Pre-election primary market quiet, though CF slates megadeal; overall junk tone improves with stocks

By Paul Deckelman and Paul A. Harris

New York, Nov. 7 – The high yield primary market was quiet, pricing-wise, for a second consecutive session on Monday, with nothing much expected to happen until after Tuesday’s elections in the United States.

However, the Junkbondland forward calendar continued to build, with chemical fertilizer producer CF Industries, Inc. announcing plans to sell $1.25 billion of senior secured notes.

Among deals already being shopped around, price talk emerged on satellite communications company Telestat Canada’s $750 million offering of eight-year notes, which is expected to come to market sometime early this week.

In the secondary realm, traders saw a mostly quiet session, but with a considerably better tone than recently, with junk apparently following the lead of equities, which jumped sharply Monday after a rough last week, likely buoyed by the apparent resolution of presidential candidate Hillary Clinton’s e-mail controversy, seen as a positive for her campaign and thus, a calming development for troubled and uncertain stocks.

The news that CF Industries is shopping a large new deal around did not cause much of a reaction in the company’s existing bonds.

Among recently priced issues, Lamb Weston Holdings Inc.’ s big two-part offering from last Tuesday remained well bid-for around the 101 level, with some volume.

Away from the new issues, Canadian drugmaker Concordia International Corp. was clearly in retreat after the company reported that it slid into the red in the third quarter.

Statistical market performance measures turned higher across the board on Monday for only the second time in the last 11 sessions, dating back to Oct. 24; they had been mixed on Thursday and Friday, after having been lower across the board for six consecutive sessions before that.

Pre-election lull

No deals priced on Monday amid thin trading, a New York-based trader said, adding that activity in the new issue market is expected to remain muted until Tuesday's elections in the United States run their course.

Of deals in the market Telesat Canada is guiding a $750 million offering of eight-year senior notes (B3/B) to yield 8½% to 8¾%.

The refinancing and dividend funding deal, via JP Morgan, Credit Suisse, Goldman Sachs and Morgan Stanley, is expected to price early this week.

Elsewhere CF Industries mandated Goldman Sachs and Morgan Stanley to arrange conference calls with investors on Tuesday and Wednesday.

Early Monday the Deerfield, Ill.-based manufacturer and distributor of agricultural fertilizers announced plans to place $1.25 billion of senior secured notes for purposes of refinancing debt and for general corporate purposes.

Big Friday outflows

The dedicated high yield bond funds saw sizable daily cash outflows on Friday, the most recent session for which data was available, a trader said.

High yield ETFs sustained $257 million of outflows on the day.

Actively managed funds sustained $395 million of outflows on Friday.

Existing CF bonds quiet

In the secondary market, the news that CF Industries plans a large new offering of secured notes did not set off any kind of significant trading in the company’s existing paper, which had seen some action over the past week or so, mostly to the downside following negative actions by the major ratings agencies.

A trader said that “the bonds were not very active – there was minimal volume in them.”

He characterized them as “up a little bit on very small trades, maybe $1.5 million,” on issues like the 5.15% bonds due 2034.

That long bond was up more than 2 points, ending Monday around 87 23/32 bid, but on only a couple of odd-lot trades, with no round-lot activity seen.

Lamb Weston stays strong

Among recently priced new issues, there was not much activity seen, volume-wise.

One of the few such credits generating much volume was Lamb Weston Holdings’ 4 5/8% notes due 2024, which gained around 1/8 point on the day to end at 101 1/8 bid, with over $12 million having changed hands.

The other half of the company’s recent megadeal, its 4 7/8% notes due 2026, was up ¾ point on the day, to 101 3/8 bid, on volume of around $7 million.

Lamb Weston – being spun off from Chicago-based agribusiness and food processing giant ConAgra Inc. – priced $833 million of each tranche of notes at par last Tuesday as a regularly scheduled forward calendar offering. The new bonds both shot above the 101 bid mark when they first hit the aftermarket, but had given up some of their initial gains around mid-week and ended last week around there, before improving on Monday.

Jack comes back

Among other recently priced new issues, a trader saw the Jack Ohio Finance LLC 6¾% first-lien senior secured notes due 2021 firm by about ½ point, closing at 100¼ bid.

It was the issue’s first time back above its par issue price since the Detroit-based gaming and hospitality company priced that $750 million of paper last Tuesday; after pricing at par, they had struggled, dipping as low as 99 3/8 bid on Wednesday before making their way back from that nadir.

The other half of the company’s $1.05 billion two-part forward calendar deal, however – the $300 million of 10¼% second-lien notes due 2022 – continued to languish below their par issue price. It was last seen quoted on Thursday at around the 98 5/8 bid level.

Concordia get clocked

Away from the recently priced issues, Concordia International Corp.’s paper remained under extreme pressure on Monday, after the Canadian drugmaker’s third-quarter results spurred double-digit losses in some of its notes.

For the quarter, Concordia reported a net loss of $75.1 million, or $1.47 per share, versus net income of $1.5 million, or $0.04 per share, in the third quarter of 2015.

The loss came even though revenue for the quarter was $185.5 million, around double $93 million in the prior year, and adjusted EBITDA for the quarter was $104.4 million, versus $71.4 million in previous year.

Besides the loss, the company also said that financial guidance was suspended; the company said in a news release that guidance was suspended so that it could assess the business under new leadership.

Shares of Concordia lost $1.47 for the quarter and after Monday’s news, shares were down $1.16, or 36.36%, to $2.03.

On the bond side of the ledger, Concordia’s 9½% notes due 2022 traded down to the “mid-40s,” down from mid-70s from a month prior on Oct. 7 and down about 12 points from Friday’s levels, a trader said.

“That was the biggest mover [of the day],” he said.

Another trader said the notes were out the door at 46¾ at close.

The company’s 7% notes due 2023 were down 6¾ points to 44¼ from 50, yet another market source said.

Stocks boost bonds

Overall, the junk market had a better tone to it, taking a cue from stocks, which shot up solidly in the run-up to Tuesday’s U.S. elections; some observers speculated that the stocks got a boost from the weekend announcement by the FBI that following a review of thousands of newly discovered e-mail communications, there would be no change in Democratic candidate Hillary Clinton’s legal status – news seen having a calming effect on the recently unsettled markets, whose general expectation of a Clinton victory had recently been challenged by the emergence of the new e-mails linked to the federal investigation of her private server.

The bellwether Dow Jones Industrial Average – which on Friday had lost 42.39 points, or 0. 24% – zoomed by 371.32 points, or 2.08% on Monday, lifting it back above the 18,000 mark at 18,259.60

In the junk world, a trader said, volume was lighter on Monday – but “things were up ¼ to ½ point generically – some stuff a little more, other stuff a little less.”

Indicators get better

Statistical market performance measures turned higher across the board on Monday for only the second time in the last 11 sessions, dating back to Oct. 24; they had been mixed on Thursday and Friday, after having been lower across the board for six consecutive sessions before that.

The KDP High Yield Index was up by 5 basis points on Monday, ending at 70.31 – its first gain after nine consecutive losses, including Friday’s 6 bps downturn.

Its yield came in by 2 bps, to 5.71%, after having widened over the previous nine straight sessions, including edging up by 1 bp on both Thursday and again on Friday.

The Markit Series 27 CDX index jumped by nearly 1 full point on Monday 10 103 25/32 bid, 103 7/8 offered, its second straight gain; on Friday, it had risen by 3/32 point – its first such gain after eight consecutive downturns before that, including setbacks of 5/32 point on both Wednesday and again on Thursday.

And the Merrill Lynch High Yield tndex was back in the black again for the second time in the last three sessions, firming by 0.538%, after having dropped by 0.107% on Friday. On a slightly longer-term basis, it was the index’s fourth advance in the last l1 sessions, a period that included six successive daily declines.

Monday’s rise brought the index’s year-to-date return back above the psychologically significant 15% marker, to 15.328% from Friday’s 14.711% close.

However, it remained well below its peak level for this year of 16.768%, established on Oct. 25.

Colin Hanner contributed to this review.

© 2015 Prospect News.
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