High yield in retreat amid market volatility; oil and gas sectors take a beating; mining names weaker

By Stephanie N. Rotondo and Paul A. Harris

Phoenix, Oct. 15 – There was “a lot of carnage” in the high-yield bond market on Wednesday, a trader said.

The broader markets were also volatile – mostly toward the downside – amid a drop in consumer spending, manufacturing and inflation data. The weak information has investors considering whether the U.S. economy can hold up in the midst of a global economic slowdown.

“It was up, up, up for so long,” the trader said. “It could stay this way for awhile.

“It’s definitely been a lot wider than this before,” he noted.

Treasuries also moved about broadly during midweek trading. A trader said the long bond was up 6 points at one point “for a brief moment, then it kind of all evened out and then it just ebbed and flowed widely.”

Volatility in the global capital markets essentially shuttered the high yield primary market on Wednesday, sources said.

No deals priced. No deals were announced.

Essar Steel Algoma is expected to sell $625 million of secured notes, according to market sources, who conceded that most of the information was gleaned from credit ratings releases issued by Moody's Investors Serviceand Standard & Poor's.

The deal is expected to include $350 million of senior secured notes (Ba3/B+) and $275 million of third-lien secured notes (B3/B-).

Timing and syndicate names have not yet been announced.

The company is also in the market with a $350 million 4¾-year first-lien term loan (Ba3/B+), which launched on Wednesday via Deutsche Bank Securities Inc., Goldman Sachs Bank USA and Jefferies Finance LLC.

Proceeds will be used to help refinance the company’s capital structure.

Thin calendar

The Wednesday session ended with just two deals believed to be on the active calendar.

Providence Service Corp. was marketing a $200 million offering of seven-year senior notes (B3/B-) via BofA Merrill Lynch, RBC and SunTrust last week.

And BPZ Resources, Inc. is in the market with a $150 million offering of five-year senior secured notes via Seaport Global.

There has been no information on either of those two deals since the beginning of the present week, market sources say.

Market ends ‘ugly’

It was another “ugly day” for the high-yield market, a trader said.

However, high-yield bond market indicators were mixed on the day.

The CDX High Yield 23 index was up just a touch at 104 7/16 bid, 104 5/8 offered.

But the KDP High Yield index hit a new 52-week low, falling to 70.93, with a 5.95% yield. That compared to Tuesday’s reading of 71.3, with a 5.82% yield.

“Newer deals were obviously weaker,” a trader said.

Dynegy Inc.’s $5.1 billion three-tranche deal from Friday “wasn’t down that much,” a trader said.

The $2.1 billion of 6¾% notes due 2019 were off under half a point at 99 5/8, he said. The $1.25 billion of 7 5/8% notes due 2024 were off a like amount at par 3/8.

And, the 7 3/8% notes due 2022 – a $1.75 billion issue – ended down just over half a point at 99 7/8.

But Burger King Worldwide’s 6% notes due 2022 – a $2.25 billion issue that priced on Sept. 24 – “held in like a rock,” a trader said, deeming the issue unchanged at 99.

Oil and gas pressured

Anything even remotely energy related was getting clobbered in midweek trading.

“Anything oil and gas, there’s just bloodshed,” a trader said.

That bloodshed was likely note helped by the broader market’s volatility, nor by the declining price of oil.

The price per barrel of West Texas Intermediate oil was down 14 cents to $81.70. Brent crude meantime dropped $1.19, or 1.4%, to $83.85.

The recently falling prices have been blamed on oversupply.

Back in the world of corporate bonds, Chesapeake Energy Corp.’s 5¾% notes due 2023 were seen off a point at 102¾ at one desk. At another, SandRidge Energy Inc.’s 7½% notes due 2021 were called down 3½ points at 87½.

Forest Oil Corp.’s 7¼% notes due 2019 were meantime seen falling 7 points to an 83 to 84 context, which compared to a 90 to 91 range previously.

Among independent oil and gas explorers, Linn Energy LLC’s 7¾% notes due 2021 ended off over 5 points at 95¼.

Also, Samson Investment Co.’s 9¾% notes due 2020 weakened nearly a point to 76¼.

Offshore oil drillers were also feeling the pain.

Hercules Offshore Inc.’s 7½% notes due 2021 finished the session down 4 points at 61, according to a trader. Another trader said the 10¼% notes due 2019 traded into the high-60s, down from the low-80s on Friday.

Mining weakens

The mining sector also came under pressure, as the market’s volatility weighed on commodity prices.

Cliffs Natural Resources Inc.’s had “a bunch of trades,” a trader said, all to the down side.

The softness came after the name experienced a rebound in the previous session, attributed to rising iron ore prices and potential merger interest from Glencore.

The trader said the 6¼% notes due 2040 were unchanged at 65, but the 4 7/8% notes due 2021 declined almost 3 points to 65½.

The 5.9% notes due 2020 lost almost 2 points, ending at 68¾.

In the coal space, Arch Coal Inc.’s 8% notes due 2019 declined 1½ points to 65½, a trader said. That same trader said Walter Energy Inc.’s 9½% notes due 2019 lost the same amount, closing around 83 3/8.

A second trader said Walter’s 11% PIK toggle notes due 2020 were “down a bit,” trading down to 40 from the mid-40s previously.

Retail sales decline

Energy and mining weren’t the only sectors taking hits on Wednesday.

Retailers were losing ground, as the latest retail sales report from the Commerce Department showed a 0.3% decline in sales in September.

The dip was the first decline since January, which was impacted by inclement weather.

Toys ‘R’ Us Inc.’s 7 3/8% notes due 2018 dropped 2 points to 58½ bid, according to a market source. That source also saw JCPenney Co. Inc.’s 5.65% notes due 2020 losing 1½ points to 83½ bid.

At another shop, a trader said Sears Holdings Corp.’s 6 5/8% notes due 2018 lost almost a point to close at 88¼, while Claire’s Stores Inc.’s 9% notes due 2019 closed at 99 1/8, down a point.

Sara Rosenberg contributed to this review

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