Consolidated Energy prices to cap $10 billion week; recent deals busy, though off peaks

By Paul Deckelman and Paul A. Harris

New York, May 26 – The high-yield primary sphere closed out its busiest week in more than two months on Friday, as a single issuer priced the first half of what is expected to be a two-part offering, while pushing the other half off until the upcoming week.

Consolidated Energy Ltd., a holding company which invests in businesses involving alternative waste management services and energy production, priced $500 million of fixed-rate eight-year notes on Friday. The other part of that upsized $800 million two-tranche deal, consisting of five-year floating-rate notes, is expected to get done within the next few days.

That deal brought the amount of dollar-denominated and fully junk-rated paper from domestic or industrialized country borrowers during the week up to $9.70 billion in 18 tranches, according to data compiled by Prospect News – the most new paper Junkbondland has seen in a single week since the $17.53 billion priced in mid-March, which was the biggest new issue week ever.

Traders meantime saw notable volume on Friday in several of the week’s new deals, even given reduced attendance in the market and an early close ahead of Monday’s scheduled full shutdown of the junk bond and other fixed-income markets in the United States in observance of Memorial Day.

They saw considerable trading in two issues which priced on Thursday – the two-part megadeals from retailer PetSmart, Inc. and NOVA Chemicals Corp., along with issues from earlier in the week such as Chesapeake Energy Corp., Navient Corp. and KAR Auction Services, Inc. Most of the new credits were easier on the session, off from their best levels since pricing.

Away from new or recently prices issues, traders saw bonds of energy credits such as California Resources Corp. and Denbury Resources Inc. on the rebound, in line with a bounce in world crude oil prices Friday. The bonds had dropped on Thursday after crude prices nosedived on investor disappointment that OPEC and some of the major non-OPEC producers did not increase the size of their planned cuts in global daily oil output in order to strengthen prices.

Consolidated prices fixed notes

On an “as advertised” quiet Friday, Consolidated Energy completed the session’s sole deal.

The Miami-based alternative waste management company launched and priced a $500 million issue of 6 7/8% eight-year senior notes (B2/BB-) at 99.5 to yield 6.957%.

The yield printed in line with final yield talk that had been set in the 7% area and inside the 7¼% to 7½% initial guidance.

Morgan Stanley was the bookrunner.

The 6 7/8% senior notes due 2025 came as part of an upsized $800 million two-part offering of senior notes (B2/BB-) that also includes $300 million of five-year floating-rate notes, non-callable for one year, which launched on Friday at Libor plus 375 basis points, with a 0% Libor floor at 99.75.

The floating-rate notes, which launched on top of both price talk and initial guidance, will be priced on Tuesday.

Consolidated Energy floater

Since the middle part of the past week some market sources had been watching for Consolidated Energy to price its debt refinancing bond deal in two stages on two separate days, with the fixed-rate tranche to come first.

Such an execution – which sees an issuer simultaneously launch two tranches, then price one, leaving the other to price later – is extremely rare, a sellside source noted.

However the floating-rate tranche of Consolidated Energy’s deal was apt to take additional work, the source said, adding that while European investors occasionally see euro-denominated or sterling-denominated floating-rate notes, dollar-denominated floaters are more scarce and the audience for such a deal is by no means vast.

A trader, speaking late Friday morning and confirming that word was circulating the market that Consolidated Energy was indeed to be subject to a novel two-stage execution, said that the buzz in the market was that its upsized $800 million two-part deal was playing to around $2 billion of demand.

However there was no breakdown as to how that demand was weighted among the two tranches, the trader added.

The week ahead

In addition to Consolidated Energy’s floating-rate deal there are two other issuers in the market expected to sell notes in the post-Memorial Day week.

Virtu Financial Inc. plans to price an $825 million offering of five-year senior secured second-lien notes (B1//B+) via JP Morgan.

And KIRS Group plans to price an £800 million equivalent three-part offering of five-year senior secured notes (expected B3/expected B/confirmed B-).

The deal includes sterling-denominated and dollar-denominated fixed-rate notes, and sterling-denominated floating-rate notes.

The European roadshow is scheduled to run through Tuesday, to be followed by a roadshow in the United States set to wrap up on Friday.

Global coordinator BofA Merrill Lynch is the sole physical bookrunner. Barclays, Credit Suisse, Goldman Sachs and KKR are bookrunners.

Mixed Thursday flows

Daily cash flows for dedicated high-yield bond funds were notably mixed on Thursday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs saw a substantial $332 million of inflows on the day.

However actively managed funds sustained $175 million of outflows on Thursday.

But the truly eye-popping news, on Thursday’s fund flows front, came from the bank loan sector.

Dedicated bank loan funds saw $45 million of outflows on Thursday, the trader said, adding that negative daily flows in the bank loan space have been extremely rare for the past year and a half.

Biggest week since mid-March

Friday’s lone pricing from Consolidated Energy brought the total of new dollar-denominated and fully junk-rated paper from domestic and industrialized-country borrowers up to $9.70 billion in 18 tranches for the week, according to data compiled by Prospect News.

That was well up from the $3.98 billion which priced in nine tranches the week before, ended May 19, as well as from the $5.50 billion which priced in 12 tranches the week before that, ended May 12.

This week thus becomes the biggest new-issuance week in the high-yield market since the week ended March 10 – the biggest primary week ever – when $17.54 billion of junk bonds priced in 26 tranches.

This week’s primary activity shot year-to-date issuance for 2017 so far up to $124.33 billion in 232 tranches – considerably more than the $92.08 billion which had priced in 132 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.

Consolidated not seen

Traders did not immediately report any initial aftermarket activity Friday in Consolidated Energy’s new 6 7/8% notes due 2025.

One trader quipped that “they tried to sneak this one in, with everybody leaving early” ahead of the holiday break.

PetSmart backs off

Although there were fewer people around than usual and many of those who were there left early, ahead of the 2 p.m. ET pre-holiday close recommended by the Securities Industry and Financial Markets Association, there were enough investors present to rack up decent-sized volume in Thursday’s new deal from PetSmart, the San Diego-based pet food and supplies retailer

Its $1.35 billion of new 5 7/8% senior secured first-lien notes due 2025 had priced at par on Thursday and then moved up by around a point in initial aftermarket dealings.

On Friday the bonds came off their Thursday highs, with one trader seeing them down ¼ point at 100¾ bid. A second trader had the bonds in a 100¼ to 100 7/8 bid context. More than $62 million of the notes traded, landing the credit high up on the day’s Most Actives list for a second consecutive session.

The other half of that $2 billion forward calendar deal – PetSmart’s $650 million of 8 7/8% senior unsecured notes due 2025, which priced at par and traded around that level on Thursday – was even busier on Friday, with over $74 million changing hands, the busiest junk credit of the day.

One market source saw those bonds down ¾ point on the day at 99¼ bid, while a second saw them go as low as a 98ish handle before ending at 99¼ bid.

PetSmart’s existing 7 1/8% notes due 2023 were seen trading slightly better on the day, ending at 93¾, a market source said.

NOVA notes easier

A trader saw Thursday’s other big deal – NOVA Chemicals’ $2.1 billion two-part offering of seven- and 10-year notes – also busy on Friday and also trading off the highs that both tranches had hit in their initial aftermarket trading the day before.

He said the Calgary, Alta-based chemical manufacturer’s 4 7/8% notes due 2024 were down 1/8 point at 100¼ bid, while its 5¼% notes due 2027 lost nearly 3/8 point, ending at around 100 3/16 bid.

The company had priced $1.05 billion each of the seven-year and 10-year notes at par in a deal off the forward calendar on Thursday.

GTT gets better

A trader was quoting GTT Communications Inc.’s $150 million add-on to its existing 7 7/8% senior notes due 2024 at 107 bid – up from the 106 bid level at which the notes had priced on Thursday.

But he saw little real volume in the McLean, Va.-based cloud network services provider’s new paper, which had priced at 106 on Thursday as an add-on to its identical existing notes.

Recent deals retreat a little

Among the deals which priced earlier in the week, a trader said that Navient’s 6¾% notes due 2025 eased by around 1/8 point on Friday to close at 100 3/8 bid, with about $9 million traded.

The Newark, Del.-based loan servicing company had priced a quickly shopped $500 million of those notes on Tuesday at 99.99 to yield 6¾%. They moved as high as 100 7/8 bid in secondary dealings subsequently.

KAR Auction Services’ 5 1/8% notes due 2025 pulled back by around 1/16 point Friday to end at 101 13/16 bid on a handful of trades.

The Carmel, Ind.-based provider of vehicle auction services and floorplan financing to independent and franchise used-vehicle dealers had priced $950 million of the notes at par on Monday after the offering was upsized from an originally announced $800 million.

Traders said the new KAR bonds were the week’s standout performers in the aftermarket, initially firming to 100¾ bid in active dealings and then eventually moving up to near the 102 bid level by the end of the week.

Chesapeake Energy’s new 8% notes due 2027 fell by 11/16 point on Friday to end at 99 5/16 bid, with around $13 million of volume.

The familiar Oklahoma City-based natural gas and oil exploration and production company priced a quickly shopped $750 million of those notes at par on Monday. While they had gotten as good as around the 101 bid level during the week, they were seen ending Friday at or below their par issue price.

Oil issues mostly better

The Chesapeake bonds seemed to be an outlier versus other energy names, which were mostly higher on Friday.

Los Angeles-based oil and gas company California Resources’ 8% notes due 2022, for instance, were seen by a trader Friday to have “picked themselves up” after losing more than 2 points in active dealings on Thursday. They closed Friday up 3/8 point at 77 1/8 bid on volume of over $15 million.

Sector peer Denbury Resources’ 6 3/8% notes due 2021 gained ¾ point on the day, going home at 77¾ bid.

California Resources, Denbury and other energy names had finished lower on Thursday in line with a more than $2.50 per barrel slide in world crude prices prompted by investor disappointment that the Organization of Petroleum Exporting Countries and key non-OPEC oil producers did not agree to bigger output cuts to pop up crude oil prices.

On Friday, though, sector investors seemed to have gotten over the initial disappointment, with the bonds of most E&P names seen up from their Thursday closing lows, as crude prices themselves regained some of their lost ground.

The July contract for the benchmark U.S. crude grade, West Texas Intermediate, was up 90 cents per barrel in Friday trading on the New York Mercantile Exchange, settling in at $49.80.

July contract North Sea Brent oil was up 69 cents per barrel Friday in trading on the London ICE Futures Exchange, settling in at $52.15.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Friday. They had turned mixed on Thursday and were higher over the four consecutive sessions before that.

The indicators meantime were higher across the board from where they had finished last Friday, May 19, when they had been mixed for a second straight week.

The KDP High Yield Daily Index was unchanged on Friday at 72.61 after losing 2 bps on Thursday, its first such loss after four straight gains, including Wednesday’s 5 bps rise.

Its yield was unchanged for a second session in a row at 4.93%, where it had finished on Wednesday after having come in by 2 bps, its fourth straight narrowing.

But those levels compared favorably with last Friday’s 72.42 index reading and 5.07% yield.

The Markit CDX Series 28 Index edged up by 1/32 point on Friday to end at 107 9/16 bid, 107 5/8 offered, after easing by 1/32 point on Thursday and being unchanged on Wednesday.

The index was up from last Friday’s close at 107 5/16 bid, 107 3/8 offered.

The Merrill Lynch North American High Yield Index ended down 0.017% on Friday, its first setback after five straight sessions on the upside, including Thursday’s 0.061% gain.

Friday’s retreat lowered the index’s year-to-date return to 4.684%, down from Friday’s 4.702%, which had been its fifth straight new high for the year.

For the week, the index gained 0.331%, its third straight weekly gain after one weekly loss and its eighth improvement in the past nine weeks. The week before, the index rose 0.278%, leaving its year-to-date return at 4.339%.

The index has been higher in 17 out of the 21 weeks since the start of the year, versus just four weekly losses.

© 2015 Prospect News.
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