Kosmos Energy prices day’s sole deal to close $4.6 billion week; market ponders continued outflows

By Paul Deckelman and Paul A. Harris

New York, July 25 – The high-yield primary market closed out the week on Friday with a single pricing, with syndicate sources reporting that Kosmos Energy Ltd., which drills for oil and natural gas in Africa, South America and off the coast of Ireland, priced $300 million seven-year secured notes.

That lone deal, priced as a regularly scheduled forward calendar offering, brought the total new-issuance for the week of dollar-denominated, junk-rated paper from domestic or industrialized-country borrowers to $4.56 billion in eight tranches, according to data compiled by Prospect News. That was down from the $5.31 billion that came to market in 17 tranches last week, ended July 18.

The week’s tally, in turn, raised total new issuance for this year so far to $197.04 billion in 378 tranches, running about 8.6% ahead of the pace seen at this time a year ago. Some $180.65 billion of new paper had priced in 416 tranches by this point on the calendar a year ago, according to the data.

Traders did not see any immediate aftermarket dealings in the new Kosmos bonds.

They meanwhile saw slightly easier levels for some of the new deals that had priced earlier in the week, including Thursday’s issues from Alliance Data Systems Corp. and Clearwater Paper Corp., as well as Wednesday’s megadeal from Micron Technology, Inc.

The overall market was typically Friday-afternoon quiet, with few standout features. One notable name, though was Canadian transportation equipment manufacturer Bombardier Inc., whose bonds slid in the wake of the company’s mid-week announcement that it was restructuring some operations and cutting 1,800 jobs.

Market-watchers meantime speculated on the meaning of the second big outflow of cash from junk mutual and exchange-traded funds in as many weeks, which was reported on Thursday.

Statistical market performance indicators were lower across the board on Friday, after having been mixed on Thursday and higher on Wednesday.

But they were mixed versus where they had closed out last Friday, after two straight weeks before that on the downside all around.

Kosmos Energy prices

Kosmos Energy priced Friday’s only dollar-denominated new deal, a $300 million issue of seven-year senior secured notes (/CCC+/B) that came at par to yield 7 7/8%.

The yield printed on top of final guidance. Earlier yield talk was 8% to 8¼%.

The deal was marketed to both high-yield and emerging markets accounts.

Global coordinator Barclays will bill and deliver. BNP Paribas was also a global coordinator.

BofA Merrill Lynch, HSBC, Credit Agricole CIB, SG CIB, Standard Bank and Standard Chartered Bank were bookrunners.

The oil and gas exploration and production company plans to use the proceeds to repay a portion of its outstanding debt and for general corporate purposes.

Kosmos Energy is based in Hamilton, Bermuda, and has an office in Dallas. It has operations in Ghana, Ireland, Mauritania, Morocco and Suriname.

Warren starts roadshow

Warren Resources, Inc. launched a $300 million offering of eight-year senior notes (Caa1/B-).

The deal is expected to price late in the week ahead.

BMO Capital Markets Corp. is left bookrunner. Jefferies LLC and Wells Fargo Securities LLC are the joint bookrunners.

The New York-based independent energy company plans to use the proceeds to fund a portion of the approximately $312.5 million cash purchase price for its recently announced acquisition of the Marcellus assets of Citrus Energy Corp. and two additional working interest owners.

EM&F to begin roadshow

In Europe, Poland’s EM&F Financing AB plans to start a roadshow on Monday for a €240 million offering of six-year notes (expected ratings: B2/B/), a deal that is expected to play to both high-yield and emerging markets accounts, according to a London-based investment banker.

JPMorgan, Santander, Societe Generale, Unicredit and RBS are the bookrunners for the debt refinancing deal.

The week ahead

The last week of July week will get underway with a thin active deal calendar.

In addition to Warren Resources, Compressco Partners is roadshowing a $350 million offering of eight-year senior notes (B2/B) that is expected to price in the early to middle part of the week, according to a trader. Initial guidance is in the 7% to 7 ½% context, the trader added.

BofA Merrill Lynch, Barclays, Credit Suisse, J.P. Morgan, RBC and Wells Fargo are the joint bookrunners for the acquisition-related deal.

Also Rooster Energy is in the market with a $100 million offering of five-year senior secured notes (Caa1/CCC+) via Imperial Capital.

Lately there has been a negative tilt to the news in the high-yield market, a trader said on Friday.

The most conspicuous headline was the $4 billion of outflows seen by dedicated high yield funds during the two week period that ended on Wednesday, the source said, alluding to reports by fund-tracker Lipper-AMG.

“A big chunk of that is ETFs,” the trader said, adding that the preponderance of negative flows in the most recent week were on Thursday, July 17 and Friday, July 18.

The ensuing Monday through Wednesday period was generally positive, the trader said, and added that Thursday (July 24) was also positive.

“Today will probably be negative again,” said the trader, referring to the Friday session, and added that there was weakness in high-yield bonds, that ETFs were selling – although volumes were very thin – and the Dow Jones Industrial Average fell 123 points.

Alliance, Clearwater easier

In the secondary market, traders said they had not seen any immediate aftermarket activity in the new Kosmos Energy 7 7/8% senior secured notes.

A trader said that he did see Alliance Data Systems’ new 5 3/8% notes due 2022 open in a par to 100½ context Friday morning and then tighten to as close as par to 100 1/8, before closing at par bid, 100¼ offered.

He said that he saw the credit “kind of fading,” as it backed off from the initial gains it had notched in Thursday’s aftermarket that took it as high as 100½ to 100¾ bid. The Plano, Texas-based provider of direct marketing services had priced $600 million of those bonds on Thursday at par after having upsized that quick-to-market deal from $500 million earlier in the day.

At another shop, one of the traders said that he had seen the notes at 100 1/8 bid, 100 3/8 offered, down 3/8 point.

One of the traders saw Clearwater Paper’s 5 3/8% notes due Feb. 1, 2025 opening up in a par to 100¼ context. He saw no movement after that, declaring that “that one looked like it died that way.”

Another trader saw the bonds at 100 1/8 bid, 100 3/8 offered, calling that down 1/8 point.

The Spokane, Wash.-based paper and cardboard manufacturer had brought its quickly shopped $300 million issue to market at par on Thursday.

Micron seen easier

A trader saw Micron Technology’s 5½% notes due Feb. 1, 2025 trading at 100¼ bid, 100¾ offered.

He noted that the Boise, Idaho-based semiconductor manufacturer’s issue had finished on Thursday at 100½ bid, 101 offered on heavy trading of over $115 million, up from the par level at which the $1.15 billion deal had priced on Wednesday.

He said that on Friday, they Micron bonds opened at the same level at which they had closed Thursday, but then “went down into a 5/8 bid. By noon , they were at 100½ to 100¾, then I think they just widened out a little at the close to 100¼ to 100¾.

“I don’t think very much traded.”

Bombardier bonds bombarded

Away from the new deals, traders saw Bombardier’s bonds trading off, with one market source quoting its 7¾% notes due 2020 having fallen 2½ points on the session to 110 bid.

At another desk, a trader pegged its 5¾% notes due 2022 off more than 3 points at the close to 99 bid.

The bonds were in retreat as investors digested the Montreal-based aircraft and railroad equipment manufacturer’s mid-week announcement that it plans to reorganize the company into four business segments before Jan. 1.

It will cut 1,800 positions worldwide across the company, although it said that none of the cuts would involve production employees, instead being focused on the company’s administrative side.

Market ponders outflows

A trader said that overall, not much was going on.

He noted the second consecutive big outflow of cash from the junk market, reported on Thursday – $2.384 billion in the week ended Wednesday, on top of the prior week’s $1.677 billion, thought of as a sign of investor angst over the outlook for things in Junkbondland.

He said that “all of these things keep coming out about ETFs taking out $2.4 billion [this week] and $1.6 billion last week.”

He cited reports in The Wall Street Journal and the Financial Times talking about “negative sentiments toward junk bonds in general.”

A market analyst at another shop meantime speculated that “maybe investor concerns about the Fed have something to do with it,” noting that participants might be positioning themselves ahead of possibly bearish news to come out from the Federal Reserve in terms of possible interest rate moves.

On the other hand, he said, “quite a faction of traders in risk assets just seem to like equities of late.”

The first trader, meantime, said that while “the market felt kind of heavy – it was a Friday, so it was a little bit muted.”

Market indicators head lower

Statistical indicators of junk market performance turned lower across the board on Friday, after having been mixed on Thursday and higher on Wednesday.

However, the indicators closed out the week on a mixed note, versus where they had been last Friday, July 18 – the first such mixed week after two straight weeks before that on the downside.

The KDP High Yield Daily index was down by 4 basis points on Friday to close at 74.05, after having been unchanged on Thursday and having risen by 4 bps on Wednesday – its first winning day after six straight sessions on the downside before that.

But its yield – which normally moves inversely to the movements of the index and which would thus more likely rise as the index falls – actually moved down by 4 bps to 5.22%, after having moved up by 2 bps on Thursday and down by 3 bps on Wednesday, its first narrowing after having widened out for the previous five sessions.

Those levels compared unfavorably to the index’s close at 74.15 last Friday, although the yield was unchanged week over week.

The Markit CDX Series 22 index posted its second straight loss, falling by 5/16 point on Friday to close at 107 23/32 bid, 107¾ offered. On Thursday, it had eased by 1/16 point after having been virtually unchanged on Wednesday and up by 7/32 point on Tuesday.

It was down from the 108 1/8 bid, 108 3/16 offered level at which it had finished out the previous Friday.

The widely followed Merrill Lynch High Yield Master II Index turned lower on Friday after three gains in a row through Thursday. It lost 0.038%, versus Thursday’s 0.045% improvement, which came on top of Wednesday’s 0.113% rise and Tuesday’s 0.107% advance. Before that, the index had fallen over five consecutive sessions.

Friday’s loss dropped the index’s year-to-date return to 5.176%, down from Thursday’s 5.216%. However, it still remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

For the week, the index gained 0.188% - its first such weekly rise after two straight weeks before that on the slide, including the 0.497% retreat seen last week. The year-to-date return last Friday was 4.979%. The index has now been up in 23 out of the 30 weeks since the start of the year, against seven weekly downturns.

© 2015 Prospect News.
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