Quiet primary ends week with no dollar pricings; recent deals firmer; Wynn up on China’s Macau move

By Paul Deckelman and Paul A. Harris

New York, Oct. 2 – The high-yield primary market remained quiet on Friday, closing out the week with no new U.S. dollar-denominated, fully junk-rated deals from domestic or industrialized-country borrowers having been priced.

That goose-egg was in sharp contrast with the previous week, ended Sept. 25, when $14.79 billion of such paper had gotten done in 13 tranches, according to data compiled by Prospect News – the heaviest week for new issuance in Junkbondland since the week ended March 13, which has been the single busiest week so far this year, volume-wise, with $15.95 billion having come to market in 19 tranches.

Year-to-date issuance meantime stood at $229.85 billion in 359 tranches, according to the Prospect News data – down nearly 9% from the new deal pace seen at this time a year ago, when $252.51 billion had come to market in 476 tranches.

One offering did get priced during the session – a sterling-denominated secured add-on deal from Stonegate Pub Co. Financing plc, a British operator of a chain of drinking establishments.

Traders meantime reported continued secondary market strengthening in recently priced new issues from such companies as Cablevision Systems Corp. and Frontier Communications Corp., both of which had retreated earlier in the week.

Also firming in active trading Friday were the bonds of Valeant Pharmaceuticals International Inc., although they remain below the levels they had held before falling sharply on Monday.

Wynn Resorts Ltd.’s bonds and shares both gained in busy dealings Friday on news reports that China’s government plans steps to support the recently struggling gaming industry in Macau, where Wynn has a large casino resort.

Statistical measures of junk market performance were mixed for a second consecutive session on Friday; they had turned mixed on Thursday, after having firmed across the board on Wednesday to break out of a five-session losing streak.

The indicators also ended the week mixed versus where they had finished last Friday – the first such mixed week after two straight weeks before that when they had been lower all around on a Friday-to-Friday basis. It was the second mixed week in the last five.

Stonegate prices atop talk

One new deal cleared the market during Friday’s primary market session.

Stonegate Pub Co. Financing priced an £80 million add-on to its 5¾% senior secured notes due April 15, 2019 (B2/B+) at 99.5 to yield 5.91%.

The reoffer price came on top of price talk.

Barclays was the bookrunner for the acquisition financing.

The September-October crossover week came and went without any dollar-denominated deals pricing.

The most recent dollar-denominated issuance was on Friday, Sept. 25, when Cablevision Systems Corp. and Olin Corp. completed megadeals totaling $6.02 billion in a combined five tranches.

Lots of juice

With the market already in the throes of volatility, dealers were keen to place Cablevision and Olin bonds and so priced them with plenty of juice in the form of high coupons and yields, sources say.

Thus priced, those bonds have been maintaining premiums to new issue prices while a lot of legacy bonds have moved lower amid thin liquidity.

In their wake, prospective issuers who were eyeing attractive rates in the late spring are suffering sticker shock in the post-Labor Day primary market, according to a sell-side source.

Opportunistic issuers are stepping back, waiting in the hope that high yield stages another rally.

However there are some committed financings that are more time-sensitive, sources say.

There are indications that new issue rates will begin to top the rate caps in bridge commitments, according to a portfolio manager.

For example, given present market conditions, pricing on Concordia Healthcare Corp.’s expected $890 million of senior notes could top the 9½% cap on the bridge loan, should the deal come to market now, the investor said.

Concordia launched its $1.1 billion term loan, via Goldman Sachs, Credit Suisse, Jefferies and RBC, on Thursday.

The week ahead

The Oct. 5 week is expected to get underway with just one deal on the active calendar, market sources say.

SunOpta Foods Inc. has been marketing a $330 million offering of senior secured second-lien notes due 2022 (B3/B) during the past week.

The deal, via BMO, Jefferies and Rabobank, is set to price in the week ahead.

Meanwhile NN, Inc. has sidelined its $300 million offering of eight-year senior notes (Caa1/B), sources say.

Talk on the deal has widened from the 9¼% area, which was announced early in the past week, they add.

A late-week call to the company was not returned.

Mixed flows on Thursday

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

High-yield ETFs saw $203 million of inflows on the day.

However asset managers sustained $265 million of outflows.

Down – then back up

In the absence of any new issues this week, secondary market participants continued to focus on some of the recently priced issues.

One of the traders said that “stuff kind of sold off a little bit this morning,” after the release of employment data for September, “and then kind of traded back up.”

Washington reported that the unemployment rate last month held steady at 5.1% – but job-creation numbers badly lagged behind forecasts, with only 142,000 non-farm jobs added, well under the roughly 200,000 that analysts were expecting.

And the non-farm payroll numbers for both July and August were sharply downsized from the original reports, with the July number cut to 223,000 new jobs from the originally reported 245,000, while August’s figure was revised downward to 136,000 from 173,000.

The trader saw Frontier Communications’ 11% notes due 2025 “off by ½ after the payroll numbers, then they came back up in the afternoon.”

Those bonds had finished around a 97-plus context on Thursday. He saw them drop to 96½ bid in early dealings on Friday, but then come off those lows to finish in the 98 bid vicinity.

Another trader saw those bonds doing even better, pegging them at 98 3/8 going home, which he called up by 1 1/8 points on the session, with over $25 million having changed hands, making the 11s one of the day’s most active credits.

The Stamford, Conn.-based wireline telecom and broadband internet service provider’s 10½% notes due 2022 gained ½ point on the day to close at 98½ bid, on volume of over $16 million.

Frontier had priced $3.6 billion of the 11% notes, $2 billion of the 10½% notes and $1 billion of 8 7/8% notes due 2022, all at par, on Sept. 11. After initially firming, the bonds had been pushed back below that issue price, and as September wore on, they continued to erode, falling as low as 94 7/8 bid on Monday, down about 3 points on the day, as part of a broad market selloff.

One of the traders saw the new Neptune Finco Corp. bonds issued as part of the financing for Altice NV’s $17 billion acquisition of Bethpage, N.Y.-based cable system operator and newspaper publisher Cablevision also having dipped in the early going Friday, before coming back.

“Nefico traded around 100¾ to 101 earlier in the day but now they’re up at 101½,” he said, with all three of the company’s new bonds “generically up ½ point or so.

“So these new cable and telecom names are all up ½ [point] on the day.

Neptune Finco and another Cablevision subsidiary, CSC Holdings LLC, priced $1 billion of 6 5/8% senior guaranteed notes due 2025, $1.8 billion of 10 1/8% notes due 2022 and $2 billion of 10 7/8% notes due 2025, all at par, last Friday.

The new bonds initially moved a little above their issue price, but then got hammered down on Monday to levels in a 98 to 99 context during Monday’s market plunge, before coming off those lows and continuing to rise to their present levels.

Also on the recently priced deal front, a trader saw Olin Corp.’s 9¾% notes due 2023 around the 104 level, while quoting its 10% notes due 2025 at 102 ¼ bid.

The Clayton, Mo.-based chemical and ammunition manufacturer had priced $720 million of the 9¾% notes and $500 million of the 10% notes at par, also last Friday. They had firmed smartly in initial aftermarket dealings, then got knocked back down to just above their issue price during Monday’s market retreat, before coming back up to around their current levels.

Valeant very active

Apart from the recently priced deals, traders saw Valeant Pharmaceuticals bonds high up on the day’s Most Actives list.

Its 6 1/8% notes due 2025 gained 7/16 point to end at 97½ bid, with over $23 million traded, while its 5 7/8% notes due 2023 were up ¼ point with over $10 million having changed hands.

The Canadian drug manufacturer’s bonds had started the week off just below par – but plunged more than 5 points on Monday in heavy trading on news that the company might be subpoenaed to testify about drug price increases.

However, the bonds rebounded part of the way on Tuesday, and continued to firm in active dealings over the remainder of the week.

Wynn up on China move

A big gainer on Friday was Wynn Resorts’ 5 3/8% notes due 2022, which shot up by more than 1¾ points to finish at 93 5/8 bid, a trader said, seeing over $16 million having traded.

Wynn’s Nasdaq-traded shares meanwhile zoomed by $11.81, or 22.84%, ending at $63.52, on volume of 15.1 million – nearly five times the norm – on news reports that China’s government will take steps before the end of the year to help its recently struggling gambling industry in Macau, where Wynn and several other large international gaming companies have casinos.

Indicators stay mixed

Statistical measures of junk market performance were mixed for a second consecutive session on Friday; they had turned mixed on Thursday, after having firmed across the board on Wednesday to break out of a five-session losing streak.

The indicators also ended the week mixed versus where they had finished last Friday – the first such mixed week after two straight weeks before that when they had been lower all around on a Friday-to-Friday basis. It was the second mixed week in the last five.

The KDP High Yield Daily Index fell by 13 basis points on Friday to close at 65.55 – a new low for the year. It was the index’s second straight downturn, including its 25 bps plunge on Thursday, in sharp contrast to its performance on Wednesday, when the index had notched its first gain after 13 consecutive losses.

Friday’s retreat – its 15th in the last 16 sessions – dropped the index below its previous 2015 low point of 65.68, set on Thursday. It is now at its lowest level since July 29, 2009, when it also closed at 65.55.

Its yield rose by 5 bps Friday to end at 7.05%, its second successive widening; on Thursday, the yield had risen by 6 bps after having come in by 8 bps on Wednesday – its first narrowing after 10 sessions in a row during which it had widened.

Those levels meantime compared unfavorably with the 66.72 index reading and 6.68% yield seen last Friday, Sept. 25.

The Markit Series 25 CDX North American High Yield Index stayed strong, however, rising by 7/32 point on Friday to end at 100 5/32 bid, 100 3/16 offered – its third straight gain. It had also firmed by 3/32 point on Thursday and by 9/32 point on Wednesday, its first advance after having posted one loss since the index rolled over as scheduled to Series 25 on Monday from the previous Series 24, plus four straight losses before that on the index’s older version.

The changeover from Series 24 to Series 25 – part of the regular semi-annual “roll” of all of the CDX indices, involving changes in the roster of bonds the indexes track – means this Friday’s result is not comparable to old index’s close last Friday at 103½ bid, 103 9/16 offered.

The Merrill Lynch North American Master II High Yield Index notched its second loss in a row on Friday, falling by 0.354%, on top of Thursday’s 0.202% setback. That retreat followed a 0.148% gain on Wednesday, its first rise after 14 straight losing sessions.

Friday’s downturn deepened its year-to-date loss to 3.069% – its second consecutive record level of red ink for the year so far. The previous biggest 2015 loss had been Thursday’s negative 2.724% reading. The index is at its lowest level since Oct. 5, 2011, when it showed a 3.834% year-to-date deficit.

For the week, the index was down by 1.78%, its biggest weekly loss so far this year. The previous largest weekly loss had been set last week, when it fell by 1.445%, resulting in a year-to-date loss last Friday of 1.312%.

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