Primary silent as year-end lull begins; new Mattel notes busy, steady; Fresh Market continues rebound

By Paul Deckelman and Paul A. Harris

New York, Dec. 20 – The high-yield primary market fell silent on Wednesday, with no new U.S. dollar-denominated and fully junk-rated deals heard to have priced on the day – and most syndicate sources and other primaryside players believe that is likely to remain the case for what little is left of 2017.

They said that the only thing stiffing in the new-deal market was a pair of deals expected to get done sometime in January, for media company Meredith Group and eateries operator Arby’s Restaurant Group Inc.

Among the new issues that actually have priced in the last few sessions, secondary market traders said that Tuesday’s offering from oil and natural gas exploration and production company Lonestar Resources US Inc. – now believed to have been the final junk bond pricing of the year – moved up in the aftermarket, though on only light volume.

There was considerably more activity seen in Friday’s new deal from toy manufacturer Mattel Inc., which was largely unchanged on Wednesday after having declined from the highs that it initially hit after pricing.

But Mattel failed to repeat as the busiest issue in Junkbondland after several straight sessions atop the Most Actives list; that honor went to supermarket operator Fresh Market Inc.’s bonds, which firmed smartly for a second straight session on Wednesday, continuing their rebound from Monday’s downturn.

Kindred Healthcare Inc.’s paper was again active but mostly unchanged, after two straight sessions of upside movement on the news that the hospital, rehabilitation center and hospice operator has agreed to be acquired by insurance giant Humana Inc. and two private-equity companies.

PetSmart Inc.’s recently beleaguered bonds reverted to form on Wednesday, snapping a two-session rebound in the specialty retailer’s paper.

Statistical market performance measures turned mixed on Wednesday, their third mixed performance in the last four trading days. They had been lower across the board on Tuesday, after having been mixed last Friday and again on Monday.

A view on January

The high-yield primary market remained dead quiet on Wednesday.

New issue business for the year 2017 likely came to a conclusion on Tuesday when Lonestar Resources US Inc. priced a $250 million issue of five-year senior notes (Caa2/B) at par to yield 11¼%, expected to be the final issue of the year, sources say.

Looking ahead to January, a pipeline has begun to take shape on what is expected to be a period of moderate to heavy issuance in the first month of 2018.

Meredith Corp. is expected to launch a $1.2 billion offering of senior notes backing its purchase of Time Inc. during the second week of January.

Credit Suisse will lead the offer.

And Arby’s Restaurant Group Inc. is expected to come to market in January with $485 million of senior notes backing its acquisition of Buffalo Wild Wings Inc.

Barclays will lead the bond deal.

Lonestar up in aftermarket

In the secondary realm, a trader opined that with nothing across on Wednesday in terms of actual pricings, “it looks like Lonestar [Resources] might have been the last one for this year, unless we see a drive-by deal tomorrow [i.e., Thursday].”

He meantime saw those Lonestar 11¼% notes due Jan. 1, 2023 at 101¾ bid, but on “very light volume – there didn’t seem to be a lot of interest in it.”

A second trader pegged the new notes at 101½ bid, 102½ offered.

The Fort Worth, Texas-based energy E&P company had priced its $250 million, regularly scheduled forward calendar transaction at par on Tuesday.

Busy Mattel notes steady

Mattel, Inc.’s new 6¾% notes due 2025 were again actively traded on Wednesday, although they were no longer the single busiest name as they had been over the previous three sessions.

A trader said those notes “were active, but didn’t go anywhere” on Wednesday, instead hanging around the same 101 area at which they had closed out the proceedings on Tuesday. Wednesday volume was around $24 million.

The El Segundo, Calif.-based toy manufacturer’s $1 billion issue had priced at par on Friday off the forward calendar and quickly moved up to around the 102¼ bid level, with a market-leading $43 million having traded after the issue hit the aftermarket.

On Monday, the notes had traded at 101 5/8 bid, down 5/8 point on the day Friday’s close, with over $134 million having changed hands.

The notes continued to ease from their highs on Tuesday, when they came in further to end around 101 bid, with more than $63 million of turnover, again making it the market leader.

Recent bonds busy

Among other recently priced issues, a trader saw Whiting Petroleum Corp.’s new 6 5/8% notes due Jan, 15, 2026 trading at 101 5/8 bid on Wednesday, unchanged on the day, on volume of more than $9 million.

The Denver-based oil and natural gas E&P company had priced $1 billion of those notes at par last Tuesday, after that quick-to-market offering was upsized from an originally announced $750 million.

Standard Industries Inc.’s 4¾% notes due Jan. 15, 2028 were seen off ¼ point on the day, at 99¾ bid, with over $7 million having traded.

The Parsippany, N.J.-based diversified holding company’s split rated (Ba2/BBB) $900 million offering had priced at par on Dec. 11, after that quick-to-market deal had been upsized from an originally announced $750 million.

Fresh Market firms again

Away from the new deals, a trader said that Fresh Market, Inc.’s 9¾% notes due 2023 jumped by some 4½ points on the session, surging in busy dealings for a second day in a row.

He saw the bonds going home north of 63¾ bid, with a market-leading volume of more than $30 million traded.

A second market participant said that the bonds were “smartly rebounding – the top trader in an otherwise lackluster session.”

On Tuesday, the bonds had improved by some 4¼ points, on more than $23 million of turnover.

That two-day rebound followed Monday’s loss of nearly 1 point on the day, with over $9 million having traded.

The traders did not see any fresh news out about the Greensboro, N.C.-based upscale supermarket operator to explain the renewed downside activity in its paper on Monday or the bounce on Tuesday.

One of them did note that the bonds had “gotten a hit a while back” after retailing giant Amazon.com bought Fresh Market’s key competitor, Whole Foods Market, earlier this year for more than $13 billion and then proceeded to slash prices in an effort to win market share from its rival.

Kindred holds steady

A trader said that Kindred Healthcare’s bonds “were basically flat” on Wednesday after two sessions of sharp gains.

“There was some activity, but they mostly petered out” following those gains.

Its 8¾% notes due 2023 firmed by 1/8 point, to 106 3/8 bid on what another trader called “decent volume” of more than $9 million, while its 8% notes due 2020 were unchanged at 108, on around the same volume.

Those bonds, and the company’s 6 3/8% notes due 2022, had soared by around 5 points in heavy trading on Monday, and had tacked on another 1 or 2 points, also on brisk volume, on Tuesday.

Those gains were spurred by the news that the giant insurer Humana, along with private-equity players Welsh, Carson, Anderson & Stowe and TPG, will buy Kindred, a Louisville, Ky.-based operator of acute-care hospitals and rehabilitation facilities and a provider of hospice care and home health care services, paying $9 per share, or $810 million total for the company.

With more than $3 billion of assumed debt, the deal has an enterprise value of some $4 billion.

PetSmart rebound over

PetSmart, Inc.’s notes were seen lower on Wednesday, after two straight sessions before that in which they had shown strength, rebounding after getting clobbered for most of last week.

“They ran out of steam,” a trader said, seeing the Phoenix-based pet food and other pet supplies retailer’s senior secured 5 7/8% notes due 2025 down by 1½ points Wednesday, to 77 bid, with over $13 million traded.

“That didn’t last very long, did it?” a second trader asked rhetorically.

He also saw its unsecured 7 1/8% notes due 2023 and 8 7/8% notes due 2025 having eased back into the upper 50s, after having firmed to above 60 bid in the previous two sessions.

Before their firm rebound earlier in the week, that paper had been in retreat virtually all of last week, on investor worries about weakening EBITDA and fears that company management has the right, under its loose bond indentures, to choose to spin off its valuable Chewy on-line sales unit to benefit its equity sponsors alone, while the overall company would remain stuck paying off the $2 billion of junk bonds it sold to finance the buy of that online business earlier this year.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday, their third mixed performance in the last four trading days. They had been lower across the board on Tuesday, after having been mixed last Friday and again on Monday.

The KDP High Yield Daily Index fell for a fifth straight session on Wednesday, losing 6 basis points – matching Tuesday’s retreat – to close at 71.69. The index had also dropped by 5 bps on Monday, on top of lower sessions last Thursday and Friday.

Its yield meantime rose for a third consecutive session up 1 bp to 5.34%; it had also widened by 2 bps on both Monday and again Tuesday, after having come in by 1 bp last Friday.

However, the Markit CDX Series 29 index ended up by 1/16 point Wednesday, at 108 9/32 bid, 108 5/16 offered, making up for Tuesday’s roughly 1/16 point loss. On Monday, it had gained over 5/32 point on the day, on top of Friday’s 1/8 point advance.

The Merrill Lynch High Yield Index eased by 0.024% on Wednesday, its second loss in a row. It had also declined by 0.013% on Tuesday, after having edged up by 0.02% on Monday, its first gain after three straight losses before that, including Friday’s 0.34% setback.

Wednesday’s retreat dropped its year-to-date return to 7.222% from 7.247% on Tuesday. The cumulative return also remained down from its 2017 peak level of 7.636%, set back on Oct. 24.

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