Primary quiet as market closes $700 million week, extends rally; Tervita jumps on M&A news

By Paul Deckelman and Paul A. Harris

New York, Dec. 19 – The high-yield primary sphere was quiet on Friday, as the final full trading week of 2014 – and certainly one of the craziest weeks in recent memory – came to a close.

Market participants saw an overall firm tone – quite a change from the situation just a week earlier, or even at the beginning of this week – as a rally that had started on Wednesday and then continued and strengthened on Thursday moved into its third straight session.

While some of the recently beleaguered energy sector names that had led the market plunge last week and on Monday and Tuesday of this week before rebounding strongly on Wednesday and Thursday were seen having come slightly off from the previous session’s peak closing levels on Friday, most credits managed to extend their gains.

The day’s biggest winner was Tervita Corp., a Canadian oilfield environmental services company; its bonds jumped a dozen points on news that it is to be acquired.

No new issues were heard to have priced on Friday, leaving Thursday’s somewhat surprise pricing of Global Cash Access Holdings Inc.’s $700 million two-part offering as the week’s only completed deal; barring any unexpected drive-by activity over the next two holiday-shortened weeks, participants believe that is likely to have been the last pricing of this year.

Traders saw no immediate aftermarket activity in the new bonds.

That one offering stood in contrast to the week before, ended Dec. 12, which had seen some $3.4 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers come to market in seven tranches, according to data compiled by Prospect News.

The week’s one deal, in turn, lifted 2014 year-to-date new issuance to $314.27 billion in 588 tranches, running about 2.6% behind the primaryside pace set last year, when $322.74 billion of new junk bonds had gotten done in 676 tranches by this point on the calendar, according to the data.

This year’s new issuance had actually led last year’s pace for a number of months – but the gap had lately dwindled and ultimately allowed last year to regain the lead due to a combination of recently deteriorating junk market conditions, which have curtailed new issuance, as well as a strong surge in primary activity at this time a year ago.

Statistical measures of junk market performance pushed higher across the board for a third consecutive session on Friday, and were also higher all around versus where they had ended last Friday, after two consecutive weeks in which those indicators had shown deterioration from the previous week’s closing levels.

Primary quiet

The primary market did not generate any news on Friday, with sources expressing the belief that the 2014 new issue market has, in all likelihood, come to a close.

On Thursday terms circulated on Global Cash Access Holdings Inc.’s $700 million two-part deal.

However there was nothing in the Street on either tranche on Friday, amid speculation that the bridge loan may have been converted to bonds, sources said.

To recap, the deal included a $350 million tranche of senior secured notes due March 15, 2021 (B1/B+) which priced at par to yield 7¾%.

In addition the company priced a $350 million tranche of 10% senior unsecured notes (Caa1/CCC+) at 98.921 to yield 10.21%.

Also on Friday, the bond portion of the PetSmart Inc. buyout took shape, as the company disclosed that $1.9 billion of bridge loans are part of the overall $6.2 billion debt commitment led by Citigroup, Nomura, Jefferies, Barclays and Deutsche Bank.

The bridge is expected to be taken out by high-yield bonds, according to a market source, who added that the deal could be January business, pending market conditions.

ETFs lead the charge

The Wednesday-Thursday rally turned around a severe 10-day slide in high yield, sources said Friday, adding that exchange-traded funds were hard at work in that rally.

“ETFs led the charge,” a trader commented, adding that ETFs – “the fast money” – were the big buyers in the mid-to-late part of the week, although “real money accounts” came in during the latter stages of that rally.

Fund flows in the mid-to-late part of the week reflected this ETF tilt to the rally, sources said.

ETFs saw persuasive inflows on both Wednesday and Thursday: $465 million of inflows on Wednesday and $398 million of inflows on Thursday, the most recent session for which data was available at press time.

Over the same two sessions actively managed funds saw flows that were persuasively negative: $645 million of outflows on Wednesday and $120 million of outflows on Thursday.

And of course the news on weekly flows was strongly negative, with Lipper-AMG reporting $3.1 billion of aggregate outflows from the dedicated high yield funds for the week to Wednesday's close, according to sources.

Hence the recovery staged in the latter portion of the Dec. 15 week came across in somewhat muted tones during Friday conversations.

No one seemed inclined to beat the drum very hard.

“Liquidity is drying up very quickly,” a debt capital markets banker said, and added that the remaining market sessions in the run up to 2015 are expected to see extremely low liquidity.

“We might see a big January,” said the banker, acknowledging that the buzz in the market has the dealers hard at work on a January pipeline.

“Of course it’s going to depend on market conditions,” the sell-sider added.

Global Cash remains unseen

In the secondary market, traders did not see any activity in Global Cash Access Holdings’ $700 million two-part issue, which had priced on Thursday – much to the surprise of many market participants, who had figured as late as Wednesday that the new issue for the Las Vegas-based provider of cash access solutions and other services to the gaming industry would likely be held off until after the new year.

They attributed the deals opportunistically timed pricing to the junk market’s strong rally from its recent lows, which began on Wednesday.

A trader said “I don’t think I saw much [activity] in them – nobody really showed anything in it at all, which is kind of bizarre. Usually, we’ll see something, but there was nothing in it.”

A second trader said that he had seen “not one” trade in the issue.

A market source at another desk also drew a blank.

Market upturn continues

For a third consecutive session, most junk prices were seen having firmed solidly.

“It was pretty quiet day today, but the market was strong all day long,” a trader said.

“Stuff was better bid all day long,” he continued, “and when oil started to improve around mid-day, that whole complex of high-beta energy names did better as well – some were up a couple of points.”

The January contract for the benchmark U.S. crude oil grade, West Texas Intermediate, finished up $2.42, or 4.4%, at $56.52 per barrel.

Energy upturn continues

The trader said that among the names he saw doing better was California Resources Corp. He saw the Los Angeles-based oil and natural gas exploration and production company’s paper up 1 point, with its 6 % notes due 2024 closing at just under 89 bid.

Other gainers from the recently battered sector included E&P operators SandRidge Energy Inc. and Energy XXI Gulf Coast.

Oklahoma-based SandRidge’s 8¾% notes due 2020 gained 4 points to end at 70 bid, while Houston-based Energy XXI’s 9¼% notes due 2017 were up 2¼ points at 67 bid.

Another trader saw Houston-based natural gas transportation and storage company Sabine Pass Liquefaction LLC’s 6¼% notes due having jumped to 102 bid from prior levels around 95.

Other names benefit

With energy leading the way, the junk market rebound from its recent lows was broad-based.

A trader said that “some of the go-go telecom names” were better on the day, seeing Sprint Corp.’s bonds up 1 point across the board, with rival wireless provider T-Mobile USA Inc.’s paper up ½ to 1 point.

Overland Park, Kan.-based Sprint’s 7 1/8% notes due 2024 were quoted at 93 bid, while its 7 7/8% notes due 2023 hovered around 98 bid.

Bellevue, Wash.-based T-Mobile’s 6 3/8% notes due 2025 traded around par.

Another trader, while acknowledging the market’s overall strength, said that some of the names he saw “were higher than they were on Wednesday – but softer than yesterday [Thursday].”

For instance, he saw Hoffman Estates, Ill.-based retailer Claire’s Stores Inc.’s 9% notes – which had moved up to around 100 1/8 bid on Thursday from prior levels around 99 – again “wrapped around 99.

“And the same thing was happening in a lot of other names as well,” he said.

But he saw other names “gapping up by 3 to 5 points today,” on “decent volume.”

Indicators up on day, week

Statistical indicators of junk market performance were higher across the board on Friday for a third straight session. They had risen on Wednesday for the first time after having been lower all around during the five previous sessions and in seven sessions out of the previous eight, and extended that rally into Thursday and then Friday.

The indicators were also up versus where they had finished out last week – the first fully positive week after two straight weeks in which the indicators had fallen, and two mixed weeks before that.

The KDP High Yield Daily Index posted its third straight gain on Friday, rising by 20 basis points to end at 70.54, after having soared by 1 full point on Thursday, and having gained 33 bps on Wednesday. On Tuesday, just before the current market rally began, the index had fallen to its lowest level since October of 2011.

Its yield came in on Friday by 4 bps to 5.98%, its third straight narrowing. It had tightened by a full 33 bps on Thursday.

Those levels compare favorably to the 69.90 index reading and 6.20% yield seen at the end of last week, on Friday, Dec. 12.

A trader saw the Markit CDX North American High Yield Series 23 index gain 5/16 point on Friday to go home at 106 7/16 bid, 106 11/16 offered – its third successive advance. It had improved by 5/8 points Thursday, and on Wednesday had decisively snapped a five-session losing streak by zooming 1 11/16 points – one of the biggest one-day increases on record.

And the Merrill Lynch U.S. High Yield Master II Index was a winner for a third straight session, rising by 0.314%. On Thursday, it had recorded its largest one-day improvement of the year, climbing by 1.203% on top of Wednesday’s 0.644% gain. Before that, it had suffered eight straight losses.

Friday’s gain lifted the index’s year-to-date return to 1.911% from Thursday’s 1.592%. On Tuesday, it had dipped briefly into the red with a 0.258% cumulative loss – its first time in negative territory since October of 2011.

Despite the strong rebound later in the week, the year-to-date return remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

For the week, the index rose by 1.055%.

The week before, it had tumbled by 2.09%, its biggest weekly loss of the year, to finish with a 0.847% return.

According to the Finra/Bloomberg high yield bond index, junk bond volume fell to $3.191 billion on Friday from $4.221 billion at the close on Thursday.

© 2015 Prospect News.
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