Primary market becalmed, recent new deals hold steady; secondary quiet; prison names continue rebound

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 – The junk bond market’s traditional mid-summer lull was in full force on Monday as the new week began.

Syndicate sources reported no activity in the primary arena, a condition that many of them believe will continue for the remainder of August and on into the first days of September, leading up to the Labor Day holiday weekend.

Secondary market participants meanwhile said that recently priced new issues such as those from Tallgrass Energy Partners, LP, Diamond Resorts International, Inc. and Big Tex Trailers were holding steady around the levels at which they had traded last week following their respective pricings, but on limited volume.

Limited volume seemed to be the watchword of the overall market – even for the bonds of private prison operators Corrections Corp. of America and GEO Group, Inc. They continued to rise on Monday, extending a rebound which had begun on Friday following Thursday’s swoon on the news that the U.S. Justice Department will begin phasing out the use of privately run corrections facilities such as those run by the two companies.

Elsewhere, a sharp drop in oil prices failed to have much impact on the bonds of energy companies such as California Resources Corp. and Chesapeake Energy Corp.

Statistical market performance measures were mixed for a second consecutive session on Monday. They had turned mixed on Friday after having been higher over the two sessions before that.

The high yield primary market did not generate any news on Monday.

Although expectations that the new deal market is shuttered until September have taken hold, they are by no means universal, with some market sources saying “Never say never,” and others counseling “Wait and see.”

However no one during the Monday session professed to have visibility on any specific business for the present week.

Inflows

There continues to be cash that needs to be put to work in the high yield market, sources say.

And there is a lot of cash out there in search of yield, they add.

The cash flows of the dedicated high yield funds were positive on Friday, the most recent session for which data was available at press time.

High yield ETFs saw $95 million of inflows on the day.

Actively managed funds saw $115 million of inflows on Friday.

Bank loan funds were also positive on the day, with $108 million of inflows.

New deals seen unlikely

In the secondary market, a trader agreed with the consensus that the priamryside sources had expressed regarding the likelihood of any further new deals any time soon.

“I don’t think there’s anything really that we know of that’s on the horizon here,” he opined.

“I think we’re just going to call it a summer here.”

He did express optimism about the likely revival of primary activity once the Labor Day holiday weekend is in Junkbondland’s rear-view mirror.

“I would anticipate things picking up as soon as we get back in September.”

Recent deals holding steady

With no new paper coming during the session – or likely to come anytime soon – secondary market attention remained focused on recently priced issues – although traders said that volume in those credits was thin pretty much all around.

A trader said that the most recently priced new offering – Tallgrass Energy Partners’ 5½% notes due 2024 – were trading at 101 1/8 bid, 101 5/8 offered, which he said was about where the Leawood, Kan.-based energy master limited partnership’s $400 million regularly scheduled forward calendar offering had been trading after pricing at par on Thursday.

“Everything is basically unchanged” among the new deals, he said.

A second trader said the Tallgrass notes “went out on either side of 101¼ to 101½.”

A trader at another shop meantime quoted those bonds trading in a 101½ to 102 bid context, which he also said was unchanged.

Among the other new deals which came to market last week, a trader said that Boise Cascade Corp.’s 5 5/8% notes due 2024 were “hanging in there,” around 101 1/8 to 101 3/8, the level to which the Boise, Idaho-based lumber and wood products producer’s $350 million forward calendar issue had moved up following its pricing at par last Tuesday.

He saw Big Tex’s 9 5/8% senior secured notes due 2023 at 102¾ bid, 103 to 103¼ offered – again, consistent with the levels at which the Southlake, Texas-based freight container company’s $670 million scheduled forward calendar deal had traded following its Wednesday pricing at par.

Diamond Resorts International’s 7¾% senior secured notes due 2023 “traded at par bid today – the only thing I’ve seen on them,” another trader said.

A second trader saw the Las Vegas-based hospitality and vacation ownership company’s $500 million of those bonds had traded around the par level all last week after the issue – upsized from an originally announced $400 million – had priced there on Wednesday.

He meantime said that the other half of that regularly scheduled megadeal – the company’s $600 million of 10¾% senior unsecured notes due 2024 – “were still struggling” in a range of 96½ to 97 bid.

Those bonds had fallen to that level after having priced at 98.69 to yield 11%.

Fellow Las-Vegas hospitality industry issuer MGM Resorts International’s 4 5/8% notes due 2026 were seen on Monday around 99¼ bid, 99¾ offered.

They thus remained where they had traded on Thursday and again on Friday – down from the par level at which the gaming and hotels giant had priced its quick-to-market $500 million transaction last Tuesday.

Private prison rebound continues

One area which did see some bond price movement – though not on a lot of volume – was in the private corrections space, which had gotten slammed last Thursday after the U.S. Justice Department announced that the Federal Bureau of Prisons would begin phasing out its use of privately owned and operated corrections facilities of Corrections Corp. of America and GEO Group, Inc.

After that dramatic drop, the bonds had begun rebounding on Friday, firming smartly off their lows, and were seen mostly continuing to rebound on Monday.

A trader saw Nashville-based CCA’s 4 5/8% notes due 2023 at 94¼ to 94½ bid “pretty much where they were on Friday.”

He said that “on Thursday, they got clocked – things dropped down into the 80s and now it seems like the bonds are up a little bit [from their lows], but still down from their [earlier] premium – they were like 101 at the beginning of last week.”

“He said about $7 million changed hands on Monday.”

He also saw the company’s 4 1/8% notes due 2020 in a 97 to 98½ bid context, which he called actually down a point from Friday’s level, on about $5 million of volume.

Those notes had been trading just shy of 104 bid at the beginning of last week, but then plummeted to 94 bid on the Thursday announcement, before coming back to around 98 7/8 bid on Friday.

Another trader said the Corrections Corp. bonds, and those of Boca Raton, Fla.-based sector peer GEO Corp. “kind of snapped back a little bit today after that DOJ announcement last week, when the bonds started cratering.”

He saw GEO’s 6% notes due 2026 trading up 3 points on Monday to 92¼, bid and the 5 7/8% notes due 2022 up 1 point to 96, although both saw “only a handful of trades.”

Both of the GEO issues remained well below the 103ish level at which they had traded on Wednesday, before the government announcement.

Oil names steady despite slide

A trader said that he had thought that “with oil softer, you might a little bit of a selloff in some names – but it just hasn’t really happened.”

The benchmark U.S. crude Grade, West Texas Intermediate for September delivery, fell by $1.47 per barrel in New York Mercantile Exchange trading Monday, to $47.05, its first loss after seven straight gains, while the key international grade, Brent crude for October delivery, plummeted by $1.72 per barrel to settle at $49.16 on the London ICE Futures Market.

Despite that slide, a second trader said, Oklahoma City-based oil and gas operator Chesapeake Energy’s 6 5/8% notes due 2020 were finishing around 85¼ bid with about $3 million traded, “down just a little bit, maybe ½ point – but that’s not exactly a whole big [thing] – it was like one trade, so it’s not an indication of what’s going on.”

He saw Chessie’s 8% notes due 2022 at 92¼ bid, 92½ offered, “pretty much unchanged, on a couple of million bonds traded, maybe $3 [million].”

Noting the paltry activity in such a large, liquid ($2.4 billion) and normally actively traded issue,” he commented that “the dog days are here.”

The trader saw Los Angeles-based California Resources’ 6% notes due 2024 at 49 bid and its 8% notes due 2022 at 68 bid, calling both issues about unchanged, and noting that there was only about $1 million or so traded, well below the usual activity level.

Overall market quiet

Overall, a trader said, “it’s been pretty quiet and the market’s basically unchanged from when we came in,” although he did allow that “it was a little firmer earlier. Stocks were weaker and they’re back, oil is off a little bit. It’s just kind of grinding around.”

He said that “I think guys would add to their positions.”

While noting the slide in oil prices, he said that there was no resulting selloff in the sector because “the audience is on the thin side and there’s a lot of cash around, so there’s no need to sell anything. They may not be buying – but there’s no need to sell, really.”

Indicators stay mixed

Statistical market performance measures were mixed for a second consecutive session on Monday. They had turned mixed on Friday after having been higher over the two sessions before that.

The KDP High Yield index lost 2 basis points on Monday to end at 70.31, after having risen by 4 bps on Friday to 70.33, establishing new year-to-date and 52-week highs.

Its yield was unchanged at 5.26%, after having come in by 2 bps on Friday, which in turn had followed a 1-bp rise on Thursday.

The Markit Series 26 CDX Index fell by 7/32 point on Monday, its second consecutive loss and third setback in the last five sessions, including Friday’s nearly 5/32-point decline.

However, the Merrill Lynch High Yield index continued its winning ways, posting its 14th gain in a row, firming by 0.035%, on top of Friday’s 0.014% rise.

The streak-prone index’s gains of the last 14 sessions follow a six-session slump before that.

Monday’s upturn brought the index’s year-to-date return up to 14.209%, its 12th straight new peak level for the year, versus Friday’s 14.168% close.

© 2015 Prospect News.
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