Energy credits lead market lower as oil slide resumes; Open Text hits the road with 10-year deal

By Paul Deckelman and Paul A. Harris

New York, Jan. 5 – High-yield market activity picked up on Monday – the start of the first full trading week of the new year.

But while volume levels were better than last week’s sleepy pre- and post-holiday sessions, price levels were anything but.

Traders said that Junkbondland was broadly lower, and the culprit – as has so often been the case over the last two months – was oil prices, which resumed their recent slide, falling to new 5½-year lows intraday, including a dip down below $50 per barrel for benchmark U.S. crude.

That triggered a new downside move in such oil and natural gas exploration and production names as Linn Energy LLC, California Resources Corp. and SandRidge Energy Inc., each of which was down multiple points.

That weakness slopped over into the overall high-yield market. Among the issues seen lower in relatively active trading was Sprint Corp., even though there was no fresh news out about the number three U.S. wireless company.

The primary market was quiet with no pricings seen. However, software provider Open Text Corp. unveiled plans for a $600 million offering of 10-year notes, which will be shopped around to potential investors via a roadshow that is scheduled to get under way on Tuesday. There was also talk in the market of an upcoming big deal from European cable operator Altice SA.

Statistical measures of junk market performance slid across the board on Monday, after having been mixed on Friday and higher earlier last week.

Open Text roadshow

Although it was technically the second session of the year, Monday was the first day that saw many players resume their desks following what had been an extended four-day New Year’s holiday weekend for many participants.

No deals priced. However, there was one new deal announcement.

Open Text plans to start a roadshow on Tuesday in Toronto for a $600 million offering of senior notes due January 2025 (expected ratings Ba2/BB).

Pricing is set for Jan. 12.

Joint bookrunner Barclays will bill and deliver. Morgan Stanley, RBC and Citigroup are also joint bookrunners.

The Waterloo, Ont.-based provider of enterprise information management software plans to use the proceeds to repay its existing term loan A and for general corporate purposes, including near-term acquisitions.

Elsewhere, there was roadshow news on a dollar-denominated deal from a Chinese junk-rated corporate. CAR Inc. plans to market senior notes (Ba1/BB+/BB+) in a deal set to tour Europe and Asia. Most of it, however, is expected to be taken down by Chinese investors, according to a London-based banker who watches both high-yield and emerging markets.

The deal is expected to receive limited attention, if any, from European high-yield accounts.

A pipeline, pending conditions

Noting that junk bonds came under pressure amid broad-based selling in the stock market on Monday, a high-yield syndicate official said that there is a pipeline of deals for January.

If market conditions don't improve from the state of affairs seen on Monday, though, not much of that pipeline is likely to materialize, the official added.

Altice might show up next week with a big offering, pending market conditions, the sellsider said.

Just ahead of the Christmas hiatus in the high-yield market, the acquisition deal was heard to be coming sized at €5 billion-equivalent of secured and unsecured notes via Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, BNP Paribas, Citigroup, Credit Agricole, HSBC, Nomura and SG CIB.

Oil slide fells bonds

In the secondary realm, overall junk market activity picked up considerably from Friday’s only lightly staffed post-NewYear’s first trading session of 2015.

The Finra/Bloomberg U.S .High Yield index volume was some $3.588 billion – up from the mere $329 million recorded at the close on Friday.

But unlike Friday’s mixed session, which saw little of no sizable price moves of any conviction, Monday’s bias was clearly to the downside, with energy leading the way lower.

A trader said that the junk market was down anywhere from ½ to ¾ of a point overall, noting the fact that oil prices had fallen below the psychologically important $50 per barrel mark on Monday for the first time in some 5½ years.

The forward-month contract for the West Texas Intermediate, the U.S. benchmark crude grade, dipped as low as $49.81 per barrel in intraday dealings before coming off that low – but not too far off it – to finish at $50.04, which was still down $2.65, or an even 5%, from Friday’s finish.

“Oil and gas bonds were leading the way down again,” he declared.

A second trader said: “Anything oil-related was clearly under pressure today.”

Among the big losers was Linn Energy, whose 8 5/8% notes due 2020 were down 5¼ points, last seen trading at 87¼ bid, on volume of more than $10 million.

The Houston-based independent E&P company’s 6¼% notes due 2019 lost 4 1/8 points, to go home at 84 bid, with about $16 million changing hands.

California Resources’ 6% notes due 2024 were even busier, with the Los Angeles-based energy company’s benchmark issue ending the day off 3¼ points, at 81¼ bid, on volume of over $40 million

Houston-based SandRidge Energy’s 8¾% notes due 2020 swooned by 6 1/8 points to finish out at 63¼ bid, on over $7 million of turnover. Its 7½% notes due 2021 lost 3¼ points to close at 61 bid, although trading was confined to a bunch of odd-lot transactions.

But while energy-sector names were multiple points lower, the second trader said that the retreat was orderly.

“The initial leg down in oil [about a month ago] really sent prices lower. There was a little pop about a week or two ago.”

Since then, he said the sector’s bonds had come back somewhat.

“There are some names that I am not seeing as low as they got when oil was at $55, so it seems like people are starting to not be as panicked with oil continuing to leg lower, as they were on that first initial leg into the $50 plus level.”

That having been said, though, he acknowledged, “They were under significant pressure today.”

Broader market slides

One of the traders opined that “as oil drops, it’s bringing the market with it” since those energy credits make up anywhere from 15% to 20% of the bonds tracked by all of the major high-yield statistical indexes.

“The drop in oil is leaving a slippery path behind it.”

A second trader said: “There was overall weakness in high-yield today, with oil-related names clearly underperforming the market.”

One of the busiest non-energy names of the day was Sprint Corp. Its 7 1/8% notes due 2023 were down around 1 point at 98 bid, with over $17 million having traded, while the Overland Park, Kan.-based wireless service provider’s 7 1/8% notes due 2024 lost ½ of a point, finishing at 93 bid, on over $14 million.

A trader said he was not aware of any fresh news out ion the company.

Another trader said the Sprint bonds “seemed like they traded a fair amount – the telecom names seemed to be active.” He saw the Sprint bonds “off a point, or a little bit more, depending.”

He theorized that the downturn in Sprint, even on the lack of fresh news, was “possibly because they’re more liquid – if people had to raise some cash today, they would do it in names where they could do it in a somewhat efficient manner.”

“These can be down 1 point, and you can raise cash [by selling], rather than selling something [else] to raise the same amount of cash that may take 4 points to get there,” he added.

Another big, liquid issue – Sprint rival T-Mobile USA, Inc.’s 6 3/8% notes due 2025 – was being actively traded at just under 100½ bid, on volume of more than $10 million.

The Bellevue, Wash,-based number four U.S. wireless company’s 6½% notes due 2024 were around the 104 bid mark, on more than $7 million traded.

Indicators head south

Statistical indicators of junk market performance turned lower on Monday, after having been mixed on Friday and higher before that.

The KDP High Yield Daily index slid by 22 basis points to close at 70.60, its second consecutive loss; it had eased by 3 bps on Friday.

The yield rose by 9 bps to 5.65%, after having been unchanged at 5.56% over the previous four sessions.

The Markit Series 23 CDX North American High Yield index was also down for a second straight session on Monday, losing 21/32 to finish at 105 3/8 bid, 105 7/16 offered, on top of its 5/32 point loss on Friday.

And even the Merrill Lynch U.S. High Yield Master II index was on the downside on Monday, after having firmed over the previous 11 sessions. It dropped by 0.268%, versus Friday’s 0.022% advance.

That lowered the index’s year-to-date return into the red for the first time so far this year, its 0.246% loss in contrast to Friday’s 0.022% year-to-date gain.

This was the first time the index had shown a loss since Dec. 16, when it was 0.258% in the red, which in turn had been its first time showing a cumulative loss since October of 2011.

© 2015 Prospect News.
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