Rain Carbon, Kraton, High Ridge, GasLog close out $7.8 billion week; new High Ridge gains

By Paul Deckelman and Paul A. Harris

New York, March 17– The junk bond market saw a quartet of new deals price on Friday to close out a week that was fairly busy – though nothing like last week’s record-setting new issuance pace.

All of the day’s new issues were regularly scheduled transactions that priced off the forward calendar.

A pair of chemical companies were among the issuers, as Rain Carbon Inc. priced a downsized and restructured $550 million of eight-year secured notes while Kraton Corp. brought a $400 million eight-year deal to market via a pair of financing subsidiaries.

High Ridge Brands Co., a maker of personal-care products, did $250 million of eight-year notes and GasLogLtd., a Monaco-based operator of liquefied natural gas carriers, also priced $250 million of new paper, in the form of a five-year issue.

Collectively, the deals were worth $1.45 billion.

That was well down from the $4 billion that got done in seven tranches brought by six issuers on Thursday, which accounted for the vast bulk of the week’s nearly $7.8 billion of new dollar-denominated and junk-rated securities from domestic or industrialized-country borrowers.

While that figure was respectably busy, it paled in comparison with last week’s $17.53 billion of new junk paper in 26 tranches – the heaviest one-week total of new issuance ever seen in Junkbondland.

In the secondary market, traders saw fairly active volume at higher levels for the new Kraton bonds and saw particularly strong gains, though on not a lot of volume, in the High Ridge deal.

There was also busy trading seen in Thursday’s new deals from First Quantum Minerals, Ltd., Gartner, Inc. and AK Steel Holding Corp.

Statistical market performance measures turned mixed on Friday, their second mixed performance in the last three trading days, interrupted only by a stronger showing all around on higher on Thursday – their first across the board gains since March 1.

The indicators were meantime higher across the board from where they had finished last Friday, which had been the first weekly downturn after three consecutive Friday-over-Friday weekly gains before that.

Rain downsized, restructured

Four issuers raised a combined total of $1.45 billion on Friday.

Rain Carbon priced a reduced $550 million offering of 7¼% eight-year senior secured second lien notes (B1/B+) at 99.254 to yield 7 3/8%.

The issue size was decreased from $1.05 billion.

The yield printed at the wide end of yield talk that had been set in the 7¼% area.

A restructuring gave the notes second lien security compared to their original unsecured status.

Citigroup was the left bookrunner for the debt refinancing deal.

Kraton sells eight-year deal

Kraton priced a $400 million issue of eight-year senior notes (B3/B-) at par to yield 7%.

Deutsche Bank, Credit Suisse, JP Morgan and Nomura were the managers.

The Houston-based producer of engineered polymers and styrenic block copolymers plans to use the proceeds to repay a portion of its senior secured term loan facility.

High Ridge prices tight

High Ridge Brands priced a $250 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8 7/8%.

The yield printed at the tight end of yield talk in the 9% area.

Talk had widened from early whispers in the 8½% area, sources said.

The deal was heard to be multiple times oversubscribed, according to a trader.

BMO was the left bookrunner.

The Stamford, Conn.-based personal care products company plans to use the proceeds to repay the bridge loan put in place to partially fund the acquisition of Dr. Fresh LLC and to repay the High Ridge Brands second lien term loan.

GasLog brings unrated deal

GasLog priced a $250 million issue of non-rated, non-callable five-year senior notes at par to yield 8 7/8%.

The deal kicked off early in the week with yield guidance of 8½% to 8¾%.

Stifel and DNB were the joint bookrunners.

The Monaco-based owner, operator and manager of LNG carriers plans to use the proceeds to repay debt and for general corporate purposes including working capital.

Inflows on Thursday

Although some insist there is a paradoxical aspect to it, sentiment in the high-yield bond market improved on the heels of the Federal Open Market Committee’s Wednesday announcement that short-term rates would move higher by 25 basis points, sources say.

Up to that point the junk had been backing up since the March 6 week which saw a record-setting $17.53 billion of issuance.

The negative tide may have crested on Thursday with news from Lipper US Fund Flows, that the dedicated high yield bond funds sustained $5.68 billion of net outflows in the week to Wednesday's close.

However the funds’ daily cash flows had actually turned positive on Wednesday and remained positive on Thursday, the most recent session for which data was available at press time.

On Thursday high-yield ETFs saw $741 million of daily inflows, a trader said.

Actively managed funds saw $5 million of inflows on the day.

This sequence of events – massive issuance followed by a downturn, followed by outflows, followed by a Fed hike, followed by improvement, followed by inflows – has generated a modicum of perplexity, a debt capital markets banker said on Friday.

The week ahead may get off the starting line at a more measured pace than has been the case since the beginning of the month as people weigh the data.

Nevertheless there will be new issue business, in Europe for sure, and quite likely in the United States, the banker said.

However the Monday session could find people taking a header, and get underway quietly, the source advised.

Week’s issuance slackens

Friday’s four new deal brought to $7.8 billion the amount of new U.S. dollar-denominated and fully junk-rated paper from domestic and industrialized-country borrowers which priced in 16 tranches during the week, according to data compiled by Prospect News.

The week’s total, while respectably active, was well down from the $17.53 billion of paper that priced in a whopping 26 tranches the previous week, ended March 10 – the single busiest new-issuance week ever seen in the high-yield market, nosing out the $17.03 billion which had priced during the week ended Sept. 22, 2013.

This week’s issuance was more in line with that seen the week before, ended March 3, when $6.3 billion got done in 10 tranches.

This week’s primary activity brought year-to-date issuance for 2017 so far up to $73.17 billion in 129 tranches – more than triple the $20.64 billion which had priced in 37 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Full-year issuance in 2016 finished at $226.78 billion in 359 tranches –which ran 12.9% behind the $260.02 billion which had gotten done in 408 tranches in 2015.

Kraton bonds busy, better

Traders said that the new Kraton 7% notes due 2025 – officially issued by Kraton Polymers LLC and Kraton Polymers Capital Corp. – were probably the most active among the day’s new issues.

A market source said that more than $15 million of the Houston-based chemical maker’s new notes had traded hands, pegging the bonds at 100¾ bid, up from their par issue price earlier in the day.

A second trader saw the bonds get even better, locating them “right around” a 101 to 101¼ bid context.

High Ridge trades higher

Probably the best performer among the new deals was High Ridge Brands’ 8 7/8% notes due 2025.

A trader quoted the Stamford, Conn.-based personal-care products company’s deal at 102½ bid, 103 offered.

A second trader saw the bonds in a 102 to 102¼ bid context later in the day, although he said this eventually became a range of 101¾ to 102¼.

The traders meantime did not immediately report any initial aftermarket dealings in the new 7¼% senior secured second-lien notes due 2025 priced by chemical maker Rain Carbon Inc. – based just a few miles south of High Ridge in Stamford – or in the 8 7/8% notes due 2022 from Monaco-based LNG carrier company GasLog.

First Quantum issues active

Among some of the new offerings which came to market earlier in the week, traders said that First Quantum Minerals’ two new tranches were actively traded – but didn’t really go anywhere.

A trader said that the megadeal from the Toronto-based copper, nickel, gold and zinc miner “didn’t do that well,” seeing its two tranches – the 7¼% notes due 2023 and the 7½% notes due 2025 – wrapped around par.

Another market source saw the six-year paper unchanged at par, with over $42 million traded on the session, topping the day’s Most Actives list, and saw the eight-year paper at 99 7/8 bid, down 3/8 point, on volume of over $28 million.

First Quantum priced both $1.1 billion tranches of that regularly scheduled forward calendar offering at par on Thursday after the deal’s overall size was increased to $2.2 billion from an originally announced $1.6 billion.

AK trades below issue

AK Steel’s new 7% notes due 2027 were seen trading around 99½ to 99¾ bid in morning dealings and a trader said later on that “it doesn’t look like it’s gotten any better.”

He saw the West Chester, Ohio-based steelmaker’s issue going home in a 99 5/8 to 99 7/8 bid context, with over $440 million having traded.

AK Steel priced its quickly shopped $400 million issue at par on Thursday.

Gartner holds gains

On the other hand, Gartner’s 5 1/8% notes due 2025 were seen continuing to trade at a healthy premium over their par issuer price.

A trader saw them moving around between 101 and 101½ bid and another saw them get as good at 101 7/8 bid, 102½ offered, with over $29 million having traded.

The Stamford, Conn.-based information technology research and advisory company priced its $800 million forward calendar offering at par on Thursday, after upsizing it from an originally planned $600 million.

Indicators turn mixed

Overall, a trader said that he was “really not seeing very much on many of these deals,” attributing the paucity of activity to the major distractions monopolizing the attentions of at least some people in the market, beyond the usual Friday afternoon rush for the exits – namely the televised “March Madness” college basketball championship tournament games as well as the urge to party hardy on St. Patrick’s Day.

Statistical market performance measures turned mixed on Friday, their second mixed performance in the last three trading days, interrupted only by a stronger showing all around on Thursday – their first across the board gains since March 1.

The indicators were meantime higher across the board from where they had finished last Friday, which had been the first weekly downturn after three consecutive weekly gains before that.

The KDP High Yield Daily Index rose by 8 basis points on Friday, ending at 71.72, its second straight gain after nine straight losses. On Thursday, the index had jumped by 26 bps to snap that long losing streak.

However, despite the better index levels, its yield – which would normally decline as the index level rises and vice versa – atypically widened by 7 bps to 5.36%, after having come in by 8 bps on Thursday.

But Friday’s close compared favorably with the 71.65 index reading last Friday, although the yield was higher than last Friday’s 5.28% yield.

The Markit CDX Series 27 High Yield Index posted its third straight gain on Friday, firming by almost 3/32 point to end at 107 5/16 bid, 107 3/8 offered, after having edged up by around 1/32 point on Thursday. On Wednesday, it had zoomed by 25/32 point, breaking a seven-session losing streak.

The index was also up from last Friday’s 106 27/32 bid, 106 29/32 offered finish.

However, the Merrill Lynch High Yield Index retreated by 0.015% on Friday, after having risen for two sessions before that, including Thursday’s 0.47% improvement.

Friday’s downturn dropped its year-to-date return to 1.968% from Thursday’s 1.983% close. Those levels remain well down from the index’s 2017 peak level of 3.19%, which was hit on Mar 1.

For the week, the index rose by 0.225%, its first gain after last week’s big 1.224% loss, which had been its first setback after six weeks of gains. The year-to-date return last week was 1.732%.

For the year so far, the index has risen in nine weeks and has declined in two.

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