Quiet primary, though Comstock slates; Riverbed downsizes; new PetSmart tops actives

By Paul A. Harris and Paul Deckelman

New York, Feb. 25 – It was a quiet day in the high-yield primary arena on Wednesday, with syndicate sources having seen no pricings of any dollar-denominated, fully junk-rated issues.

The session’s sole pricing activity came out of Europe – a €500 million issue of 12-year secured paper from German cable operator Unitymedia Hessen GmbH & Co. KG.

Back on the domestic scene, Frisco, Texas-based oil and natural gas operator Comstock Resources, Inc. was heard to be hitting the road to market a $700 million five-year secured notes deal.

The syndicate sources meantime heard that San Francisco-based network applications provider Riverbed Technology Inc.’s eight-year notes deal already being shopped around to investors was downsized to $525 million, its second such size reduction since the offering was launched.

In the secondary realm, trading in recently priced issues such as PetSmart, Inc., Sprint Corp. and Wynn Las Vegas LLC continued to dominate the market.

Away from the newbies, energy names were seen to have caught a bid as oil prices rose, pushing names such as Energy XXI Gulf Coast Inc. and Halcon Resources Corp. higher.

But Chesapeake Energy Corp.’s paper was off after the big natural gas and liquids company’s quarterly earnings fell short of expectations.

Statistical indicators of junk market performance were higher across the board on Wednesday for a second consecutive session, and the third session in the last four.

Unitymedia €500 million drive-by

German cable operator Unitymedia did the only junk deal to clear the market on Wednesday.

In quick-to-market action, the €500 million issue of 3½% 12-year senior secured notes (Ba3/BB-) came at the tight end of coupon talk in the 3 5/8% area, pricing at par to yield 3½%.

Credit Suisse was the lead left bookrunner. JPMorgan and Royal Bank of Scotland were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Comstock Resources roadshow

One deal boarded what continues to be an extremely thin active forward calendar.

Comstock Resources plans to start a roadshow on Thursday for a $700 million offering of five-year senior secured first-lien notes.

The debt refinancing and general corporate purposes deal is set to price during the middle part of the week ahead.

BofA Merrill Lynch and BMO Securities are the joint bookrunners.

Riverbed downsizes bonds again

Riverbed Technology downsized its offering of eight-year senior notes (Caa1/CCC+) to $525 million from $575 million, shifting a further $50 million of proceeds to its first-lien term loan.

The shift of proceeds increases the loan size to $1,625,000,000 from $1,575,000,000.

The move announced on Wednesday represents the second downsizing of the bonds.

An earlier change in the structure of the financing saw the loan increase to $1,575,000,000 from $1,525,000,000, while the bond portion was reduced from the initially planned $625 million.

The deal is expected to price Friday via joint bookrunners Citigroup, Credit Suisse and Morgan Stanley.

Vivint CFO at JPM conference

The buzz at the J.P. Morgan Global High Yield & Leveraged Finance Conference is that the new issue calendar is not expected to see a meaningful pick-up in the near future, according to an investor who attended.

The conference – which was considered by some market-watchers to be a constricting force on new issue activity, as it was widely attended by market participants – was scheduled to wrap up on Wednesday.

“M&A activity, which is a key component of the new issue calendar, has picked up,” the investor said, “but a lot of the financing has already been done.”

Watch for a deal from Utah-based security services provider Vivint, Inc. during the run-up to spring, the investor advised.

Vivint's new chief financial officer Mark Davies presented at the JPMorgan conference, the investor said, adding that Vivint bonds were up on the back of that presentation.

Vivint may show up, in part, to put in place financing to cover its upcoming alarm installation season as well as sales commissions, said the investor, adding that the company must cover those expenses before it sees cash come in from new customers.

Capital expenditures may not be the most desirable use of proceeds among high-yield investors, the buysider allowed. However, it is a more likeable use of proceeds than dividend payments and stock repurchases.

A trader who took a call later in the day saw the APX Group, Inc. (Vivint's parent) 6 3/8% secured notes due 2019 closing at 99¾ bid, par ½ offered, up a point on the day.

It's a fairly active issue, and ETFs tend to be involved, the trader said.

Interestingly, the trader saw the APX/Vivint longer-dated unsecured 8¾% notes due 2020 unchanged on the day.

The company's most recent pass through the new-issue market came last June when APX Group priced a $100 million add-on to the 8¾% senior notes due 2020 at 102 via BofA Merrill Lynch, Citigroup, Deutsche Bank, Macquarie, Morgan Stanley, Credit Suisse and HSBC.

Digicel dithers around

In the secondary sphere, Tuesday’s offering from Digicel Ltd. was seen trading around a little but essentially going nowhere.

The Kingston, Jamaica-based provider of wireless service to Caribbean countries, Central America and Oceania had priced its quick-to-market $925 million of 6¾% notes due 2023 at par, and they had then gone home trading between 100¾ and 101 bid in initial aftermarket action.

On Wednesday, a trader said that the new bonds had pushed as high as around 101¼ bid in preliminary dealings, only to shed those early gains, falling to around 100 3/8 before going out essentially unchanged at 100¾ bid on volume of over $7 million.

A second trader said “they initially sold off this morning, trading as low as 100¼,” before ending “wrapped around 100½ in pretty active dealings.”

PetSmart stays on top

Among other recently priced new deals, the new 7 1/8% notes due 2023 backing the planned leveraged buyout acquisition of PetSmart were the day’s most active credit in Junkbondland, with over $50 million having changed hands. A trader saw those bonds continuing to strengthen, tacking on another ¾ point on Wednesday to finish at 103½ bid.

“They’ve been heavily traded,” a market source at another desk agreed, pegging them above the 103 mark.

Argos Merger Sub Inc., a special-purpose financing vehicle that will be merged with and into PetSmart upon the acquisition of the Phoenix-based pet food and pet supplies and accessories retailer by a consortium led by BC Partners, priced $1.9 billion of the notes at par last Wednesday in a regularly scheduled forward calendar transaction. Before pricing, the offering had been heavily oversubscribed, playing to an order book of more than $10 million, and it immediately moved higher in active aftermarket activity and continued to push higher in subsequent sessions.

Sprint issue strengthens

A trader said that Sprint’s new 7 5/8% notes due 2025 “were pretty active too,” and quoted those bonds finishing in a 100½-to-100¾ context.

A second trader saw them steady in a 100¼-to-100½ range.

A third had the bonds up 3/8 point on Wednesday, finishing at 100 5/8 bid on brisk volume of over $31 million.

The Overland, Kan.-based Number-Three U.S. wireless provider priced its $1.5 billion drive-by deal at par last Thursday, after the issue was upsized from an originally announced $1 billion.

A win for Wynn

A trader said that Wynn Las Vegas’ 5½% notes due 2025 moved up on the session, quoting them going home “wrapped around 100¾,” which he said was up about ½ point on the day.

At another desk, the bonds were seen at 100½, up 1/8 point, with over $24 million having changed hands.

The Nevada-based gaming concern priced $1.8 billion of those notes at par off the forward calendar on Feb. 11, slightly upsizing the offering from an original $1.75 billion. Although the issue was split-rated (Ba2/BBB-/BB), it attracted some junk investor interest. While the bonds initially traded at or slightly below their par issue price, they had moved back up to above par by Monday of this week and then continued to firm from there.

Energy names pick up

Away from the new deals, a trader said that energy names “were busier, with oil up $1.77 [per barrel], and that kind of put a bid behind the oil-related names.”

Among them was Energy XXI. The Houston-based oil and natural gas exploration and production company’s 9¼% notes due 2017 were seen up more than 3 points on the day around the 72 mark, while its 8¼% notes due 2018 edged up about ¼ to ½ point to end at 69 bid, both on volume of more than $20 million.

Houston-based E&P operator Halcon’s 8 7/8% notes due 2021moved up ½ point to 76¼ bid, with around $19 million having changed hands.

As usual, there was busy activity in Los Angeles-based E&P concern California Resources Corp., whose benchmark 6% notes due 2024 were seen up 5/16 point, at 89 7/8 bid, on volume of over $30 million.

Aside from the big, liquid names like CalRes, one of the traders opined that “there’s also a bid for smaller-cap oil-sector names that have been beaten down over the past couple of months. There’s a bid for them at the levels they are at now.”

Chesapeake cheapens after numbers

The more positive tone among the energy credits did not extend to one of the biggest and most well-known names in the sector, Chesapeake Energy, whose bonds retreated after the Oklahoma City-based natural gas and natural gas liquids company’s earnings fell short of expectations.

Its 5¾% notes due 2023 were seen going home down 1 point at 105½ bid on volume of over $22 million, while its 6 1/8% notes due 2021 were likewise down 1 point at 107½ bid on turnover of more than $17 million.

Adjusted earnings per share came in at 11 cents, less than half of the roughly 24 cents that analysts had been expecting.

Also on the earnings front, Range Resources Corp.’s 5% notes due 2023 gained 1¼ points on the day to finish at 102¾ bid, a trader said, after the Fort Worth-based E&P company reported record levels of production, reserves, revenue, net income, cash flow and cash flow per share in 2014.

Company executives also noted that Range Resources had cut its debt and debt metrics, had enlarged and extended its credit facility agreement and was still working towards a goal of an eventual upgrade to investment-grade ratings (see related story elsewhere in this issue).

Indicators stay strong

Statistical indicators of junk market performance were higher across the board on Wednesday for a second consecutive session, and the third session in the last four. They had been mixed on Monday.

The KDP High Yield Daily index jumped by 10 basis points on Wednesday to end at 71.86, its fifth straight gain and its eighth such rise in the last nine sessions, among them Tuesday, when it rose by 3 bps.

Longer-term it was the index’s 14th gain in the last 16 sessions.

Its yield meanwhile came in by 5 bps to 5.15%, its third straight narrowing and sixth such tightening in the last seven sessions. The yield had declined by 2 bps on Tuesday.

The Markit Series 23 CDX North American High Yield index was up by 3/32 point on Wednesday to finish at 107 3/8 bid, 107 7/16 offered, on top of the 3/16 gain seen on Tuesday. Wednesday’s advance was its second in a row and the third in the last four sessions.

The Merrill Lynch U.S. High Yield Master II index racked up its 28th consecutive gain on Wednesday, moving up by 0.157%, on top of Tuesday’s 0.184% advance. That winning streak dates back to Monday, Jan. 19.

The latest improvement lifted its year-to-date return to 2.758%, its 24th straight new peak level for 2015 and up from 2.598% on Tuesday.

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