Quiet primary closes $15 billion week; market eases on jobs; Men’s Wearhouse carnage continues

By Paul Deckelman and Paul A. Harris

New York, Nov. 6 – For the first session this week, no new issues priced in the junk bond primary market on Friday.

That left Friday in stark contrast to Thursday, when $7 billion of new U.S. dollar-denominated, fully junk rated paper had come to market in five tranches, according to data compiled by Prospect News – the third-heaviest day for new-deal volume so far this year.

Thursday’s mammoth issuance, in turn, had pushed the week’s total of new junk paper from domestic or industrialized-country borrowers up to $15.44 billion in 16 tranches, according to the data.

That was well up from the $2.69 billion of junk bonds that priced in 6 tranches last week, ended Oct. 30.

This week was also the second-heaviest for new issuance this year, topped only by the $15.95 billion which got done in 19 tranches during the week ended March 13, according to the Prospect News data.

Year-to-date issuance meantime stood at $247.3 billion in 385 tranches, the data indicated.

That was down by 12.7% from the new-deal pace seen at this time a year ago, when $283.37 billion had come to market in 525 tranches by this time on the 2014 calendar.

That was somewhat narrower than the 16.2% year-over year gap seen last week, according to the data.

Traders said that there was brisk activity in the recent new issues, particularly in Thursday’s offerings from First Data Corp. and Charter Communications, Inc., both of which were seen hanging around or slightly under their respective issue prices.

They said that the overall market softened in the wake of the October jobs-creation numbers, which were firmer than anticipated, leading bond market players to start to worry anew about the prospect of a hike in interest rates after next month’s Federal Reserve policy committee meeting.

Away from the new deals and economic data, Men’s Wearhouse Inc.’s bonds were getting clobbered for a second straight session on Friday, falling even more than they did on Thursday, after the clothing retailer slashed its earnings outlook for the third quarter and the full year.

Statistical measures of junk market performance were lower across the board for a third straight session on Friday and their fourth loss in the last nine sessions. The indicators were meantime also lower across the board from where they had been last Friday – their first lower week after having been mixed last week and better on a Friday-to-Friday basis for three weeks before that. The market measures had last been lower all around on a weekly basis in the week ended Oct. 2.

Qorvo roadshow

No deals were priced during Friday’s session in the high yield primary market.

There was news, however.

Qorvo Inc. plans to start a roadshow on Monday for a $1 billion two-part offering of senior notes (expected ratings Ba1/BB+).

The deal is coming in tranches eight-year notes and 10-year notes.

The roadshow is set to wrap up on Thursday.

BofA Merrill Lynch, Morgan Stanley, TD and Wells Fargo are the joint bookrunners.

The Greensboro, N.C.-based technology company plans to use the proceeds for general corporate purposes, including share repurchases and the repayment of debt under its revolver.

Teekay tapping 8½% notes

Teekay Corp. plans to price a $200 million add-on to its 8½% senior bullet notes due Jan. 15, 2020 in the early to middle part of the week ahead.

The debt refinancing deal is in the market with initial price guidance in the low 99 area, the source added.

J.P. Morgan and Citigroup are the joint bookrunners.

The original $450 million issue priced at 99.181 to yield 8 5/8% on Jan. 15, 2010.

American Energy back, smaller

After being sidelined for a fortnight with a deal it kicked off in mid-October, American Energy – Permian Basin, LLC returned to the primary market with a downsized $530 million offering of five-year senior secured first-lien notes (B2/B) on Friday.

The deal, which is reduced from $560 million, is set to price late in the week ahead.

Goldman Sachs is the left bookrunner. Jefferies and BofA Merrill Lynch are the joint bookrunners.

The Oklahoma City-based independent oil and gas company plans to use the proceeds to repay all borrowings currently outstanding under its revolver, the amount of which was $201 million as of Sept. 30, 2015.

Proceeds will also possibly be used to fund the remaining portion of the pending acquisition of Enduring Resources LLC.

Any additional proceeds will be used to fund drilling and completion activities, for infrastructure development and for general corporate purposes.

Alliance Data euro deal

Alliance Data Systems Corp. disclosed plans to start a European roadshow on Monday for a €300 million offering of unrated eight-year senior notes.

The roadshow wraps up on Thursday.

JPMorgan, BofA Merrill Lynch and Deutsche Bank are joint bookrunners.

The Plano, Texas-based provider of data-driven marketing and loyalty solutions plans to use the proceeds to repay debt under its revolving credit facility, and for general corporate purposes.

Elsewhere in the European market Italy’s ICBPI (Istituto Centrale Delle Banche Popolari Italiane) targeted tranche sizes and set price talk in its €1.1 billion two-part offering of 5.5-year senior secured PIK toggle notes on Friday.

The company aims to price €850 million to €900 million of fixed-rate notes, with yield talk of 8% to 8¼%.

In addition ICBPI is seeking to price €200 million to €250 million of floating-rate notes, with talk set at Euribor plus 800 basis points and a price of 99.

The notes were expected to price on Friday, however no terms were available at press time, sources said.

The week ahead

The junk market was sloppy on Friday but the dollar-denominated primary market ought to remain active in the week ahead, sources said.

Although there were no specific names, there is a pipeline of prospective opportunistic issuers set to go, a portfolio manager said.

Given the tight executions seen during the first week of November, those issuers are apt to reason that now is the time, the source added.

Aside from the above-mentioned Teekay deal, Veritas Technologies LLC is expected to price its $2,275,000,000 equivalent four-part offering of high-yield notes in the early part of the week ahead.

The deal includes $500 million equivalent of seven-year senior secured notes (B1/B+) coming in dollar- and euro-denominated tranches and $1,775,000,000 equivalent of eight-year senior unsecured notes (Caa1/CCC+) also coming in dollar- and euro-denominated tranches.

Tranche sizes remain to be determined.

Formal price talk is pending. However the dollar-denominated secured notes have been discussed in a low 7% yield context and the dollar-denominated unsecured paper in the 10% area, according to an investor.

Meanwhile look for an active week in the European primary market as well, a London-based debt capital markets banker said on Friday.

This source has visibility on three to four deals, but added that there could be more.

Mixed flows on Thursday

Cash flows for dedicated high-yield funds were mixed on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained $338 million of outflows on the day.

Asset managers, however, saw $55 million of inflows on Thursday.

Meanwhile, of the $2.048 billion of inflows seen in the week to Wednesday’s close, the majority of the cash went to real money accounts, which took in $1.18 billion, according to a market sourc.

High-yield ETFs saw $872 million of the inflows on the week to Wednesday’s close.

Charter, First Data dominate

In the secondary market, traders saw active trading in some of the new deals which had priced earlier in the week – particularly the Charter Communications and First Data offerings.

One of the traders said that Charter’s new 5¾% notes due in February 2026 were the day’s busiest bonds, with nearly $300 million traded. He saw the notes fall 3/8 point on the session, ending at par.

A second trader also saw the notes ending the session at par, while a third had them in a 99 7/8 to par context.

Charter, a Stamford, Conn-based cable and broadband service provider, priced $2.5 billion of the notes in a quick-to-market transaction on Thursday via its CCOH Safari LLC subsidiary. The bonds priced at par and were initially seen trading in a 99¼ to 99½ bid context.

Another trader, though, saw them going home Thursday a little above par.

The trading volume in the new Charters eclipsed even First Data, whose two tranches of senior secured notes due in January 2024 both priced at par in a drive-by offering on Thursday – just a week after the Atlanta-based electronic transaction processor had priced $3.4 billion of new 7% senior unsecured notes due 2023, also at par, in a quickly shopped offering.

First Data’s new 5% first-lien notes were seen closing at 99 7/8 bid on Friday, down 3/8 point on the day, with over $74 million traded. The company had enlarged the offering to $1 billion from the originally announced $750 million before pricing it at par.

Its 5¾% second-lien notes ended down ½ point on the session at 99½ bid, with over $104 million changing hands, a trader said. First Data had priced $2.2 billion of the notes at par after massively upsizing the tranche from $750 million originally.

Men’s Wearhouse weak again

Away from the new deals, market participants with a long memory might remember the TV advertisements that Men’s Wearhouse used to run featuring the company’s founder and then-chairman George Zimmer confidently assuring prospective clothes buyers that: “You’re gonna like the way you look – I guarantee it.”

Zimmer is now long gone, ousted in a boardroom coup several years ago.

Meanwhile, investors in the Houston-based men’s apparel retailer’s 7% notes due 2022 certainly can’t be liking the way their company’s paper looks these days.

Those notes dropped about 5 or 6 points on Thursday to a 98 to 99 bid context from prior levels around 104 bid, with over $28 million traded, after the company cut its outlook.

On Friday, the carnage got worse, with the notes dropping some 11½ points, a trader said, ending at 88½ bid on volume of over $66 million.

“They just got smoked,” another trader declared

The company’s NYSE-traded shares meantime plunged by $17.40, or 43.39%, to end at $22.70.

Jobs data drops bonds

A trader said that “everything kind of legged down after the jobs numbers,” which showed non-farm payroll growth better than expected at 271,000 jobs created in October, the most in 10 months.

Meanwhile, the unemployment rate dipped to a 7½-year low at 5.0%.

The stronger numbers increase the probability that the Federal Reserve will begin finally pushing interest rates higher when its policy committee meets next month.

“After the non-farms came out,” a second trader said, “everything weakened. Things got softer.”

However, he did see some of the issues “creeping back upward” later in the session as stocks shrugged off their early losses to close modestly higher on the day.

Indicators remain weaker

Statistical measures of junk market performance were lower across the board for a third straight session on Friday and for their fourth loss in the last nine sessions. They had declined on Wednesday for the first time in more than a week, since Sept. 27, with a number of higher or mixed sessions in between.

The indicators were meantime lower across the board from where they had been last Friday – their first lower week after having been mixed last week and better on a Friday-to-Friday basis for three weeks before that. The market measures had last been lower all around as they finished the week ended Oct. 2.

The KDP High Yield Daily index plunged by 20 basis points on Friday to end at 67.07, its second straight loss. It had fallen by 13 bps on Thursday after being unchanged on Wednesday and two straight gains before that. Friday’s loss was its fourth in the last seven sessions.

The index’s yield rose by 3 bps on Friday, its second straight widening; it had also increased by 7 bps on Thursday, after having been unchanged on Wednesday. It was the yield’s third rise in the last four sessions, having also risen by 3 bps on Tuesday.

Friday’s levels compared unfavorably with the 67.22 index reading and the 6.46% yield at which it had ended last Friday, Oct. 30.

The Markit Series 25 CDX North American High Yield index lost 9/32 point on Friday to finish at 102 13/16 bid, 102 15/16 offered. It was its third straight loss, after three straight higher sessions, and its fourth downturn in the last seven sessions. The index had also declined by 5/32 on Thursday and by 11/32 on Wednesday.

It finished down from the 103 5/32 bid, 103 7/32 offered level at which it had closed last Friday.

And the Merrill Lynch North American Master II High Yield index fell for a third straight session on Friday, after two higher sessions before that, making the day’s loss its fourth in the last six trading days.

The index dropped by 0.39%, after having retreated by 0.274% on Thursday and 0.002% on Wednesday but being up 0.15% on Tuesday, its second straight gain.

Friday’s loss put the index’s year-to-date return back in the red with a 0.224% cumulative loss, versus the 0.166% gain at which it closed on Thursday. It was the first time the year-to-date return had been negative since Oct. 22, when it showed a 0.063% cumulative loss. The year-to-date loss does remain well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2.

For the week, the index lost 0.353%, its second straight weekly loss. It had fallen by 0.089% during the week ended last Friday to close with a year-to-date return of 0.129%.

The two weekly losses followed three straight weeks of Friday-to-Friday gains, and before that, three consecutive weeks of losses.

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