Junk market ends week with second straight loss, energy names lead retreat; primary still quiet

By Paul Deckelman and Paul A. Harris

New York, Dec. 18 – The high-yield market closed out the final full trading week of 2015 on Friday on a down note, its second consecutive mostly lower session. The next two weeks, the last of 2015, will see market closings in observance of the Christmas and New Year’s holidays.

Junk followed stocks down on Friday, with equities pulled sharply lower in line with falling energy prices.

Energy-sector bonds led the high-yield downturn, with the retreating credits including names such as California Resources Corp., EP Energy Corp., Consol Energy Inc., Linn Energy, LLC and Chesapeake Energy Corp.

The downturn also extended to non-energy names such as Frontier Communications Corp., Charter Communications, Inc. and Community Health Systems, Inc.

The junk primary market remained quiet for a fifth consecutive session, with no new deals either announced or priced; although several prospective offerings remain listed on the forward calendar, market sources say new-deal activity has wrapped up for the year.

The lack of any new deals on the week – in contrast with the $225 million that priced in one tranche last week – leaves year-to-date issuance right where it was last Friday, according to data compiled by Prospect News.

Some $262.86 billion of new U.S. dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers has priced 414 tranches in 2015, running 16.2% behind the pace seen in the junk market a year ago, when $313.71 billion had priced in 585 tranches by this point on the calendar.

Statistical measures of junk market performance were lower across the board on Friday for a second straight session; they had turned downward on Thursday after two straight sessions of having been higher and one mixed session before that, which followed five straight losing sessions.

The indicators were mixed versus where they had finished the previous Friday, after having been lower all around last week; it was the fourth mixed week out of the last five trading weeks.

Kraton pushed into 2016

No deals were priced in the primary market on Friday.

Nor were any new deals announced, as sources continued to assert that new issue business for 2015 has now concluded.

Kraton Polymers, LLC’s $425 million offering of eight-year senior notes (B3/CCC+) has been pushed into the year ahead, sources said.

The acquisition deal, via Credit Suisse, Nomura and Deutsche Bank, was set to price earlier this month at the conclusion of its roadshow.

That leaves only one launched deal unaccounted for.

NGL Energy Partners LP kicked off a $300 million offering of five-year senior notes (B2/BB-/BB-) in late November and was expected to price it before the end of the month, following a brief roadshow.

However it has been radio silence on the offer since the beginning of December.

In addition to facing extremely difficult market conditions, the deal also emanates from the deeply troubled energy sector.

deeply distressdistressdistressed energy sector, which can't bode well, sources say.

‘An ugly day’

In the secondary market, a trader characterized Friday’s session – the market’s second straight downturn – as “just another ugly day.”

He noted that “the high-yield market definitely outperformed the equity market,” which was pulled sharply lower by the continued weakness in crude oil prices.

The bellwether Dow Jones Industrial Average plummeted by 367.39 points, or 2.10%, to close at 17,128.45. On Thursday, the Dow had been beaten down by some 253.25 points. Other equity indexes suffered similarly sized losses both days.

Crude oil, meanwhile, was down for a third straight day on Friday, trading at the kind of low levels not seen since early 2009. The benchmark U.S. crude grade, West Texas Intermediate for January delivery, moved down 22 cents to settle at $34.73 per barrel on the New York Mercantile Exchange, while international oil benchmark Brent crude for February delivery lost 18 cents to close at $36.88 a barrel on the London ICE Futures Exchange.

With oil so low, the trader said it was not surprising that “a lot of the energy names continued to trade down another couple of points, some more than a couple of points, depending on the name.

“A lot of stuff was just under pressure.”

He said that generically speaking, junk bonds were down ¼ to ½ point, but with the energy names “down a couple of points.”

Energy on the slide

Energy names taking it on the chin on Friday included EP Energy’s 9 3/8% notes due 2020, probably the day’s biggest loser, one market source said, dropping more than 7 points to close at 58¾ bid, with over $13 million traded.

California Resources’ 8% notes due 2022 lost nearly 2½ points on the day to end below 53 bid, with over $17 million changing hands, while its 5% notes due 2020, trading down in the mid-30s, were off by 3/8 point, with over $12 million traded.

Linn Energy’s 6½% notes due 2019 were pushed down to 18 1/8 bid, with over $13 million traded, while Chesapeake’s 6 5/8% notes due 2020 dropped by 2¾ points to 24½ bid, with over $10 million of turnover.

Coal producer Consol’s 5 7/8% notes due 2022 were down 1½ points, ending at 61 bid, with over $15 million traded.

Other issues affected

The downturn was by no means limited to energy. A trader said that “some of the telecom beta names” were being knocked down, such as Frontier Communications’ 11% notes due 2025, down ½ point at 95 bid, on volume of over $19 million.

T-Mobile USA Inc.’s 6½% notes due 2026 lost 1 point to close at 98 bid, on volume of over $9 million.

Cable operator Charter’s 5¾% notes due 2026 were down 7/8 point at 98 1/8 bid, as over $14 million changed hands.

Outside of the media and communications realm, Community Health’s 6 7/8% notes due 2022 were seen down nearly 1¾ points at 91 3/8 bid, with over $11 million having traded.

Indicators off on day

Statistical measures of junk market performance were lower across the board on Friday for a second straight session; they had turned downward on Thursday after two straight sessions of having been higher and one mixed session before that, which followed five straight losing sessions.

The indicators were mixed versus where they had finished the previous Friday after having been lower all around last week. That was the fourth mixed week out of the last five trading weeks.

The KDP High Yield Daily Index slid by 37 basis points on Friday to close at 63.16, its second loss in a row following two gains. On Thursday, the index had loss lost 8 bps.

Its yield moved up by 7 bps to 7.56%, its second consecutive widening after two straight sessions during which it had narrowed. On Thursday, the yield had risen 3 bps on the session.

Those levels compared unfavorably with the 63.82 index reading and 7.45% yield that the index had posted last Friday, Dec, 11.

The Markit Series 25 CDX North American High Yield Index ended down 11/32 point on Friday at 99 13/32 bid, 99 15/32 offered, its second successive setback. On Thursday, it had plummeted by 1 full point on the day, snapping a string of three straight gains.

The index finished the week up from the previous Friday’s 99 1/16 bid, 99 3/32 offered level.

The Merrill Lynch North American Master II High Yield index closed off by 0.692% on Friday, its second straight downturn. On Thursday, it had eased by 0.04%, following two straight advances on Tuesday and Wednesday, which in turn had followed eight straight losing sessions before that.

Friday’s retreat raised the index’s year-to-date loss to 5.603% from 4.945% on Thursday, though it remained below Monday’s 5.957% loss, which had been its fifth straight new largest cumulative deficit of 2015 and its lowest level seen since Dec. 31, 2008, when it ended with a 30% loss on the year.

For the week, the index lost 0.976%, its eighth straight weekly setback. With 50 weeks in the books so far this year, weekly losses and gains have been equally divided, at 25 apiece.

Last week, the index had swooned by 2.376% – its largest single weekly nosedive for the year and one of the biggest on record – to finish with a year-to-date loss of 4.672%.

© 2015 Prospect News.
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