High-yield analysts and portfolio managers on the buy- and sell-sides expressed disappointment about the recent $150 million bond issue by ResCare (B2/B), a provider of services for mentally handicapped people. The 144a private placement carried a 105/8% coupon and priced at par. Last Thursday it was trading at 101. "It's the first healthcare issue that's not on fire after issuance," says a sell-side analyst, "I'm frankly surprised they got it done at all." One New York buy-side analyst, who did not buy the deal, concurs. "Usually when a new deal breaks, I get 15 Bloombergs [messages from traders indicating buying interest and price levels]. This time, I got two."
Bob Rifkin, healthcare analyst at Evergreen Investment Management, says that because ResCare is in a different business from other high-yield issuers, it is difficult to make balance sheet-to-balance sheet comparisons. He says Evergreen did not buy the issue because it simply sees too many risks associated with the name. He says the company paid a large legal settlement last year, causing insurance premiums to go up: he believes there is still potential for further legal problems. Also, he says the company depends on Medicaid for most of its revenues, so is vulnerable to budget cuts in the states where it operates.
Healthcare has arguably been the strongest-performing high-yield sector throughout the year, and recent issues by Insight Health (9.88% notes of '11, B3/B-) and Alaris (11.63% senior secured notes of '06, B2/B+) were bid at 104 and 108, respectively, last Wednesday. Ed Massaro, head of high-yield capital markets at UBS Warburg, says there was strong demand for the paper. While he acknowledged that the ResCare offering may have been less popular than the Alaris deal (also led by UBS Warburg), he attributed that to the fact that the market is far more stable than it had been in the first weeks after Sept.11.