Primary quiet; Tesla again busy and better; Algeco active on asset sale; PetSmart problems continue

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 – The high-yield primary market remained quiet on Tuesday, with no new dollar-denominated junk deals from domestic or industrialized-country issuers announced and a growing feeling on the part of participants that not much is likely to happen between now and the approaching Labor Day holiday in the United States.

Among recently priced issues, electric car manufacturer Tesla Inc.’s giant-sized eight-year offering remains the busiest credit, continuing to firm modestly from its recent low levels.

There was also some trading around in recent issues from car rental giant Hertz Corp. and from power generator Dynegy Inc.

Several of Dynegy’s existing issues were also seen generating some volume, all of it to the upside.

On the other hand, PetSmart Inc.’s several series of notes were all seen lower for at least a third straight session, despite a lack of fresh news about the specialty retailer.

Traders said the day’s most active issue belonged to Algeco Scotsman, a business services provider focused on modular space and secure storage solutions. It plans to sell its Williams Scotsman subsidiary and use some of the anticipated $1.1 billion of proceeds to repay debt.

Statistical market performance measures were higher across the board on Tuesday, strengthening after having been mixed for a second consecutive session and for the fourth time in five trading days on Monday.

The primary market failed to generate news on Tuesday.

The ranks of participants have thinned, with numerous players presently taking mandatory vacations.

A view is taking hold that new issue activity will not resume until after the extended Labor Day holiday weekend, which gets underway following the Friday, Sept. 1 close.

The post-Labor Day primary market ought to be a healthy one, sources say.

September is shaping up to be sizable, at least on post-oil crash terms, sources say.

Estimates for September issuance have ranged between $15 billion and $30 billion, with some sellside sources saying that it could go beyond that higher figure.

In the past five Septembers issuance averaged $36.6 billion.

The biggest of those was September 2013, at $46.8 billion.

The lowest amount, $20.6 billion, came in September 2015, the first September following the big swoop in oil prices that unfolded between mid-June 2014, when a barrel of crude oil was going for $115, and early December 2014, when the barrel price of oil was around $70.

The following and most recent September in the count, 2016, saw an improved $25.8 billion of issuance.

Forces at hand

Heading into Labor Day, forces that bear upon issuers' abilities to raise cash in the high-yield market at favorable rates appear benign or better, a debt capital markets banker said on Tuesday.

The economy is in pretty good shape, the banker said. GDP growth looks pretty good. Retail sales look pretty good.

Worldwide, things look pretty good, the source asserted.

“If the market stays good it should be a pretty big September,” the banker said.

As always, volatility that can impede or even sideline the new issue market is near enough to make out some of its most likely catalysts.

These include central bank policy on rates, ongoing tensions between North Korea and the United States, and the steady parade of negative headlines emanating from Washington D.C.

Barring volatility sparked by these or other forces, September 2017 is shaping up to be a busy month in the primary market, sources say.

Tesla rebound continues

In the secondary market, a trader said that “things were definitely quiet.

“The market had sold off [in recent days], but the CDX [index] was up today,” a sign of a firmer market.

“But it’s been a grind.”

The recent big new deal from Tesla, Inc. remained one of the busiest issues on a generally laid-back session.

As had been the case on Monday, Tesla’s 5.3% notes due 2025 were moving on the upside, after having been pounded down over the previous few sessions.

A trader pegged those bonds at around the 98 bid level, while a second trader located the notes at 97 7/8 bid, calling that up ¼ point on the day.

Volume was around $18 million on Tuesday, one of the traders said – down from Monday’s $32 million of turnover, which had topped the junk market’s Most Actives list.

Tesla has been actively traded in recent days, with over $28 million of volume on Friday and more than $86 million of turnover on Thursday, when it was again the most active issue.

The Palo Alto, Calif.-based electric car manufacturer and energy storage products company had priced $1.8 billion of those notes at par on Aug. 11 – the biggest junk bond deal since satellite broadcaster Sirius XM Radio Inc.’s $2 billion two-part offering priced back on June 26.

The regularly scheduled forward calendar transaction had been upsized from an originally announced $1.5 billion.

However, new Tesla bonds were treading water virtually from the get-go, seen trading below their par issue price pretty much from the time they hit the aftermarket and gradually losing ground to come down to around the 97ish area before turning back upward on Monday and again on Tuesday.

Recent issues little traded

Apart from Tesla, there was not much seen going on in recently priced deals.

For instance, a trader said that Staples, Inc.’s 8½% notes due 2025 only saw around $9 million of volume, finishing at 96 5/8 bid.

The Framingham, Mass.-based office supplies retailer priced its regularly scheduled forward calendar deal at par last Monday after first downsizing it from an original $1.6 billion and then downsizing it again from $1.3 billion to its eventual $1 billion size.

As was the case with the Tesla megadeal, those new Staples bonds also lost ground throughout last week, coming down to a 97ish context by Friday and continuing their retreat on Monday and languishing around at lower levels again on Tuesday.

The trader said that only about $4 million of ClubCorp Holdings Inc.’s 8½% notes due 2025 had changed hands, going home around 98½ bid level – down from the par level at which the Dallas-based operator of golf clubs, country clubs and alumni and business clubs had priced its $425 million forward calendar issue last Tuesday, after downsizing the deal from an originally announced $475 million.

However, that was somewhat improved from recent levels as low as 96 bid.

He likewise saw only around $3 million of H&E Equipment Services, Inc.’s 5 5/8% notes due 2025 having traded Tuesday, well down from recent activity levels.

He saw the bonds continuing to hold their recent gains, at 101 5/8 bid.

H&E, a Baton Rouge, La.-based heavy equipment manufacturer and services provider, priced $750 million of those notes at par on Thursday in a quick-to-market transaction, and the bonds had moved up to around the 101½ bid level by Friday.

Hertz, Dynegy active

Going back a little further, there was some secondary trading in Hertz Corp.’s 7 5/8% notes due 2022, with a market source quoting those bonds just a shade below par, off 1/16 point on the day, with around $10 million traded.

The Estero, Fla.-based car-rental giant had priced $1.25 billion of those notes at par on May 29.

Dynegy’s 8 1/8% notes due in January of 2026 firmed smartly in Tuesday’s dealings, jumping 1 7/8 point to close at 102 7/8 bid, with around $8 million traded.

The Houston-based power generation company had priced $850 million of those notes at 99.259 on Aug. 7, yielding 8¼%.

A trader said that Dynegy’s existing bonds were also better, seeing its7 3/8% notes due 2022 finishing up ½ point on the day at 103¾ bid, also on about $8 million of volume.

PetSmart problems continue

While Dynegy sizzled, PetSmart’s paper fizzled, moving down for a third straight session, despite a lack of fresh news about the Phoenix-based specialty retailer.

Its 7 1/8% notes due 2023 lost 1 point to end at 83 bid, with over $22 million having traded.

And its 8 7/8% notes due 2025 were even busier, with $28 million of turnover, ending down ½ point to 83 ¾ bid.

Algeco Scotsman active on asset sale

A market source said that the busiest bond of the session, though, was Algeco Scotsman’s 8½% notes due 2028, seen down ½ point on the day at 95½ bid, with over $29 million having changed hands.

The issue traded around against a backdrop of the announcement that the Baltimore-based maker of modular storage units will sell its Williams Scotsman unit for $1.1 billion, using some of the proceeds to repay debt and the rest for an acquisition.

The buyer is Los Angeles-based Double Eagle Acquisition Corp., which has lined up a $600 million senior secured revolving credit facility and $300 million of bridge financing for the deal (see related story elsewhere in this issue).

Indicators move upward

Statistical market performance measures were higher across the board on Tuesday, strengthening after having been mixed for a second consecutive session and for the fourth time in five trading days on Monday.

The Markit CDX Series 28 High Yield Index was up more than 11/32 point on the session, ending at 106 25/32 bid, 106 27/32 offered, after having been unchanged on Monday. It had also edged upwards by a little over 1/32 point on Friday.

The Merrill Lynch North American High Yield Index firmed by 0.073% on Tuesday, its second straight gain after having risen by 0.037% on Monday.

That raised the index’s year-to-date return to 5.471% from 5.395% on Monday, although it still remains well down from its Aug. 2 close at 6.233%, its 2017 year-to-date peak level.

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