Primary falls silent, capping $5.6 billion week; Tallgrass busy; Corrections Corp., Geo gyrate

By Paul Deckelman and Paul A. Harris

New York, Aug. 19 – For the first time this week, the high-yield primary market ended the session Friday with no new deals having been priced, and it quite possibly may have seen its last pricing for the next week or so.

Market participants said no new offerings were being actively shopped around to potential investors – although they would not rule out the notion that one or two opportunistically timed offerings could pop up during the run-up to the Labor Day weekend, which will begin Friday, Sept. 2.

In the meantime, the lack of any new offerings of dollar-denominated and fully junk-rated paper left the week’s new-issuance total right where it had finished off on Thursday, at $5.62 billion in 12 tranches, down from last week’s total.

Traders said that the final deal to price this week, Thursday’s offering from Tallgrass Energy Partners, LP, was actively traded, hanging in at levels well above its issue price.

There was also a fair amount of trading going on in Wednesday’s big two-part offering from Diamond Resorts International, Inc., with the secured part of the deal continuing to trade well above where the unsecured portion was.

Away from the new deals, traders said that the most notable names of the day – for a second consecutive session – were private prison operators Corrections Corp. of America and Geo Group, Inc., which were sent reeling on Thursday after the Department of Justice announced that it would phase out the use of such privately run correctional facilities for federal prisoners.

Statistical market performance measures turned mixed on Friday, after having been higher for two sessions before that.

The indicators were meantime higher across the board versus where they had finished last Friday – the third straight week-over-week gain.

Dog Days arrive

The Dog Days of August came upon the high-yield primary market in earnest at the end of the Aug. 15 week, sources said.

There were no new deal announcements, and no issues were priced during the Friday session.

Canvassing market sources, only one professed an expectation of any business in the week ahead – one or two deals.

Most professed the belief that the new deal market is shuttered for the month of August.

And the September pipeline does not appear to be huge, a syndicate official said on Friday.

At present the post-Labor Day week, which will commence on Tuesday, Sept. 6, could see relatively light activity in the primary market, the source said.

With $150 billion of year-to-date junk-rated, dollar-denominated issuance to Friday's close, the new deal machine needs to crank out $5 billion per week between now and Christmas in order to get 2016 issuance to the generally respectable $250 billion level. (The yearly average for 2010 through 2015 is $281 billion, according to Prospect News data.)

When asked whether the primary could generate $100 billion of issuance in the run-up to 2017, the syndicate banker simply said, “I hope so.”

Thursday inflows

The cash flows of the dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $43 million of inflows on the day.

Actively managed funds saw $40 million of inflows on Thursday.

The news follows a weekly report from Lipper US Fund Flows on Thursday that the dedicated junk funds saw $889 million of aggregate net inflows for the week to Wednesday's close.

Dedicated bank loan funds were also positive on Thursday, with $20 million of net inflows, the trader said.

A less busy week

With no new deals having priced during Friday’s session, the week’s new issuance total came to $5.62 billion in 12 tranches, according to data compiled by Prospect News.

That was off from the $8.58 billion that priced in 12 tranches during the week ended Aug. 5.

This week’s new-issue activity brought the year-to-date total up to $150.34 billion having come to market in 222 tranches.

That was running 26.4% behind the new-deal pace seen at this time last year, when $204.34 billion had priced in 331 tranches by this point on the calendar, the Prospect News data indicated.

Last week, this year’s new-issuance pace had trailed 2015 by 29.1% year-over-year.

Tallgrass actively traded

Among specific new issues, traders saw considerable activity on Friday in the new Tallgrass Energy Partners 5½% notes due 2024. A trader saw those notes at 101 3/8 bid, 101 5/8 offered, calling that down 1/8 point from where the Leawood, Kan.-based energy MLP company’s scheduled forward calendar offering had finished in initial aftermarket trading on Thursday after the $400 million offering had priced at par.

A second trader pegged the bonds at 101 13/16 bid going home, up nearly ¼ point on the day, on volume of more than $18 million, a fairly busy number for a relatively quiet session, he said.

Diamond bonds stay mixed

The only other recently priced offering that was seen trading around on any kind of real volume was Diamond Resorts International’s $1.1 billion two-part deal. It traded mixed on Friday, just as it had on Thursday.

The Las Vegas-based hospitality and vacation resort company’s 7¾% senior secured notes due 2023 were trading at 100½ bid, up 1/8 point on the day, with over $14 million traded.

Some $500 million of those notes had priced at par on Wednesday after having been upsized from $400 million.

Meanwhile, its 10¾% unsecured notes due 2024 were finishing at 96¼ bid, up ¼ point on the session, on volume of about $9 million, but they were still well below the 98.691 issue price at which that $600 million tranche had priced to yield 11%.

Private prison issues gyrate

Away from the new deals, there was activity in private prison operators Corrections Corp. of America and GEO Group, whose bonds had slid badly on Thursday on the news that the federal government would be phasing out its use of their privately run correctional facilities over the next five years.

On Friday, the issues regained some of their lost ground.

CCA’s 4 5/8% notes due 2023 were up 7½ points at 93¾ bid, on volume of over $34 million, regaining about half of what it had lost.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday after having been higher over the previous two sessions.

They meantime were up versus last Friday’s levels, a third consecutive week-over-week gain.

The KDP High Yield index rose 4 basis points to 70.33 on Friday, after having been unchanged on Thursday. It was its fifth gain in the last six sessions and established new year-to-date and 52-week highs.

Its yield came in by 2 bps to 5.26% after having widened by 1 bp on Thursday, its fifth narrowing in the last six sessions.

Those levels compared favorably with the 69.88 index reading and 5.43% yield last Friday.

The Markit Series 26 CDX index fell by nearly 5/32 point on Friday to 104 15/16 bid, 104 31/32 offered, after having risen by 9/32 point on Thursday. Friday was its second loss in the last four sessions.

The index was up from last Friday’s 104 21/32 bid, 104 11/16 offered.

The Merrill Lynch High Yield index was meanwhile up for a 13th successive session on Friday, firming by 0.014%, on top of Thursday’s 0.104% rise.

The index’s gains of the last 13 sessions follow a six-session slump before that.

Friday’s upturn brought the index’s year-to-date return up to 14.168%, its 11th straight new peak level for the year, versus Thursday’s 14.152% close.

For the week, the index rose by 0.51%, its third consecutive week-over-week improvement.

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