American Midstream, SunCoke drive by; PetSmart pounded again; funds lose $922 million

By Paul Deckelman and Paul A. Harris

New York, Dec. 14 – New issuance in the high-yield primary market declined for a second straight session on Thursday, dwindling to a pair of quickly shopped add-on offerings to existing bond issues totaling $195 million.

American Midstream Partners LP, which owns and operates natural gas midstream energy assets, priced an upsized $125 million addition to existing $300 million 2021 notes that the company priced almost exactly a year ago.

And SunCoke Energy Partners, LP, a producer of coke for the steelmaking and power-generation industries, did a $70 million tap of its existing $630 million of 2025 notes that it sold earlier this year.

The issuance total was down from the $330 million of new dollar-denominated and fully junk-rated paper which came to market on Wednesday, although that was all in one deal – and both of those sessions were well below the $2.63 billion which got done in four tranches on Tuesday, as primaryside activity appeared to be winding down ahead of the traditional year-end lull.

But the new-dealers are anticipating at least one last big deal before the curtain finally comes down on this year, with toy maker Mattel Inc. expected to price a $1 billion eight-year offering during Friday’s session.

Ahead of that deal, though, secondary market traders reported that the company’s several issues of existing notes continued to deteriorate on Thursday, following a ratings downgrade to junk by all of the major ratings agencies on Monday.

Another credit seen continuing on the downside for yet another session was retailer PetSmart Inc., which lost several additional points in active trading

Among recently priced issues, Canadian drugmaker Valeant Pharmaceuticals International Inc.’s eight-year notes gave up some of that issue’s hefty recent aftermarket gains. Records and document storage company Iron Mountain, Inc.’s 10.25-year notes were firmer.

Statistical market performance measures turned lower across the board on Thursday, their second lower performance in the last seven sessions dating back to last Wednesday.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – turned decidedly negative this week, as $922 million more left those funds than came into them in the week ended Wednesday, versus net inflows over the previous two weeks totaling $527 million (see related story elsewhere in this issue).

American Midstream upsizes

Two debt refinancing add-on deals came and went during Thursday’s session, as 2017 primary market activity begins winding down in earnest, sources said.

American Midstream Partners LP and American Midstream Finance Corp. (Caa1/B+) priced an upsized $125 million add-on to their 8½% senior notes due Dec. 15, 2021 at 102.375 to yield 7.596%.

The tap size was increased from $100 million.

The reoffer price came in the middle of the 102.25 to 102.5 price talk. Initial talk was 102.5.

Active bookrunner Wells Fargo was the left lead.

SunCoke taps 7½% notes

SunCoke Energy Partners priced a $70 million add-on to its 7½% senior notes due June 15, 2025 at 104.25 to yield 6.565%.

The reoffer price came rich to the 104 initial guidance.

BofA Merrill Lynch had the books, a trader said.

Both the American Midstream deal and the SunCoke deal were likely driven by substantial reverse inquiry, the trader added.

Mattel talk 6 ¾% to 7%

Mattel, Inc. talked its $1 billion offering of eight-year senior notes (Ba2/BB-/BB) to yield 6¾% to 7%.

Official talk comes in line with early guidance in the high 6% to 7% area.

The deal, coming on the back of recent credit ratings downgrades that saw the company slip into the speculative-grade range from its former investment-grade status and a subsequent sell-off in its existing bonds, is playing to both investment-grade and high-yield accounts, according to a trader who added that the order book is believed to be in decent shape.

The notes are set to price Friday.

Meanwhile Lonestar Resources US Inc. disclosed plans to sell $250 million of senior notes.

JP Morgan is leading the five-year non-call-two debt refinancing deal, a market source said.

Inter Media prices tight

In what may be the final euro-denominated deal of 2017, Italy’s Inter Media and Communication SpA priced a €300 million issue of five-year senior secured notes (S&P: BB-) at par to yield 4 7/8% on Thursday, according to a market source.

The yield printed at the tight end of yield talk in the 5% area.

Goldman Sachs was the global coordinator and bookrunner.

Proceeds will be used to refinance debt and provide working capital.

Wednesday outflows

Daily cash flows for dedicated high-yield bond funds were negative on Wednesday, a trader said.

High-yield ETFs sustained $244 million of outflows on the day.

Actively managed high-yield funds were essentially flat at negative $10 million on Wednesday.

Day’s deals not seen

In the secondary market Thursday, traders did not immediately report any initial trading in the quick-to-market add-on deals brought by Denver-based midstream energy partnership American Midstream Partners and Lisle, Ill.-based industrial coke producer SunCoke Energy Partners.

One of the traders said the smallish add-ons – $125 million and $70 million, respectively, were not considered likely to see much aftermarket activity.

Cooke Omega improves

Wednesday’s sole new junk-bond issue – from Cooke Omega Investments Inc. “didn’t really trade that much,” a trader said.

“They did a little better, but also only traded a little.”

Those 8½% senior secured notes due 2022 were seen by traders on Thursday morning moving about in a 99 to par bid context, while a market source said on Thursday afternoon that the notes had moved up to 99 3/8 bid, 100 3/8 offered, though on not too much volume.

That was well up from the 97.098 level at which that $330 million regularly scheduled forward calendar issue had priced on Wednesday.

Iron Mountain, Churchill trade

Traders saw some activity Thursday in two of Tuesday’s new deals, from Iron Mountain and Churchill Downs Inc., although at considerably reduced volume levels versus Wednesday.

“Nothing was super-duper active,” a trader said of those new issues.

He saw Iron Mountain’s 5¼% notes due March 15, 2028 in a 100 5/8 to 100 7/8 bid context.

The issue “held its gains,” he said, but its movements were “not that notable.”

At another desk, a trader pegged the new notes at 100 7/8 bid, calling them up 1/8 point on the day, with about $11 million traded – well down from the more than $72 million which changed hands on Wednesday, when the credit was the volume leader..

The Boston-based records and documents storage company priced its quickly shopped $825 million offering at par on Tuesday and it had gotten as good as a 100¾ to 100 7/8 bid context by the close of that session.

Churchill Downs’ new 4¾% notes due Jan. 15, 2028 were quoted by a market source Thursday at 99¾ bid, down 1/8 point, with about $12 million having traded, down from Wednesday’s more than $38 million turnover.

The Louisville, Ky.-based racetrack operator – the host for the world-famous annual Kentucky Derby horse race – priced its quickly shopped $500 million deal at par on Tuesday after upsizing it from an originally announced $300 million.

Valeant notes active, easier

Going back a little further, Valeant Pharmaceuticals’ new 9% notes due 2025 “traded a lot today,” a market source said, with over $29 million moving around.

But he said that those bonds – which have firmed smartly over the past few sessions after their pricing well below par last week – gave up about 1 point of those gains Thursday, finishing at 101 7/8 bid.

A second trader who saw the notes finishing at that same level called it a 7/8 point on the day.

Laval, Que.-based drug manufacturer Valeant had priced $1.5 billion of those notes at 98.611 on Dec. 4, yielding 9 ¼%.

That quick-to-market issue was upsized from an originally announced $1 billion.

Valeant’s existing notes were meantime lower on Thursday in tandem with its new megadeal.

A trader said that the company’s 5½% notes due 2023 lost ¾ point on the day, closing at 89½ bid, while its 7½% notes due 2021 were off by around 5/8 point at 100 15/16 bid. Both of those issues generated about $15 million of trading volume Thursday.

Valeant’s 6 1/8% notes due 2025 finished down 7/8 point at 89 3/8 bid, on volume of over $8 million.

Mattel loses more ground

With Mattel on the brink of pricing its $1 billion eight-year offering, traders said the El Segundo, Calif.-based toy manufacturer’s existing bonds continued to fall back on Thursday in continued investor response to Monday’s multiple ratings downgrades by all three major agencies. All now consider the formerly investment-grade-rated name to now be a junk bond company.

Mattel “has crept into our world,” a junk trader acknowledged, seeing the company’s 3.15% notes due 2023 down another 1 1/8 point on Thursday, ending at 86½ bid.

That loss comes after similar-sized losses earlier in the week.

The trader said the bonds are down 8 points on the month so far.

More than $8 million traded Thursday.

The company’s 5.45% long bonds due 2041 were seen by a market source to have finished at 81½ bid, with over $19 million having traded.

Those bonds bounced off their day’s low point around 78 bid.

But they were trading well under the lower-90s levels at which they had been seen about a week ago.

PetSmart driven lower

Just as Mattel bonds have been falling all this week, so too has PetSmart’s paper been getting royally pummeled, traders said.

The same was true once again on Thursday, with a trader seeing those notes “off another couple of points. They are really having a tough week.”

He saw the company’s 5 7/8% senior secured notes due 2025 ending at 74 1/8 bid. That was down 1 5/8 points on the day, with over $23 million traded.

Its unsecured notes, he said “were down another 2 or 3 points, with its 7 1/8% notes due 2023 falling back to close at 58½ bid, with over $19 million traded.

Indicators head lower

Statistical market performance measures turned lower across the board on Thursday, their second lower performance in the last seven sessions dating back to last Wednesday. They had been mixed on Tuesday and Wednesday, after having been higher across the board on Friday and then again on Monday.

The KDP High Yield Daily Index lost 4 basis points on Thursday to end at 71.87. It had been unchanged on Wednesday, after having risen by 4 bps on both Monday and again on Tuesday.

Its yield meantime rose by 1 bp on Thursday to 5.30%, on top of Wednesday’s 2 bps widening. It had come came in by 1 bp on Tuesday, after having been unchanged on Monday.

The Markit CDX Series 29 index was down 3/32 point Thursday, going home at 107 15/16 bid, 108 1/16 offered. On Wednesday, the index had gained nearly 3/32 point after easing by not quite 1/32 point on Tuesday– its first loss after three straight sessions on the upside.

The Merrill Lynch North American High Yield Master II Index retreated for a second session in a row on Thursday, ending off by 0.06%, on top of Wednesday’s 0.031% loss, which followed three consecutive gains before that, including Tuesday’s 0.081% rise.

The latest downturn cut the index’s year-to date return to 7.277% at the close Thursday, versus Wednesday’s 7.341% finish. The year-to-date return remains off from the 7.636% posted on Oct. 24, the peak cumulative return for 2017 so far.

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