RKI, Continental deals slate but Technicolor pulled; Sprint Nextel off on Softbank downgrade

By Paul Deckelman and Paul A. Harris

New York, July 8 - After having essentially gone fishing in the holiday-shortened week, the high-yield primary market began the new week on Monday by slating a couple of prospective new deals on its forward calendar.

Syndicate sources said that RKI Exploration and Production, LLC and its RKI Finance Corp. funding subsidiary started a roadshow for the energy operator's $350 million of eight-year notes.

And they said that German tire manufacturer Continental AG would be doing a benchmark-sized offering of five-year notes.

However, the sources also said that French media technology company Technicolor had withdrawn the $330 million seven-year secured paper deal that had been hanging around on the calendar ever since its roadshow wrapped up last month.

In the secondary market, traders saw yet another day of relatively light and essentially featureless activity.

However, a trader indicated that some of the recently priced issues, including those from Hercules Offshore, Inc. and Valeant Pharmaceuticals International, Inc., had come in a little from the levels at which those bonds had traded last week.

Away from the new or recent deals, Sprint Nextel Corp.'s bonds and those of its Sprint Capital Corp. financing subsidiary were seen having lost some ground in the wake of Standard & Poor's having cut its ratings on Sprint's pending acquirer, Japan's SoftBank Corp., to junk.

Another topical name on Monday was Linn Energy LLC, whose recently battered bonds moved around as its shares rose solidly on a Bank of America vote of confidence in the company's ability to weather a Securities and Exchange investigation that was disclosed last week.

Statistical measures of junk market performance were seen mixed on Monday for a fourth consecutive session.

There was new data indicating investors were starting to come out of their recent junk funk, as another major service that tracks high-yield mutual funds and exchange-traded funds saw inflows last week, breaking a string of five consecutive weeks of outflows that bled billions of dollars from overall junk market liquidity.

Continental mulls benchmark

No deals priced during the Monday primary market session.

The market overall saw a slight amount of selling and ended the day flat, a syndicate official said trailing the close.

Most of the session's news came out of Europe.

Continental AG is measuring the market for a possible benchmark offering of five-year senior notes (existing ratings Ba2/BB/BB).

Should a deal materialize, it is expected to come at a minimum size of €500 million.

Initial price whisper is taking place in the mid-3% context.

The deal has generated interest among negative basis players and is expected to see sizable demand from German retail investors.

Timing remains to be determined. The deal, however, could price as early as Tuesday, sources say.

BNP Paribas, Citigroup, Deutsche Bank, ING and UniCredit are the leads.

The Hanover, Germany-based company would use the proceeds to redeem all of its 8½% notes due in 2015 and some, or possibly all, of its 7½% notes due in 2017.

Elsewhere, Technicolor withdrew its $330 million offering of seven-year senior secured notes from the market. The deal, which ran a mid-June roadshow and was expected to price on June 21, had been sidelined since that time as volatility sparked widespread repricing in the high-yield market.

The company had been exploring alternate structures for the bond deal according to one market source who added that talk on the original notes had pushed to as high as 9½%.

RKI starts roadshow

In the United States, RKI Exploration and RKI Finance began a roadshow for a $350 million offering of eight-year senior notes in a full roadshow deal that is expected to price late this week or early next week.

Citigroup, J.P. Morgan and UBS are the joint bookrunners for the debt refinancing.

Initial guidance has the deal coming in the high 7% to low 8% context, according to a trader who anticipates that some price discovery will take place during the roadshow.

It could be a relatively quiet week in high yield, with companies reporting earnings in what is often characterized as an issuance blackout period.

However, if it appears that the overall tone of this earnings season is strong, issuance activity could ramp up quickly, the trader added.

Trading light, featureless

A trader said that in the secondary market, trading volume remained light, continuing the trend seen throughout the holiday-shortened week ended Friday.

"Overall volume is still not over $1 billion" on the session late in the day, he noted, with much of the listed activity on the Trace system "all crossover," either split-rated or "six-B" barely investment-grade issues like Plains Exploration and Production Co., Ford Motor Credit Co. and Methanex Corp.

On Methanex, he said that "a fair number of those traded today," topping the $15 million mark at mid-afternoon, "but I don't know why."

The biggest gainer among the crossovers, he said, was Ford Credit's 8% notes due 2016, which he saw up 3/8 of a point, to around the 116½ level, "but it's only $20 to $30 million bonds - and that's nothing."

Among the purely junk-rated bonds, he noted that "yield-to-call buyers are still running around."

He said that names like CIT Group, Inc. and Reynolds Group Issuer LLC "are ETF names, so they're just bouncing around," with the latter company's 9% notes due 2019 seen ending the day trading just below 103 bid and the 9 7/8% notes that are also due in 2019 at around the 106½ mark. At another desk, a trader saw the New Zealand-based consumer packaging company's 8¼% notes due 2021 up by a half-point at 99¾ bid.

The first trader said that "the ETFs were active, but they were no great shakes."

He said that Friday's price movements in junk "didn't really bring out any sellers to any great extent."

Recent deals ease a little

A trader indicated that some of the recently priced deals seen in the junk market were trading a little off from where they had been last week, though on light volume. The issues remained well above their respective pricing levels, however.

For instance, he saw Hercules Offshore's 8¾% notes due 2021at 101½ bid, 1021/2, down about 3/8 of a point from the levels seen last Wednesday, the last session where there was really any kind of trading in the credit, since Friday's post-holiday session was even quitter than Wednesday's half-day.

The Houston-based provider of shallow-water drilling and marine services to the oil and natural gas exploration and production industry had priced $400 million of those notes June 28 at par. They quickly moved above the 101 level in initial aftermarket dealings and then proceeded to hold onto those gains over the next few sessions.

He saw Valeant Pharmaceuticals International's giant-sized new offering also having come in a little versus last week's trading levels. Its 7½% notes due 2021 were down about a half-point at 103¾ bid, 104¼ offered, while its 6¾% notes due 2018 were¼ point easier, at 102¾ bid, 103¼ offered.

Valeant, a Canadian specialty drug manufacturer, came to market on June 27 with a $3.225 billion two-part offering, which was both the first megadeal seen in the junk market in over a month and the biggest since late March.

The company priced $1.625 billion of the 7½% notes and $1.6 billion of the 6¾% notes, both at par, and both of those tranches were seen to have traded strongly higher when the new issue was freed for secondary market dealings later that same session.

Sprint easier on SoftBank

Away from the new issues, Sprint Nextel's bonds, and those of its Sprint Capital Corp. funding unit, were seen easier on Monday, probably not helped by the news that S&P had downgraded the credit ratings of Japanese telecommunications operator SoftBank, which is buying a 78% stake in Overland Park, Kans.-based wireless provider Sprint.

S&P lowered its BBB long-term corporate credit and senior unsecured debt ratings on Softbank by two notches to BB+ and has removed the ratings from CreditWatch.

A trader said of the SoftBank downgrade that "there was no news there. People should have been expecting that they'd get downgraded." He said that the downgrade had been telegraphed all along if the company acquired Sprint and Clearwire [Corp.]"

Sprint is buying the 49% stake of Clearwire that it does not already own.

Sprint's most active issue, its 6% notes due 2022, dropped to 96 bid, down 1¾ points on the day, on volume of over $13 million.

The 6% notes due 2016, however, were only down around a quarter-point, to 105¼ bid, on volume of $9 million.

There was only a relative handful of trades in other Sprint bonds.

Linn is busy

Linn Energy's bonds were fairly actively trading, bouncing around a little above the lows that the Houston-based energy operator's debt fell to early last week on the news that the SEC has begun an informal inquiry into the company's pending acquisition of Berry Energy Corp.

Linn's 8 5/8% notes due 2020 gained about a half-point on the session to close at 101¼ bid, on volume of over $10 million, while its 7¾% notes due 2021 was seen off about a point, at 97½ bid, on volume of around $6 million or $7 million.

Linn's recently badly battered New York Stock Exchange-traded shares meantime gained back $1.92, or 8.28%, to end at $25.13 on volume of 15.4 million, or more than four times the norm, after Bank of America opined that it thought the company would not be hurt by the SEC probe and raised its recommendation on the stock to "buy" from the previous "neutral."

Market indicators stay mixed

Statistical junk market performance indicators were mixed for a fourth straight session on Monday.

The Markit Series 20 CDX North American High Yield index rose by 15/16 of a point on Monday, ending at 103¾ bid, 103 7/8 offered, after having fallen by 5/16 point Friday.

But the KDP High Yield Daily index saw its third straight loss Monday, sliding by 21 basis points to close at 72.80, after having dipped by 1 bp on Friday. Its yield was meantime 8 bps higher, at 6.44%, after having been unchanged on Friday.

And the widely followed Merrill Lynch High Yield Master II index posted its second consecutive loss on Monday, backtracking by 0.036%, on top of Friday's 0.23% retreat.

Monday's loss dropped the index's year-to-date return to 1.418% from 1.455% on Friday, although it remained well up from its recently established low point for the year of 0.384% reading, set on June 25.

AMG sees $448 million inflow

And an indicator of overall junk market liquidity trends was seen having turned positive in the latest week.

Market participants heard that AMG Data Services had reported that high-yield mutual funds and ETFs had seen $448.81 million more come into those funds in the week ended Wednesday than had left them - the first such inflow recorded after five straight weeks of outflows totaling some $12.2 billion, according to a Prospect News analysis of the data.

Those numbers, which normally circulate in the market on Thursday, were released late Friday night by the company due to the Thursday July 4th market holiday.

They would appear to confirm a similar-sized weekly inflow reported by rival fund-tracking service EPFR Global, which uses a different methodology, but which also had seen five weeks of outflows totaling billions of dollars before that.

The flow numbers are a relatively small, but reliable and trackable indicator of liquidity trends.

A trader said: "It feels like the mutual funds have some money to spend. The ETFs may still be seeing outflows, but the insurance accounts are flush with cash too.

"If you get a choice of buying Treasuries, which are incredibly volatile, or corporate paper, which is still trading tight on a spread to whatever, I'd still put my money in high yield," the trader added.

© 2015 Prospect News.
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