Primary drought resumes; new Scotts jumps; Chemours rebounds on buyout buzz; funds gain $735 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 8 – A day after the unexpected pricing of its first new deal in nearly two weeks, the high-yield primary market reverted to its recently quiet status on Thursday, with syndicate sources reporting that no new issues had either priced or had even been announced.

Market-watchers think it unlikely that any additional deals will emerge this week, especially with Friday generally expected to be a sparsely attended and abbreviated session ahead of the junk market’s scheduled full close on Monday for Columbus Day.

Wednesday’s upsized and quickly-shopped offering of eight-year notes from lawn care products manufacturer Scotts Miracle-Gro Co. meantime was seen by traders firming smartly on heavy volume when it hit the aftermarket.

Thursday’s overall secondary market had a positive tone, traders said, although it was somewhat less robust than the last several solidly positive sessions have been. Risk assets like junk bonds and equities were helped by the release of minutes from the Federal Reserve’s recent meeting showing a for-now dovish tone toward possible rate hikes.

A hike in oil prices – which briefly topped $50 per barrel for the first time since July – gave a boost to energy credits, both higher-quality operators such as Range Resources Corp. and more conventional junk oilers such as California Resources Corp.

Chemical maker Chemours Co. – which was rocked on Wednesday by bad news on the legal front – more than made up for it on Thursday, rising on news reports speculating that private equity firm Apollo Management may be interested in possibly doing a buyout of Chemours.

Statistical measures of junk market performance were higher across the board for a second straight session on Thursday; they had turned upward on Wednesday, after having been mixed on Tuesday. It was the third higher session in the last four and the fourth higher session in the last seven trading days

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – was also on the upside on Thursday, showing a net inflow of $735 million, in contrast to the more than $2 billion outflow which had been reported last week.

Primary stays quiet

There were no new issues priced and no deals announced in the Thursday primary market session.

The Friday session could be a quiet one as well, sources say.

Dealers are expected to stay their hands with respect to announcing any roadshow deals ahead of the extended Columbus Day holiday weekend in the United States, which gets underway following Friday’s close.

The holiday foreshortened week to follow will likely see the new issue market come back to life, especially if the Friday session has a tone as positive as that of the Wednesday and Thursday sessions, a syndicate banker said.

The Merrill Lynch US High Yield Master II Index yield was down 50 basis points over the two sessions, the source said.

The index ended Thursday’s session yielding 7.35%.

At the height of the turbulence it reached 8.22%, the banker added.

Add to that the solid execution seen in Scotts Miracle-Gro’s Wednesday sale of an upsized $400 million issue of eight-year senior notes (B1/B+) which came at par to yield 6%.

The deal size was increased from $300 million and the offering priced at the tight end of the 6% to 6¼% yield talk. In addition, the bonds have turned in a strong performance in the secondary market, the syndicate official said.

Meanwhile the active forward calendar will be empty when the Friday session gets underway, the most recent primary market news being that SunOpta Foods Inc. scrapped its $330 million offering of secured notes on Wednesday and instead entered into a $330 million senior secured second-lien loan in connection with its pending acquisition of Sunrise Holdings (Delaware), Inc.

Firm tone continues

In the secondary realm, things were seen better all around for a fourth straight session on Thursday.

“There was a bid to the market,” a trader said, although he allowed that “things weren’t [sharply] up like they’ve been earlier this week, like yesterday [Wednesday] and the day before.”

Still, he said, “there was definitely an underlying bid to the market.”

Sentiment was helped by the release of the Federal Open Markets Committee’s minutes from its mid-September meeting, indicating that the American central bank’s policy makers remain cautious about pulling the trigger on the first hike in interest rates since the middle of the last decade – June 2006, to be precise – preferring instead to wait and see whether the global economic slowdown and the recent financial market turmoil might damage the still-fragile U.S. economic recovery.

Such caution was seen helping risk assets such as junk bonds and equities; the latter’s bellwether Dow Jones Industrial Average was up by 138.46 points, or 0.82%, to close at 17,050.75.

Scotts paper pops

Back in Junkbondland, the new deal from Scotts Miracle-Gro firmed smartly during the session; the Marysville, Ohio-based lawn-care products company had priced its quick-to-market $400 million offering of 6% notes due 2023 at par late in the session on Wednesday after upsizing it from an originally announced $300 million. The new bonds were not seen generating much immediate aftermarket activity on Wednesday.

But they more than made up for it on Thursday, jumping to a 102¼ to 102¾ context in early dealings.

Later in the session, a trader pegged those bonds at 102½ bid, while a second located them at 102 5/8, which he said was actually up perhaps 1/8 point from its earlier peak levels.

More than $48 million of the notes changed hands, placing them among the day’s Most Active junk issues.

Recent issues continue rise

Other recently priced offerings continued to ride the wave of positive momentum.

For instance, a trader saw Frontier Communications Corp.’s 10½% notes due 2022 better by ¼ point on the day, going out at 101 5/8 bid, on volume of more than $31 million.

The Stamford, Conn.-based wireline telecommunications and broadband internet provider’s 11% notes due 2025 were 5/16 point better at 101¼ bid, with more than $17 million having traded.

Frontier priced $3.6 billion of the 11% notes and $2 billion of the 10½% notes, along with $1 billion of 8 7/8% notes due 2020, all at par, on Sept.11; after an initial upside flurry, those bonds had steadily eroded down to around a 94-95 bid context by the end of September before turning northward from that nadir, steadily firming after that to reach their current levels.

However, one of the traders said that the recently strong new Altice NV/Cablevision Systems Corp. 10 1/8% notes due 2023 were unchanged on the day at 104½ bid, with over $17 million having traded, while its 10 7/8% notes due 2025 were actually ¼ point off their recent peak level, ending at 105½ bid, on volume of over $24 million.

Bethpage, N.Y.-based cable operator and newspaper publisher Cablevision had priced $2 billion of the 10 7/8% notes and $1.8 billion of the 10 1/8% notes, both at par, along with $1 billion of 6 5/8% guaranteed senior notes due 2025, on Sept. 25 via special-purpose vehicles Neptune Finco Corp. and CSC Holdings LLC, as part of the financing for Luxembourg-based cable company Altice NV’s pending $17 billion acquisition of Cablevision. Those bonds had all dipped below their par issue price within a few days of having come to market, but have since turned the corner, along with the Frontier issue, pushing up to their currently robust levels.

Energy improves

Away from the new or recently priced deals, a trader said that “some of the higher-quality names in the E&P space were up today, with oil hovering around $50 per barrel.” West Texas Intermediate crude for November delivery briefly moved above $50 per barrel for a while, its first time at such an exalted level since July, before finally settling at $49.43, up $1.62, or 3.4%, in New York Mercantile Exchange trading Thursday.

One such name, he said was Fort Worth, Texas-based oil and natural gas exploration and production operator Range Resources, whose 5% notes due 2022 were up “1 to 2 points on the day, kind of gapping up to 94.”

Other, more conventionally junky energy names also were seen pushing higher, such as Hamilton, Bermuda-based oiler Energy XXI, whose 11% notes due 2020 jumped 3½ points on the day to 59 bid, with over $35 million having traded.

Los Angeles-based E&P credit California Resources’ 6% notes due 2024 gained 2 points on the session to close at 70 bid for the first time in several months, with over $11 million having changed hands.

Chemours makes a comeback

Chemours’ bonds – which had lost several points on Wednesday on the news that former corporate parent E.I. du Pont de Nemours & Co. had been found liable by a federal jury for $1.6 million in damages in a suit brought by an Ohio resident who became ill as a result of the chemical company having dumped a toxic substance into the Ohio River, from whence it got into groundwater supplies – rebounded on Thursday on news reports speculating that private equity company Apollo Management might be interested in buying Wilmington, Del.-based Chemours, which was spun off by DuPont earlier this year.

Its 7% notes due 2025, which had lost 2½ points Wednesday on the verdict news and the expectation that Chemours would be on the hook for that award and potentially, damage awards in over 3,000 similar cases, got all of that back on Thursday, rising 2½ points to 68 bid, on over $30 million traded.

Its 6 5/8% notes due 2023, which dropped 1¼ points on Wednesday, rose by 1¾ points on Thursday to 69½ bid, with over $50 million having Changed hands.

Indicators stay strong

Statistical measures of junk market performance were higher across the board for a second straight session on Thursday; they had turned upward on Wednesday, after having been mixed on Tuesday. It was the third higher session in the last four and the fourth higher session in the last seven trading days

The KDP High Yield Daily Index rose by 17 basis points on Thursday to close at 66.97 – its fourth straight gain and its fifth in the last seven sessions. The market gauge had jumped by 58 bps on Wednesday, on top of Tuesday’s 31 bps surge.

Its yield narrowed for a fourth consecutive session and for the fifth time in the last seven sessions, coming in by 3 bps to finish at 6.63%. The yield had declined by 18 bps on Wednesday and by 8 bps on Tuesday.

The Markit Series 25 CDX North American High Yield Index posted its second successive advance on Thursday, rising by 3/8 point to go out at 102 5/16 bid, 102 7/16 offered. It was the index’s sixth advance in the last seven sessions. On Wednesday, it had zoomed by 9/32 point.

The Merrill Lynch North American Master II High Yield Index rose for a fourth time in a row on Thursday, and its fifth time in the last seven sessions, gaining 0.146%. On Wednesday, it had soared by 0.774%, its biggest single-session gain seen so far this year.

Thursday’s continued progress cut its year-to-date loss to 0.996% from 1.14% on Wednesday and from 3.069% on Friday – its biggest cumulative loss for the year so far and its lowest level since Oct. 5, 2011, when the index had shown a 3.834% year-to-date deficit.

Junk funds gain $735 million

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed major net additions by investors in the latest reporting week – bouncing back from the heavy net redemptions reported last week.

Sources familiar with the fund-flow statistics said Thursday that $735 million more came into those weekly-reporting-only funds than left them during the week ended Wednesday.

That was in sharp contrast against last week’s $2.152 billion cash loss for the seven-day period ended Sept. 30.

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