Primary quiet to close out month, third quarter; Cablevision, other recent deals firm solidly

By Paul Deckelman and Paul A. Harris

New York, Sept. 30 – The high-yield primary market ended the month of September and the 2015 third quarter on a quiet note during Wednesday’s session. Syndicate sources reported that for a third consecutive session, no issues priced. Prospective issuers were instead warily evaluating the recently volatile financial markets, including Junkbondland, which saw a broad and deep sell-off on Monday followed by a rebound on Tuesday.

With no new deals seen having priced during the day, the primary closed out September where it had begun the week, with $25.42 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers having come to market during the month in 25 tranches, according to data compiled by Prospect News.

That was nearly double the $13.39 billion of such paper that had priced in 24 tranches in August, according to the data, which in turn had followed anemic July issuance of $7.93 billion in 15 tranches.

But September’s issuance, while respectable, failed to live up to optimistic early projections for as much as $35 billion or $40 billion of new bonds for the month. It also badly trailed the $39.62 billion that had come to market in 56 tranches in March, this year’s heaviest month for new issuance so far.

And it was also well down from the $45.35 million of junk bonds that priced in 76 tranches in September of 2014, that year’s heaviest new-issue month.

For the third quarter, issuance came to $46.74 billion in 64 tranches – less than half the volume seen in the second quarter, when $95.72 billion priced in 167 tranches. Year-ago third-quarter new issuance was $74.23 billion in 142 tranches.

Year-to-date new issuance meantime stood at $230.85 billion in 360 tranches, running about 7.9% behind the primaryside pace seen last year, when $250.87 billion had come to market in 472 tranches.

Among specific issues, traders saw a continued rebound in recently priced deals such as Cablevision Systems Corp., Olin Corp. and Frontier Communications Corp., all of which had lately been under pressure.

Statistical measures of junk market performance were also rebounding on Wednesday from lengthy losing streaks for each of those market gauges.

Primary keeps quiet

No deals were priced in the high-yield primary market on Wednesday.

The only new issue news whatsoever came out of England.

Stonegate Pub Co. Financing plc plans to participate in an investor conference call set to get underway at 5:30 a.m. ET on Thursday to discuss a proposed £80 million add-on to its 5¾% senior secured notes due April 15, 2019 (existing ratings B2/B+).

The acquisition deal is set to price thereafter.

Barclays is the bookrunner.

The original £260 million issue of 5¾% notes due 2019 priced at par in April 2014.

Negative flows

The cash flows of the dedicated high-yield funds were negative on Tuesday, the most recent session for which data was available at press time, according to a trader.

High-yield exchange-traded funds saw $612 million of outflows on Tuesday, the source said, but added that some of that amount may have lagged from Monday's reports.

Actively managed funds saw $165 million of outflows on Tuesday.

One syndicate official is braced for a big weekly outflow report from Lipper AMG on Thursday, saying that a figure above $3 billion would likely not catch anyone by surprise.

Extreme volatility

High yield is moving through a period of extreme volatility, sources say.

Part of it is attributable to the volatility that has encompassed the global capital markets.

Add to that some junk-bashing in the headline news on the part of some conspicuous financial figures.

Billionaire investor Carl Icahn has been a notable voice, warning that low interest rates from the central banks have channeled investors into risky bets – Icahn singled out high-yield bonds – creating bubbles.

In particular, Icahn points to high-yield ETFs, which retail investors have used to gain exposure to the asset class.

If the warnings of Icahn and others are meant to scare investors, they seem to be working, a syndicate banker said on Wednesday.

“Opportunistic issuers are holding back right now,” the banker said, adding that some issuers appear to be standing way back, while others who are more time-sensitive will likely make attempts to price deals during periods of relative calm should those periods materialize.

Lately underwriters have taken to building some flexibility into the financings to which they commit themselves, the banker said.

The flexibility allows the underwriters to shift more of a financing out of the high-yield market and into a term loan B.

“The objective is to sell a lot of high yield,” the banker said, but added that when conditions seem choppy enough to disrupt efficient execution in the junk bond new issue market a lot of proceeds might be shifted to the term loans.

There is volatility in the loan market as well, the banker pointed out. But for the time being, underwriters remain confident of good executions in the leveraged loan new issue market.

A thin calendar

Away from the above-mentioned Stonegate Pub add-on deal, the active forward calendar has dwindled down to two deals.

Books were scheduled to close Tuesday for NN, Inc.'s $300 million offering of eight-year senior notes (Caa1/B). SunTrust Robinson Humphrey Inc. is the left bookrunner.

There was no news on the deal Wednesday, sources said.

KeyBanc Capital Markets Inc. and Regions Capital Markets are joint bookrunners.

And SunOpta Foods Inc. began marketing a $330 million offering of senior secured second-lien notes due 2022 (B3) on Monday. The deal, via joint bookrunners BMO Securities, Jefferies LLC and Rabobank, is set to price in the week ahead.

Cablevision continues rebound

For a second consecutive session, there was a solid rebound in the bonds of recently priced new issues, which had taken a beating during Monday’s market blood-letting.

A trader said that among the recently priced megadeals, the new Neptune Finco Corp. bonds being issued as part of the financing for Altice NV’s $17 billion-plus acquisition of Cablevision “were among the bigger winners.”

He saw those bonds up between 1 and 1¼ points, on top of gains that had been notched during Tuesday’s session.

He said that the three tranches had all been around a 99¾-to-par context going home on Tuesday, pushing up to around 101-101¼ bid or above in Wednesday’s action.

At another desk, a trader said that 10 7/8% notes due 2025 jumped 1 3/8 points on the day to finish at 101 3/8 bid, on volume of more than $72 million, making it easily the most actively traded junk credit of the session. Those bonds had moved up ½ point on Tuesday, also on substantial volume, after having gotten hammered down below their par issue price during Monday’s overall market retreat.

He saw the company’s 10 1/8% notes due in January 2023 up 1 point on the day at 101 bid after having risen 3/8 point on Tuesday to get back to par after Monday’s losses. More than $60 million of the notes traded Wednesday.

And its 6 5/8% senior guaranteed notes due 2025 likewise gained more than 5/8 point on Wednesday to finish at 100 11/16 bid, with over $37 million having changed hands. That followed small gains on Tuesday and a loss of more than 1 point on Monday, which had dragged the bonds’ price down to a 99-ish context.

Neptune Finco, a special-purpose financing vehicle, and CSC Holdings LLC priced $1 billion of the 6 5/8% notes, $1.8 billion of the 10 1/8% notes and $2 billion of the 10 7/8% notes, all at par, on Friday. What originally had been envisioned as a $6.3 billion offering was progressively downsized, first to $5.3 billion and then finally to $4.8 billion, as some of the borrowing for Luxembourg-based cable operator Altice’s planned acquisition of Bethpage, N.Y.-based cable company and newspaper publisher Cablevision was shifted into a concurrently shopped bank financing deal.

Recent deals move back up

Other recently priced issues were also seen on the upside on Wednesday.

A trader saw the new notes from Friday’s other pricing – Clayton, Mo.-based chemicals and ammunition manufacturer Olin’s eight- and 10-year notes – having jumped to above the 104 bid mark, a gain of 1½ points on the day.

He saw the 9¾% notes due 2023 finishing the session at 104 bid and the 10% notes due 2025 ending at 104¼.

Another trader saw more than $12 million of the eight-year notes changing hands, up 1½ points at 104.

Olin priced $500 million of the 10-year notes and $720 million of the eight-year paper at par on Friday, and both tranches immediately firmed to above the 101 bid level. They retreated a little during Monday’s carnage, but both stayed above their par issue price, moving back up on Tuesday and again on Wednesday.

Frontier Communications bonds – all of which had priced at par on Sept. 11 but which then had steadily eroded down to the mid-90s –were also on the move on Wednesday.

One of the traders saw the Stamford, Conn.-based wireline telecommunications and internet broadband company’s 8 7/8% notes due 2020 up 1 point on the day at 97¼ bid, 98¼ offered, on volume of over $10 million.

He saw its 10½% notes due 2022 also up 1 point, in a 96¾-to-97¾ bid context, with over $18 million changing hands.

A trader at another shop saw those bonds even better, having gotten as high as 98¼ bid.

Frontier’s 11% notes due 2025 gained 1½ points to go home at 97 bid, on volume of more than $64 million.

Indicators turn stronger

Away from the improved new deals, a trader suggested, bonds were “a mixed bag, price-wise. I couldn’t say generically that they were either up or were down. It all depended upon the individual credit.”

But the statistical measures of junk market performance finally broke out of their recent rut on Wednesday, moving higher across the board after having been lower all around for six consecutive sessions.

The KDP High Yield Daily index notched its first gain after 13 consecutive losses, jumping by 15 basis points to end at 65.93; on Tuesday, it had plunged by 26 bps to 65.78, its lowest level since hitting 65.67 back on Aug. 20, 2009.

Its yield came in by 8 bps to end at 6.94%, its first narrowing after 10 straight sessions during which it had widened. On Tuesday it had risen by 11 bps to 7.02%, its first time this year over 7%.

The Markit Series 25 CDX North American High Yield index gained 9/32 point on Wednesday to finish at 99 13/16 bid, 99 15/16 offered, its first gain after having posted one loss since the index rolled over as scheduled to series 25 on Monday from the previous series 24. On Tuesday, it had dipped by 3/16 point.

And the Merrill Lynch North American Master II High Yield index also got back into the win column on Wednesday, firming by 0.148%, its first advance after 14 straight losing sessions. On Tuesday, it had had dipped by 0.349%.

Wednesday’s rise cut its year-to-date loss to 2.527% from 2.672% on Tuesday – its largest cumulative loss since Oct. 6, 2011, when it showed 2.93% of red ink year-to-date.

The recent losses stand in sharp contrast to the positive 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 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.