Primary turns quiet, though MDC on tap; new Kraton, Cinemark busy; funds gain $1.679 billion

By Paul Deckelman and Paul A. Harris

New York, March 17 – After seven consecutive sessions of pricing activity dating back to last Tuesday, the high-yield primary market quieted down on Thursday, with no new U.S. dollar-denominated and fully junk-rated offerings heard to have gotten done.

However, there was some news coming out of the new-deal realm, with marketing and communications company MDC Partners Inc. said by syndicate sources to be shopping around an $800 million offering of eight-year notes. The deal is likely to price on Friday.

Elsewhere, activity was muted in both the primary and the secondary market, with some participants attributing at least some of that quietude to external distractions – New York’s iconic annual St. Patrick’s Day parade, giving everybody, whether Irish or not, a ready-made excuse for a celebration, as well as the onset of “March Madness,” with the televised college basketball playoffs getting under way.

A secondary trader said that while activity was relatively light, the market had a firmer tone to it, following the lead of equities and oil, both of which rose on Thursday.

Among recent new issues, Wednesday’s new deals from movie theater operator Cinemark Holdings, Inc. and chemical maker Kraton Polymers LLC were seen busy, with the latter moving up several points on the session.

Embattled Canadian drugmaker Valeant Pharmaceuticals International, Inc.’s trading volume was once again robust and investors tried to take the recently battered bonds higher.

Statistical market performance measures turned higher across the board on Thursday, after having been lower on Tuesday and mixed on Wednesday. It was the third higher performance all around out of the last six sessions.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – stayed strongly positive this week, posting their fifth consecutive advance and fourth straight sizable gain, as $1.679 billion more came into those weekly-reporting-only domestic funds than left them during the week ended Wednesday.

MDC for Friday

Activity during Thursday’s session in the new issue market remained muted.

Sources were chalking that fact up to St. Patrick’s Day celebrations and to the National College Athletic Association’s Division One Men’s Basketball Tournament which got underway in earnest on Thursday.

Both events – the residual from the former and the rampant attention customarily commanded by the latter – are expected to factor into the Friday session as well, sources say.

One new dollar-denominated deal was announced on Thursday.

MDC Partners rolled out an $800 million offering of eight-year senior notes (expected B3/confirmed B+).

The deal appears to be shaping up at the tight end of the 6½% to 6¾% whisper, according to a trader who added that it is thought to be playing to a decent or better book.

Official talk is expected early Friday, with the bonds set to price before Friday’s close.

J.P. Morgan and Wells Fargo are the joint bookrunners for the debt refinancing deal.

MDC Partners might be Friday’s sole deal, although at least one other offering has been hanging around on the active new issue calendar since early March.

TRAC Intermodal LLC and TRAC Intermodal Corp. ran a roadshow for a $485 million offering of second lien notes due 2021.

Early on the deal was whispered at 10%, however the market was looking for more yield and covenant concessions, sources say.

It has been radio silence on TRAC Intermodal, a sellside source observed on Thursday.

A quietly firmer session

In the secondary market, a trader called Thursday’s session “pretty strong, it kind of followed stocks, oil and all of the other basic commodities higher.”

The equity bellwether Dow Jones Industrial Average gained 155.73 points, or 0.90%, ending at 17.481.49.

The market measure is up 0.3% from where it had closed on 2015 – battling back after having been down by as much as 10% from that year-end level earlier in the year.

Both equities and junk bonds were given a boost by firmer oil prices, with the benchmark U.S. crude grade, West Texas Intermediate for April delivery, finishing up $1.74 per barrel in Thursday trading on the New York Mercantile Exchange, settling at $40.20 – its first time above the psychologically potent $40 mark since December.

The global benchmark, Brent crude for May delivery, rose by $1.21 per barrel in Thursday trading on the London ICE Futures Exchange, settling at $41.54.

With that kind of a tailwind, the junk trader said, “the market generically was up anywhere from ¼ to ½ point, depending on what you’re talking about.

“But flows were pretty light.”

Kraton, Cinemark busy

Among specific names, there was activity in the two deals which had priced on Wednesday, from Cinemark and Kraton Polymers.

A trader said that at his shop, “we didn’t get involved” in the Kraton 10½% notes due 2023, “and there’s been very little said in the Street as far as secondary markets.”

However, he did see those bonds trading up to a 94½ to 95 context, after having been placed at 91 on Wednesday.

At another shop, a trader said the Kraton bonds had firmed 4 points on the day, going home at 95 bid on volume of over $15 million.

Kraton, a Houston-based chemical producer, and its Kraton Polymers Capital Corp. unit, re-launched $440 million of those notes on Wednesday, with the paper heard to have priced at par.

That deal, which was first shopped around the market late last year, had originally gotten done back in early January, when dealers converted bridge loans for an acquisition financing into the notes, the first transaction of the year in Junkbondland. Those notes had come at a re-offer price of 96.225 back on Jan. 6.

Traders saw robust activity among those re-launched bonds on Wednesday, with over $31 million having changed hands.

Wednesday’s other new deal – Plano, Texas- based move theater operator Cinemark Holdings’ add-on to its existing 4 7/8% notes due in June of 2023 – also saw brisk aftermarket activity on Thursday. More than $13 million traded.

A market source saw those bonds ending at 99¾ bid, down ¼ point on the session.

A second trader pegged the bonds in a 99½ to 99 5/8 bid context.

Cinemark priced that $225 million add-on to the existing $530 million of notes on Wednesday at 99 though the company’s Cinemark USA Inc. subsidiary, yielding 5.041%. Sources quoted the bonds late Wednesday in a 99¼ to par context.

Valeant volume still tops

Away from the new deals, “Valeant was really active again,” said a trader, who opined that “stuff seemed like it traded off a little bit – not too much.”

Others in the market saw the embattled Laval, Que.-based drug manufacturer’s bonds mostly firmer for a second straight session, as that paper bounced back after having “absolutely gotten killed” on Tuesday, a trader said. Most of the company’s several junk bond issues had been pounded down by 8 to 10 points in heavy trading on Wednesday.

Its 6 1/8% notes due 2025 were the junk market’s volume leader for a third straight session. The trader saw those bonds gain 1/8 point to end at 76 7/8 bid. Over $69 million changed hands.

Valeant’s 5 7/8% notes due 2023 were seen ½ point better at 77 3.4 bid on volume of over $34 million.

Its 7¾% notes due 2021 ended the day at 83½ bid, also a ½ point gain on the day, with over $30 million traded.

Investors have heavily traded the company’s bonds and its shares in the wake of Tuesday’s announcement of lowered 2015 year-end and full-year 2016 guidance and the possibility that some of its debt may go into default because of delays in making required regulatory filings.

Indicators turn better

Overall, one of the traders said. “everything seemed just a little bit better.”

That bullishness was reflected in the statistical market performance measures, which turned higher across the board on Thursday after being lower on Tuesday and mixed on Wednesday. It was the third higher performance all around out of the last six sessions.

The KDP High Yield Daily Index rose by 28 basis points on Thursday – exactly double Wednesday’s 14 bps gain – to end at 65.76, after plunging by 24 bps on Tuesday. Thursday was the index’s fifth gain in the last six sessions.

Its yield tightened by 9 bps, to 6.63%, on top of having come in by 3 bps on Wednesday.

Thursday marked the yield’s fourth narrowing in the last five sessions.

The Markit Series 25 CDX North American High Yield Index rose by 17/32 point on Thursday, going home at 102 29/32 bid, 102 31/32 offered, after jumping nearly ¾ point on Wednesday.

It was the index’s fifth gain in the last seven sessions.

And the Merrill Lynch North American High Yield Master II Index turned higher on Thursday after two straight sessions on the downside, firming by 0.638%, versus Wednesday’s 0.123% loss.

Thursday marked the index’s fourth gain in the last six sessions.

Thursday’s advance improved the index’s year-to-date return to 2.991% – a new peak level for the year – from Wednesday’s 2.338%. The new zenith surpassed the previous high point of 2.788%, set on Monday.

Funds gain $1.679 billion

Meantime, flows of investor cash into or out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – stayed strongly positive this week, posting their fifth consecutive advance and fourth straight sizable gain, as some $1.679 billion more came into those weekly-reporting-only domestic funds than left them during the week ended Wednesday (see related story elsewhere in this issue).

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