Post-holiday primary is quiet as market returns to work; Community Health jumps on results, Tronox up

By Paul Deckelman and Paul A. Harris

New York, Feb. 21 – The high yield market reopened on Tuesday following the extended Presidents Day holiday break in the United States, which had seen the fixed-income markets closed on Monday.

But there was little or nothing going on in the dollar-denominated primary market, although syndicate sources were confident that things will pick up later on in the week, with several deals expected to get done.

Domestic issuer Levi Strauss & Co. was heard to be hitting the road in Europe with a €450 million issue of 10-year notes.

In the secondary arena, there was modest activity seen in last week’s three new issues, from NGL Energy Partners LP, Aecom and Gateway Casinos & Entertainment Ltd., with the bonds all staying around where they had finished last week or perhaps a touch higher.

But most of the day’s activity took part away from the recently priced issues.

Community Health Systems Inc.’s bonds, and its shares, jumped in heavy trading after the hospital operator reported results that beat Wall Street’s expectations and increased the number of hospitals it plans to sell to bring down its debt.

Tronox Ltd.’s bonds and shares firmed smartly as the pigments producer and specialty chemical company announced plans for an accretive acquisition and a divestiture, with Moody’s Investors Service thus eying it for a possible ratings upgrade.

Statistical market performance measures turned higher across the board on Tuesday after having been lower all around on Friday on Friday mixed for two straight sessions before that. It was the fifth higher session in the last eight trading days.

Levi Strauss plans €450 million

The primary market's news stream remained conspicuously thin on Tuesday, as some market participants returned from the extended Presidents Day holiday weekend in the United States.

In the dollar-denominated new issue market there was no news at all.

However sources are looking for at least $2 billion of issuance in the present week.

Traders say word is out that JP Morgan and BofA Merrill Lynch have perhaps a couple of deals apiece to roll out during the final three sessions of the post-Presidents Day week.

Most of that activity will probably come in the form of drive-by deals, a trader said.

Meanwhile in the European primary Levi Strauss plans to start a Europe-only roadshow on Wednesday for a €450 million offering of 10-year senior notes (Ba2/BB+).

BofA Merrill Lynch is the left bookrunner. Goldman Sachs, JP Morgan, Deutsche Bank, SunTrust, Scotia and Wells Fargo are the joint bookrunners.

The San Francisco-based apparel maker plans to use the proceeds, together with cash on hand, to purchase its 6⅞% senior notes due 2022.

Crew Canadian-dollar deal

Elsewhere, Crew Energy Inc. plans to roadshow a Canadian dollar-denominated offering of seven-year senior notes in meetings with investors scheduled to take place in Toronto on Wednesday and Thursday.

The size of the deal has not yet been disclosed.

National Bank Financial Markets and Scotia are the joint bookrunners.

TD and BMO are the co-lead managers.

The Calgary, Alta.-based oil and natural gas exploration, development and production company plans to use the proceeds to redeem all $150 million of its 8 3/8% senior notes due 2020, with the excess proceeds to make a non-permanent repayment of debt under its credit facility and for general corporate purposes.

Thin Friday cash flows

The daily cash flows of the dedicated high yield bond funds were mixed but essentially flat on Friday, A trader said.

High yield ETFs saw $8 million of inflows on the day.

Actively managed funds sustained $15 million of outflows on Friday.

And continuing a trend that extends to last autumn, the inflows of the bank loan funds dwarfed Friday flows of the junk bond funds.

Bank loan funds saw $255 million of inflows on Friday, the trader said.

Community Health climbs

In the secondary arena, Community Health Systems’ several series of bonds were the standout performer on the day, after the Franklin, Tenn.-based hospital operator reported surprisingly strong results.

“The bonds were up pretty significantly, some by 6 to 8 points” after the numbers, a trader said, noting that “it must have been a pretty big short squeeze – a lot of people must have been caught offsides on that one.”

He saw its 6 7/8% notes due 2022 having zoomed “about 7 or 8 points,” to around 83½, the big winner of the day.

Another market source saw those bonds ending up 8 1/8 points, at 83 7/8 bid, with more than $69 million having changed hands, the heaviest volume seen in Junkbondland.

Its 8% notes due 2019 shot up by 5½ points to close at 95¾ bid, with over $54 million having traded, while its 5 1/8% notes due 2021 had moved up by more than a deuce on the day, to 96¾ bid, on volume of over $29 million.

The traders also saw the company’s 7 1/8% notes due 2020 up nearly 2 points at 92¼ bid, on turnover of more than $21 million.

Its New York Stock Exchange-traded shares soared by $2.33, or 33.77%, ending at $9.23, on volume of more than 23.9 million shares, almost eight times the norm.

The bonds and shares rose after the company reported fourth-quarter adjusted earnings of 46 cents per share, far better than the 12 cents per share analysts expected.

And the company said that “significant progress has been made in our work to divest certain hospitals and other operations, enabling a reduction in our debt and the opportunity to reshape our portfolio into a stronger, more sustainable organization.”

Tronox trades up

Tronox’s bonds were also big gainers on the day, a trader said, “as they are doing a deal in the chemical space that will delever the credit.”

The Stamford, Conn.-based company’s 6 3/8% notes due 2020 rose 1¼ points, to 101 7/8 bid, on over $13 million of volume, while its 7½% notes due 2022 were even busier, with $34 million having traded. Those bonds gained 1 3/8 points to end at 104 3/8 bid.

Its shares likewise climbed more than 35% on over six times normal volume.

Moody's Investors Service placed the B2 ratings of Tronox on review for upgrade following the company's announcement that it has entered into a letter of intent to acquire the titanium dioxide business of Cristal, the Saudi-based titanium dioxide producer, for $1.67 billion in cash plus 38.75 million Tronox shares, or 24% of Tronox's equity, pre-deal announcement, and that it intends to divest its soda ash business, with the proceeds to be used towards acquiring Cristal.

The transaction is expected to close by year end 2017 and might require additional borrowings to complete, the amount of which will largely depend on the divestiture price of the soda ash business, as well as the company's cash balance and high value inventory at the time of closing. The outlook on the ratings is changed to rating under review from negative, Moody’s said.

Indicators turn higher

Statistical market performance measures turned higher across the board on Tuesday after having been lower all around on Friday and mixed for two straight sessions before that. It was the fifth higher session in the last eight trading days.

The KDP High Yield index gained 8 basis points to close Tuesday’s session at 72.42, a new high point for the year and over the past 52 weeks. That was its first advance after one loss and six straight gains before that. It had eased by 1 bp on Friday. The index was not published on Monday with the market officially closed for Presidents Day.

Its yield came in by 2 bps to end at 5.04%, its second narrowing in the last three sessions, after having been unchanged on Friday.

The Markit CDX Series 27 High Yield index firmed by nearly 7/32 point on Tuesday to finish at 107 5/8 bid, 107 11/16 offered, its first gain after four straight losses, though its fifth advance in the last nine sessions. On Friday, the index had ended off by 1/32 point, and it was marginally lower on Monday, when the index was published despite the holiday close.

The Merrill Lynch High Yield index rose by 0.203% on Tuesday, its second consecutive improvement after one loss and its seventh such upturn in the last nine days. The index had lost 0.027% Friday, but rose by 0.052% on Monday, when it was published despite the holiday close.

That upped its year-to-date return to 2.358%, its second straight new peak for 2017, up from 2.15% on Monday and from 2.097% on Friday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.