Global Cash prices as junk rally accelerates; energy names bounce; funds lose $3.1 billion

By Paul Deckelman and Paul A. Harris

New York, Dec. 18 – The high-yield market’s unlikely rally continued for a second consecutive session on Thursday, bringing with it an unexpected new-deal pricing.

Global Cash Access Holdings Inc. brought a two-part $700 million offering of senior secured and unsecured notes to market – a deal which as recently as Wednesday had been widely thought of as next year’s business.

That deal appeared to have gotten done in the context of Thursday’s strong rally – Junkbondland’s second straight session on the rebound, after having been battered around for more than a week before that.

Traders attributed the continued surge to a combination of short-covering from recently oversold levels as well as the expectation that based on Wednesday’s communique, the Federal Reserve System will likely take its time when it comes to considering future hikes in interest rates.

As had been the case on Wednesday, Thursday’s advance was dominated by energy names continuing to climb from their recent bottom levels, including Meg Energy Corp. and Sand Ridge Energy Inc.

The energy names rose, even as the price of crude oil resumed its recent slide.

Statistical indicators of junk market performance were higher across the board on Thursday for a second consecutive session.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a huge net outflow in the latest week, their third consecutive such large downturn, as $3.084 billion more left those funds than came into them in the latest recording week.

Global Cash prices

Global Cash Access Holdings completed Thursday's only deal – and the only deal to clear the new issue market since December 12.

The $700 million two-part notes transaction featured 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%.

BofA Merrill Lynch and Deutsche Bank Securities Inc. were the joint bookrunners for the acquisition financing.

Rally brought it back

Price talk on the deal was not broadly circulated, sources said.

Early guidance had the secured notes coming with a yield in the low 7% context and the unsecured notes coming in the high 10% yield context.

As recently as Wednesday the deal was heard to have been sidelined for the year.

However a big Thursday rally in high-yield bonds, driven by Wednesday's accommodative statements from Fed policy-makers, may have driven the deal, which was roadshowed in early December, back into the market, a trader said.

Anecdotally, on Wednesday, high-yield ETFs – considered to represent a significant portion of the “fast money” at play in the asset class – saw a hefty $465 million daily cash inflow, according to a market source.

Actively managed accounts saw $645 million of outflows on Wednesday.

Nevertheless, buyers were outnumbering sellers five-to-one on Thursday, according to an investor who added that the activity was driven by short-covering as well as by buying on the part of real-money accounts.

2014 primary market

As recently as Wednesday, prior to the FOMC meeting that rendered the accommodative statements that catalyzed rallies in the global capital markets, the high-yield primary was believed to have closed for the remainder of 2014.

Then came Thursday's vigorous rally – a rising tide that lifted all boats, although energy names saw a disproportionately weaker lift owing to continued weakness in oil prices.

The Global Cash Access deal was driven back into the market.

The only deal believed to be on the active forward calendar in its wake is the Real Alloy Holding Inc. $300 million offering of five-year senior secured notes via joint bookrunners Goldman Sachs and Deutsche Bank.

During a telephone conversation earlier in the week, a company source told Prospect News that the deal could still be 2014 business.

Perhaps it will, market sources said on Thursday.

However, the Thursday session was expected to be the last one of 2014 with any real liquidity, an investor said.

No trading in new deal

Traders did not see any immediate aftermarket activity in either tranche of the new Global Cash Access Holdings notes, which priced fairly late in the session.

The rally continues

For a second consecutive session, most junk names were better, as the market continued to rally from its recent depths.

“Overall, high yield had a better tone to it today,” a trader said, “probably up about ½ point across the board.

“People just tried to buy stuff, off their lows.”

“There was a pretty good bounce in the energy names,” a second trader said.

He called the upturn “kind of weird, since oil was down by $1.77 [per barrel].”

“A lot of these names just bounced on overall strength.”

He noted that the equity markets were also strong, with the bellwether Dow Jones Industrial Average soaring by 421.28 points, or 2.43%, to close at 17,778.15, on top of big gains seen on Wednesday. It was Wall Street’s strongest two-day rally since 2011. Analysts said that stocks rose amid investor relief that the Federal Reserve appears to be in no real hurry to boost interest rates, preferring to take what the central bank called a “patient” approach.

“That kind of flowed through into high yield,” he said.

He attributed the gains in the junk market to a combination of “short-covering, things getting squeezed a bit, and possibly some real buying too, so that combination took things up.”

Energy names lead surge

Among specific credits, a trader saw Canadian oil sands producer Meg Energy’s 6 3/8% notes due 2023 jump by 9 points to finish at 88½ bid on volume of more than $17 million.

Its 6½% notes due 2021 gained 6½ points, ending at 90 bid, with over $10 million having changed hands.

Exploration and production company Penn Virginia Corp.’s 7¼% notes due 2019 rose by 8 points to finish at 79 bid on volume of “a couple of million.”

Sand Ridge Energy’s 7½% notes due 2023 finished 6 points better at 62 bid, with more than $20 million having changed hands.

California Resources Corp.’s 6% notes due 2024 tacked on more than 6 points to close at 88¾ bid.

“We were seeing upside moves of several points” in the various issues, a trader said, as the recently battered bonds bounced back.

But another trader, noting that “energy was leading the bounce,” added that “as the day wore on, oil [prices] lost ground.”

“We’ll see how long this [rally] lasts.”

Indicators continue bounce

Statistical indicators of junk market performance were higher across the board on Thursday for a second straight session. They had also 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.

The KDP High Yield Daily index posted its second straight gain, soaring by 1 full point on the day to close at 70.34, versus 69.34 the previous day. It had risen by 33 basis points the previous day.

Its yield came in – coincidentally – by 33 bps points to go home at 6.02%, its second consecutive narrowing. It had tightened by 8 bps on Wednesday. Those declines followed eight straight widenings.

The Markit CDX North American High Yield Series 23 index jumped by 5/8 points Thursday to finish at 106¼ bid, 106 5/16 offered. It was the second straight strengthening – on Wednesday, it had decisively snapped a five-session losing streak by zooming by some 1 11/16 points, one of the biggest one-day increases on record.

And the Merrill Lynch U.S. High Yield Master II index advanced for a second straight session, posting its largest one-day improvement of the year – it rose by 1.203%, on top of Wednesday’s 0.644% gain. Before that, it had suffered eight straight losses.

Thursday’s improvement lifted the index’s year-to-date return to 1.592%, up from Wednesday’s 0.385%, when it had gotten back in the black after having dipped into the red Tuesday with a 0.258% cumulative loss – its first time in negative territory since Oct. 13, 2011, when it had ended down 0.429%.

According to the Finra/Bloomberg high-yield bond index, junk bond volume fell to $4.221 billion on Thursday from $5.622 billion at the close on Wednesday.

Funds lose $3.08 billion

But while those statistical indicators were all higher, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – posted a huge net outflow in the latest week, their third consecutive such large downturn.

Market sources said that some $3.084 billion more left those weekly-reporting-only funds than came into them during the week ended Wednesday.

It was the second-largest outflow seen so far this year, dwarfed only by the record $7.068 billion money hemorrhage the funds had suffered during the week ended Aug. 6 – the biggest outflow the company had seen since it began tracking the fund flows back in 1992.

The outflow followed a cash loss of $1.885 billion reported last Thursday for the week ended last Wednesday, Dec. 10 (see related story elsewhere in this issue).

© 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.