Primary quiet, though Baffinland deal sees adjustments; Noble retreat continues; iHeart gains

By Paul Deckelman and Paul A. Harris

New York, Dec. 21 – The first day of winter began on a sleepy note in the high-yield primary sphere. No new dollar-denominated and fully junk-rated offerings were seen having priced, in contrast with Tuesday’s session, when $195 million of such paper from domestic or industrialized-country borrowers had come to market, according to data compiled by Prospect News.

However, the primary may not be ready to call it quits just yet, according to syndicate sources, who reported that the lone deal remaining on the forward calendar – from Canadian metals company Baffinland Iron Mines Corp. – underwent some structural and covenant changes, in hopes of making that $350 million five-year secured offering more palatable to investors. But there was no firm guidance on when that deal might actually get done.

In the secondary realm, traders meantime reported very little activity in the two deals that had priced on Tuesday from commercial real estate company Avison Young (Canada) Inc. and in-flight internet connectivity provider Gogo Inc.

They also did not see much trading in other recently priced offerings, including last week’s energy-related deals from the likes of Tesoro Corp., Diamondback Energy, Inc. and Gulfport Energy Corp., all of which were about unchanged on light volume.

But last week’s offering from offshore energy drilling contractor Noble Holding International Ltd. continued to lose ground in fairly busy dealings.

Away from the new and recent deals, the traders reported no follow-up action to the sharp gains that Kinetic Concepts Inc.’s bonds had enjoyed in active trading on Tuesday on the news that the medical products maker’s corporate parent had agreed to a big asset sale.

Chesapeake Energy Corp.’s bonds were somewhat active after that company announced an asset sale, its second such deal within the space of a month.

Broadcaster iHeart Communications Inc.’s bonds were seen busy and at improved levels.

Statistical market performance measures turned better across the board on Wednesday.

Baffinland restructured

In an otherwise dead quiet pre-holiday primary market, Baffinland Iron Mines announced structural and covenant changes to its $350 million offering of five-year senior secured notes (Caa1/B-) on Wednesday.

Call protection on the notes is increased to four years from two years.

There are also covenant changes. (See related story in this issue.)

There was no update to the timing or price talk of the deal, which began a roadshow on Dec. 9 and was silent through much of the intervening period.

Goldman Sachs & Co. is the left bookrunner. Morgan Stanley & Co. LLC is the joint bookrunner.

Should it price, Baffinland Iron Mines would be the final deal of 2016 and would clear the active forward calendar heading into 2017.

Tuesday inflows

The cash flows of the dedicated high-yield bond funds were positive on Tuesday, the most recent session for which data was available at press time, according to a trader.

High-yield exchange-traded funds saw $298 million of inflows on the day.

Actively managed high-yield funds saw $100 million of inflows on Tuesday.

Meanwhile, the cash flows of the dedicated bank loan funds were also positive on the day.

The loan funds saw $225 million of inflows on Tuesday, including $90 million of inflows to the bank loan ETFs, the trader said.

‘Closing time’

In the secondary market, a trader characterized Wednesday’s mostly lightly traded session as “kind of closing time, as far as what everybody’s doing,” with the Christmas holiday rapidly drawing near.

The Securities Industry and Financial Markets Association has recommended an early (2 p.m. ET) close on Friday and a full market shutdown on Monday in observance of the holiday.

But market participants say things have already been winding down ahead of the scheduled break.

New deals little seen

Traders did not see any sizable volume in either of the new deals that hit the junk bond market on Tuesday.

Toronto-based commercial real estate company Avison Young (Canada)’s 9½% senior secured notes due 2021 were being quoted at 98.125 bid, on just a couple of smallish odd-lot trades.

The $130 million regularly scheduled forward calendar offering had priced on Tuesday at 98.07 to yield 10%.

Chicago-based in-flight internet company Gogo’s 12½% senior secured notes due 2022 were seen around the 109 bid level, also with no sizable round-lot transactions recorded.

That’s about the level at which those notes had been trading before the company’s quick-to-market $65 million fungible add-on offering on Tuesday. Those notes priced at 108 to yield 10.234%, after the deal was upsized from an originally announced $50 million.

Recent deals quiet

There was also not much activity going on in recently priced offerings, such as the Tesoro 4¾% notes due 2023 and 5 1/8% notes due 2026. Both tranches of the San Antonio, Texas-based petroleum refiner and marketer’s new bonds were unchanged on the day, at 100½ bid and 100¾ bid, respectively, on volume of about $3 million each.

Midland, Texas-based oil and natural gas exploration and production company Diamondback’s 5 3/8% notes due 2025 were unchanged at 101¼ bid, while Oklahoma City-based sector peer Gulfport’s 6 3/8% notes due 2025 were steady at that same level, on just a handful of trades.

Noble woes continue

That lassitude did not cover Noble Holding International’s 7¾% notes due 2024.

A trader saw those bonds on Wednesday continuing to retreat, losing another 3/8 point on the day to end at an even 96 bid, with over $19 million changing hands.

That $1 billion issue priced Dec. 14 at 98.01 as a regularly scheduled forward calendar offering, to yield 8 1/8%, after the Cayman Island-based energy drilling company’s deal was doubled in size from an originally shopped $500 million.

But those bonds have struggled in the aftermarket ever since then, continuing to lose a little more ground each session.

On Tuesday, they lost 1/8 point, with over $13 million traded.

No KCI follow-through

Two big asset-sale deals didn’t product much in the way of upside bond movement on Wednesday.

A trader said that he had seen “no follow-on activity” in Kinetic Concepts’ several issues of bonds, which had all risen sharply on Tuesday after the San Antonio, Texas-based wound-therapy products company’s corporate parent, Acelity LP Inc., announced plans to sell its Life Cell tissue-repair business to Dublin-based pharmaceuticals giant Allergan for $2.9 billion in cash, with much of those proceeds expected to go to debt repayment.

On Tuesday, the company’s 9 5/8% notes due 2021 jumped to 105½ bid, 106½ offered, a gain of more than 7 point from their previous levels around 98 bid, with over $28 million traded.

Its 12½% notes due 2021 had zoomed by almost 14 points, to 104 bid, 105 offered from prior levels around 90, with around $14 million traded.

Its 12½% notes due 2019 had gained more than 5 points on the day, ending at 103¼ bid, 104 offered, also on $14 million of volume.

But those issues were little traded on Wednesday.

Acelity had $4.8 billion of long-term debt as of June 30, according to a recent regulatory filing.

Much of that debt was incurred back in 2011 during the company’s $6.3 billion leveraged buyout by private equity company Apax Partners.

Chesapeake mostly quiet

A trader said he didn’t see too much activity in Chesapeake Energy’s paper following the news that the Oklahoma City-based natural gas company had agreed to sell a sizable chunk of its holding in the Haynesville Shale area in Louisiana for $465 million.

The company had announced another such Haynesville deal earlier this month, bringing to $915 million its anticipated proceeds from those sales of non-core assets.

The trader said that Chesapeake’s 8% notes due 2022 were up “maybe ¼ point” after the news, to around 108 bid, with about $8 million traded.

iHeart improves

Elsewhere, distressed-debt traders saw San Antonio-based broadcasting and outdoor advertising giant iHeart’s bonds better on the day.

Its 14% notes due 2021 gained 2¼ points, ending at 41½ bid, on volume of over $24 million, while its 9% notes due 2019 went out at 80¾ bid, up 5/8 point, with over $13 million traded.

Indicators turn northward

Statistical market performance measures turned better across the board on Wednesday and were stronger for only the second time in the last seven sessions. Wednesday’s improvement followed four straight trading days during which the indexes had been mixed, plus one session when they had been lower all around.

The KDP High Yield index rose by 4 basis points on Wednesday to end at 71.28, its first gain after five straight sessions on the downside, including Tuesday’s 1 bp retreat.

Its yield came in by 2 bps to 5.5% after having risen by 1 bp on Tuesday, which had been its third such rise in the previous four sessions.

The Markit Series 27 CDX index posted its fifth consecutive gain. It was up by almost 1/16 point to close at 106 9/32 bid, 106 5/16 offered, after having moved up by 7/32 point on Monday and another 1/8 point on Tuesday.

The Merrill Lynch High Yield index meantime posted its third straight advance after breaking out of a two-session slump on Monday, rising by 0.103%, on top of Tuesday’s 0.105% gain.

The latest improvement lifted its year-to-date return to 16.946% from 16.825% on Tuesday.

But those levels remain below its 2016 peak level of 17.152%, set last Tuesday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.