No pricings as primary closes $1.27 billion week; recent deals quiet, energy spirals downward

By Paul Deckelman and Paul A. Harris

New York, Aug. 21 –The high-yield primary market put up its second goose-egg in a row on Friday, with no new-deal announcements and no pricing seen on any of the deals which have been hanging around the junk pipeline.

The lack of any new dealings on either Thursday or Friday left the week’s tally of dollar-denominated and fully junk rated paper right where it had been at the close Wednesday, with some $1.27 billion having come to market in three tranches, all of it on Tuesday and Wednesday.

That was down from the $4.7 billion of such paper from domestic or industrialized-country issuers which had gotten done in 10 tranches the previous week, ended Aug, 14, according to data compiled by Prospect News.

The week’s small new-deal volume, in turn, lifted year-to-date junk market issuance to $205.43 billion in 335 tranches – essentially a statistical dead heat with last year’s new-deal pace, according to the data. Some $205.52 billion had priced in 396 tranches by this time on the calendar a year ago.

The inactivity seen over the past two days is expected to hold for at least the next two weeks in the run-up to the Labor Day holiday break, according to syndicate sources.

Junk market-watchers doubted whether there might even be any quickly shopped and opportunistically timed junk offerings – as there sometimes have been during the traditional late-summer lull in years past – due to the unsettled, volatile conditions in the financial markets.

That wariness was underscored on Friday when the overall junk market was weaker, taking its cue from stocks, which plunged badly on Friday to close out their worst week in four years.

There was relatively little trading seen among the deals which priced earlier this week, which had traded actively when they came to market and perhaps the session after that.

Traders did note some activity in the new bonds that breakfast cereal manufacturer Post Holdings, Inc. brought to market last week.

Away from the new deals, oil and natural gas credits such as SandRidge Energy Inc., Calfrac Well Services Ltd. and California Resources Corp. traded off, in line with continued faltering crude oil price, which sagged below $40 per barrel for the first time in six years.

Statistical market performance measures meantime fell for their fourth consecutive session on Friday and were lower all around from where they had been the previous Friday for a third straight week.

Junk troubles hit loans

With liquidity low and the global financial markets falling on Friday, the high-yield primary market remained dormant.

No deals were priced.

No deals were announced.

Whereas the bank loan new issue market is generally seen to operate even amid volatility, unlike high yield, lately there has been some correlation between the two, a syndicate banker said on Friday.

“We’re starting to see loan deals widen out as well as bonds,” the source remarked.

The banker pointed to the most recent deal to price in the high-yield market, KIK Custom Products Inc.’s $390 million issue of 9% eight-year senior notes (Caa2/CCC) that was deeply discounted to 89.57 and came with an 11% yield.

The initial whisper on the bonds had them coming with a yield in the mid 9s, the banker recounted.

KIK also increased pricing on its $850 million seven-year senior secured covenant-light term loan (B2/B-) to Libor plus 500 basis points from talk of Libor plus 450 bps to 475 bps and cut the price to 97.5 from 99.

“The loan was doing alright, but when the loan investors saw how much the bond deal widened there was pushback, and they demanded more spread and a deeper discount,” the banker said.

The fact that some of the junk deals that have priced since the beginning of August remain above new issue prices suggests that high-yield investors envisioned the volatility that has materialized to date and demanded requisite compensation, the source added.

Quiet ahead

If any issuer was toying with the idea of coming with a deal during the run-up to Labor Day, Friday’s volatility in the global capital markets probably scotched that idea, the debt capital markets banker said.

Pre-September business in the primary market may have concluded with Wednesday’s KIK Custom deal, the source added.

There was a time in the high-yield primary market when the mid-to-late August lull in issuance saw one-off issuers show up with small deals that tended to be secured and priced to move. They filled the issuance vacuum and there was generally nothing else to compete for investors’ attention.

That business has now mostly migrated to the first-lien/second-lien bank loan market, the source said.

Outflows on Thursday

Cash flows to dedicated high-yield funds were negative on Thursday, the most recent day for which data was available at press time, according to a trader.

High-yield ETFs saw $285 million of outflows on the day.

Asset managers sustained $5 million of outflows on Thursday.

Week’s new deals inactive

In the secondary market, traders did not see much activity on Friday among the three deals which priced earlier in the week.

Those transactions had traded actively when they first came to market and perhaps the session after that, but were little seen on Friday.

Perhaps the busiest of the trio was Hill-Rom Holdings, Inc.’s 5¾% notes due 2023. A market source saw around $6 million of the notes trading on Friday, ending around 101 3/8, although that was down from Thursday’s close at 101¾ bid.

A second trader saw the notes in a 101 to 101½ context, calling that down ¼ point on the day.

“HRC held in pretty well,” said another trader who quoted the paper in a 101¼ to 101½ bid context.

“Given the overall market’s weakness, they’ve hung in there.”

The Chicago-based medical technology company priced $425 million of the notes at par on Tuesday after a short roadshow.

The new issue was shot up as high as a 101½ to 101 5/8 bid context in initial aftermarket dealings, with over $43 million changing hands, easily the busiest purely junk-rated issue.

The bonds continued to hold at those lofty levels the rest of the week, including Wednesday, when over $32 million of the notes traded – its second consecutive session at the top of the Most Actives list.

Although activity dwindled to about $10 million on Thursday, levels remained around the 101½ area.

In contrast, a trader said that he had seen no trading going on in the new Oneok Inc. 7½% notes due 2023, opining that “the chances are it’s still around 98½ – but nothing traded today.

The Tulsa, Okla.-based natural gas operator brought $500 million of those notes to market on Tuesday, pricing them at 98.522 to yield 7¾%.

More than $30 million changed hands when the bonds were freed for trading on Wednesday, getting as good as 99 bid, although they were seen to have fallen back to around 98 ½on Thursday on still-brisk volume of over $14 million, keeping the issue still among the Most Actives.

A trader said that he had seen “no trading” Friday in KIK Custom Products’ 9% notes due 2023, $390 million of which priced at 87.5 to yield 11% on Wednesday. The Toronto-based swimming-pool chemicals and household and personal-care products supplier’s new bonds jumped to a 91 to 91¾ bid context when they began trading Thursday, well up from their issue price, with over $20 million having changed hands, making them one of the busiest credits that day in the otherwise quiet market.

Post keeps busy

One of the few issues seen having traded busily on Friday was Post Holdings’ 8% notes due 2025.

A market source said that more than $15 million of the St. Louis-based breakfast cereal manufacturer’s notes changed hands.

He quoted the notes at 102 bid, calling that unchanged on the day.

Post priced $400 million of the notes at par in a scheduled roadshow deal on Aug. 12, along with $800 million of 7¾% notes due in March of 2024.

Both issues were seen to have pushed up to a 101½ to 102 bid context in the days that followed.

The trader did not see any dealings in the 8.5-year paper on Friday.

Energy issues slide

Away from the new deals, traders saw most junk bonds at least ¼ to ½ point lower, particularly energy issues, which were again hammered by sliding oil prices.

West Texas Intermediate crude oil for October delivery plunged below the $40 per barrel mark on the New York Mercantile Exchange on Friday, the benchmark crude’s first time under that psychologically potent barrier in six years. It eventually recovered from that low to close at $40.45 per barrel, down 87 cents on the day.

Among the energy names battered around on Friday were Oklahoma City-based exploration and production company SandRidge, whose 8¾% notes due 2020 lost nearly ½ point to close at 63½ bid, on volume of over $13 million.

Los Angeles-based E&P bellwether California Resources’ 6% notes due 2024 were seen down a deuce on the day at 71 bid, with $12 million traded.

Canadian oilfield services company Calfrac Well Services’ 7½% notes due 2020 fell by 2 7/8 points to 66 3/8 bid, with over $14 million traded.

Indicators off on day, week

Statistical measures of junk market performance were weaker across the board for a fourth straight session on Friday. Those market measures had turned lower on Tuesday and stayed that way on Wednesday and again Thursday, after having been mixed over the previous three sessions before that.

They were also lower all round versus where they had finished last Friday, Aug. 14 – their third consecutive weekly decline and their sixth lower week in the past eight weeks.

The KDP High Yield Daily Index plunged by 19 basis points on Friday to end at 67.82, after having lost 12 bps on Thursday.

It was index’s fourth consecutive downturn, as well as its 10th loss in the last 13 sessions and its 12th setback in the last 16 trading days.

Friday marked the first time this year that the index had dipped below the psychologically significant 68.00 mark. It established a third consecutive new low for the year and a third straight new 52-week low, eclipsing the old mark of 68.01 that had been set on Thursday. It was also the index’s lowest close since it ended at 67.71 on Sept. 14, 2009.

Its yield, meanwhile, rose by 7 bps on Friday to end at 6.43%, its fifth straight widening out, including Thursday’s 5 bps rise.

It also marked the yield’s sixth such widening in the last eight sessions and its ninth rise in the last 11 sessions.

The levels compared unfavorably with last Friday’s 68.38 index reading and its 6.22% yield.

The Markit Series 24 CDX North American High Yield Index lost 17/32 point on Friday to close at 103 17/32 bid, 103 19/32 offered. It was the index’s fifth successive setback, including Thursday’s 13/32 point drop, as well as its eighth loss in the last nine sessions and its 11th loss in the last 14 trading days.

The CDX was also down on the week from last Friday’s 104 31/32 bid, 105 offered level.

The Merrill Lynch North American Master II High Yield Index slid by 0.293% on Friday, on top of Thursday’s 0.215% dip.

It was the widely followed market measure’s fourth straight loss, as well as its fifth loss in the last six sessions and over the longer term, its 13th loss in the last 15 trading days.

The index’s year-to-date loss deepened on Friday to 0.323% from 0.031% on Thursday, which had been the first time the cumulative return figure had fallen into the red since mid-January. Friday’s close was its worst showing since Jan. 6, when it showed a 0.59% loss.

All of those levels are a far cry from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

On the week, the index lost 0.764%, one of its largest weekly losses so far this year.

It was the index’s third straight weekly loss, its fourth such loss in the last five weeks, its seventh loss in the last nine weeks and its 10th loss in the last 14 weeks.

The index has recorded gains in 19 out of the 33 weeks since the start of the year, against 14 weekly losses. Last week, it had fallen by 0.596% to yield 0.444%.

One of the index’s components, its average price of the paper listed within fell to a third consecutive new low for the year of 94.68345. That was down from the previous low point of 94.98612 set on Thursday.

© 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.