Dollar primary market quiet, but pricing action seen in Europe; mining, energy names rebound

By Paul Deckelman and Paul A. Harris

New York, Dec. 9 – The dollar-denominated segment of the high-yield primary market remained quiet on Wednesday, with no pricings seen there for a third consecutive session.

However, there was some pricing action going on in Europe. German cable operator Unitymedia Hessen GMBH & Co. KG and affiliate Unitymedia NRW GMBH brought a €420 million 10-year secured issue to market successfully.

Familiar U.S.-based industrial company Goodyear Tire & Rubber Co. also tapped the euro market for €250 million of eight-year notes brought by a European subsidiary.

Back on the domestic front, chemical maker Kraton Polymers LLC remained in the market with a $425 million eight-year issue, while outdoor advertising firm Clear Channel Outdoor Holdings, Inc. continued to shop its $225 million of five-year paper around, with pricings seen possible for either or both deals during Thursday’s session or Friday’s.

Little aftermarket activity was seen in recent new issues other than some trades – but no real price action – in metal beverage container maker Ball Corp.’s dollar-denominated five-year megadeal.

There was some action away from the new deals, with resources names like Fortescue Metals Group and steelmaker ArcelorMittal SA seen better after having been beaten down on Tuesday as part of a broad downturn by metals, mining and energy issues.

In the latter sector, Chesapeake Energy Corp.’s paper was also staging a modest rebound.

Despite a better tone in those and other recently struggling peer names, statistical measures of junk market performance were lower across the board for a third consecutive session on Wednesday. The indicators had turned lower all around on Monday after having been mixed on Friday. It was the fourth lower session in the last five trading days.

Unitymedia drives by

Europe generated all of Wednesday's activity in the primary market.

Unitymedia priced a €420 million issue of 10-year senior secured notes (Ba3/BB-) at par to yield 4 5/8%.

The yield printed at the wide end of yield talk in the 4½% area.

Joint bookrunner BofA Merrill Lynch will bill and deliver. Barclays, Credit Agricole CIB, Citigroup, Deutsche Bank and UBS were also joint bookrunners.

The Koln, Germany-based cable operator plans to use the proceeds to partially refinance its euro-denominated senior secured notes due in 2022 and 2023, to repay revolver debt and for general corporate purposes.

Goodyear prints 3¾%

Goodyear Tire & Rubber priced a €250 million issue of eight-year senior notes (Ba1/BB/BB) at par to yield 3¾%.

The yield printed on top of final yield talk and 25 basis points beneath the tight end the 4% to 4¼% original price talk.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, BofA Merrill Lynch, Credit Agricole CIB, Goldman Sachs International, JPMorgan and Wells Fargo are also joint bookrunners.

The Akron, Ohio-based tire company issued the notes via its European subsidiary, Goodyear Dunlop Tires Europe BV.

Proceeds, together with cash and cash equivalents, will be used to redeem in full €250 million of Goodyear Dunlop’s 6¾% senior notes due 2019.

2015 winding down

Although there is a modest calendar still to clear, sources in Europe and the United States expressed doubts on Wednesday as to whether any further substantial new issue activity would materialize during the run-up to 2016.

Declaring the junk market “a disaster,” with no liquidity and with hedge funds liquidating, a high-yield investor said on Wednesday morning that the market may be through for the year.

A London-based debt capital markets banker, speaking as the Goodyear and Unitymedia terms began circulating, was also reasonably certain that European high-yield investors would prefer to await the new year, spending the interim on the sidelines.

Tuesday outflows

The cash flows of the dedicated high-yield funds were negative on Tuesday, the most recent session for which data was available at press time, according to a buyside source.

High-yield exchange-traded funds saw $445 million of outflows on the day.

Asset managers sustained $190 million of outflows on Tuesday.

Metals names move up

In the secondary market, a trader said that Fortescue Metals Group’s 9¾% notes due 2022 “were off a couple of points yesterday [Tuesday],” trading around the 87 bid level.

However, on Wednesday, he said, the Australian iron ore producer’s paper had traded back up to 90 bid.

Other oversold names in the metals space were also seen doing better on Wednesday after having been pushed lower on Tuesday.

“Some of the metals and mining names clearly caught a bid,” he said. “I don’t think every name, but at least a couple.”

Among these were ArcelorMittal, “another name that was really getting beat up” on Tuesday.

He saw the 7% long bonds due 2039 issued by the Luxembourg-based company – easily the world’s largest steelmaker by tonnage produced – as having pushed up to 68 bid on Wednesday from Tuesday’s close around a 66-to-66½ bid context.

ArcelorMittal’s 6¼% notes due 2021, which on Tuesday had lost nearly 5 points on the day, crept back up by around ½ point to end at 79¾ bid.

ArcelorMittal’s Pittsburgh-based domestic competitor, United States Steel Corp., saw its 7% notes due 2018 rise by 1½ points to end at 63½ bid, bouncing part of the way back from Tuesday’s 4-point loss.

Sector peer AK Steel Holding Corp.’s 7 5/8% notes due 2020 rose to 32¼ bid, their 1¾-point gain on the day completely wiping out a similar-sized loss in Tuesday’s trading.

The West Chester, Ohio-based steel producer’s 8 3/8% notes due 2022 jumped by 3¼ points to close at just under 33 bid.

Chesapeake climbs

Among the oil and natural gas names, a trader saw Chesapeake Energy’s 6½% notes due 2017 gain 4 points on the day to end at 65½ bid, with about $10 million of the notes traded.

The Oklahoma City-based exploration and production operator’s 6 5/8% notes due 2020, which had slid by 4 points in Tuesday’s trading, got half of that back on Wednesday, finishing at 33 bid.

Another trader saw the company’s 5¾% notes due 2023 gain 1½ points to close at 31½ bid.

Chesapeake’s bonds had lately been on the slide, pushed down by a combination of the lower oil prices hurting the whole energy sector as well as company-specific investor angst regarding a discounted debt exchange transaction Chesapeake unveiled last week.

TerraForm trades up

Elsewhere, traders saw good activity in TerraForm Power, Inc.’s bonds, in line with a surge in the Bethesda, Md.-based wind-power energy company’s equity.

“TERP was a mover in the wind-power space,” one trader said, quoting its 5 7/8% notes due 2023 as having jumped to 82 bid, well up from the 76 bid level at which they had finished on Tuesday. More than $20 million of the notes traded.

He cited the news about TerraForm Power parent SunEnergy Inc.’s and Vivint Solar Inc.’s planned merger, including revised terms of the portion of that deal calling for TerraForm to acquire the Vivint Solar portfolio of installed residential rooftop solar systems.

“Obviously, the new terms are more favorable,” he declared. TerraForm’s expected purchase price for those assets will be reduced from the original $922 million to an estimated $799 million, with TerraForm to only pay for installed systems at the deals’ closing, which is expected in next year’s first quarter.

TerraForm also said that it expects to be able to assume the aggregation financing facility that is already in place for the portfolio, thereby reducing its expected cash payment obligation by about $236 million to an estimated $563 million from $799 million.

TerraForm’s Nasdaq-traded shares meantime zoomed by $2.08, or 24.02%, to $10.74, on volume of 16 million, about four times the norm.

In the overall deal for Vivint, the company agreed to take $7.89 per share in cash from SunEdison, down $2.00 per share than originally agreed upon; SunEdison upped the stock portion of its offer by 75 cents per share, while Blackstone Management will kick in $250 million of financing and Goldman Sachs will add another $300 million to the transaction proceeds.

Ball Corp. trades busily

There did not seem to be much trading in recent new deals, several traders said, with one opining that the notes had been “put away” and liquidity had dried up.

However, one exception to the rule was Ball’s 4 3/8% notes due 2020; a trader saw the paper unchanged on the day at 101½ bid but on relatively brisk volume of over $13 million.

At another desk, a trader did see the Broomfield, Colo.-based beverage can maker’s bonds at a 101 3/8-to-101¾ bid context, which he called up 3/8 point.

Sideline-sitting

Overall, a trader said the day’s session was characterized by “a lot of noise but not a lot of trading going on.

“A lot of guys are just sitting on the sidelines.”

Indicators slide continues

Statistical measures of junk market performance were lower across the board for a third consecutive session on Wednesday. The indicators had turned lower all around on Monday after having been mixed on Friday. It was the fourth lower session in the last five trading days.

The KDP High Yield Daily index lost 9 bps on Wednesday to end at 64.53, its fifth straight loss after three successive gains and its sixth loss in the last nine sessions. It had plunged by 52 bps on Tuesday.

Wednesday’s close represented a fourth consecutive new low for the year and a new 52-week low for the index, eclipsing Tuesday’s prior mark of 64.62.

It was also the index’s lowest finish since July 22, 2009, when it went home at 64.24

Its yield edged up by 1 bp to end at 7.20% after having ballooned upward by 11 bps on Monday and again on Tuesday. It was the yield’s fifth consecutive widening after two straight narrowings, which had followed two unchanged sessions and another narrowing, making Wednesday’s close its sixth widening in the last 11 sessions.

Wednesday’s yield marked a third consecutive new high for 2015, surpassing the former 2015 highest yield of 7.19%, set on Tuesday.

The Markit Series 25 CDX North American High Yield index lost 1/8 point on Wednesday to close at 101 13/32 bid, 101 15/32 offered, its third straight loss after one gain and its fourth loss in the last five sessions. It had swooned by 19/32 point on Tuesday.

The Merrill Lynch North American Master II High Yield index retreated 0.094% on Wednesday, its fifth successive loss after three sessions before that on the upside and thus its sixth loss in the last nine sessions. The index had plummeted by 0.668% on Tuesday, one of its largest single-session losses so far this year.

The index’s year-to-date loss widened to 3.482% on Wednesday – a second straight new low for the index’s worst 2015 cumulative setback, eclipsing the prior mark, Tuesday’s 3.391% deficit.

It was the biggest cumulative loss the index had seen since Oct. 5, 2011, when it closed with a year-to-date loss of 3.834%

One of the index’s components, its yield to worst, rose to 8.432% from Tuesday’s 8.406%, in the process establishing a third straight new wide level for the year so far.

Another index component, the average price of tracked bonds, fell to its lowest price of the year on Wednesday, ending at 90.09802. It was the third straight new 2015 low price, down from the previous mark of 90.20294 recorded on Tuesday.

© 2015 Prospect News.
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