Primary quiet, though Baffinland deal still on calendar; secondary firm, featureless; funds lose $19 million

By Paul Deckelman and Paul A. Harris

New York, Dec.22 – The high yield primary market remained on hold again Thursday, with one deal still on the forward calendar, but many participants believing that things may have wrapped up for the year.

They heard no word on timing or price talk on the last remaining offering still on the calendar, from Canadian metals company Baffinland Iron Mines Corp.

That $350 million five-year secured offering had undergone some structural and covenant changes on Wednesday, in hopes of making it more palatable to investors.

But no firm guidance on when that deal might actually get done – or if it would get done at all this year – had emerged by Thursday’s close.

Action was possible on Friday, though in the view of many, unlikely – 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, Dec. 26, in observance of the holiday.

In the secondary market, traders saw a generally firm tone – but none saw anything of note standing out, either among recently priced issues such as the big two-part offering from Tesoro Corp., or from existing credits.

Statistical market performance measures were better on Thursday for a second straight session.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned slightly negative this week, posting their first net outflow after four straight weeks of net inflows, which in turn had followed a string of six straight net outflows before that.

Sources familiar with the fund-flow statistics said Thursday that some $19 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the reporting week ended on Wednesday, versus the net $3.75 billion inflow reported last Thursday for the seven-day period ended Dec. 14. (See related story elsewhere in this issue.)

The new issue market was dormant on what is expected to be the second-last active session of 2016.

No deals were announced, and no issues were priced.

Business for the year could be concluded, sources say.

However on Wednesday Baffinland Iron Mines Corp., which has been in the market since Dec. 9 with a $350 million offering of five-year senior secured notes (Caa1/B-) – now the sole deal on the active forward calendar – announced a deal restructuring, as well as a list of investor friendly covenant changes.

There were no follow-up announcements on Thursday, as the market awaits word on price talk and timing for the last announced high yield bond deal of 2016.

Mixed Wednesday flows

The cash flows of the dedicated high yield bond funds were mixed on Wednesday, the most recent session for which daily numbers were available at press time, according to a portfolio manager.

High yield ETFs saw $65 million of inflows on the day.

However actively managed funds sustained $20 million of outflows on Wednesday.

Meanwhile the cash flows of the dedicated bank loan funds remained robust on Wednesday, the manager said.

The loan funds saw $295 million of inflows on the day.

In the secondary market, traders said that things were generally firm – but featureless – on the last full trading session of the week before the holiday break.

“It was pretty quiet,” one said.

“Flows kind of dried up today. There was a little bit of activity, but the tone remains good,” with the mutual funds and ETFs “looking for bonds,” although he said that levels were “mostly unchanged.”

He doubted that the one remaining deal still on the calendar would see the light of day this year.

“I don’t think it will happen,” he declared.

As to the deals which had recently gotten done, he saw little actual trading in those names.

“Nothing jumps off the page right now.”

A second trader agreed that “there really wasn’t much going on.”

He called the market “relatively strong,” but said that it was “more having to do with illiquidity than anything fundamental.”

He added that “I can’t think of any major credit move today – we’re sort of grinding towards the end of the year.”

Recent deals steady

A market source at another shop said that recently priced offerings were largely unchanged on the session.

He quoted Tesoro Corp.’s 4¾% notes due 2023 at 100½ bid, 100¾ offered, while its 5 1/8% notes due 20226 came in at 100¾ bid, 101 1/8 offered.

He said that Gulfport Energy Corp.’s 6 3/8% notes due in May of 2025 were steady at 101¼ bid, 102 offered, while he saw Open Text Corp.’s 5 7/8% add-on notes due in June of 2026 – like Tesoro and Gulfport, a deal from last Thursday – at 104¼ bid, 105¼ offered.

Going back a little further, Concho Resources Inc.’s 4 3/8% notes due in January of 2025 and American Midstream Partners, LP’s 8½% notes due 2021, both of which had come to market last Tuesday, were both trading at 99 5/8 bid, 100¼ offered.

Indicators stay firm

Statistical market performance measures were better on Thursday for a second straight session.

The KDP High Yield index rose by 7 basis points on Thursday to end at 71.35, its second consecutive advance after five straight sessions on the downside before that. On Wednesday, it had firmed by 4 bps.

For a second day in a row, its yield came in by 2 bps to, to 5.48%, replicating Wednesday’s tightening, after having risen by 1 bp on Tuesday, its third such rise in the previous four sessions.

The Merrill Lynch High Yield index meantime posted its fourth straight advance after breaking out of a two-session slump on Monday, rising by 0.077%. It had also been up by 0.103% on Wednesday, on top of Tuesday’s 0.105% gain.

The latest improvement lifted its year-to-date return to back over the psychologically significant 17% level, to 17.036%, from16.946% on Wednesday on Tuesday.

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

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