Junk primary ends $7 billion week on a quiet note; energy credits again slide as oil drops

By Paul Deckelman and Paul A. Harris

New York, Aug. 7 – The high yield primary sphere closed out the first full trading week in August – and its busiest week in two months – on a quiet note on Friday.

No new deals were heard to have come to market during the session, or even were announced – in fact, syndicate sources heard one deal that had been on the forward calendar for a while was dropped, as Georgia Renewable Power, Inc. withdrew its planned $225 million offering of seven-year secured notes, preferring instead to enter into a bank loan.

With no new pricings during the session, issuance for the week stood where it had finished on Thursday, at $7.42 billion of new U.S. dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers in 11 tranches.

That was up from the $2.46 billion that had priced in four tranches last week, ended July 31.

It was, in fact, the heaviest volume of new issuance seen in Junkbondland since the week ended June 5, when some $9.83 billion had gotten done in 16 tranches, according to data compiled by Prospect News.

The week’s new issuance, in turn, raised total year-to-date issuance to $199.47 billion in 322 tranches, although that was down by some 2.1% from the pace seen at this time a year ago, when $203.81 million had brought 389 tranches to market by this point on the calendar, according to the data.

Traders saw continued brisk activity in recently priced new issues, such as Thursday’s deals from Vista Outdoor, Inc. and Mohegan Tribal Gaming Authority, and Wednesday’s offerings from issuers such as First Data Corp. and Party City Holdings, Inc.

Away from the new deals, traders saw the overall market tone heavier on the day, with junk again taking its cues from stumbling equities and tumbling oil prices.

The latter particularly hurt names such as California Resources Corp., SandRidge Energy, Inc. and Chesapeake Energy Corp.

Statistical measures of junk market performance were lower across the board for a second consecutive session on Friday; they had turned lower on Thursday, after having been mixed for two straight sessions before that.

The indicators were also lower all around versus where they had closed out the previous Friday, after having been higher that previous week. This week was the fourth week out of the last six during which the indicators were all lower on a Friday-to-Friday basis.

No new deals

No issues were priced in the primary market on Friday, as falling oil prices kept pressure not only on the energy sector but the entire asset class, sources said.

Investors are presently sitting on more cash but the reasons given vary.

“You don’t see a lot of people selling,” a trader said.

“But at the same time there has not been much of a calendar, so people do seem to have cash.”

The calendar may be somewhat slow to scale up, as dealers are heard to be inclined to wait until the post-Labor Day period before coming with some of the big deals in the pipeline, an investor said, mentioning such names as Frontier Communications ($8 billion), Charter Communications ($3.5 billion) and Ashland, Inc. ($1.1 billion).

Other names on the horizon include Sun Products Corp., Reynolds Group and DISH, the investor said.

And word around the market is that players are being told now is the time to take mandatory two-week vacations, which could crimp the market’s liquidity during the run-up to September, the source added.

“Given how things are right now the Fed should hold off,” the investor asserted, referring to a possible increase in the Fed Funds rate which some Fed watchers expect could materialize as early as September.

“I’m just not seeing inflation,” the source said, and added that an expected 25 basis points bump in the benchmark rate could create more churn in an already choppy market.

Thin calendar

The second week of August will get under way to a thin deal calendar.

There are two announced deals.

AMAG Pharmaceuticals is marketing a $450 million offering of eight-year senior notes (B3/B+).

The roadshow wraps up on Wednesday.

Jefferies is the left bookrunner for the acquisition deal. Barclays is the joint bookrunner.

And KIK Custom Products Inc. is scheduled to begin a roadshow on Monday for a $390 million offering of eight-year senior notes (Caa2/CCC).

That roadshow wraps up on Thursday.

Joint bookrunner Barclays will bill and deliver for the buyout deal. BMO, Nomura and Macquarie are also joint bookrunners.

Georgia Renewable opts for loan

In news on a deal that was announced in mid-June, Georgia Renewable Power withdrew its proposed $225 million offering of seven-year first-lien senior secured notes (Ba3) from the market, an informed source said on Friday.

The company will instead raise the same amount of cash in the form of a loan, the source said.

Seaport Global, which will serve as arranger for the loan, had been the bookrunner for the bond deal.

The Albany, Ga.-based renewable power generator plans to use the proceeds for general corporate purposes.

Mixed flows

Dedicated high-yield funds saw mixed cash flows on the day for Thursday’s session, the most recent period for which data was available at press time, according to a trader.

High-yield ETFs sustained $428 million of outflows on Thursday.

However asset managers took in $100 million on the day.

A trader in the secondary market meantime said that “the ETFs sort of drive things around a little. They had a lot of BWICs [bid-wanteds] today, so things were a little heavy.”

He said that he did not see a lot of activity in junk – typical for a summer Friday, he noted – “but I would say things on the whole seemed a little heavy because the ETFs seemed to be selling.”

Overall market lags

The overall market, he said, “was heavy – most things are kind of dragging everything wider and the ETFs are in there selling. So it was a heavy day.”

A second trader more or less agreed with that assessment.

Overall, he said, “the market was softer, you’ve got oil down to a $43 handle now, stocks are off and Treasuries rallied pretty hard.”

The bellwether Dow Jones Industrial Average ended the day down 46.37 points, or 0.27%, at 17,373.38.

He continued “we had really light flows – but definitely the market feels heavy.”

He characterized Friday’s session as “a summer Friday and the day was over pretty much after lunch.”

Recent deals trade around

With no new issues coming to market during Friday’s session, one of the traders noted that “we had a few new issues earlier in the week, but away from that it’s been dead quiet.”

A second trader opined that those recently priced deals “seemed just a little heavier.”

For instance, Vista Outdoor’s 5 7/8% notes due 2023 were seen by one trader moving around in a 100½ to 101 bid context, although he acknowledged that “I didn’t really see much trading in it.”

Those levels were off a little from the levels observed on Thursday, when the bonds began trading after pricing.

The Clearfield, Utah-based provider of outdoor sports and recreation equipment and supplies priced its regularly scheduled forward calendar offering at par after the deal was upsized to $350 million from an original $300 million.

The bonds had firmed solidly to a 100¾ to 101½ context late Thursday on volume of over $17 million.

On the other hand, trader saw Thursday’s other deal – Mohegan Tribal Gaming Authority’s 9¾% notes due 2021 – doing better, quoting them at 103½ bid, 104½ offered.

The Uncasville, Conn.-based Native American tribal operator of the Mohegan Sun gaming resort brought a quickly shopped $85 million add-on to its existing notes to market Thursday at 102.5, yielding 8.977%. No aftermarket was seen at that time.

One of the traders saw the new Party City 6 1/8%notes due 2023 around the 101¼ to 101¾ area, “trading right around 101½.”

A second pegged the notes at 101¼ to 101½, “so that thing continues to hang in pretty well.”

The Elmsford, N.Y.-based party supplies retailing chain drove by the market on Wednesday with $350 million of those notes, which priced at par – and then began firming smartly almost as soon as they began trading, pushing up to 101½ bid as soon as it was cleared for aftermarket dealings. More than $38 million traded on Wednesday, and over $34 million on Thursday, with the bonds adding a little more to their initial gains.

Wednesday’s big deal – First Data’s massively upsized $1.21 billion of 5 3/8% senior secured first-lien notes due 2023 – “held in well,” a trader said, seeing them at 100¾ to 101¼, although a second market source had them a little lower than that, at 100¼ to 100¾, trading around 100½ going home.

The Atlanta-based electronic transaction processing company’s quick-to-market offering priced at par after nearly doubling in size from the originally shopped $675 million. The notes came too late in the day to trade Wednesday, but over $48 million changed hands Thursday, pushing as high as 100¾ bid during that session.

Energy issues slide

Apart from the new deals, the traders said that the much-battered energy arena was another area of activity on Friday.

“The oil patch has been under tremendous pressure here again,” a trader said, “with oil closing down below $44.”

The benchmark U.S. crude grade, West Texas Intermediate for September delivery, fell 79 cents per barrel, ending at $43.87 on the New York Mercantile Exchange, while Europe’s Brent crude September contract lost 91 cents per barrel to end at $48.61 on the London ICE Future Exchange.

Against that backdrop, he said, “you’ve had some of the on-the-run energy names getting banged around.”

Among them was Los Angeles-based exploration and production operator California Resources’ 6% notes due 2024.

“CalRes was really active,” one trader said, although he added that “they were only down about a quarter.”

At another desk, though, a trader called the bonds “down a couple of points.”

Yet a third trader quoted them at 75½ to 76, saying “that’s probably pretty close to the lows I’ve seen.”

Elsewhere in the sector, a trader said that “one thing that was weak was SandRidge – the 8¾s [of 2020] looked down 2 to 3 points at 52. In general, I would say there was a little heaviness – but the SandRidges were a lot lower.”

A second trader said the Oklahoma City-based oiler “clearly” was getting hit.

Other names in the sector fared no better.

A trader said that “Chesapeake is down a little bit.”

He said “Energy XXI – they all seem to be trading at the lows.”

A second trader declared that “oil showed no life again today. I’m noticing Carrizo [Oil & Gas’ issue of 7½% notes due 2020] was pretty active” at 98¾, which he said was down ¾ point.

“Oil closed down almost a buck. Oil is showing no life, so most of that stuff is going to remain heavy,” he concluded.

Dish gets cracked

Apart from the energy names, a trader said that Dish DBS’ paper was lower – he said the satellite TV broadcaster “is worried about the online competition. They’ve been getting hit.”

He said its 5 7/8% notes due 2022 “were a little heavy yesterday and down like another point today, to 96½” after having traded “almost at 98” on Thursday.

The company’s paper “was off about a point, across the board.”

He saw its 5 7/8% notes due 2024 off 1 point to finish at 93.

He said investors were concerned “with the online [streaming] affecting all of these guys – the younger kids are watching everything on line” on their iPhones and tablets instead of turning on traditional television – including Dish.

Indicators off on day, week

Statistical measures of junk market performance were lower across the board for a second consecutive session on Friday; they had turned lower on Thursday, after having been mixed for two straight sessions before that.

The indicators were also lower all around versus where they had closed out the previous Friday, after having been higher that previous week. This week was the fourth week out of the last six during which the indicators were all lower on a Friday-to-Friday basis.

The KDP High Yield Daily Index plunged by 25 basis points on Friday to end at 68.85, its third successive loss and its fifth such downturn in the last six sessions. It had slid by 19 bps on Thursday.

Its yield, meanwhile, rose by 9 bps to 6.07% its second straight widening; on Thursday, it had pushed up by 7 bps.

Those levels compare unfavorably to the 69.33 index reading and 5.93% yield recorded last Friday, July 31.

The Markit Series 24 CDX North American High Yield Index finished off by 11/32 point on Friday at 105 7/32 bid, 105 9/32 offered, its second setback in a row and third in the last five sessions. It had lost 17/32 point on Thursday.

It also finished down from the 106 1/8 bid, 106¼ offered level at which it had closed last Friday.

The Merrill Lynch North American Master II High Yield Index suffered its fifth straight loss on Friday, dropping by 0.34%, on top of Thursday’s 0.304% retreat.

Friday’s loss lowered the index’s year-to-date return to 1.046% from 1.39% on Thursday. Those levels also remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Several other index components also posted setbacks, bringing them to their worst levels of the year so far.

The index’s yield-to-worst rose to a new 2015 high of 7.118%, surpassing the previous zenith of 7.076%, which had been set on July 27.

Its spread to worst versus comparable Treasury issues widened to 560 bps, up from the previous wide point of 558 bps seen on July 27.

And its average price of the components listed within fell to a new low for the year of 96.26659, down from the prior low of 96.28829, also set on July 27.

For the week, the index dropped 0.802% – its second biggest weekly drop this year, surpassed only by the 1.01% plunge in the week ended July 24.

The week’s loss was in contrast to its 0.439% gain last week, which had left its year-to-date return at 1.863%. This week’s loss was the second in three weeks and the fifth such decline in the last seven weeks.

In the 31 weeks since the beginning of the year, losses have now been seen in 12 of those weeks, versus 19 weeks in which the index had finished higher.

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