Junk closes month quietly after $1.9 billion week, $36.6 billion month; Caesars bonds busy

By Paul Deckelman and Paul A. Harris

New York, May 30 - The high-yield primary ended the week, and the month of May, on a very quiet note Friday, participants said, with no new junk-rated, U.S. dollar-denominated paper seen having priced during the session, or even any new deals announced.

All of the day's pricing activity came out of Europe, as German chemical manufacturer CABB Group priced a three-tranche €585 million deal.

With no dollar deals pricing during the session, the holiday-shortened week's tally of new bonds stood at just $1.92 billion in six tranches - one of the slowest weeks recorded so far this year, according to new-issuance data compiled by Prospect News.

That stood in stark contrast to the $11.19 billion of new junk in 23 tranches that priced the previous week, ended May 23 - one of the busiest weeks of the year so far, according to the data.

May, which saw several quite busy weeks, ended with $36.6 billion of new paper having gotten done in 65 tranches, although that trailed April's $39.7 billion in 63 tranches - the busiest month of 2014 so far.

As of the end of the session, the Prospect News data also indicated that some $144.91 billion of new junk paper has priced in 272 tranches so far this year, running about 6.8% behind the red-hot pace seen last year, when $155.55 billion had come to market in 341 tranches by this point on the calendar last year.

Among the issues that recently priced, traders saw Thursday's new-deal names - Baytex Energy Corp., Precision Drilling Corp. and Cedar Fair, LP - all trading not far from where those respective issues had gone home on Thursday in their initial aftermarket dealings.

Away from the new deals, there was brisk trading activity at sharply higher levels in Caesars Entertainment Corp. as the bonds recovered from a widely expected ratings-agency downgrade.

Statistical market performance indicators turned mixed on Friday, after having been higher for the previous three consecutive sessions.

However, those indicators strengthened across the board compared to where they had closed last week, ended Friday, May 23.

Tight pricing for CABB

The dollar-denominated primary market rested on its oars Friday, with no deals pricing and no announcements surfacing.

The euro-denominated market did generate news.

German chemical manufacturer CABB Group priced €585 million of high-yield notes in three tranches on Friday.

The €410 million senior portion of the deal, via special-purpose vehicle Montichem Holdco 3, came in the form of two tranches of seven-year senior secured notes (B2/B).

Of the two parts, a €175 million tranche of floating-rate notes priced at par to yield Euribor plus 475 basis points. Both the spread and reoffer price came on top of talk.

The second, a €235 million tranche of fixed-rate notes, priced at par to yield 5¼%, on top of yield talk.

The junior portion of the bond financing, via Montichem Holdco 2, was a €175 million tranche of eight-year senior unsecured fixed-rate notes (Caa1/CCC+) which priced at par to yield 6 7/8%. The yield for the unsecured notes printed in the middle of the 6¾% to 7% yield talk.

Joint bookrunner Deutsche Bank will bill and deliver for the LBO deal. BNP Paribas, Credit Suisse, IKB Deutsche Industriebank were also joint bookrunners.

Beyond CABB, the active euro-denominated calendar is empty and the European market is apt to pass an unusually quiet week, a London-based sellside source said on Friday.

There are deals out there, but they might show up a little further into the future, the sellsider said.

JBS expected to return

The dollar-denominated market, which was dormant on Friday, will also begin the week with a thin active calendar.

One deal that will likely appear, or reappear, is the debt refinancing from JBS USA, LLC.

Earlier this week the company temporarily postponed its $750 million offering of 10-year senior notes (Ba3/BB) as it sought to replace Morgan Stanley, which it had designated as the deal's lead bookrunner, market sources say.

The reason for the pullback is the Morgan Stanley-led bridge financing backing Tyson Foods, Inc.'s $50 per-share bid for Hillshire Brands Co., in a $6.8 billion transaction announced on Thursday.

Tyson's bid trumps JBS's unsolicited $45 per-share bid which surfaced earlier in the week.

Although the JBS bond deal was a debt refinancing, with no mention of the Hillshire bid in the uses of proceeds, JBS nonetheless has apparently taken umbrage at Morgan Stanley having provided bridge financing for the competing bid from Tyson, sources say.

Elsewhere DFC Global Corp. is marketing $500 million and £150 million offerings of six-year senior secured notes via Jefferies and Credit Suisse.

The merger financing is set to price after a shareholders vote on the merger. The vote is set for June 6.

The only other dollar deal on the active calendar is a $325 million offering of five-year senior secured notes from Sunshine Oilsands Ltd. The deal, via Imperial Capital, is set to price late in the week ahead.

Beyond those transactions, forecasts for the first week in June were mixed, as market sources were polled on Friday.

Sellside sources professed the expectation that the first week in June in the dollar market will generate about as much business as the holiday-shortened post-Memorial Day week, or perhaps slightly more.

A high-yield bond investor, meanwhile, expects the first week in June to be somewhat more robust than the foreshortened post-Memorial Day week: more than the past week's $3.4 billion in nine tranches, but not nearly so much as the pre-Memorial Day week's $13.9 billion in 19 tranches.

Little activity seen

In the secondary market, a trader characterized Friday's session as "a really lackluster day," which in turn capped off an equally lackluster week.

A second trader concurred that the junk market "was pretty much sideways."

The first trader meanwhile said that it was pretty much a toss-up as to whether the activity level was as low as it was just as a hangover from the holiday-shortened week, which saw a complete shutdown Monday, followed by several days of participants slowly getting back to their respective offices and re-acclimated - or whether this might in fact signal an early start to the traditional summertime junk-market doldrums.

"I think we might be into that," he suggested, noting that the forward calendar, which he said had been "eye-popping" earlier in the month, "has slowed up" since then.

Baytex holds gains

Among specific issues, the traders said that Thursday's $800 million two-part offering from Baytex Energy - the week's biggest transaction - continued to trade well above its par issue price.

Baytex, a Calgary, Alta.-based oil and natural gas exploration and production company priced its regularly scheduled forward calendar deal on Thursday after upsizing it from an originally planned $780 million.

Equally-sized $400 million tranches of seven- and 10-year notes priced at par to yield 5 1/8% on the seven-year notes and 5 5/8% for the 10-year bonds.

While they were seen having firmed strongly in their initial aftermarket dealings, to around a 101 to 101½ bid context, on Friday, a trader reported the 5 5/8%s at 100½ bid, 101 1/8 offered, which he called down ¼ point on the day.

A second trader pegged the bonds around the same 100 5/8 bid, 100¾ offered, about where they were late Thursday.

He meantime saw the 5 1/8% notes about unchanged at 101 1/8 bid, 101½ offered.

Precision moves up

A trader saw Precision Drilling's 5 ¼% notes due 2024 at 100 ¾ bid, 101 ¾ offered, calling those bonds up ¼ point on the session.

A second trader called the Calgary, Alta.-based provider of energy drilling services "a great company" and said that its $400 million scheduled forward calendar deal had been well-received after pricing at par on Thursday.

"They did very well," he said of the bonds, saying that at one point he saw a locked market around 101.

FUN firms a little

Thursday's other issue - from Sandusky, Ohio-based amusement park operator Cedar Fair, whose bonds and shares appropriately trade under the ticker listing "FUN" - was seen by a trader as having firmed by around 1/8 to ¼ point on the day to 100 7/8 bid, 101¼ offered.

That quick-to-market $450 million transaction had priced at par on Thursday, and initially traded around a 100¾ to 101 bid context.

Caesars seen busy

Away from the new deals, a trader noted that Caesars Entertainment's various were absolutely dominating the Junkbondland most actives list on Friday, rebounding after having lost ground earlier in this week on expectations of a rating agency downgrade, which in fact did turn out to be the case.

The Las Vegas-based gaming giant's 11¼% notes due 2017 traded more than $21 million, which a market source said was the heaviest volume of any junk bond. Those notes were up 2¼ points to 89½ bid.

Almost as busy were its two issues of 9% notes due 2020, the one up by 2¼ points to 80¾ on volume of $19 million, while the other was up by 1¾ point to end at an even 80 bid, with over $17 million having changed hands.

The Caesars 8½% notes due 2020 meantime gained 1 3/8 bid, to close at 79 and 7/8 bid, with over $13 million traded.

More than $12 million of the Caesars 10% notes due 2018 were moving around, gaining 7/16 point to close at 43 7/16, the market source said.

The upward churn in the Caesars bonds came against a backdrop of Moody's Investors Service' late-Thursday announcement that it had lower the company's Caesars Entertainment Operating Co. first-lien debt to Caa2 from Caa1, citing high restructuring risk.

"I don't know that it made much of a difference," a trader said Friday of the downgrade. "[The bonds] were all up."

He noted that the paper had been off leading up to the downgrade announcement.

Like other ratings agencies, Moody's reiterated its belief that Caesars will have to restructure, and soon.

"Despite an improvement in near-term liquidity, our long term rating remains unchanged reflecting our view that CEOC will eventually have to pursue a debt restructuring that will lead to creditor losses," said Moody's analyst Peggy Holloway in a press release.

Kim Noland, an analyst with Gimme Credit LLC, echoed Moody's sentiments in an afternoon report out Friday.

"While we know the equity owners are hoping for a big turnaround in operations at the opco, we believe the situation is so compromised that severely negative cash flow at the CEOC entity will ultimately require a restructuring that implicates all debt levels including the first-lien debt.

Noland also opined that the second-lien debt is overvalued.

Marks mixed on day, up on week

Statistical junk performance indicators were seen by market sources having turned mixed on Friday, after they had been stronger across the board for the previous three consecutive sessions, which in turn followed a run of seven straight sessions in which the indicators had been mixed.

For the week, the indicators were stronger all around versus where they had been the previous Friday, May 23.That broke a two-week skid in which the indicators had been mixed.

The Markit Series 22 index was up by 3/32 on Friday to end at 108 5/16 bid, 108 3/8 offered. On Thursday it had gained 5/32 point, after having been essentially unchanged on Wednesday.

The index was up from the 107 28/32 bid, 108 1/32 offered level at which it had finished the previous week.

The KDP High Yield Daily Index turned down by 2 basis points to end at 74.92, after having improved by 4 bps on Thursday, its third consecutive gain.

Its yield meanwhile was unchanged at 5.09%, after having come in by 2 bps on Thursday, its second straight narrowing.

Those levels compared favorably with the previous Friday's 74.87% index reading and 5.11% yield.

And the widely followed Merrill Lynch High Yield Master II Index notched its fifth gain in a row on Friday, rising by 0.096%, on top of Thursday's 0.071% advance.

Friday's rise lifted the index's year-to-date return to 4.742%, a fourth straight new peak level for 2014 so far. That was up from 4.642% on Thursday, the previous year-to-date peak return.

For the week, the index rose by 0.342% - its 11th consecutive weekly gain.

The index had risen by 0.055% the previous week to end with a year-to-date return of 4.385%.

Stephanie N. Rotondo contributed to this review.

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