Warren Resources prices; market slips, then firms; Sprint active after T-Mobile withdrawal

By Paul Deckelman and Paul A. Harris

New York, Aug. 6 – The high-yield primary sphere continued to move in fits and starts, spitting out a $300 million offering for Warren Resources, Inc., though at a much higher yield than originally expected.

The New York-based energy operator’s eight-year notes represented the sole pricing of the day, although it still made Wednesday busier than either Tuesday, which had seen no deals getting done, Monday, with just one $200 million issue, or last Friday, which was another shut-out.

However, traders quoted the new Warren bonds above their heavily discounted pricing level.

Elsewhere, traders said that the overall market seemed heavier in the morning but then did improve a little later on.

There was some fairly brisk activity, though with mixed levels, in Sprint Corp. paper after the wireless provider withdrew its faltering bid to acquire smaller rival T-Mobile USA Inc. The latter’s bonds were also seen all over the place on the news. Both companies’ equity fell badly, though.

There was a little bit of upside follow-through for McClatchy Co. bonds, which had surged in heavy trading on Tuesday on the news that sector peer Gannett Co. Inc. will buy out McClatchy and its other joint venture partners to take full control of the Cars.com online automotive sales site, with McClatchy standing to net more than $400 million from that deal. However, the bonds were considerably less busy.

Statistical indicators of junk market performance were mixed for a third straight session on Wednesday.

Warren Resources atop talk

Warren Resources priced Wednesday's sole deal in the high-yield primary market, a $300 million issue of 9% eight-year senior notes (Caa1/B-) that came at 98.617 to yield 9¼%.

The acquisition financing deal priced on top of price talk that had been revised from earlier talk in the 8¼% area; the earlier talk had been set on July 30.

BMO was the left bookrunner. Jefferies and Wells Fargo were the joint bookrunners.

The deal came amid market conditions that were rugged but improving, sources said.

“We were down earlier, but things came back,” said a trader based on the East Coast of the United States, who spotted bonds ¼ point higher on the session.

“After two-o'clock there were a lot of people trying to buy,” the trader added.

Asked if the sell-off that took hold in the high yield in late July qualifies as a correction, the trader gave a qualified “yes.”

“We haven't seen this kind of correction, which has lasted for a week-and-a-half, for a while.

“And it came with some big outflows that started in the ETFs, but then took hold, big-time, in the actively managed accounts.

“No one has walked away from this unscathed.”

US Shale’s $210 million units

Although the primary market news volume is a pale ghost of what was seen in early summer, the new-issue market is not altogether dormant.

One deal was announced on Wednesday.

US Shale Solutions, Inc. is in the market with a $210 million offering of notes and warrants units, which are comprised of non-callable three-year senior secured notes and attached warrants to purchase shares amounting to 25% of the company's outstanding common stock.

The acquisition deal, via sole bookrunner Jefferies, is talked with a 12½% coupon at 97 and is set to price Thursday.

It features an excess cash flow offer and maintenance covenants (see related story in this issue).

As to deals carried over from last week, when selling and massive redemptions prompted all sides to re-think new-issue pricing, no official news surfaced on Wednesday.

However one of those deals, Milestone Aviation Group Ltd.'s $350 million offering of three-year senior notes, should get done, market sources say.

No talk has been heard on the debt refinancing deal that is in the market via J.P. Morgan, BofA Merrill Lynch, Deutsche Bank, SunTrust, Huntington and Jefferies.

Yield guidance is 4¾%, according to a market source, up from earlier guidance of 4¼%.

Warren paper pops

In the secondary realm, a trader quoted the new Warren Resources 9% notes due 2022 at a wide 99½ to 101 context.

He noted that the issue had priced earlier in the afternoon at a steeply discounted 98.617 to yield 9¼%.

However, two other traders said that they had not yet seen any dealings in the energy company’s new issue.

Sprint, T-Mobile trade around

Away from the new deals, a trader said that Sprint and T-Mobile were probably the most notable features of the session, with the bonds of both wireless providers gyrating around in the wake of the news that Overland Park, Kan.-based Sprint, a distant Number-3 U.S. cell phone service provider behind Verizon Wireless and AT&T Mobility, had dropped its nine-month effort to try and acquire Bellevue, Wash.-based T-Mobile, the fourth-largest U.S. cell phone company.

“They were very busy in the morning – both of them were lower, but then they rebounded,” the trader said.

At another desk, a trader saw Sprint’s bonds mixed in fairly active trading.

He pegged the company’s legacy Sprint Nextel Corp. 6% notes due 2022 up some 1 3/16 points to end at 100 3/8, after having bottomed around 98 bid earlier in the day. Over $14 million of the notes changed hands in round lots, and there was also considerable trading in smaller off lots as well.

But he saw the company’s Sprint Capital Corp. 6.9% notes due 2019 lose slightly more than 1 point to end at 106 15/16 bid on volume of over $9 million with, again, some fairly brisk odd-lot dealings in addition to the round-lot transactions.

Sprint’s 11½% notes due 2021were the big loser on the day within that structure, dropping by 4 points to end at 129, a trader said.

Besides ending its pursuit of T-Mobile – which had been aimed at creating a more formidable foe for the Verizon/AT&T duopoly that controls the wireless business – Sprint , majority-owned by Japan’s Softbank, also shook up its top management, with Marcelo Claure, the 43-year-old founder of mobile-phone distributor Brightstar Corp., replacing long-time chief executive officer Dan Hesse, who stands to get a severance package totaling more than $40 million in cash, stock and benefits.

T-Mobile’s bonds, meanwhile, were also mixed, with its 6 5/8% notes due 2023 down ½ point at 105¼ bid on volume of over $14 million, its 6.836% notes due 2023 off by 3/8 point at 105 7/8 bid on over $9 million of turnover, and its 6.464% notes due 2019 up ¼ point at 104¼ bid, with over $6 million having changed hands.

Sprint’s New York Stock Exchange-traded shares meanwhile tumbled $1.38, or 18.96%, to end at $5.90 on volume of 159 million shares, nearly 10 times the norm. T-Mobile’s NYSE shares lost $2.85, or 8.4%, to close at $31.06. Volume of over 17 million shares was more than four times the usual turnover.

McClatchy builds on gains

Elsewhere, McClatchy’s 9% notes due 2022 were better for a second straight day, with a trader seeing them up about ½ point to 112 bid.

But he said that “it was just on a couple of million bonds,” in contrast to Tuesday, when the paper had zoomed more than five points in intraday dealings before going home up about 2 points on volume of more than $53 million, making it easily the busiest bond on Tuesday’s session.

The Sacramento-based newspaper and digital media publisher’s notes had firmed solidly on the news that sector peer Gannett will buy the roughly 73% of Classified Ventures LLC, the parent of the Cars.com online auto sales website, for $1.8 billion from its several joint-venture partners. McClatchy, with a 25.6% stake in Classified Ventures, stands to get gross proceeds of about $640 million from the sale, with after-tax net proceeds of about $406 million.

Little Chesapeake activity seen

A trader said there didn’t seem to be much activity going on in Chesapeake Energy Corp. paper, quoting its various issues “up ¼, down ¼, with no big volume changes.” Some issues, he said, were “just trading in odd lots – 300, 400 bonds.”

The Oklahoma City-based oil, natural gas and natural gas liquids exploration and production company said that its second-quarter net income after preferred stock dividends fell to $145 million, or 22 cents per share, from $457 million, or 66 cents per share, in the same quarter a year ago.

Company executives meanwhile told analysts on their conference call that Chesapeake was continuing to steadily deleverage with the help of non-core asset sales and were also simplifying and streamlining its somewhat complicated capital structure (see related story elsewhere in this issue).

Market indicators stay mixed

Statistical indicators of junk market performance were mixed for a third straight session on Wednesday. On Monday, they had snapped a six-session losing streak that had seen those indicators down across the board, and they had stayed mixed on Tuesday as well.

The KDP High Yield Daily index posted its second straight gain, firming by 3 basis points to end at 72.93. On Tuesday, it had soared by 29 bps to dramatically and decisively pull itself out of the rut it had been in over the previous seven consecutive sessions, posting its first advance since July 23.

Its yield eased by 2 bps Wednesday to 5.57%, declining for a second straight session; it had come in by 10 bps on Tuesday, its first tightening after six straight widenings.

However, the Markit CDX Series 22 index suffered its second consecutive setback Wednesday, dipping by 5/32 point to end at 106 7/16 bid, 106½ offered, on top of Tuesday’s 3/8 point retreat.

And the widely followed Merrill Lynch High Yield Master II index turned lower on Wednesday, losing 0.111% after having been up over the previous two sessions, including Tuesday, when it improved by 0.263%.

Wednesday’s loss dropped the index’s year-to-date return to back below the 4% barrier to 3.959%, versus Tuesday’s 4.075% level, with Wednesday’s level remaining well below the 5.751% return recorded on July 7, the peak level so far for 2014.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.