Primary lull continues; Murray Energy mauled; new Tesla notes stay active; Algeco Scotsman off again

By Paul Deckelman and Paul A. Harris

New York, Aug. 23 – The high-yield primary market continued its mid-summer siesta on Wednesday, syndicate sources said, with no new deals announced, actively marketed or priced.

And the sources said that lull is likely to continue through the upcoming Labor Day holiday weekend in the United States.

Among recent new deals, only Tesla, Inc.’s megadeal was seen having traded actively during the session, easing a little after several sessions before that on the upside.

Away from the those recently priced credits, traders saw Murray Energy Corp.’s notes get hammered down in heavy trading, hurt by news reports indicating that a federal emergency order the coal mining company had been seeking to keep key customer First Energy Solutions’ coal-fired power plants up and running even in the event of a threatened bankruptcy may not be forthcoming, despite previous assurances from the White House.

Elsewhere, power generating company Dynegy Inc.’s bonds continued their recent firming trend.

Algeco Scotsman’s paper was off for a second consecutive session, despite news of an upcoming asset sale by the maker of modular storage units – although nowhere near the heavy volume seen on Tuesday.

Statistical market performance measures were mixed on Wednesday, their fourth such consecutive session after having been lower across the board last Thursday. It was also the sixth such mixed session in the last seven trading days.

The primary market remained dormant on Wednesday, as it has been throughout the Aug. 21 week.

Sellside sources say the new issue market is almost certainly closed until after the extended Labor Day holiday weekend, which gets underway following the Friday, Sept. 1 close.

Conversations regarding the September pipeline, with those sellside sources, has lately turned up cautious optimism.

Estimates have ranged from a low of $15 billion (which would be the lowest since September 2011's $6 billion) to highs of $30-plus billion.

So far, however, no one has suggested that the standing record September issuance, 2013's $46.8 billion, might be eclipsed, in 2017.

“There's just not that much, in terms of actual visibility,” a syndicate banker said on Wednesday.

Although market sources have pointed to concerns about volatility sparked by possible events such as a politically induced shutdown of the United States government or an escalation in tensions between the U.S. and North Korea, the main reason the primary market is not likely to operate at full bore is a thin mergers and acquisitions pipeline, the banker said.

Thin though that M&A pipeline might be, it is by no means empty.

At least two such deals are already heard to be staged for September executions.

Avantor is expected to come with bonds backing a $2.25 billion unsecured bridge that was syndicated in June, with an initial rate of 8¾%. The bridge, put in place to support the acquisition of VWR International LLC, was led by Goldman Sachs, Barclays and Jefferies.

And United Rentals Inc. is expected to use bond debt to help fund its acquisition of Neff Corp.

Tesla trading continues

In the secondary arena, a trader flatly declared that “today has been dead – D-E-A-D.”

He said that the only one of the recently priced new issues to have generated more than $10 million in volume was Tesla, Inc.’s 5.3% notes due 2025.

He saw those notes finishing the day at 97 7/8 bid, down 1/8 point, on volume of more than $16 million. – down a little from the $18 million which had traded on Tuesday.

A second trader pegged the Tesla notes at 97¾ bid, 98¼ offered, which he called unchanged on the day.

The notes weakened after having firmed a little over the previous several sessions.

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 on Tuesday, only to once again weaken on Wednesday.

Little action in recent issues

Away from Tesla’s still-brisk volume levels, “the rest of the new deals were sucking wind” on Wednesday, a trader said, much as had been the case on both Monday and Tuesday.

He said that only around $6 million of the Staples, Inc. 8½% notes due 2025 traded, ending around 97 bid.

That was actually up by around ½ point from where they had ended, on Tuesday, again on fairly inactive dealings.

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.

Those new Staples bonds had lost ground throughout last week, coming down to a 97ish context by Friday and continuing their retreat on Monday and languishing at lower levels again on Tuesday before finally turning back upward a little on Wednesday.

He saw Parexel International Corp.’s 6 3/8% notes due 2025 finishing the day around par bid, about unchanged on the session, but with only around $3 million traded.

The Waltham, Mass.-based biopharmaceutical services company had priced $770 million of those notes at par on Aug. 10, after that forward calendar deal had been upsized from an original $720 million.

H&E Equipment Services, Inc.’s 5 5/8% notes due 2025 firmed about ¼ point Wednesday, to 101 7/8 bid, with around $4 million having traded.

The Baton Rouge, La.-based heavy equipment manufacturer and services provider, priced $750 million of those notes at par last Thursday in a quick-to-market transaction, and the bonds had moved up to around the 101½ bid level by Friday and continued to subsequently trade at or above that point.

Murray Energy moves downward

Several traders saw Murray Energy’s 11¼% notes due 2021 get pounded down by six or seven points on the day, ending at 61 bid, after having dropped as low as 60 during the day, well down from prior levels in the upper 60s.

More than $32 million of those bonds changed hands, topping the Most Actives list for the day.

That plunge came amid reports that the Energy Department had denied a request from Robert Murray, head of the coal mining company, to keep coal power plants running even in the case of bankruptcy. In his request, Murray said that closing First Energy Solutions’ coal plants early – due to federal environmental rules – would cost 6,500 jobs and “would be a disaster for President Trump and for our coal mining communities.”

First Energy is a key customer of Murray Energy, thus the push for the two-year moratorium on closing coal-based power plants. For its part, First Energy is said to be on the brink of bankruptcy.

The Energy Department has the authority to enact emergency measures in regards to the operating of power plants. Usually, however, that is reserved for natural disasters, war or other scenarios where federal intervention is necessary.

Previously, Murray had said that Donald Trump was backing his request, based on private conversations between Trump and executives of Murray Energy and First Energy in July and early August. Murray went so far as to say that Trump ordered Energy Secretary Rick Perry to approve the request.

“I want this done,” Trump reportedly said to Perry, according to letters written by Murray and obtained by The Associated Press.

“This administration is unified in our mission to undo the economic damage inflicted on millions of hard-working citizens during the eight-year-long war on coal,” said Energy Department spokeswoman Shaylyn Hynes in a statement. “We look at the facts of each issue and consider the authorities we have to address them but with respect to this particular case at this particular time, the White House and the Department of Energy are in agreement that the evidence does not warrant the use of this emergency authority.”

Algeco lower again

For a second straight session, Algeco Scotsman’s 8½% notes due 2028 were trading lower, losing 1 3/8 points on the day to end at 94 1/8 bid.

But volume shrank to around $3 million, well down from the more than $29 million which had traded on Tuesday, the most active credit of that session, when the bonds lost ½ point.

The issue traded down despite Tuesday’s 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.

Dynegy again firmer

Elsewhere, Houston-based power generating company Dynegy’s paper continued its recent firming trend.

Its 7 5/8% notes due 2024 gained 5/8 point, closing at 102 7/8 bid, with over $7 million having traded.

Indicators mixed

Statistical market performance measures were mixed on Wednesday, their fourth such consecutive session after having been lower across the board last Thursday. It was also the sixth such mixed session in the last seven trading days.

The KDP Daily High Yield Index rose by 1 basis point on Wednesday, ending at 71.78 – its first such upturn after five consecutive losing sessions before that, including Tuesday, when the index had retreated by 4 bps.

Its yield came in by 1 bp, to 5.30%, its first narrowing after having been unchanged on Tuesday and widening out over four straight sessions before that, including Monday, when the yield had risen by 1 bp.

But the Markit CDX Series 28 High Yield Index ended lower by 1/8 point on Wednesday, going home at 106 11/16 bid, 106 23/32 offered; on Tuesday, it had been up more than 11/32 point on the session, after having been unchanged on Monday.

The Merrill Lynch North American High Yield Index improved for a third straight session, having firmed by 0.038%, on top of its 0.073% rise on Tuesday.

Wednesday’s gain raised the index’s year-to-date return to 5.511% from 5.471% on Tuesday, although it still remains well down from its Aug. 2 close at 6.233%, its 2017 year-to-date peak level.

Stephanie N. Rotondo contributed to this review

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