Primary quiet to cap $5.2 billion week, recent bonds hold gains; SandRidge sizzles, Murray fizzles

By Paul Deckelman and Paul A. Harris

New York, Aug. 14 – The high-yield primary market was shut out for a second consecutive session on Friday in terms of any new issues being priced. That was also the case on Thursday, after Wednesday’s pricing of

$1.8 billion in four tranches.

The lack of any new deals the past two days left the week’s new-issuance total were it had been on Wednesday, with $5.2 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers having priced in 13 tranches on the week.

That was down from last week, ended Friday, Aug. 7, during which $7.42 billion had gotten done in 11 tranches, according to data compiled by Prospect News.

The week’s issuance, in turn, raised the amount of new junk bonds that have priced so far this year to $204.67 billion in 335 tranches, running marginally behind year-ago issuance of $205.52 billion in 396 tranches, according to the data.

Recently priced issues such as the two-part megadeals from Post Holdings, Inc. and Owens-Illinois, Inc. continued to hold onto the aftermarket gains they had notched during the week, but on very light flows.

Secondary market action away from the new deals included sizable gains in heavy trading in SandRidge Energy, Inc.’s paper after the oil and natural gas producer announced a debt redemption and exchange totaled at $525 million.

On the downside, Murray Energy Corp.’s bonds nosedived in active dealings after the after the coal producer lowered its outlook.

Statistical measures of junk market performance were mixed for a second straight session on Friday; they had turned mixed on Thursday after having been lower across the board on Tuesday and again on Wednesday, their fourth such loss in the previous five sessions. The indicators had also been mixed on Monday.

The indicators were meanwhile lower across the board from where they had finished the previous Friday, their second straight week on the downside after one higher week, and the fifth such lower week out of the last seven.

Primary stays quiet

No issues priced in the high-yield primary market on Friday as sources continued to profess the expectation that there will be little new deal activity in the run-up to Labor Day, which is on Sept. 7.

Meanwhile the appetite for risk has unmistakably deteriorated, an investor said, marking the spread of the Merrill Lynch US High Yield Master II Index at 609 basis points on Friday, up from 515 bps on May 29.

Still, a syndicate banker said on Friday: “You can’t rule out one-off deals.”

Price discovery

The Aug. 17 week figures to get underway with a modest two-deal calendar.

There are processes of price discovery under way for both, sources say.

KIK Custom Products Inc. (Kronos Acquisition Holdings Inc.) wrapped up the roadshow for a $390 million offering of eight-year senior notes (Caa2/CCC) on Thursday, according to a portfolio manager.

Formal talk has yet to surface. However earlier in the week the deal was being discussed in the mid-9% yield context.

That talk has since moved 100 basis points higher, sources said Friday.

Guidance on the deal is now in the mid-to-high 10s, to as high as 11%, a bond trader said.

There was no update on timing heading into the Friday close, a sellside source said.

In addition Oneok Inc. began a roadshow on Thursday for a $500 million eight-year senior unsecured bullet (Ba1/BB+).

The deal, via sole bookrunner Citigroup, is expected to price on Tuesday.

Discussions are taking place in a 7¼% to 7½% context, an investor said on Friday.

And there is a modicum of activity which, when it plays out, will result in new issue business, although none of it is expected to materialize before Labor Day, sources say.

Commitments were due Friday for Beacon Roofing Supply Inc.’s $300 million bridge loan, according to a portfolio manager.

In late July the company announced plans for a $1.15 billion credit facility and $300 million of eight-year senior notes to help fund the acquisition of Roofing Supply Group.

Citigroup and Wells Fargo are the joint lead arrangers on the debt, with Citigroup listed left on the term loan and Wells Fargo listed left on the bridge.

Mixed flows

Cash flows for dedicated high-yield funds were mixed on Thursday, the most recent session for which data was available at press time, a bond investor said.

High-yield ETFs saw $262 million of inflows on Thursday, while asset managers sustained $215 million of outflows on the day.

Light trading seen

In the secondary market, a trader characterized Friday’s session as “your typical Friday in August.”

While he said that the market tone certainly “was better than earlier in the week,” when Junkbondland had been lower in line with sagging stocks and falling crude oil prices, “nothing was really jumping out.

“We saw very light flows, not a lot of volume.”

He said that energy credits, for the most part “continued to be under pressure, with oil down where it is.”

Recent issues hold gains

Among recently priced issues, he said, Post Holdings’ two tranches of new bonds remained in a 102½ bid context, which he called about unchanged on the day – but on considerably less volume than those credits had seen on Thursday.

During that session its new 7¾% notes due in March 2024 had easily been the busiest high-yield issue of the day, with over $78 million having changed hands by the close.

The other half of the St. Louis-based breakfast cereal producer’s $1.2 billion two-part offering, its 8% notes due 2025, had seen over $35 million having traded.

Post priced $800 million of the 8.5-year notes and $400 million of the 10 years, each at par, in a regularly scheduled forward calendar transaction on Wednesday. Due to having hit the tape late in the day, little initial aftermarket action was seen on Wednesday, with the heavy trading waiting until Thursday.

Among the other recent deals, a trader said that Owens-Illinois’ two tranches of paper “got better” from the levels they had held earlier in the week. He quoted both its 5 7/8% notes due 2023 and its 6 3/8% notes due 2025 going home around 101 bid.

The Perrysburg, Ohio-based glass bottle maker’s $1 billion two-part Tuesday offering consisted of $700 million of 5 7/8% notes due 2023 which priced at 99.219 to yield 6% and $300 million of 6 3/8% notes due 2025 which priced at par. The quick-to-market transaction was sold via the company’s Owens-Brockway Glass Container Inc. subsidiary.

When the bonds were freed for aftermarket dealings on Wednesday, a trader saw both tranches around a 100 3/8 to 100 7/8 bid context, with over $40 million of the 10-years changing hands. They had stayed around those levels on Thursday but were being quoted better by Friday.

A trader at another desk saw New York-based business software provider Infor (US), Inc.’s 5¾% first-lien senior secured notes due 2020 at par bid, 100½ offered, which he called up 1/8 point on the day.

That quickly shopped $500 million deal had priced on Tuesday at 99 to yield 5.986% after the issue was upsized from an originally planned $400 million.

Traders saw the bonds moving up to around a 99 5/8 to 100 1/8 level around the middle of the week, continuing to firm as the week came to a close.

Builders holds most gains

Going back a little further, a trader said that Builders FirstSource Inc.’s 10¾% notes due 2023 were trading around the 102½ bid level, which he said was off about 1 point from the highs to which those bonds had shot after their pricing but still meant that the bonds “were trading very well.”

The Dallas-based building products supplier priced $700 million of those bonds at par back on July 24 as a regularly scheduled offering, after the deal was downsized from $750 million originally.

Those bonds initially traded off from their issue price to a 99½ to 100½ bid aftermarket context later that same session.

“It struggled out of the gate,” the trader said, “but then it really popped,” getting as good as 103½ to 103¾ bid before coming down from its peak levels.

He said that the bonds had benefitted from the fact that “it’s one of those names that’s not energy – it’s in a sector, housing, that seems to be doing better. These guys will benefit from that.”

He said, all told, there’s “a lot of people that like the name – plus it’s got that 10¾% coupon.”

SandRidge soars

Away from those new or recently priced deals, traders said that SandRidge Energy bonds jumped after the company said it was repurchasing $250 million in debt and would exchange another $275 million bonds for new convertible notes.

“They are all up,” the trader said.

The company’s 8¾% notes due 2020 were the busiest junk issue of the day, with over $43 million seen having changed hands, closing over 2 points better at 68 3/8, the trader said.

Its 7½% notes due 2021 put on 3½ points, ending at 29½ on volume of over $20 million, while the 8 1/8% notes due 2022 rose nearly that much to 28½.

The trader remarked that the 8¾% notes and the 7½% notes were the day’s “top traders.”

Another market source saw the 7½% notes due 2020 at 29 bid, up 4 points.

Oklahoma City-based SandRidge announced the “privately negotiated purchase and exchange agreements” on Friday. Under the terms of the deal, $29.3 million of the 8¾% notes, $111.6 million of the 2021 paper, $26.1 million of the 8 1/8% notes and $83 million of the 7½% notes due 2023 will be repurchased at a discounted price, totaling $94.5 million in cash.

Additionally, $15.9 million of the 8¾% notes, $40.7 million of the 2021 bonds, $101.8 million of the 2022 maturity and $116.6 million of the 2023 paper will be exchanged for $158.4 million of new 8 1/8% convertible notes due 2022 and $116.6 million of 7½% convertible notes due 2023.

The move not only reduces the company’s outstanding debt, but is also expected to reduce annual interest expense by $19 million.

Murray Energy gets mauled

On the downside, Murray Energy’s paper got whacked Friday after the St. Clairsville, Ohio-based coal company reduced its earnings outlook for the year.

A trader said the 11¼% notes due 2021 declined “almost 10 points” to 48 in the wake of the news.

More than $20 million of the notes traded hands, and it was easily the biggest lower on the day, another market source said.

In a presentation to investors on Friday, Murray said it expected full-year earnings to be between $600 million to $660 million, down from previous projections of $648 million to $790 million.

Furthermore, it forecast 2016 EBITDA of $625 million to $675 million.

The weaker guidance came less than 24 hours after it was announced that Murray had purchased a Colombian mining operation from Goldman Sachs Group Inc. at a steep discount.

The purchase price was less than $10 million, according to news reports. The deal closed on Thursday.

The asset sale marks Goldman’s exit from the coal arena and Murray’s efforts to expand internationally amid slowing domestic demand.

Indicators mixed, off on week

Statistical measures of junk market performance were mixed for a second straight session on Friday; they had turned mixed on Thursday after having been lower across the board on Tuesday and again on Wednesday, their fourth such loss in the previous five sessions. The indicators had also been mixed on Monday.

The indicators were meanwhile lower across the board from where they had finished the previous Friday, their second straight week on the downside after one higher week, and the fifth such lower week out of the last seven.

The KDP High Yield Daily Index posted its second straight gain on Friday after having suffered six straight losses and eight losses out of the prior nine sessions, firming by 7 basis points to end 68.38. It had also risen by 9 bps on Thursday.

Its yield, meanwhile, came in by 3 bps for a second straight session to wind up at 6.22%, its first narrowing after two straight sessions before that in which the yield had risen and the fourth such widening in the previous five sessions.

Those levels compared unfavorably with the 68.85 index reading and 6.07% yield recorded last Friday, Aug. 7.

The Markit Series 24 CDX North American High Yield Index edged up by 1/32 point on the day to close at 104 31/32 bid, 105 offered; on Thursday, it had eased by 1/32 point, which had been its third straight downturn, its fifth loss in the previous six sessions and its sixth such setback in the prior last nine sessions.

The index finished the week off from the previous Friday’s 105 7/32 bid, 105 9/32 offered.

But the Merrill Lynch North American Master II High Yield Index failed to match the other indicators’ upside performances on the day, instead ending down 0.025%, its first loss after one gain and its ninth downturn in the last 10 sessions. On Thursday, it had broken out of an eight-session slump with a rise of 0.214%.

Friday’s retreat lowered the index’s year-to-date return to 0.444% from 0.469% on Wednesday. While up from the week’s low of 0.254% seen on Wednesday – its lowest finish since the 0.203% reading recorded on Jan. 22 – those levels all remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

For the week, the index lost 0.596%, its second consecutive weekly loss; it had been down by 0.802% in the week ended last Friday, when its year-to-date return stood at 1.046%. It was the 13th weekly downturn seen in the 32 weeks since the beginning of the year, versus 19 weeks in which the index finished higher on a Friday-to-Friday basis.

-Stephanie N. Rotondo contributed to this review

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