High-yield debt weakens in short-day trading; new issues in focus; energy, mining names lose steam

By Paul A. Harris and Stephanie Rotondo

Seattle, March 24 – The high-yield bond market was softer in Thursday trading, though traders noted that liquidity was muted.

The session ended early in line with the recommendation from Sifma for an early close ahead of the Good Friday holiday.

“A lot of things seemed like they were a smidge softer,” a trader said.

The trader also remarked that a fair bit of the day’s activity was centered on recently priced deals.

Away from new deals, a trader said energy and mining names were coming in along with commodity prices.

For its part, domestic crude oil was trading under the $40 mark for a second day, even as Baker Hughes reported that active U.S. drill rigs fell by 15 last week. That news did little to ease concerns of a supply glut after Wednesday’s report from the U.S. Energy Information Administration showed a crude inventory build of 9.4 million barrels last week.

That was about three times more than what analysts polled by Reuters had forecast.

Meanwhile the primary market remained quiet, as expected, given Thursday’s early close and Friday’s full close.

Recent deals trade

A trader said AMC Networks Inc.’s $1 billion of 5% notes due 2024 – a deal priced on Wednesday – was “wildly active” in Thursday trading.

However, he said the issue, which came at par, weakened ½ point to 99½.

Another trader echoed that level.

The deal was upsized from $750 million.

Another new deal from Wednesday, iStar Inc.’s $275 million of 6½% notes due 2021 were meantime pegged at 98½, off over a point for the day.

That deal was increased from $250 million and came at the tight end of talk.

Rounding out trading in Wednesday’s new issues, Constellium NV’s $425 million of 7 7/8% notes due 2021 were quoted in a 99¾ to par context.

That issue was also upsized, from $400 million. Price talk was in the 8% area.

From Tuesday’s business, CenturyLink Inc.’s $1 billion of 7½% series Y notes due 2024 were called unchanged at par ¾.

Energy, mining decline

The oil and gas space was trending lower Thursday as oil continued to trade below $40.

Among higher-grade energy names, Carrizo Oil & Gas Inc.’s 7½% notes due 2020 were called ½ point lower at 94½.

Marathon Oil Corp.’s 5.9% notes due 2019 managed to hold in, however, ending unchanged at 101, according to a trader.

In more distressed-leaning credits, a trader saw Chesapeake Energy Corp.’s 3.872% notes due 2019 dipping nearly a point to 41. Another trader said the 8% second-lien notes due 2022 dropped 3 points to a 50 to 51 ZIP code.

EP Energy Corp. – which had run up earlier in the week on news of a $420 million asset sale – was also weaker, a trader said. He saw the company’s 9 3/8% notes due 2020 declining 3 points to 51¾.

In the mining arena, Freeport-McMoran Inc.’s 3.55% notes due 2022 were deemed down 2½ points at 70½.

“There was decent volume,” a trader said of the issue. “But not crazy.”

Hazy days for Cumulus

Cumulus Media Inc.’s 7¾% notes due 2019 were losing ground on Thursday, as the market continued to react to news of a potential exchange offer.

One trader called the issue off almost a point at 38¾. Another trader said the paper was “still active” around 39.

On Tuesday, the Atlanta-based radio broadcaster said in an 8-K filing that it had recently entered into non-disclosure agreements with some holders of its 7¾% notes regarding a potential exchange transaction.

Under the proposal, the notes would be exchanged for up to 42.5% of the principal amount of each note in certificates, with the certificates representing interests in a trust that would hold a participation in the company’s $200 million revolver.

Lenders under the revolver would assign their commitments to a new lender.

Exchanging noteholders would also receive a pro rata share of an offering of up to 19.9% of the company’s outstanding common stock.

In addition, as part of the exchange proposal, Cumulus Media would amend its revolver to extend the maturity to May 15, 2020, increase pricing to Libor plus 1,100 with a 1% Libor floor and lift the undrawn commitment fee to 5%.

Furthermore, the amendment would revise the financial covenant to permit borrowing under the revolver in connection with the exchange, require compliance with a consolidated first-lien net leverage ratio of 3.75 times for future draws and eliminate the financial maintenance covenant.

Discussions have also included the company potentially using additional capital to facilitate full participation by holders of notes in the exchange.

The company went on to say in the 8-K filing that there is no assurance that the exchange will take place on the same or similar terms to those set out above, on different terms or at all.

High yield indexes wane

High-yield market indicators were in the red yet again on Thursday, according to market sources.

The KDP High Yield Index fell to 65.69 with a 6.63% yield, from 65.87 with a 6.57% yield.

The CDX North American Series 25 Index meantime dipped to 102.35 bid, 102.55 offered, according to a source.

Thin calendar

Thursday’s session in the new issue market remained quiet, as expected.

However it came after a string of sessions during the pre-Easter week in which the primary market came to life.

For the first time in 2016 the volume of new issuance topped the $1 billion mark for three consecutive days during the past week.

The March-April crossover week will get underway to a comparatively thin calendar.

Western Digital Corp. is on the road with $5.6 billion of bonds in two tranches, a $1.5 billion tranche of split-rated of seven-year senior secured notes (Ba1/BBB-/BBB-) which are being guided in the low 6% yield context, and a $4.1 billion tranche of straight speculative grade eight-year senior unsecured notes (Ba2/BB+/BB+) guided in the 9% area.

There is wood to chop on the Western Digital deal, a trader said on Thursday, adding that the buzz in the market is that there are $2 billion of orders in the book across both tranches.

Also Surgery Center Holdings, Inc. is roadshowing a $400 million offering of five-year senior notes in a deal also set to price during the week ahead.

Aside from those two deals, look for a $1 billion offering from the industrial sector in the week ahead, pending market conditions, a debt capital markets banker said on Friday. Wells Fargo is expected to be involved.

And look for deals from the consumer and health care sectors, also pending market conditions, the banker said.

Mixed flows on Wednesday

Cash flows for dedicated high-yield bond funds were mixed on Wednesday.

High-yield ETFs sustained a substantial $406 million of outflows on the day.

However asset managers saw $130 million of inflows on Wednesday.

These were the most recent numbers available at press time.

The weekly report from Lipper-AMG was expected late Thursday, tracking cash flows of the dedicated funds for the week to Wednesday’s close. The data was not available at press time.

As reported, high-yield bond funds had seen positive weekly flows in six 11 weeks to the Wednesday, March 16 close.

Year to date the flows stood at positive $6.082 billion, to that date, according to a Prospect News analysis of the data.

© 2015 Prospect News.
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