NCSG, Intrepid, Linc deals close $5.8 billion week; market rebounds despite huge fund outflows

By Paul Deckelman and Paul A. Harris

New York, Aug. 8 – The high-yield primary sphere closed out the week on Friday pricing a trio of deals off the forward calendar for total proceeds of $645 million.

The pricings took place even as market participants studied the massive outflow numbers reported on Thursday for high-yield mutual funds and exchange-traded funds, considered a good proxy for overall liquidity trends, trying to scope out what meaning the record cash exodus might have for Junkbondland going forward.

NCSG Crane & Heavy Haul Corp., an Edmonton, Alta.-based provider of mobile crane rental and heavy-haul services, priced a downsized $305 million of five-year senior secured notes.

Australia’s Linc Energy Ltd. brought $125 million of three-year secured notes to market via a pair of financing subsidiaries, Linc USA GP and Linc Energy Finance (USA) Inc.

On the domestic front, Stamford, Conn.-based commercial aircraft leasing company Intrepid Aviation Group Holdings, LLC did an upsized $215 million add-on to its existing 2019 notes, with the new paper quoted right around its issue price.

Those three deals brought the week’s issuance of new dollar-denominated and fully junk-rated paper to some $5.76 billion in 14 tranches, according to data compiled by Prospect News – down from the $6.04 billion in 17 tranches that got done in the previous week, ended Aug. 1.

The week’s issuance, in turn, raised the year-to-date tally of new bonds to $209.15 billion in 410 tranches, running about 6.3% ahead of last year’s near-record pace. According to the data, $196.72 million of new junk bonds had come to market in 454 tranches by this point on the calendar a year ago.

Traders saw light volumes, in line with the typical summer Friday doldrums, and they saw levels a little stronger – despite the hangover from Thursday’s depressing news of record fund outflows. They said Friday’s junk market was more attuned to the rebound seen on Wall Street, which reacted positively to signs of a possible easing of geopolitical tensions between Russia and the Ukraine.

Statistical indicators of junk market performance were meanwhile mixed for a fifth straight session on Friday versus the six-session losing streak seen previously.

However, they were higher across the board versus where they had finished out the previous week – the first time the indicators were all up on a Friday-to-Friday basis since the week ended May 30.

NCSG downsizes, restructures

Three issuers pricing single-tranche deals raised $645 million on Friday.

NCSG Crane priced a downsized $305 million issue of five-year senior secured second-lien notes (B3/B-) at par to yield 9½%.

The deal was downsized from $310 million.

A structural change saw call protection extended to three years from two years, and the first call premium increased to par plus the full coupon, or 109.5, an increase from a previously proposed first call premium of par plus 75% of the coupon.

Price talk on the buyout deal was not widely circulated, according to traders. But “price whisper” specifying a 9% yield circulated as recently as Thursday afternoon, according to a trader who added that the deal had been guided at 7½% to 8% when it was launched on July 28.

Goldman Sachs was the left bookrunner. RBC was the joint bookrunner.

Intrepid Aviation upsizes tap

Intrepid Aviation priced an upsized $215 million add-on to its non-rated 6 7/8% senior notes due Feb. 15, 2019 at 102 to yield 6.356%.

The deal was upsized from $150 million.

The reoffer price came on top of price talk.

Jefferies was the sole bookrunner.

The Stamford, Conn.-based commercial aircraft leasing company plans to use the proceeds for general corporate purposes, including the purchase of aircraft.

Linc Energy atop talk

Australia-based Linc Energy priced a $125 million issue of 9 5/8% first-lien senior secured notes due Oct. 31, 2017.

Factoring in a 6.1% exit premium, the notes have an 11.263% yield to maturity. The exit premium is payable upon redemptions and/or calls.

The coupon and reoffer price came on top of price talk.

Imperial Capital was the sole bookrunner for the debt refinancing and general corporate purposes deal.

Outflows don’t match sell-off

On Friday the market understandably continued to buzz about the massive, record-breaking $7.1 billion of outflows from dedicated high-yield funds during the week to Wednesday's close.

That news circulated the market late Thursday, as sources cited a weekly report by Lipper-AMG.

Early Friday one trader expressed puzzlement at the outflow's massive size and said that it seemed out of proportion to the way bonds are trading.

“High-yield bonds are down three to four points over the past two weeks,” the trader said.

“With an outflow as big as the one reported yesterday, it ought to be down a lot more, so it has us scratching our heads a little.”

One possible explanation offered by this trader, as well as other market sources on Friday, is that accounts have been holding deeper-than-expected cash reserves.

Low risk-adjusted returns on high-yield bonds may have pushed the market to an inflection point where the pressure to stay invested in order to avoid being outperformed has been overpowered by the erosion in yield, as well as by concerns that interest rates will soon move higher, and geopolitical headlines could lead to an extended period of market volatility, a debt capital markets banker said.

The week ahead

Only two deals remained on the active forward calendar heading into the weekend, sources said on Friday.

American Eagle Energy Corp. expects to price $175 million of five-year senior secured notes (Caa1/CCC) during the week ahead via bookrunner GMP Securities.

And Rooster Energy Ltd. remains in the market with its $100 million offering of five-year senior secured notes (Caa1/CCC+) via Imperial Capital, according to an informed source.

Elsewhere, potential issuers may be electing to wait out the chop, sources say.

“Deals are being reworked at wider price talk, but you might expect companies to say ‘no thanks’ and come back in the September-October time frame if the market improves,” a trader said on Friday.

Quiet day among new deals

A trader said at mid-afternoon that although several deals had priced – referring to Intrepid Aviation, Linc Energy and NCSG Crane & Heavy Haul – there was no sign of that paper yet in the aftermarket.

“These deals that have come in the last few days, we’ve seen nothing in the secondary market, they’re just so small,” he said.

At another desk, a trader quoted the new Intrepid Aviation 6 7/8% add-on notes due 2019 in a 101 7/8 to 102 3/8 context after the commercial aviation leasing company’s upsized deal had priced at 102.

Going back to Thursday’s deals, one of the traders saw BWAY Intermediate Co. Inc.’s 9 1/8% notes due 2021 trading around 99½ to par around midday, “so they were up a little bit” from the 99.364 level at which the Atlanta-based manufacturer of paint cans, aerosol cans and other forms of rigid metal or plastic containers had priced its $650 million issue to yield 9¼%, after downsizing the transaction from the original $770 million.

However, he said that he “never saw anything in” either Brundage-Bone Concrete Pumping, Inc. or US Shale Solutions, Inc.’s new issues, which had also come to market on Thursday.

Warren holds its ground

One of the traders said that Wednesday’s new deal from Warren Resources Inc. “didn’t really go anywhere at all in the afternoon,” but he had seen the issue during the morning in a 100¼ to 100¾ context, “which is how it’s been.”

Warren, a New York-based energy company, priced $300 million of 9% notes due 2022 at 98.617 on Wednesday afternoon to yield 9¼% – a full 100 basis points wider than the price talk levels heard on the deal at the tail end of last week.

Venturing back a little further, a market source saw last week’s issue of 5 3/8% notes due 2024 from NRG Yield, Inc. at 101 bid, 101½ offered, versus levels around 101 3/8 bid, 101 7/8 offered on Thursday. The Princeton, N.J.-based power generation company had priced $500 million of the notes at par on July 31 after upsizing that offering from $400 million originally.

Market quietly better

A trader said that things got “really quiet this afternoon,” in line with the typical Friday summer lassitude.

He ventured that “stuff did get a little better this afternoon, with stocks taking off,” as the equity market rebounded from Thursday’s downturn on signs of easing tensions in one of the world’s most volatile current hot spots, the border between the Ukraine and Russia.

For instance, key Moscow official Nikolai Patrushev, who holds the post of secretary of Russia’s Security Council, was reported to have declared that his country “will continue to make all efforts for a very fast de-escalation of tensions.” Later in the day, the Russian defense ministry issued a statement that its military drills near Ukraine were over.

The trader said that Thursday’s report by Lipper that the junk funds had suffered some $7 billion of outflows in the week ended Wednesday – a record high outflow total – did not seem to have much lasting impact in Friday’s market.

“I think things were more equity-related,” he said, with junk taking its cues from firmer stocks.

While “stuff was firmer,” he said, “it didn’t really run up too much. I think people are a little skeptical there. We’re really just one headline away of being right back down to where we were” just a few days ago.

He said it was “mostly related to the hopefully easing tensions in the Ukraine – which could turn on a dime.”

In the junk market, this translated to “going from seeing nothing but bid-wanteds on the ETF lists, to seeing a couple of offer-wanteds by the end of the day.

“So sentiment did change a little bit – but we’ll have to see where it is on Monday.”

Market indicators up on week

Statistical indicators of junk market performance were mixed for a fifth straight session on Friday versus the six-session losing streak seen previously.

However, they were higher across the board versus where they had finished out the previous week on Friday, Aug. 1, when they had been lower on the week. This week was, in fact, the first time the indicators were all up on the week since the week ended May 30, with only mixed weeks or lower weeks in the interim.

The KDP High Yield Daily index posted its fourth straight gain, edging up by 2 bps to close at 72.99, on top of the 4 bps gain seen on Wednesday and the 3 bps firming on Wednesday. On Tuesday, it had soared by 29 bps to dramatically and decisively pull itself out of the rut it had been in over the previous seven consecutive sessions, posting its first advance since July 23.

Its yield meanwhile tightened by 6 bps Friday to 5.48%, its fourth consecutive narrowing. It had come in by 3 bps on Thursday.

Those levels compared favorably with the 72.79 index reading and 5.61% yield seen the previous Friday.

The Markit CDX Series 22 index turned higher on Friday after having been under pressure for the previous three sessions. It jumped by 19/32 point to end at 106 25/32 bid, 106 13/16 offered, after having lost ¼ point on Thursday.

The index was also up from the 106 7/32 bid, 106 9/32 offered level at which it had finished the previous Friday.

But the widely followed Merrill Lynch High Yield Master II index retreated by 0.026% on Friday after having gained 0.192% on Thursday, continuing its recently choppy pattern.

Friday’s downturn left the index’s year-to-date return at 4.131%, down from Thursday’s 4.158% and well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

For the week, though, the index was up by 0.432%, after having plunged by 1.419% – its biggest one-week slide so far this year. That massive drop had slashed last Friday’s year-to-date return figure to 3.683% – the first time it had closed below the psychologically significant 4% marker since May 7, when it had ended at 3.968%, and the index’s weakest level since April 29, when it finished at 3.623%.

© 2015 Prospect News.
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