California Resources, W.R. Grace, Jupiter lead $8 billion session; funds lose $766 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 11 – The high-yield primary market saw its heaviest new-issue session since April on Thursday. Syndicate sources reported that more than $8 billion of new dollar-denominated and fully junk-rated paper priced in nine tranches, led by one giant-sized three-part transaction and two other $1 billion-plus megadeals.

That was in stark contrast to the $900 million that had gotten done on Wednesday, not to mention Tuesday’s $649 million and Monday’s $450 million. Each of those day’s action came in just a pair of tranches.

Thursday’s haul of new paper was the most seen in Junkbondland since April 23, when $11.25 billion came to market in five mostly giant-sized tranches, according to data compiled by Prospect News.

Unlike that April session – when all but $600 million of that $11.25 billion came from just two issuers that are essentially one company, the interlocked European cable operators Numericable Group AG and Altice SA – Thursday’s action was considerably more spread out.

However, one issuer was responsible for fully $5 billion of the day’s total, oil and natural gas operator California Resources Corp., which brought a three-part note offering to market late in the day.

There were two other big deals: Canadian energy company Jupiter Resources Ltd.’s slightly downsized $1.1 billion eight-year offering and chemical manufacturer W.R. Grace & Co.-Conn.’s $1 billion two-parter.

Metals manufacturer AK Steel Corp. did a $430 million issue of seven-year notes, American Energy - Woodford LLC, another oil and gas concern, priced an upsized $350 million of eight-year paper, and engineered products manufacturer EnPro Industries, Inc. topped off the day’s busy pace of activity with $300 million of new notes, also eight-years.

The new AK Steel and Jupiter Resources bonds were seen by traders hanging around their respective issue prices.

The aftermarket also saw heavy trading in Wednesday’s offerings from retailer J.C. Penney & Co. Inc. and British equipment rental provider Ashtead Group.

Away from the new issues, RadioShack Corp.’s bonds gyrated around at mostly lower levels after the troubled consumer electronics retailer reported poor quarterly numbers – sales slid while losses widened. Its management meantime said the company was in talks with bondholders and other financial stakeholders, looking to work out a restructuring deal, but acknowledged for the first time that it could be forced into bankruptcy if no such deal is reached.

Gymboree Corp.’s bonds nosedived in heavy trading for a second consecutive session after the underperforming children’s apparel retailer reported poor fiscal second-quarter numbers.

Statistical indicators of junk market performance turned lower on Thursday after having been mixed on Wednesday.

Another statistical gauge – the flow of funds in to and out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of junk market liquidity trends – was negative for a second straight week.

Junk funds lose $766 million

Toward the close of Thursday’s session, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $766 million more left those funds than came in to them in the week ended Wednesday.

It was the second consecutive outflow reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., which last week had reported a $198 million cash loss from the funds during the seven-day period ended Sept. 3.

Those outflows in turn had followed three consecutive weeks of inflows totaling $3.58 billion, including the $672 million cash addition reported in the week ended Aug. 27 and, before that, inflows of $680 million in the week ended Aug. 13 and the $2.22 billion improvement in the seven-day period ended Aug. 20, the biggest such improvement seen so far this year, according to a Prospect News analysis of the figures.

Those three inflows had seemed to represent a rebound from the toxic pattern of huge outflows seen over the four-week stretch before that beginning July 16 and running through Aug. 6. During that time, outflows topped $12.6 billion, according to the analysis, including the massive $7.07 billion cash hemorrhage recorded during the week ended Aug. 6, the largest such outflow on record since the company began tracking fund flows back in 1992.

On a longer-term basis, although inflows to the weekly-only reporting funds have still now been seen in 24 of the 36 weeks since the start of the year, according to the analysis, against just 12 outflows, the recent four-week nosedive tipped the year-to-date balance far into the red. The following three weeks of inflows brought that year-to-date cumulative net outflow down somewhat, but the last two weeks have now added to it.

Counting the latest week’s downturn, cumulative net outflows so far this year have risen to an estimated $7.14 billion from $6.37 billion last week, according to the analysis, but fallen from the $9.75 billion 2014 cash outflow seen by market sources in the Aug. 6 week.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

In 2013 – which had 53 reporting weeks due to a statistical quirk – inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, the analysis indicated.

The latest week’s outflow came as no surprise to market participants, who had seen money flowing from the funds – particularly the volatile ETFs – each session earlier in the week.

One trader said the ETFs had seen $278 million of outflows on Tuesday and another $245 million on Wednesday.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime, saw nearly $2 billion of outflows in the latest week, according to a market source, who noted that “outflows from European high-yield funds hit a four-week high.”

It was the second consecutive outflow seen by EPFR; before that, the service had seen two straight inflows following five straight weeks of massive outflows.

EPFR’s methodology differs from AMG/Lipper’s as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper’s strictly domestic orientation.

While the two services’ respective weekly results usually point pretty much in the same direction, that has not always been the case; in some weeks in which AMG/Lipper showed outflows, EPFR saw overall inflows or vice versa. EPFR thus has recorded inflows in 26 out of the 36 weeks since the start of the year, against 10 weekly outflows during that time.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming in to or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable – more so than those of other, larger cash sources – and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which had mostly continued on into this year as well.

Investment-grade bond funds saw a net inflow this week of $934 million, compared with the previous week’s $409 million.

California Resources’ megadeal

A gargantuan Thursday session in the primary market saw nine tranches of dollar-denominated junk from six issuers price, raising a total of $8.02 billion.

Executions betrayed a certain amount of indigestion in the new issue market, sources said.

Two of the nine tranches priced on top of price talk. Four priced at the wide end of talk. And three priced wide of talk.

Conspicuously, none of Thursday's deals priced at the tight end of talk.

In a deal that was closely watched since it was announced in the post-Labor Day timeframe, California Resources priced $5 billion of non-callable senior notes (Ba1/BB) in three tranches.

All three tranches came at the wide end of official yield talk.

A $1 billion tranche of 5.5-year notes priced at par to yield 5%. Price talk was 4¾% to 5%.

A $1.75 billion tranche of seven-year notes priced at par to yield 5½%. Price talk was 5¼% to 5½%.

A $2.25 billion tranche of 10-year notes priced at par to yield 6%. Price talk was 5¾% to 6%.

The tight ends of talk on all three tranches had backed up by 25 basis points from earlier guidance, market sources said: the 5.5-year notes had come with 4½% to 4¾% guidance, the seven-year notes had 5% to 5¼% guidance, and the 10-year notes had been guided at 5½% to 5¾%.

BofA Merrill Lynch, J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Wells Fargo Securities LLC, Goldman Sachs & Co., HSBC Securities (USA) Inc., Morgan Stanley & Co. LLC, MUFG and U.S. Bancorp Investments Inc. were the joint bookrunners for the deal, which will be used to fund the spinoff of the company.

Jupiter Resources downsizes

Jupiter Resources priced a downsized $1.1 billion issue of 8½% eight-year senior notes (B3/B-) at 95.805 to yield 9¼%.

The acquisition financing deal was downsized from $1,125,000,000.

The yield printed 50 basis points beyond the wide end of the 8½% to 8¾% yield talk.

The deal, which was marketed via a roadshow in early August and was subsequently sidelined due to market conditions, relaunched earlier this week.

Credit Suisse Securities (USA) LLC, TD Securities, RBC Capital Markets, Barclays, Goldman Sachs, UBS Investment Bank, Deutsche Bank Securities Inc. and Nomura were the joint bookrunners.

W.R. Grace comes atop talk

W.R. Grace priced $1 billion of non-callable senior notes (Ba3/BB+) in two tranches.

The notes in both tranches priced on top of price talk and in line with earlier guidance.

The deal included $700 million of seven-year notes that priced at par to yield 5 1/8% and $300 million of 10-year notes that priced at par to yield 5 5/8%.

Goldman Sachs was the left bookrunner. Deutsche Bank and BofA Merrill Lynch were the joint bookrunners.

The Columbia, Md.-based specialty chemicals company plans to use the proceeds to terminate obligations under the deferred payment agreement with the Personal Injury Trust for about $632 million and to partially fund the settlement of the warrant issued to the Personal Injury Trust. In addition, proceeds will be used to repay amounts outstanding under the revolver and for other general corporate purposes.

AK Steel at a discount

AK Steel priced a $430 million issue of 7 5/8% seven-year senior notes (Caa1/B-) at 99.325 to yield 7¾%.

The yield printed 12.5 bps beyond the wide end of yield talk in the 7½% area.

Credit Suisse, Citigroup and JPMorgan were the joint bookrunners for the acquisition financing.

American Energy upsizes

American Energy – Woodford priced an upsized $350 million issue of 9% eight-year senior notes (Caa1/CCC) at 95.901 to yield 9¾%.

The deal was upsized from $325 million.

The yield printed 62.5 bps beyond the wide end of yield talk; the deal was talked to price at a small discount and to yield in the 9% area.

Credit Suisse, Deutsche Bank and Morgan Stanley were the joint bookrunners.

The Oklahoma City-based energy company plans to use the proceeds to repay its revolver, to fund future acquisitions and capital expenditures and to return capital to the sponsor.

EnPro comes within talk

EnPro Industries priced a $300 million issue of 5 7/8% eight-year senior notes (B1/BB-) at 99.215 to yield 6%.

The yield printed at the wide end of yield talk in the 5 7/8% area.

BofA Merrill Lynch, KeyBanc Capital Markets Inc. and Fifth Third Securities Inc. were the joint bookrunners.

The Charlotte, N.C.-based manufacturer of engineered products plans to use the proceeds to repay its revolver, including the $74.78 million drawn to fund the tender for its 3.9375% convertible senior debentures due 2015.

WhiteWave scraps roadshow

Looking toward Friday's session, WhiteWave Foods Co. canceled plans to run an investor roadshow. It plans to release price talk for its $350 million offering of non-callable eight-year senior notes (expected ratings B1/BB-) on Friday and price the deal later in the day.

When it launched on Thursday, the deal was expected to be marketed via a roadshow into the week ahead. However, later Thursday that timing was moved ahead.

JPMorgan, BofA Merrill Lynch, Morgan Stanley, Credit Agricole CIB and Credit Suisse are the joint bookrunners.

The Denver-based consumer packaged food and beverage company plans to use the proceeds to repay revolver debt, to support growth initiatives including acquisitions and for other general corporate purposes.

Capstone update expected

Capstone Mining Corp. talked its $300 million offering of eight-year senior notes (B2/B+) to yield 7¼% to 7½% on Thursday.

An update on the deal is expected Friday morning.

Books were scheduled to close on Thursday.

Citigroup and Wells Fargo are the joint bookrunners.

Other deals that have been on the road and that are expected to price Friday include Netherlands-based Vistaprint NV with a $250 million offering of seven-year senior notes (expected ratings B2/B). Official price talk did not surface on Thursday, but the deal has been whispered in the low 6% yield context, a trader said on Thursday morning.

And Acosta Sales & Marketing Co. is expected to price its $800 million offering of eight-year senior notes (Caa1/CCC+). Again, no official talk surfaced Thursday, but the deal has been whispered in the low-to-mid 7% yield context, the trader said.

York Risk launches $270 million

The active calendar also took aboard a couple of new passengers on Thursday.

In addition to WhiteWave Foods, York Risk Services was scheduled to begin marketing a $270 million offering of eight-year senior notes (expected ratings Caa2/CCC+) on a Thursday investor conference call.

The buyout deal is expected to price in the middle part of next week.

Morgan Stanley, BofA Merrill Lynch, RBC, Barclays, BMO and Nomura are the joint bookrunners.

Finally, Australia-based APN News & Media Ltd. pulled its $250 million offering of seven-year senior notes (Ba3/B+/BB-) from the market.

EDP €1 billion 2 5/8% notes

In the European market, Portuguese electricity supplier EDP (Energias de Portugal, SA) launched and priced a €1 billion issue of 2 5/8% senior notes due Jan. 18, 2022 (Ba1/BB+/BBB-) at a 190 bps spread to mid-swaps.

The quick-to-market deal played to €2.7 billion of orders, the source said.

Joint bookrunner SG CIB will bill and deliver. BPI Group, ING, Millennium BCP, MUFG, Mizuho, Royal Bank of Scotland and Santander were also joint bookrunners.

The European market should be quiet on Friday, according to a London-based debt capital markets banker.

However, there could be a couple of European deals in the week ahead, pending market conditions, the banker said.

No jump for Jupiter

In the secondary arena, a trader said that the new Jupiter Resources 8½% notes due 2022 were “pretty busy, very active.”

However, the Calgary, Alta.-based oil and gas exploration and production company’s new deal was seen unchanged to perhaps down a little from its heavily discounted 95.805 issue price. One trader saw the bonds in a 95½-to-96 bid context, while a second saw a tighter 95½-to-95 5/8 range.

AK Steel’s 7 5/8% notes due 2021 meantime were seen by one trader between 99½ and 100¼, versus the 99.325 level at which the West Chester, Ohio-based steel manufacturer had priced its deal.

A second trader saw the bods around 99½ bid, 100 offered but suggested that the issue was “not very busy.”

A trader said the day’s other issues priced too late in the session for any kind of an aftermarket.

New Penney paper is busy

J.C. Penney’s new 8 1/8% notes due 2019 were seen topping the high-yield Most Actives list on Thursday, with a market source estimating trading volume at over $56 million. He saw the notes closing at 100¼ bid, calling that down ¼ point on the day.

A second trader saw the Penney paper trading between 100¼ and 100½ bid.

The Plano, Texas-based department store operator had priced $400 million of those bonds at par on Wednesday in a regularly scheduled forward calendar offering after upsizing it from the originally announced $350 million.

The new notes had initially firmed smartly, with some quotes as high as 101¼ bid, but they came back down almost as quickly as they had gone up to end Wednesday just a little bit above their issue price.

Ashtead is active

Wednesday’s other dollar-denominated deal, British equipment-rental company Ashtead Group’s 5 5/8% second-priority senior secured notes due 2024, was also seen high up on the actives list on Thursday and was doing well, price-wise.

A trader pegged those notes at 101 bid, 101½ offered, up from the par level at which that $500 million drive-by offering had priced after an upsizing from $400 million.

At another shop, a market source saw the bonds at 101 1/8, calling that up by ¾ point on the day, with over $36 million having changed hands.

Troubled retailers trade

Away from dealings in newly priced issues, a trader said that there was “not much of a secondary. The main focus is on the primary until all of this paper gets washed into the market.”

A significant exception was the 9 1/8% notes due 2018 of Gymboree, the underperforming San Francisco-based children’s apparel retailer.

Gymboree was among the most actively traded junk credits on Thursday, with over $20 million of the bonds seen having changed hands – and it was by far the biggest loser, with a trader seeing them 8 points lower at 37½ bid.

It was the second straight slide for the bonds. A trader said that “they were down a dozen points yesterday [Wednesday] and another 10 today,” seeing them going home at 34 bid, 36 offered.

In Wednesday’s dealings, the paper had slid 13½ points to close out at 48 bid, and volume of more than $28 million made those bonds one of the most active issues of the day in the junk bond market.

The paper plummeted after the company reported that for the fiscal second quarter ended Aug. 2, sales slid to $264.3 million from $290.9 million a year earlier, and comparable-store sales at outlets open at least one year – considered a key retailing industry performance metric because it culls out both stores that have not yet established a track record as well as those that have since been closed – swooned by 10% from a year earlier.

Adjusted EBITDA shrank to $9.6 million in the latest period from $24.8 million for the second quarter of fiscal 2013.

The company’s net loss meanwhile more than tripled to $31.2 million from the $9.4 million of red ink seen a year earlier.

RadioShack meanwhile seems to be in even more trouble than Gymboree, and its bonds got hammered down as well.

A trader saw the Fort Worth, Texas-based consumer electronics retailer’s 6¾% notes due 2019 ending at around 36 bid. That was unchanged from Wednesday’s level but was well down from the 42 price seen last week, the last previous round-lot trade. About $8 million of the notes changed hands in large blocks on Thursday.

During the fiscal second quarter, total net sales and operating revenues slid to $673.8 million from $861.4 million in the year-ago period.

Comparable-store sales plunged by 20% year over year, driven by traffic declines and soft performance in RadioShack’s important mobility business, which sells wireless phone instruments, service contracts and accessories.

Its loss from continuing operations was $137.4 million, or $1.35 per diluted share, versus a year-earlier loss from continuing operations of $51.4 million, or 51 cents per share. On an adjusted basis, the loss from continuing operations was $101.5 million, compared with the year-ago red ink of $62.9 million.

During the conference call, its chief executive officer said the company was in talks with bondholders and other financial stakeholders, looking to work out a restructuring deal – but the company acknowledged for the first time in its regulatory filings that it could be forced into bankruptcy if no such deal is reached. (See related story elsewhere in this issue.)

Indicators turn lower

Statistical indicators of junk market performance headed south on Thursday after having turned mixed on Wednesday. Before that, they had been lower across the board on Tuesday, which in turn had followed two mixed sessions on Monday and Friday.

The KDP High Yield Daily index saw its third precipitous plunge in as many sessions, plummeting by 21 bps to end at 72.97, the first time it has fallen back below the 73.00 level since Aug. 8, when it stood at 72.99. On Wednesday, the index had nosedived by 24 bps, which came on top of Tuesday’s 22-bps swoon.

Besides being the third straight loss, Thursday marked the ninth time in the last 10 sessions the index ended on the downside.

Its yield meantime rose by 9 bps to 5.42%, its third straight widening out and 10th rise in the last 11 sessions. On Wednesday, it had been up by 8 bps after gaining 6 bps on Tuesday.

The Markit CDX Series 22 index retreated by 5/32 point on Thursday to finish at 107 1/16 bid, 107 3/16 offered. On Wednesday, in contrast, it had improved 7/32 point after having suffered two straight losses before that.

The widely followed Merrill Lynch High Yield Master II index notched a third straight loss on Thursday and its seventh downturn in the last eight sessions. It lost 0.132% after having slid by 0.136% on Wednesday and 0.153% on Tuesday.

The latest setback lowered its year-to-date return to 4.74%, down from Wednesday’s 4.878%, which had been the index’s first time below the psychologically significant 5% mark since Aug. 13, when it had closed at 4.885%. Its return remained well below its peak level of the year so far, 5.847%, set last Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.