Vista, Mohegan add-on price; recent deals busy; energy trades off; funds lose $1.2 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 6 – The high-yield primary market saw a more normal day on Thursday after having had its busiest session since late June on Wednesday.

Traders saw two issues come to market: an upsized $350 million regularly scheduled offering of eight-year notes from sports and recreational equipment provider Vista Outdoor, Inc. plus a quickly shopped $85 million add-on to Native American casino operator Mohegan Tribal Gaming Authority’s existing 2021 bonds.

Traders said the new Vista Outdoor notes moved up in active dealings when they were freed for the aftermarket.

They also saw a fair amount of activity in some of Junkbondland’s more recent new deals, including Wednesday’s offerings from electronic transaction processer First Data Corp., specialty retailer Party City Holdings Inc. and health-care billing services provider Emdeon Inc. Party City’s new eight-year notes continued to hold the strong gains they had notched in brisk initial aftermarket dealings after having priced, while the First Data and Emdeon bonds showed modest gains on the day.

Away from the offerings that have actually priced, KIK Custom Products Inc., a supplier of pool and spa treatment supplies and household and personal care products, was heard getting ready to hit the road next week to market an eight-year issue.

Apart from recent or anticipated new deals, it was another rough day in the energy patch, where sagging oil prices continued to take their toll on such credits as California Resources Corp., Chesapeake Energy Corp. and SandRidge Energy, Inc. The latter oil and natural gas company had quarterly results out, including lower revenues and a sizable loss, even as company executives touted its recently improved liquidity.

Statistical measures of junk market performance turned lower across the board on Thursday after having been mixed for a second consecutive session on Wednesday.

Another numerical measure – the flows of funds into and out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – posted a second big outflow in as many weeks, with the year-to-date fund flows number sliding into the red for the first time since the beginning of January.

Vista Outdoor upsizes

A relatively quiet Thursday session in the primary market saw two issuers bring single-tranche deals, raising a total of $437 million.

One deal came as a drive-by, and one was upsized.

Vista Outdoor priced an upsized $350 million issue of eight-year senior notes (Ba3/BB+) at par to yield 5 7/8%.

The deal size was increased from $300 million.

It played to an order book that was heard to be two-times oversubscribed heading into the New York midday on Thursday, a trader said.

The yield printed at the tight end of yield talk in the 6% area and inside of the 6% to 6¼% initial guidance.

Morgan Stanley & Co. LLC ran the books.

The Clearfield, Utah-based outdoor sports and recreation merchandise company plans to use the proceeds to pay down its revolver and for general corporate purposes.

The additional proceeds resulting from the $50 million upsizing of the issue will be used to pay down revolver debt.

Mohegan taps 9¾% notes

In drive-by action, Mohegan Tribal Gaming Authority priced an $85 million add-on to its 9¾% senior notes due Sept. 1, 2021 (CCC) at 102.5 to yield 8.997%.

The reoffer price came at the cheap end of the 102.5 to 103 price talk, according to a market source.

BofA Merrill Lynch was the left bookrunner for the debt refinancing. RBS Securities Inc., SunTrust Robinson Humphrey Inc., Jefferies LLC, Credit Agricole CIB, and KeyBanc Capital Markets were the joint bookrunners.

KIK Custom roadshow

Meanwhile, the session saw a slight buildup to the active deal calendar.

KIK Custom Products plans to start a roadshow on Monday in New York for its $390 million offering of eight-year senior notes (Caa2/).

Joint bookrunner Barclays will bill and deliver for the buyout deal. BMO Securities, Nomura and Macquarie Capital are also joint bookrunners.

There is a healthy shadow calendar of deals, a portfolio manager said on Thursday.

However, much of that calendar may be comprised of post-Labor Day business, the investor remarked, adding that super-size deals from Frontier Communications Corp. ($8 billion) and Charter Communications Inc. ($3.5 billion) appear to have been moved to the far side of the traditional summer-fall threshold.

Earlier in the summer both of those deals appeared to be poised for mid-to-late July launches, market sources say.

“Around the market you're hearing that people are gearing up to take their mandatory two-week vacations,” the buysider said, adding that if it proves to be the case, the liquidity of the market is bound to be impacted.

Vista Outdoor posts gains

In the secondary arena, traders said the new 5 7/8% notes due 2023 from sports and recreational equipment manufacturer Vista Outdoor were seen to have moved up after pricing at par earlier in the session.

One trader said that the notes had traded in a 100¾-to-101½ bid context. Later on, he said, the issue hovered around 101 bid.

A second trader also saw the paper going home at 101 bid on volume of more than $17 million.

Party time continues

Traders said that the new Party City 6 1/8% notes due 2023 were actively traded for a second consecutive session, hanging on to the gains the issue had notched late Wednesday after being freed to trade.

One of them noted that the bonds had moved around during the morning between 101 and 101½ bid, which he called a loss of ¼ point.

Later the bonds were seen between 101¼ and 101½ bid before ending at 101¼ bid, 101 3/8 offered.

A second market source said the bonds were up 1/8 point at 100 5/8 bid with over $34 million having traded.

The Elmsford, N.Y.-based party goods retailer had priced $350 million of the notes on Wednesday as a drive-by issue.

The traders said that volume in the new issue hit over $37 million later Wednesday, making it one of that session’s busiest junk bonds.

A trader saw the new issue trading in a 101-to-101½ bid context late Wednesday, almost right out of the box, versus their par issue price.

First Data, Emdeon firm up

Another Wednesday deal, Atlanta-based First Data’s late-pricing 5 3/8% secured notes due 2023, had seen no aftermarket action on Wednesday but made up for it with a vengeance on Thursday.

A trader pegged the bonds at 100¾ bid, well up from their par pricing on Wednesday, with over $48 million having traded.

A second trader located the bonds between 100½ and 100¾ bid.

The quick-to-market deal had been upsized to $1.21 billion from the originally announced $675 million.

Meanwhile, Emdeon’s 6% notes due February 2021 traded between 100¼ and 100¾ bid.

A second trader also saw the notes at 100¼ bid versus their par issue price.

He said that over $33 million of the notes had changed hands.

The Nashville-based provider of billing and information services to companies in the health-care industry had priced $250 million of the notes late Wednesday as a regularly scheduled forward calendar offering; they came too late in the session for any dealings at that time.

SandRidge suffers

Away from the new deals, there was more weakness in the oil and gas space on Thursday, spurred by yet another decline in crude oil prices and disappointing earnings.

Benchmark crude prices dropped nearly 1% during the session, nearing a six-year low. The drop came as oversupply concerns are growing, especially as the busy summer-driving season nears its end.

As for earnings, SandRidge Energy reported a $1.4 billion loss for the quarter on Thursday.

On the heels of the results, one market source pegged the Oklahoma City-based E&P company’s 7½% notes due 2021 at 28¼ bid, down almost a point on the day.

Another source saw that issue at 27½, down from 28. That source also saw the 8¾% notes due 2020 in a 29 to 30 zip code, down from a 30 to 30½ context on Wednesday. Over $31 million of the latter bonds had traded.

The loss per share came to $2.78. By comparison, net loss for the same quarter of 2014 was $33 million, or 10 cents per share.

On an adjusted basis, SandRidge posted a loss of $17.8 million, or 3 cents per share. That compared to a profit of $25.7 million, or 4 cents per share, the year before.

Revenue meantime fell to about $230 million from $375 million.

Despite the larger loss, SandRidge did note that production was up 27%, resulting in an increase in its full-year guidance. The company is expecting to produce between 29 million and 30.5 million barrels in 2015, up from previous guidance of 28 million to 30.5 million barrels.

Additionally, the company said it had improved its capital structure. The $1.25 billion issuance of second-lien debt in June helped to reduce the company’s borrowing base with less restrictive covenants. (See related story elsewhere in this issue.)

Other energies easier

But SandRidge wasn’t the only oil and gas producer to feel the day’s pain.

Chesapeake Energy’s 4 7/8% notes due 2022 lost nearly 1 point to end at just over 74 bid. Volume was over $35 million.

Its 6 5/8% notes due 2020 dropped another 4½ points to 83 bid, another market source said. The paper had lost ground on Wednesday after the company reported a loss of $4.15 billion, or $6.27 per share.

The loss – which compared with a profit of $145 million, or 22 cents per share, the previous year – was due in large part to a $4.02 billion write-down on certain assets by the Oklahoma City-based oil and gas concern.

Los Angeles-based E&P operator California Resources’ benchmark 6% notes due 2024 plunged 3½ points on the day to 76½ bid. Over $51 million of the notes had changed hands – the top purely junk issuer on the day.

Indicators turn lower

Statistical measures of junk market performance turned lower across the board on Thursday after having been mixed for a second consecutive session on Wednesday. They had turned mixed on Tuesday after having been lower all around on Monday, their first downside performance in a week. The indicators had also been mixed on Thursday and Friday.

The KDP High Yield Daily index lost 19 basis points on Thursday to close at 69.10, its second straight loss and fourth downturn in the last five sessions. It had been down by 6 bps on Wednesday.

Its yield, meanwhile, rose by 7 bps to 5.98% after having been unchanged on Wednesday at 5.91%; its second unchanged performance in three sessions.

The Markit Series 24 CDX North American High Yield index finished off by 17/32 point on Thursday at 105 9/16 bid, 105 19/32 offered after having gained 1/16 point on Wednesday.

The Merrill Lynch North American Master II High Yield index made it four losses in a row on Thursday, retreating by 0.304% after having eased by 0.022% on Wednesday.

Thursday’s loss lowered the index’s year-to-date return to 1.39% from 1.699% on Wednesday. Those levels also remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Funds see second downturn

Another numerical indicator – flows of money into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – stayed on the downside this week, their second consecutive weekly downturn.

Sources familiar with the fund-flow statistics said Thursday that $1.20 billion more had left those weekly-reporting-only funds than had come into them during the week ended Wednesday.

That outflow followed the $1.72 billion net loss that was reported last week for the seven-day period ended July 29.

The latest outflow tipped the year-to-date flows total into the red for the first time since early January. (See related story elsewhere in this issue.)

Stephanie N. Rotondo contributed to this review

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