SM Energy prices, firms; new Sonic bonds soar, recent issue doing well; coal names clobbered

By Paul Deckelman and Paul A. Harris

New York, June 26 - SM Energy Corp. was heard by high-yield syndicate sources to have priced a $400 million issue of 10.5-year notes on Tuesday.

Traders said that the oil and natural gas exploration and production company's new paper firmed modestly in the aftermarket.

SM was about the only feature of the day in an otherwise quiet junk primary session.

Junk market players meantime saw solid gains in the newly priced bonds of Sonic Automotive Inc., which had priced on Monday, with one trader describing the vehicle retailer's new issue as "screaming."

The aftermarket also saw other recently priced issues, such as Choice Hotels International, Inc. and P.F. Chang's China Bistro Inc., continuing to do well.

Apart from the new deals, traders said there wasn't too much going on in the secondary realm. Statistical measures of market performance were seen mixed. The overall market, however, was seen as generally firm, supported by buying from accounts looking to put cash to work, especially before the end of the quarter, but not much was really standing out.

One sector that did attract some attention - mostly of the wrong kind - was coal, which remained under pressure following a ratings agency downgrade of James River Coal Co. and the resulting downside moves from such sector peers as Patriot Coal Corp. and Alpha Natural Resources Inc.

SM Energy upsizes

SM Energy priced Tuesday's sole deal, an upsized $400 million issue of 10.5-year senior notes (B1/BB), which came at par to yield 6½%.

The yield printed on top of the yield talk.

The deal, which was upsized from $300 million, was multiple-times oversubscribed, according to an informed source.

One investor, who characterized himself as a potential short-term owner of the bonds, was discouraged from submitting his order given his agenda.

There was a considerable amount of reverse inquiry from existing debt holders, sources said.

Wells Fargo was the left bookrunner for the quick-to-market debt refinancing and general corporate purposes deal.

Bank of America Merrill Lynch and J.P. Morgan were the joint bookrunners.

Deal chatter

Apart from SM Energy, the primary market generated no news on Tuesday.

The Wednesday session could see at least two drive-by deals, according to a syndicate banker, who said that an issuer from the retail sector could show up with a transaction in the $400 million to $500 million range, and another company from the industrial space might come with a $500 million offering.

Market watchers were on the lookout on Tuesday for price talk from WOW! Internet, Cable & Phone, which is in the market with a $1.02 billion offering of eight-year senior notes (Caa1/CCC+).

However, no official talk surfaced before the market close.

A trader said that the deal is in "okay shape" and added that discussions have taken place in the 10¾% to 11% range.

An investor, meanwhile, said that the yield talk appears to be "gravitating back toward 11%" and added that in its early stages, the deal, which is part of the financing for the pending acquisition of Knology Inc., had been discussed in the low 10%-range.

Credit Suisse, Morgan Stanley, RBC, SunTrust and Mitsubishi are leading.

Triple-C deals such as WOW! may be a somewhat tougher sell than they had been before the latest wave of euro-generated volatility took shape, but not much tougher, a trader from a high-yield mutual fund said.

"There is a lot of cash out there, and people are reaching for yield again," the trader said.

Against a backdrop of general weakness in the stock market, junk is holding in, the trader added, noting that the recently minted P.F. Chang's 10¼% senior notes due June 2020 (Caa1/CCC+), which priced last week at 99.33 to yield 10 3/8% in a $300 million issue, are up nearly three points at 102½ bid.

Deals now roadshowing

Opinions vary as to how the remainder of the final week in June will shape up in the primary market, with some sources expecting further deal announcements and others forecasting that with the Independence Day holiday in the United States falling on July 4, some players are preparing to blow town after Friday, narrowing the window for pre-Independence Day issuance.

There was a general consensus, however, that the Independence Day week, split in half by the holiday, will be a quiet one.

That aside, a raft of deals was announced on Monday.

These deals are on brief roadshows, with some expected to price on Thursday and others on Friday.

Halcon Resources Corp. is marketing a $500 million offering of eight-year senior notes via Barclays, Goldman Sachs, J.P. Morgan, Wells Fargo, BMO and RBC.

The deal, which is expected to price on Thursday, has been discussed in the mid-8% range, according to a buyside source, who added that given that the company's management is mostly comprised of former Petrohawk executives - an ultra-familiar name in the high-yield universe - the deal should be well received.

The Coeur d'Alene Mines Corp. $350 million offering of eight-year senior notes (expected ratings B3/BB-/), also expected to price Thursday via left bookrunner Barclays and joint bookrunner Wells Fargo, is also being discussed in the 8½% area, the source added.

The Ceridian Corp. $720 million offering of seven-year senior secured notes (expected ratings B1/B-), also announced on Monday and set to price on Friday, is being discussed in a "nine-ish" context, according to a high-yield mutual fund manager, who somewhat ominously added that the deal's covenants are in the gun sights of Covenant Review.

Deutsche Bank, Credit Suisse and Bank of America Merrill Lynch are the leads.

Finally, two-thirds of the Consolidated Container Co. LLC eight-year notes, announced on Monday and set to price on Thursday, are spoken for, according to a trader who had not heard any guidance.

Citigroup is the lead left bookrunner. Bank of America Merrill Lynch, RBC and Credit Suisse are the joint bookrunners.

July issuance forecast

Looking past the Independence Day holiday, buyside sources expect a quiet July.

"The Europe story isn't going away any time soon," remarked a high-yield mutual fund manager during a Monday telephone call.

Although there is cash to put to work, issuers who have been on the sidelines awaiting fairer weather in the capital markets may continue to do so if they can, the investor added.

A trader from a different high-yield mutual fund agreed that July is shaping up to be a quiet month in the primary market.

A syndicate banker, hearing these comments, questioned their merit and insisted that July is still very much a toss-up.

There is a decent pipeline of deals, the banker said.

If the markets are reasonably stable, some of them will come, the source insisted.

SM Energy seen firmer

When the new 6½% notes due 2023 from SM Energy were freed for aftermarket dealings, a trader saw those bonds at 100½ bid, 101 offered, versus their par issue price.

A second said that the Denver-based oil and gas exploration and production company's new notes had traded into a 100¾ bid, leaving them at 100 5/8-1003/4.

But at another desk, a trader pegged those bonds as high as a 1003/4-to-101¾ range.

Sonic is sound

One of the traders said that Monday's new deal from Sonic Automotive Inc. "was screaming."

He saw the Charlotte, N.C.-based automotive retailer's 7% notes due 2022 having traded as high as a 101-102 bid context during the morning.

He said there was "very light trading, but there was a lot of demand for that paper," with the drive-by $200 million deal having priced at 99.11 to yield 7 1/8%.

"It was just well-bid-for paper, it did very well."

However, a second trader, who saw the bonds get as good as 101½ bid on Monday after their pricing, said he did not see any dealings in it on Tuesday.

Recent deals hold their own

Traders saw continued good interest in some of the recently priced deals, such as Friday's offerings from Choice Hotels and P.F. Chang's.

A trader quoted Choice Hotels' 5¾% notes due 2022 at 104 bid, 104 12/2 offered, up from Monday's levels around 103½ bid, 103¾ offered, although a second trader was still quoting them around 103¼ bid, 103¾ offered.

The Silver Spring, Md.-based global lodging industry franchisor company's $400 million split-rated (Baa3/BB) issue priced at par on Friday, moved above 102 bid in initial aftermarket dealings after pricing and have continued to move up since then.

A market source estimated that the bonds were up by 15/16 point, to end at 104 5/16 bid.

Yet another trader said that Choice Hotels "is a buy-and-hold. It's a better-quality account that wants to be owning that."

Several traders said they did not see any Tuesday activity in the P.F. Chang's 10¼% notes due 2020.

One said that he had seen the bonds on Monday at 102¼ bid, 103 offered, but did not see it on Tuesday.

The Scottsdale, Ariz.-based Asian-themed restaurant chain operator had priced its $300 million of bonds at 99.30 on Friday, to yield 10 3/8%. The bonds had firmed in Friday's aftermarket to about the 102 bid level and continued to hold those gains thereafter.

A market source saw Ally Financial Inc.'s 5½% senior secured notes due 2017 trading around the 101¼ bid level. That was down slightly from the 101½ level at which the Detroit-based automotive and residential lender and on-line bank operator had priced its $500 million fungible add-on to the original $1 billion of such bonds sold back in February.

Ally priced those bonds on Thursday to yield 5.131% as part of a quick-to-market $1.5 billion two-part deal, which also included the issue of $1 billion of 4 5/8% senior secured notes due 2015. The latter bonds, which priced at 99.31 to yield 4 7/8%, were not seen trading around on Tuesday.

But Ally's established 8.30% notes due 2015 were seen up a point, at 109 bid

'Chasing them up'

A trader said that there was "not a heck of a lot" going on in Tuesday's market.

He opined, "Among the newer issues getting priced, if it's a half-way decent deal. People are just chasing it up if they price it right or they price it cheap."

Other than that, he added, "It seems like summer has started."

Quarter-end window-dressing

Another trader said that away from the new deals, "The market feels firm. We're speaking to a lot of buyside accounts, and they're looking to add to their positions, so they're looking for natural sellers of bonds."

He characterized Tuesday's buying as "very situational, and it's all your 'go-go's' type of stuff."

He suggested that "all of those outflows" from the junk-rated mutual funds and exchange traded funds seen in the past few weeks "were [turned into] inflows last week," when they were reported topping $1 billion - a sign that junk accounts are flush with cash.

"People are trying to put cash to work. We're going into the quarter-end, into the month end, into the July 4 holiday. You could call it the 'perfect storm trifecta' that's encouraging buying."

He said the thinking among many portfolio managers "is 'let me get out [of the quarter] making the portfolio look nice, without taking too much of a hiccup.' "

"Whoever needs to get a deal done is trying to get it done this week," he added.

Market indicators turn mixed

Statistical market performance measures were mixed on Tuesday, after having shown a clear downside bias on Monday.

A trader saw the Markit Group CDX North American Series 18 High Yield index unchanged, at 94 15/16 bid, 95 1/16 offered, after having been off by 5/8 point on Monday.

The KDP High Yield Daily Index eased by 4 basis points Tuesday to end at 72.85, after having fallen by 12 bps on Monday. Its yield on rose by 1 bp Tuesday, to 6.82%, after widening by 4 bps on Monday.

But the widely followed Merrill Lynch U.S. High Yield Master II Index got back in the black on Tuesday after two successive losses. It rose by 054% Tuesday versus Monday's 0.076% easing.

Tuesday's gain lifted its year-to-date return to 6.405%, up from Monday's 6.348%, although both levels remain below its peak level for 2012 so far, the 6.8% set on May 7.

Coal takes its lumps

Among specific names and sectors, times continue to be tough for coal operators, something that was not helped in the slightest by Standard & Poor's downgrade of James River Coal.

The downgrade of the Richmond, Va.-based coal company's ratings is the second within three months, based on "sustained decline in the economic viability of thermal coal produced in the Central Appalachia basin" and declining foreign demand, the agency said.

Though there was not much going on in James River - a convertibles trader opined that investors were weary of the issue already - sector peers Patriot Coal and Alpha Natural were on the softer side.

One market source called Patriot's 8¼% notes due 2018 down as much as 5 points on the day at 31 bid. The source also saw Alpha Natural's 6¼% notes due 2021 down nearly a point at 85 bid.

However, a second trader called Patriot's debt a point higher, also around 31.

Yet another trader said that Patriot's recently battered bonds "seemed like they wanted to go down earlier today." He quoted the St. Louis-based coal mining company's 2018 notes in the low 30s, around 30-31, which he called unchanged.

About $9 million of the bonds traded.

"They're hanging at that low level. They've been at that low level the last couple of days. Last week they were 7 or 8 points higher."

Chesapeake seen little changed

Also in the energy sphere, a trader said there didn't seem to be much reaction in Chesapeake Energy Corp.'s bonds to the news stories indicating that the Oklahoma City-based natural gas company was under renewed scrutiny, this time by officials in Michigan, where, according to the reports, Chesapeake and rival energy concern EnCana Corp. may have secretly acted in concert to hold down the price of potential oil and gas properties they were bidding on by allegedly agreeing not to bid against one another.

While that caused the company's shares to fall on Monday, though they gained slightly on Tuesday, the trader said that "there was not that much of a [junk market] reaction. The bonds do not seem to be worried about the stock."

He quoted three of the company's issues - the 6 1/8% notes due 2021, the 6 5/8% notes due 2020 and the 6.775% notes due 2019 - all in the same 95-to-98 context where they have recently been.

"They've been in that range the last couple of weeks."

ATP eases off

A trader saw ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 at 45-46 on "not a lot of volume," calling it down a half-point. The last trade was at 45 bid.

About $10 million or $11 million of the Houston-based energy exploration and production company's bonds changed hands, but he said that "there were only a few trades - not very active."

Nokia knocked around

Nokia Corp.'s 5 3/8% notes due 2019 "is a name I'm starting to see," a distressed-debt trader said, quoting the troubled Finland-based cellphone manufacturer's bonds at 78 bid, 79 offered on volume of about $25 million to $30 million.

He said those levels were "about where they've been the last couple of days," calling them pretty much unchanged on the day.

However, he said Nokia was "a name that's gotten beat up a little bit in the last couple of weeks," falling from recent highs in mid-80s before the company's June 14 announcement that due to sagging sales, it would have to slice 10,000 jobs from its workforce and close several factories.

Caesars bounces around

A trader said that the 10% notes due 2018 issued by the former Harrah's Operating Corp. (now Ceasars Entertainment Corp.) "are still bouncing around."

He saw the Las Vegas-based casino giant's bonds finishing in 67-68 context, which he said was pretty much unchanged, on volume of between $10 million and $12 million.

He said that this was "not a whole lot - it usually traded a lot more than that."

Stephanie N. Rotondo contributed to this report

© 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.