Week ends quietly in primary sphere, market has better tone; new Charter bonds busy

By Paul Deckelman

New York, July 10 – The week ended in Junkbondland on Friday pretty much the way it had begun – quietly, with no new deals seen having been announced or priced during the session.

In fact, no new dollar-denominated and junk rated deals had come to market the whole week – the first full trading week this year which has not seen the pricing of at least one such deal from a domestic or industrialized-country borrower, according to data compiled by Prospect News.

That left the year-to-date new issuance total right where it had been at the end of last week, with $184.17 billion of new junk having priced in 298 tranches – marginally lower than the $185.55 billion that had priced in 342 tranches by this time a year ago.

Traders attributed the recent lack of any new issues to the chilling effect that the ongoing debt turmoil in Greece and financial market problems in China has had, suggesting that borrowers may want to stay on the sidelines until all of the bad vibes, and their impact upon equities and other financial instruments, has passed.

Among specific credits, the split-rated notes that Charter Communications Inc. priced on Thursday in a massive six-part offering, with tenors ranging from five-years out to 40 years, were the easily the busiest movers of the day, with all of the tranches seen having tightened by several basis points from the levels at which they had priced on Thursday. Noting the bonds’ split rating, traders said that most of the aftermarket activity in those new bonds came from investment-grade players reaching down to the fringes of the junk market in an effort to pick up some yield.

Back among the purely junk names, energy credits such as Comstock Resources Inc., California Resources Corp. and Linn Energy LLC were among the most active issues, as were the bonds of iron-ore miner FMG Resources.

Statistical indicators of market performance were higher for a second consecutive session, coming off of three sessions before than when the indicators had been lower across the board.

However, they were ending the week lower than where they had been at the close of the previous week.

It was the second consecutive week-over-week slide and the fourth such downturn in the last six weeks.

Primary stays quiet

High-yield syndicate sources said there was “zero going on” in the junk primary market, capping a week which had seen no junk dollar pricings at all – the first such complete weekly shutout since the transition week between 2014 and 2015, which ended on Jan. 2

The lack of activity made even the previous week seem relatively busy, with two tranches collectively worth $1.08 billion having priced – $600 million of 5 7/8% notes due 2023 from software and services provider SS&C Technologies Holdings Inc. on June 29 and $485 million of 10% notes due2023 from DAE Aviation Holdings, Inc., a provider of aircraft engine repair, maintenance and overhaul services, on June 30.

With no pricings having been seen since then, the Great July Pricing Drought completed its 10th day so far on Friday.

For the year so far, total new issuance, as noted, is marginally lagging the pace set in 2014.

Earlier in the year, the 2015 new-deal pace was robustly faster than its year-ago counterpart, at one point leading last year by more than 20%. But from that peak level during the spring, the gap between the two years has gradually narrowed. It had fallen to about 2.7% in the week ended last Thursday, and continued to deteriorate this year, with this year’s issuance having ground to at least a temporary halt, while year-ago issuance was picking up.

Thursday’s mammoth six-part bond issue from Charter Communications did not open the floodgates and suddenly encourage would-be issuers who had been thinking of doing a bond deal to come to market.

A trader suggested that the issuers would “remain cautious” until the current crisis in Greece and the situation in China resolve themselves; those events have caused volatility in the world’s equity and fixed-income markets, not excluding the United States.

Charter deal trades actively.

The six tranches of Charter’s big deal meantime were the most actively traded credits on Friday.

Although the bonds are split-rated (Ba1/BBB-/BBB-), and as secured notes have been guaranteed investment-grade rankings by both Standard &Poor’s and Fitch Ratings, the split rating has them still included on many junk-market indexes for now.

Probably the most actively traded of the new Charter notes were its 4.908% notes due 2025.

The most liquid of the new bonds, at $4.25 billion, those bonds had priced at par on Thursday at a spread over comparable maturity Treasuries of 260 basis points. On Friday, they were seen having tightened from their pricing level to a bid level of 250 bps over, on volume of more than $188 million, although most of that is presumed to have been generated by high-grade investors playing the heavily oversubscribed deal to gain some yield.

Among the longer-dated notes, Charter’s new 6.384% notes due 2035, which had priced at 325 bps over Treasuries, had tightened by 12 bps to 313 bps bid, on volume of more than $159 million..

‘Typical summer Friday’

Away from the new issues, or lack of same, a trader called the market “slow,” and said that “not much was happening.”

For one thing, he noted, “it was a typical summer Friday” – meaning, he said, that “everyone tries to get what they have to do done early. If it’s not done by noon, it isn’t happening.”

At his own shop, he said, “people had been pretty much twiddling our thumbs for the last three or four hours.”

A lot of people in the market had left early, he said, agreeing with the suggestion that they had perhaps done so to go play golf or hit the beach.

Against that backdrop of relatively thin dealings, apart from the new Charters, “we were definitely better with the news coming out of Europe” in terms of Greece offering a possible solution to the European Union, and the impact that had on equities, which rose.

Energy names active

Among the more notable movers on Friday, Comstock Resources’ 9½% notes due 2020 eased by ¼ point, to 40¾, on volume of more than $27 million.

Energy sector peer California Resources’ benchmark 6% notes due 2024 were seen by a trader to have moved up 1¼ points to 83¾ bid, on more than $18 million traded.

Linn Energy’s 6¼% notes due 2019 gained ¼ point to end at 73¼, on volume of about $14 million.

Iron-ore producer FMG Resources’ 8¼% notes due 2019 gained ¾ point, closing at 76 bid.

Indicators remain higher

Statistical market-performance measures were higher for a second straight session on Friday. They had turned higher across the board on Thursday after having been lower all around on Wednesday.

However, they were ending the week lower than where they had been at the close of the previous week.

It was the second consecutive week-over-week slide and the fourth such downturn in the last six weeks.

The KDP High Yield Daily Index was unchanged at 69.87; it had broken out of a three-session slump on Thursday, moving up by 5 basis points, after having fallen by 9 bps on Wednesday, on top of plunges of 19 bps on Monday and 16 bps on Tuesday.

Its yield meanwhile rose by 1 bp to end at 5.81%, after coming in by 1 bp on Thursday. It had risen the three consecutive sessions before that.

Those levels compared unfavorably with the 70.26 index reading and 5.69% yield seen last Thursday, July 2. The KDP index was not published on Friday, July 3 because of the Independence Day holiday observance.

The Markit Series 24 CDX North American High Yield Index firmed for a second straight session on Friday, rising by 9/16 point to end at 106 13/32 bid, 106 15/32 offered. It had also risen by 5/32 point on Thursday, after having lost 9/16 point on Wednesday. The index has now been up in three sessions out of the last four.

However, the index was off from 106 9/16 bid, 106 19/32 offered last Friday, when the index was published despite the holiday market close.

The Merrill Lynch North American Master II High Yield Index also advanced for a second straight session, moving up by 0.117%, on top of its 0.087% improvement on Thursday, which snapped a three-session losing streak.

Friday’s gain lifted its year-to-date return to 2.385% from 2.265% on Thursday, although it remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so.

For the week, the index was down by 0.397% – its third consecutive weekly loss, its fifth such loss in the previous six weeks and its sixth such loss in the prior eight weeks. The index has now seen 17 weekly upturns so far this year, against 10 weekly losses.

The index had fallen by 0.124% last week, ending with a year-to-date return of 2.774%.

© 2015 Prospect News.
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