Junk primary goes silent; market retreat continues, though some credits seen up from lows

By Paul Deckelman and Paul A. Harris

New York, Dec. 14 – The high-yield market had another tough day on Monday, participants said, coming on the heels of Friday’s big market plunge.

But while things were lower pretty much across the board, traders said that the secondary realm showed some signs of resilience.

After heading downward in the morning, seemingly continuing the slide seen on Friday, some credits managed to firm up a little, come off the bottom and cut their losses.

They were helped by a shift in market sentiment as both stocks and oil prices headed higher on the day after having been pummeled on Friday.

And it was a case of no news is good news, with no further reports of any more troubled mutual or hedge funds halting investor redemptions, as was the case late last week, first with Third Avenue Focused Credit Fund and then with Stone Lion Portfolio LP.

Market participants meantime adjusted their positions ahead of the two-day Federal Reserve meeting, which is expected to announce the first bump upward in U.S. interest rates since 2006.

Statistical measures of junk market performance turned mixed on Monday after having been lower across the board for five consecutive sessions before that. Monday was their second mixed session in the last seven trading days.

Quiet in primary

In the primary arena, things were quiet. No issues priced on Monday, and there were no deal announcements.

And although the official start of winter is still a week away, it may have started early in the high-yield primary market, according to market sources in Europe and the United States.

Buyside and sellside sources advise that 2015 primary market activity may have come to a close and that activity in the new issue market may not resume until the new year.

Amid such forecasts, however, Kraton Polymers, LLC remains in the market with a $425 million offering of eight-year senior notes (B3/CCC+) via Credit Suisse Securities (USA) LLC, Nomura and Deutsche Bank Securities Inc.

And in the absence of any hard news to the contrary, NGL Energy Partners LP remains in the market with a $300 million offering of five-year senior notes (B2/BB-/BB-), although the deal went silent early in December.

It has been “radio silence” on both deals.

Both deals are said to be facing headwinds.

Outflows

The cash flows of the dedicated high-yield bond funds were negative on Friday, the most recent session for which data was available at press time.

High-yield exchange-traded funds saw $695 million of outflows on the day.

Actively managed funds sustained $105 million of outflows on Friday.

Bank loan funds, meanwhile, saw $375 million of outflows on the day.

Early weakness, later strength

In the secondary sphere, a trader said that the weaker tone seen on Friday – when Junkbondland suffered its biggest losses since 2011 – seemed to be extending into Monday, with many issues down by multiple points.

However, he said later in the session that “bids kind of firmed up in the afternoon, kind of trending with equities and oil.”

Stocks had been hammered down on Friday, when the bellwether Dow Jones industrial average plunged by more than 300 points, or almost 2%. On Monday, they seemed to have been able to right the ship, with the Dow recovering 103.29 of those points, or 0.6%, ending at 17,368.50.

Over on the New York Mercantile Exchange, January contract West Texas Intermediate crude, which lost $1.18 per barrel on Friday and then dipped below $35.00 per barrel in early intraday action Monday, got back 73 cents of that, or 1.9%, closing on Monday at $36.31 per barrel.

“Everything kind of firmed up this afternoon,” the trader said.

“It was not off to the races by any means, but it seemed like the selling pressure abated.

“Stuff that had been lower, guys were trying to buy, or at least it was staying bid for.”

For instance, he said, Range Resources Corp.’s 5% notes due 2022, which had fallen to 80½ bid on Friday, continued to move lower in the early going on Monday as oil prices initially weakened.

He said the Fort Worth, Texas-based oil and natural gas exploration and production company’s paper fell to a 78-to-78½ bid context. After that, “those firmed up. They haven’t traded higher, but they definitely found a level, and guys were looking as buyers at those new levels today.”

Another issue that seemed to have finally stopped the downward drift, he said, was the Cablevision Systems Corp. 10 1/8% notes due 2022, part of the big deal that the Bethpage, N.Y.-based cable TV operator and newspaper publisher brought to market in September via its Neptune Finco Corp. special-purpose vehicle as part of the financing for its pending buyout by European sector peer Altice SA.

Those bonds, he said, had finished around 102 bid on Friday and then moved down to par on Monday “as the market sold off earlier in the day. There were buyers looking for that at those levels.

“There was definitely some opportunistic buying by accounts at lower levels.”

Some issues better

A trader at another shop saw most issues lower on the session, extending Monday’s losses, but noted that here and there, some names had escaped the overall carnage.

For instance, Level 3 Communications Inc.’s 5 3/8% notes due 2025 gained 1 point on the day to end at 98 bid.

Clear Channel Worldwide Holdings, Inc.’s 6½% notes due 2022 gained about 1 point to end at 90½ bid, although the issue had lost more than 5 points on Friday.

Yet another trader saw the San Antonio, Texas-based outdoor advertising company’s issue up by ½ point, although he pegged the bonds going out at 91 bid, on volume of more than $10 million. He said it was one of the few issues actually managing to post a gain.

Clear Channel’s new 8¾% notes due 2020 managed to hang onto most of the modest gains they notched after the $225 million deal priced off the forward calendar on Friday.

One market source saw the notes trading in a 99½-to-100½ context, which he called down ½ point on the session.

A second located the bonds at par but said he had seen “only one trade in it.”

The issue had priced at 99.01 to yield 9%.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Monday after having been lower across the board for five consecutive sessions before that. Monday was their second mixed session in the last seven trading days.

The KDP High Yield Daily index plunged by 87 basis points on Monday to end at 62.95, its eighth straight loss after three successive gains and its ninth loss in the last 12 sessions. It had plummeted by 66 bps on Friday.

Monday’s close represented a seventh consecutive new low for the year and a new 52-week low for the index, eclipsing Friday’s prior mark of 63.82.

It was also the index’s lowest finish since July 16, 2009, when it went home at 62.89

Its yield ballooned upward by 19 bps on Monday to end at 7.64% after having gapped up by 22 bps on Friday.

Monday’s close was its eighth straight widening and its ninth in the last 14 sessions.

Monday’s yield marked a sixth consecutive new high for 2015, surpassing the former 2015 highest yield of 7.45% set on Friday.

However, the Markit Series 25 CDX North American High Yield index rebounded on Monday after five straight losing sessions.

It rose by11/32 point to finish at 99 3/8 bid, 99 7/16 offered, its second advance in the last seven sessions.

On Friday, the index had nosedived by 1 29/32 points.

But there was no relief for the Merrill Lynch North American Master II High Yield index, which swooned by 1.348% on Monday, its eighth successive loss after three sessions before that on the upside and thus its ninth loss in the last 12 sessions.

Monday’s loss was its second consecutive largest one-day loss of 2015 and one of its biggest one-day losses ever; the previous biggest loss of 1.08% had been recorded on Friday.

The huge new daily loss widened the index’s year-to-date loss to 5.957% – its fifth straight cumulative deficit of 2015, surpassing Friday’s 4.672% year-to-date loss.

It was the most red ink the index had seen since Dec. 31, 2008, when it ended with a 30% cumulative loss on the year.

One of the index’s components, its yield to worst, rose to 9.075% from Friday’s 8.764%, in the process establishing a sixth straight new wide level for the year so far.

Its spread to worst versus comparable Treasuries expanded to 735 bps Monday, its second consecutive new wide point for the year from Friday’s 712 bps, the previous wide mark.

Another index component – the average price of a tracked bond – fell to its seventh straight new lowest price of the year on Monday, ending at 87.65106, down from the previous mark of 88.9802 recorded on Friday.

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