Primary stays quiet, though TerraForm plans bonds; energy slides again; AMD off, Pinnacle pops

By Paul Deckelman

New York, July 7 – The high-yield primary market remained quiet on Tuesday, with no pricings seen on any of the issues currently sitting on the forward calendar and no opportunistically timed drive-by offerings – no surprise, given recent volatility in global financial markets stemming from the deteriorating situation in Greece as well as oil price gyrations.

One future new deal did emerge, as clean-energy company TerraForm Power Inc. unveiled plans to sell $300 million of new long-term bonds as part of the $2 billion financing for its acquisition of seven wind-power facilities from Invenergy Wind LLC. However, no details have yet surfaced as to the timing of such a deal or other information about the planned transaction.

Apart from the mostly quiet new-deal arena, traders said that for a second straight session, most of the market’s focus was on declining natural resources names – oil and gas, coal and iron ore.

As had been the case on Monday, names such as oilers California Resources Corp. and SandRidge Energy Inc., coal miner Peabody Energy Corp. and iron ore producer Fortescue Metals Group Ltd. were among the notable losers.

Away from the resource plays, Advanced Micro Devices Inc.’s bonds dropped – though on modest volume – and its shares slid after the computer-chip manufacturer warned investors that softer demand for personal computers would cause a bigger drop in revenues for the just-ended second quarter than the country originally forecast.

But Pinnacle Entertainment Inc.’s bonds firmed after the regional casino operator received a sweetened purchase offer for its properties from Gaming and Leisure Properties Inc., which Pinnacle said it would consider.

Statistical market-performance measures turned mixed on Tuesday, after having been lower across the board on Monday and higher all around for three consecutive sessions before that.

Primary mostly quiet

A trader called Tuesday’s session “Day Two of the primary market drought” – the second session this week in which no pricings were seen, although actually the drought extends back through last Wednesday, or the whole month of July so far. The last junk pricing took place a week ago, on June 30, when Scottsdale, Ariz.-based aircraft maintenance and repair company StandardAero came to market with $485 million of 10% notes due 2023 via its indirect corporate parent, DAE Aviation Holdings Inc.

Since then, a trader said, “there is no primary. Everybody is just in a sorry state of mind,” with would-be investors continuing to hug the sidelines amid volatile financial market moves in response to the Greek situation and the volatile swings in the price of oil while would-be borrowers are not willing to venture into the waters in such an environment.

TerraForm plans bond deal

However, one prospective offering did make its way onto the forward calendar, although nobody yet knows when this deal is going to get done.

TerraForm, Power, a Bethesda, Md.-based producer of electric power through wind and solar generation, on Monday announced plans to acquire 930 megawatts of power-generation capacity through the purchase of seven wind-power generating facilities from Chicago-based operator Invenergy Wind LLC for a total purchase price of around $2 billion, including assumed debt.

On Tuesday, executives of TerraForm and its corporate parent, Belmont, Calif.-SunEdison, Inc., held a conference call to elaborate on the transaction for the investment community, during which TerraForm’s chief financial officer, Alex Henandez, disclosed that the company’s financing plans include the issuance of $300 million of new long-term bonds, in addition to cash on hand and a $1 billion warehouse facility.

There was no further mention of the planned bond deal during the call, and no details were immediately available as to the likely timing of the bond issue and its marketing campaign, its structure or the banks involved.

TerraForm is no stranger to the junk bond market. In January, it sold $800 million of new 5 7/8% notes due 2023 (B1/BB-) in a regularly scheduled Rule 144A/Regulation S for life forward calendar offering that came to market via joint bookrunners Barclays Capital Inc., which handled billing and delivery, Bank of America Merrill Lynch, Morgan Stanley & Co. Inc., Goldman Sachs & Co., Citigroup Global Markets Inc., and Macquarie Capital (USA) Inc. The notes priced at 99.214 on Jan. 23 to yield 6%.

The company returned to the primary arena last month, with a quick-to-market $150 million add-on that priced at 101.5 on June 8 to yield 5.56% via Citi, Barclays, J.P. Morgan Securities LLC and Macquarie.

Oil names bounce around

Away from primary activity, such as it was, the secondary market saw a second consecutive session of most names moving lower in line with the gyrations of crude oil prices.

West Texas Intermediate crude for August delivery – which on Monday had swooned by 7.7%, or $4.40 per barrel, to $52.53, opened on Tuesday heading lower, eventually bottoming during the morning at around the $50 per barrel mark. However, it bounced off those lows, buoyed by expectations that U.S. government figures to be released Wednesday would show smaller crude stockpiles than previously expected, and pushed up to $52.79, a 26 cent gain on the day.

A trader noted those gyrations and said that California Resources’ benchmark 6% notes due 2024 “followed suit and bounced back during the afternoon.” Those bonds – which had dropped by 2 points on Monday – actually got one of those points back on Tuesday, rising to 83, with more than $48 million traded, making it one of the most active junk issues of the day.

The Los Angeles-based oil and natural gas exploration and production company’s 5% notes due 2020 – which on Monday had slid by 2 5/8 points – firmed by ¼ point on Tuesday, closing at 85¼ bid, with over $20 million traded.

However, its 5½% notes due 2021, which had also been down a deuce on Monday – moved further into the red on Tuesday, losing ¾ point to end at 82¼ bid, with over $22 million traded.

Oklahoma City-based SandRidge Energy’s 8¾% notes due 2020 fell by 1 5/8 points on Tuesday, on top of Monday’s 2¼ points, ending at 87 1/8 bid on volume of over $59 million, tops among the purely junk-rated credits.

Other resource-based names were also pulled lower.

Australian iron ore producer Fortescue Metals Group’s 9¾% notes due 2022 eased by ¼ point on Tuesday, on top of Monday’s nosedive of 3¼ points. It ended at 98¾ bid, on over $36 million of activity.

Peabody Energy’s 10% notes due 2022 lost 1 3/8 point on Tuesday – after having dropped by 1¼ points on Tuesday – to close at 56 7/8 bid with over $12 million traded. The St. Louis-based coal mining company’s bonds have been under pressure since it warned last week that second-quarter adjusted EBITDA and per-share earnings would come in weaker than the company had previously forecast.

“It is very painful right now for the energy companies,” one of the traders lamented.

“Mining, oil, coal, just got cremated, down multiple points.”

AMD off after revenue warning

Away from the natural resources names, Advanced Micro Devices’ bonds were seen lower as investors responded to a warning from the Sunnyvale, Calif.-based computer chip maker that its just-ended second-quarter revenues would decline by more than the company originally thought.

Its busiest issue, the 7% notes due 2024, slid by more than 5½ points to end just below 79½ bid, with over $6 million having traded in round lot transactions.

AMD’s 7¾% notes due 2020 dropped to 83½ bid at mid-morning, down 3 3/8 points, though on only a handful of large trades. After that, there were numerous smaller trades, taking the notes as low as 77, before they finally went out around 80 bid.

“There wasn’t any big volume,” a trader said, “but obviously they were points lower.”

Its 6¾% notes due 2019 likewise tumbled to around 87¾ bid, down more than 3 points, but again on just a couple of large trades.

The company’s 7½% notes due 2022 fell some 4½ points in big block trades to 84 bid from previous levels in the high 80s – but then continued to lose ground later on the day in smaller-sized transactions, finally slipping to around 79½ bid.

AMD – which will report results for the quarter ended June 27 a week from this Thursday – said that its revenues for the quarter ended June 27 would be down by 8% sequentially versus the quarter before, more than twice the 3% drop that it had previously predicted.

The company cited weaker-than-expected demand for personal computers.

AMD’s Nasdaq-traded shares tumbled by 38 cents, or 15.38%, closing at $2.09, on volume of 46.3 million shares, some three times the norm.

Pinnacle up on sweetened offer

Pinnacle Entertainment’s bonds firmed after the Las Vegas-based regional gaming operator received an improved offer from Gaming and Leisure Properties, a gaming-oriented real estate investment trust which wants to buy Pinnacle’s casino real estate and then lease those facilities back to Pinnacle, whose actual gaming operations would be spun off into a new operating company to be fully owned by Pinnacle’s existing shareholders. Those shareholders would also own 28% of the newly enlarged Gaming and Leisure.

Pinnacle’s 6 3/8% notes due 2021 opened 2 points higher and then eased a little but still ended better by 1 1/8 points on the day to finish at 107 1/8, on round-lot volume of more than $17 million.

Its 7¾% notes due 2022 had gained 2 5/8 points to 113 bid, though on only around $3 million of turnover.

Pinnacle’s New York Stock Exchange-traded shares meantime jumped by $2.18, or 5.82%, to close at $39.64, on volume of 3.8 million shares, nearly five times the average daily turnover.

Gaming and Leisure’s Nasdaq-traded shares fell by 95 cents, or 2.59%, closing at $35.72. Volume of 1.7 million shares was more than three times the usual daily handle.

Traders saw activity in the latter’s junk bonds, with the GLP Capital LP/GLP Financing II, Inc. 4 7/8% notes due 2020 off about 7/16 point at 102¼ bid, on $7 million of volume.

Wyomissing, Pa.-based Gaming and Leisure was formed in 2013 after Penn National Gaming Inc. – also headquartered in that eastern Pennsylvania city – spun off most of its casino and racetrack properties into a new and independently operated gaming-oriented REIT. It has been pursuing a deal to acquire Pinnacle’s properties for some months.

The latter company last year announced its own plans to similarly split into a REIT that would own its casino properties and a separate gaming company that would lease those facilities back from the REIT and operate them.

Gaming and Leisure earlier this year offered to acquire Pinnacle’s properties for $4.1 billion in stock and assumed debt, valuing its offer at about $36 per share, and to lease the properties back to Pinnacle for $358 million per year, a deal that Pinnacle thought was inadequate; Gaming and Leisure subsequently raised its offer to $40 per share but was again rebuffed.

Gaming and Leisure said that its plan would unlock the value of Pinnacle’s 15 gaming properties in Nevada and Colorado, the Midwest and the South for its shareholders more quickly and with greater certainty than Pinnacle’s own REIT plan, which would require months of extensive review by the Internal Revenue Service and other regulators.

Its improved offer unveiled Tuesday raises the total enterprise value of the property transaction, including assumed debt, to $5 billion and ups its value to Pinnacle shareholders to $47.50 per share.

Pinnacle acknowledged receipt of the new offer from Gaming and Leisure and said that its board would review the proposal and respond promptly.

Indicators turn mixed

Statistical market-performance measures turned mixed on Tuesday after having been lower across the board on Monday and higher all around for three consecutive sessions before that.

The KDP High Yield Daily Index slid by 16 basis points on Tuesday to end at 69.91, its second consecutive loss, following its 19 bps nosedive on Monday. It was the first time that the index had finished below the psychologically significant 70.00 mark since last Dec. 17, when it closed 69.34. The index is approaching its 52-week low of 69.01.

Its yield meanwhile moved up by 4 bps to 5.78%, its second straight widening. It had risen by 5 bps on Monday.

However, the Markit Series 24 CDX North American High Yield Index bucked the generally negative tone of the day by gaining 3/16 point on Tuesday to end at 106¼ bid, 106 9/32 offered, in contrast to its nearly ½ point loss on Monday.

But the Merrill Lynch North American Master II High Yield Index was in retreat for a second successive session, ending down by 0.182%, on top of Monday’s 0.268% downturn. That skid followed four consecutive sessions on the upside.

The latest loss dropped its year-to-date return to 2.312% from 2.499% on Monday and remained well down from the 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.