2¼ points to end at 108 bid, on more than $26 million of turnover.

And its 6 3/8% notes due 2022 were 1¼ points better, at 102¾ bid, with over $11 million of volume.

The bonds had firmed smartly on Monday on news reports indicating that the Louisville, Ky.-based hospital operator and home healthcare provider was in what were called “advanced talks” to be acquired by its downtown Louisville neighbor, the insurance giant Humana Inc. and a pair of private equity companies.

Kindred made the news official on Tuesday, announcing that Humana, along with private-equity players Welsh, Carson, Anderson & Stowe and TPG, will pay $9 per share, or $810 million, for the company.

With more than $3 billion of assumed debt, the deal has an enterprise value of some $4 billion.

Humana will take a 40% stake in Kindred’s hospice and home healthcare services businesses, with Welsh, Carson and TPG splitting the rest, although Human will have the option to buy out its partners over the next several years.

Meanwhile, the private equity firms alone will take over the company’s current hospitals and rehabilitation facilities.

Tenet trades up

Also in the healthcare space, a trader said that Tenet Healthcare Corp.’s paper improved, on the news that the Dallas-based hospital operator plans to sell its Conifer Health Solutions debt-collection business.

He saw the company’s 7½% notes due 2022 up slightly at 105 1/8 bid, with about $5 million having traded.

Its 6% notes due 2020 gained 5/8 point to close at 105¾ bid, on volume of over $3 million.

Its 8 1/8% notes due 2022 firmed by ¾ point, to 100 5/8 bid.

Tenet – dealing with debt north of $12 billion – also said that it plans to increase its cost cutting efforts by another $100 million, bringing to $250 million the amount of such savings it hopes to book by the end of the year.

Tenet said in its announcement that it is continuing to take “aggressive actions” to improve its financial performance, accelerate growth and eliminate unnecessary costs.

PetSmart pop continues

For a second straight session, PetSmart, Inc.’s notes have been on the upside, after getting smacked lower throughout most of last week.

A market source said the Phoenix-based pet food and other pet supplies retailer’s 7 1/8% notes due 2023 gained ¼ point Tuesday to close at 60½ bid, on volume of more than $12 million.

The 8 7/8% notes due 2025 were about unchanged at 61½ bid, with over $10 million having traded.

Its senior secured 5 7/8% notes due 2025 gained 1½ points to end at 78½ bid, with about $5 million traded.

Before their firm rebound of the last two days, that paper had been in retreat all of last week, on investor worries about weakening EBITDA and fears that the company could choose to spin off its valuable Chewy online sales unit to benefit its equity sponsors alone, while the overall company remained stuck paying off the$2 billion of junk bonds it sold to finance the buy of that online business earlier this year.

Indicators turn lower

Statistical market performance measures turned lower across the board on Tuesday, their second weak session in the last four trading days. They had been mixed on Friday and again on Monday, after having lost ground all around on Thursday.

The KDP High Yield Daily Index fell for a fourth straight session, losing 6 basis points on Tuesday to close at 71.75, after having dropped by 5 bps on Monday. The index had also eased by 1 bp on Friday and by 4 bps on Thursday, after having been unchanged last Wednesday.

Its yield meantime rose by 2 bps for a second consecutive session, to 5.33%, after having come in by 1 bp on Friday. It was the fourth widening in the last five sessions, with the yield having also risen by 1 bp on Thursday and 2 bps on Wednesday.

The Markit CDX Series 29 index ended down 1/16 point on the day to finish at 108 7/32 bid, 108¼ offered. On Monday, it had gained over 5/32 point on the day, on top of Friday’s 1/8 point advance. The index had been down by 3/32 point Thursday.

The Merrill Lynch High Yield Index eased by 0.013% on Tuesday, after having edged up by 0.02% on Monday, its first gain after three straight losses, including Friday’s 0.34% setback.

Tuesday’s retreat dropped its year-to-date return to 7.247% from Monday’s 7.261% close. The cumulative return also remained down from its 2017 peak level of 7.636%, set back on Oct. 24.

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