Treehouse Foods drives by, moves up; junk rebounds on oil price surge; funds lose $2 billion

By Paul Deckelman and Paul A. Harris

New York, Jan. 21 – The high-yield primary sphere came back to life on Thursday, seeing its first new-deal pricing in 10 calendar days as Treehouse Foods, Inc. came to market with a quickly shopped $775 million offering of eight-year notes – the biggest junk bond deal so far this year.

Traders said the new bonds firmed in initial aftermarket dealings late in the session.

Primaryside players were meantime anticipating a second deal getting done for the week on Friday, when GCP Applied Technologies Inc.’s $525 million seven-year offering is expected to price.

Traders said that the secondary realm – after being roundly beaten down on Wednesday amid lower oil prices and a broad retreat in the equity markets – mounted an impressive turnaround on Thursday, helped by improvements in both stocks and, especially, oil.

A 4% rise in crude prices, despite another big addition to United States crude stockpiles, helped lift the recently hard-hit bonds of exploration and production companies such as Whiting Petroleum Corp., Oasis Petroleum Inc., WPX Energy Inc. and Genesis Energy, LP, among others.

Away from the energy names, Sprint Corp.’s bonds were seen higher across the board, in contrast to Wednesday’s selloff. Among the big gainers were the Number-Three U.S. wireless carrier’s 7% notes due 2020, which had nosedived by more than a dozen points on Wednesday.

Statistical measures of junk market performance turned higher on Thursday – their first such unified upturn since Jan. 5. Since then, the market gauges have alternated between being mixed on the day or lower all around.

But another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – posted its third consecutive net outflow this week and its sixth downturn in the last seven weeks as $2 billion more left those funds than came into them during the latest reporting week.

TreeHouse prices tight

Thursday’s session saw the week’s first junk deal clear in a primary market that has been generally sidelined by volatility.

TreeHouse Foods priced a $775 million issue of eight-year senior notes (Ba3/BB) at par to yield 6% in a drive-by.

The yield printed at the tight end of the 6% to 6¼% yield talk.

The deal – only the third issue of junk bonds to be syndicated since the beginning of the year – seemed to go fine, according to a portfolio manager who spotted the new 6% notes at 101½ bid, 102¼ offered soon after the terms circulated.

The buzz on the deal had it eight-times oversubscribed, the manager said, adding that it was a bridged deal and there seemed to be a lot of interest in the bridge.

BofA Merrill Lynch was the left bookrunner. J.P. Morgan, Wells Fargo, BMO and SunTrust were the joint bookrunners.

The Oak Brook, Ill.-based packaged food and beverage manufacturer plans to use the proceeds to fund its acquisition of the private brands business of ConAgra Foods Inc.

GCP sets talk

Meanwhile, in a deal that ran a full roadshow, GCP Applied Technologies talked its $525 million offering of seven-year senior notes (B1/B+) to yield 9½% to 9¾%.

There have also been covenant changes.

Books close at 10 a.m. ET on Friday and the deal is set to price later on Friday.

Goldman Sachs is the left bookrunner. Deutsche Bank, BofA Merrill Lynch and Citigroup are the joint bookrunners.

The Columbia, Md.-based provider of specialty construction chemicals, building materials and packaging technologies plans to use the proceeds to fund a $500 million distribution to W. R. Grace & Co.-Conn., a direct subsidiary of W. R. Grace, and for general corporate purposes.

The issuer is being spun off from W. R. Grace. The planned separation is expected to be completed on Feb. 3.

Elsewhere Friday is something of a question mark, sources say.

One other merger deal was expected to show up this week, according to a buyside source who declined to identify the issuer.

It may show up on Friday, said the source, but added that it may also have been pushed back due to recent volatility.

Treehouse trades up

In the secondary market, participants saw the first new deal in 10 days come to market, as Treehouse Foods did a quickly shopped offering of 6% notes due 2024.

It was also the first new issue of any kind in Junkbondland since another packaged foods manufacturer – Parsippany, N.J.-based Pinnacle Foods Inc. – priced $350 million of 5 7/8% notes due 2024 at par back on Jan. 11.

The new Treehouse deal came fairly late in the session, limiting potential aftermarket activity.

One trader said he only saw a bid of around 100½ in the street and didn’t know whether the issue was trading around.

However, another market source later saw the bonds topping the 101 level.

Market on the rebound

Away from the new-issue world, traders saw the junk market coming back on Thursday after having been mostly beaten down on Wednesday when stocks and oil prices had led the way downward.

On Thursday, both of those other markets finished in positive territory, helping to provide a lift for junk credits.

The Dow Jones Industrial Average was in the green pretty much all day – quite a turnaround from Wednesday – finishing up 115.94 points, or 0.74%, at 15.882.68. Other broader market indexes exhibited similar trajectories.

Stocks rose on a combination of investor optimism after the head of the European Central Bank indicated that more stimulus moves would be forthcoming there and a more than 4% upturn in crude oil prices.

The March contract for the benchmark U.S. crude oil grade, West Texas Intermediate jumped by $1.18 per barrel, to $29.53, while the March contract for the benchmark international grade, Brent crude, soared by $1.37 per barrel to $29.25 – the first upturn for both after three straight days of losses.

Crude rose despite a report by the U.S. Energy Information Administration showing U.S. crude stockpiles having increased by nearly 4 million barrels in the latest week; colder temperatures in the Northeastern U.S. and in Europe were seen boosting demand for refined products such as heating oil.

With those kind of positive tailwinds, “we saw a snapback” in energy credits,” a trader said.

“The weakest things were bouncing back the most” after having gotten a thorough drubbing on Wednesday.

One of the big gainers was Tulsa, Okla.- based exploration and production operator WPX Energy, whose bonds had been taken down by multiple points on Wednesday and during several previous sessions as well.

Its 5¼% notes due 2024 were 2 points higher, a market source said, pegging them at just over 48 bid, with over $14 million traded.

Its 5¼% notes due 2017 were 1/8 point better at 93¼ bid, on similar volume.

A trader said that Houston-based Genesis Energy’s paper “bounced back smartly” from its recent weakness, with its 6¾% notes due 2022 climbing 4½ points on the session to 73¾ bid, with over $12 million trading hands.

“Oil rallied more than $1, and those names followed suit,” another trader said, seeing Houston-based Oasis Petroleum’s 6 7/8% notes due 2022 jump more than 6 points on the day to 47¼ bid, with over $10 million traded, while its 7¼% notes due 2019 rose 4¼ points, ending at 49¼ bid.

Denver-based Whiting Petroleum’s paper “had a nice little snap-back,” one of the traders said, seeing its 5¾% notes due 2021 bouncing more than 4 points to 55 bid, though he said that it was “on only a handful of trades.”

While the 6¼% notes due 2023 were about unchanged at 53 bid, he said, its 5% notes due 2019 were ¼ point higher “on a couple of trades.”

In the natural gas space, a trader said that Houston-based storage and transportation company Sabine Pass Liquefaction’s 5 5/8% notes due 2021 gained 2½ points to 87½ bid, while its 5 5/8% notes due 2025 were also up 2½ points at 80 bid.

Sprint snaps back

Another major feature of the day was the strong comeback in Sprint Corp. bonds, which had been beaten down on Tuesday and again on Wednesday on analyst and investor skepticism about the debt-laden Overland Park, Kan.-based Number-Three U.S. wireless carrier’s plans to radically cut costs as a means of improving its overall situation.

“They were way down yesterday [Wednesday], 5 points, 8 points or more, while today they were bouncing back, 2 points or 3 points,” a trader said.

“Their whole structure was very active today,” another trader added, seeing its various bonds up anywhere from ½ point to 3 points, depending where in the structure they are.”

For instance, Sprint’s 12% notes due 2020, which plunged by more than 12 points on Wednesday, got back 3 of those points on Thursday, rising to 63¾ bid, with over $17 million traded.

A market source noted that other than one issue from steelmaker ArcelorMittal SA – its 10.85% notes due 2019 rose ¾ point to 87¼ bid, with over $28 million traded – the junk Most Actives list was dominated by the various Sprint issues on Thursday.

Sprint’s most active bonds were its 7 7/8% notes due 2023, with over $27 million changing hands, and its 6% notes due 2022 with over $24 million of volume. The former rose 1 7/8 points to 62¼ bid, while the latter gained ¾ point, ending at 60¾ bid.

Its 6 7/8% notes due 2028, along with the 7% notes, were the biggest gainer in the Sprint capital structure on Thursday, rising by 3 points to end at 59½ bid, with over $21 million changing hands.

Most issues higher

Apart from the strong rebound in the energy credits and the Sprint bonds after Wednesday’s selloff, a trader said, “we weren’t off to the races – but there definitely was a bid to things.”

The gains, he said, “weren’t astronomical – generically speaking, up ¼ point or so.”

He could think of nothing on the spur of the moment that had moved lower on Thursday.

“For the most part, things were either unchanged or up on the day.”

Indicators improve all around

Statistical measures of junk market performance turned higher on Thursday – their first such unified upturn since Jan. 5. Since then, the market gauges have alternated between being mixed on the day or lower all around.

The KDP High Yield Daily Index jumped by 39 basis points on Thursday to end at 61.80, breaking a seven-session losing streak, which included plunges of 76 bps on both Monday and again on Wednesday, when the 61.41 closing level had set a fourth straight new low of 2016 and new 52-week closing low, hitting its lowest close since May 27, 2009, when it finished at 61.36.

Its yield, meantime, came in by 12 bps on Thursday to finish at 7.61%; on Wednesday, it had shot up by 23 bps to 7.73%, after having been unchanged on Tuesday at 7.50% and before that having widened over five consecutive sessions.

The Markit Series 25 CDX North American High Yield Index rose by ¼ point on Thursday, going home at 97 15/16 bid, 97 31/32 offered. On Wednesday it had eased by 1/32 point, its second consecutive loss and third loss in the previous four days.

The Merrill Lynch North American High Yield Master II Index improved by 0.488% on Thursday, after having plunged by 1.416% on Wednesday – its biggest one-day loss for the year so far and one of the biggest one-day retreats ever recorded.

Thursday’s gain cut the index’s year-to-date loss to 3.627% from 4.095% Wednesday – its worst level for the year so far.

Junk funds lose $2 billion

Flows of investor cash into or out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted their third consecutive net outflow this week and their sixth such downturn in the last seven weeks, as some $2.043 billion more left those funds than came into them during the latest reporting week (see related story elsewhere in this issue).

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