Quiet primary ends quiet week; recent new deals inactive; AK surges on possible tariffs

Paul Deckelman and Paul A. Harris

New York, Feb. 16– The high-yield primary market remained in a quiet holding pattern on Friday, as it has been for most of the past week.

For a fourth consecutive session, no new deals were even formally announced let alone priced, with issuers continuing to hang back as they wait and see whether the calm after the recent financial market volatility continues.

But primaryside sources were cautiously optimistic about the near-term prospects for a renewal of new-issuance activity, noting that the extreme volatility which had been seen last week in the equity market and, to a lesser degree, the fixed-income markets seemed to have moderated, setting the stage for some prospective new issues to come to market during the upcoming week, shortened by one day due to the Presidents Day market close on Monday.

That would follow the slowest new issuance week seen so far this year, other than the very first week of the year, which saw exactly zero issuance as participants returned to work after the long year-end holiday lull.

According to data compiled by Prospect News, just $591 million of new junk-rated and dollar-denominated paper priced in two tranches during the week, well down from the more than $3 billion which had gotten done the week before, ended Feb. 9.

And for a second straight week, the year-to-date pace of new issuance was around 13% behind that which was seen in the junk market at this time a year ago.

Traders saw no activity in the only issue which had been actively marketed this week, from oil and natural gas exploration and production operator Jones Energy Holdings, LLC. After pricing on Monday, the new Jones bonds had been among the more actively traded high-yield credits, trading up from their deeply discounted issue price in line with an overall better market tone and firmer world crude prices.

About the only recently priced issue seen doing anything volume-wise in Friday’s quiet session heading into the holiday weekend was the previous week’s issue from Jones sector peer Sanchez Energy Corp.

Away from the new issues, Intelsat Jackson Holdings SA, a unit of communications satellite operator Intelsat SA, was among the busiest credits, trading at firmer levels, although no fresh news was heard that would explain the rise.

Another gainer was AK Steel Corp., whose notes and shares both climbed smartly in very active trading after the U.S. Commerce Department urged the White House to impose tariffs on steel and aluminum imports – a step that could help domestic producers like AK in their battle against lower-cost foreign rivals.

Statistical market performance measures were higher for a second consecutive session on Friday, their third strong performance in the last five trading days. They had turned upward on Thursday and stayed that way on Friday, after having been mixed on Wednesday and lower across the board on Tuesday.

The indicators were also all up on the week versus where they had finished out last week – their first stronger week after two straight weeks before that on the downside. It was the indicators’ second strong trading week out of the last four.

The week ahead

The primary remained shuttered on Friday, ahead of the extended Presidents Day holiday weekend in the United States.

However capital markets stabilized as the volatile Feb. 12 week wore on, paving the way for a more active new issue market in the week ahead, sources said.

Look for “a few deals” from JP Morgan in the holiday foreshortened week ahead, a trader said. That's despite the fact that the ranks of market players will be thinned by February school vacation weeks in Boston and New York, the source added.

A syndicate banker canvassed on Friday knew of several dollar- and euro-denominated deals – both best efforts and strategic – slated for March.

One of those is an expected offer being discussed in the market as the Unilever Spreads deal: €1 billion of high-yield notes backing KKR’s acquisition of Unilever’s margarine and spreads business. A €3.9 billion equivalent of term loans kicks off Monday in London, and on Wednesday in New York. The bonds will come subsequently.

The loans will include dollar-denominated paper, an informed source said. The bonds will not.

Credit Suisse has the wheel. Deutsche Bank, KKR Capital Markets, BNP Paribas, Credit Agricole, Goldman Sachs, HSBC, ING, Lloyds, Mizuho, RBC, SG CIB and UniCredit are involved, sources say.

Migration to loans

The word going around the junk market during the becalmed Feb. 12 week held that potential junk issuance was migrating to the more stable bank loan market, where outcomes for both issuers and investors are more predictable – much more predictable in times of capital markets volatility.

The bank loan market is in “way better” technical condition, a debt capital markets banker said on Friday.

In the loan market, the borrowings float above Libor, whereas the fixed yields on bonds remain susceptible to spikes in Treasuries, which have indeed transpired of late, the source remarked.

Also given its nature, the term loan B market can take as long as five to six weeks to react to volatility in the broader capital markets, whereas high yield – particularly high-yield ETFs – tend to be closely correlated with the stock market, the banker said.

Only one issuer is known to have migrated to the bank loan market from the junk bond market, in recent days.

TTM Technologies Inc. upsized its add-on term loan backing the acquisition of Anaren Inc. to $600 million from $300 million, scrapping plans to bring $300 million of junk bonds, sources say.

ETF cash tide turns positive

Following news that dedicated high-yield bond funds sustained their second-biggest weekly outflow ever, the daily cash flows for high-yield ETFs turned positive on Thursday, a trader said.

The ETFs saw $188 million of inflows on the day, a trader said.

That news arrives on the heels of a Thursday afternoon report that the dedicated junk funds sustained a whopping $6.31 billion of outflows during the week to Wednesday’s close, according to Lipper US Fund Flows.

It was the second biggest weekly outflow in the history of the market, sources say.

The daily cash flows of actively managed high-yield funds remained in the red on Thursday, at negative $115 million. However the magnitude of outflows sustained by actively managed funds moderated over the course of the week, the trader said.

Another quiet primary week

With only the Jones Energy deal having been actively marketed to investors (there was also a smallish, quiet private placement deal by Toronto-based precious metals miner Gran Colombia Gold Corp.), only $591 million of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers priced in just two tranches during the past week, according to data compiled by Prospect News.

The week’s activity was well down from the $3.43 billion of new junk bonds which priced in 10 tranches the previous week, ended Feb. 9.

That issuance, in turn, fell from the $4.79 billion that came to market in 11 tranches during the week ended Feb. 2.

And that was down from the $5.18 billion of new junk bonds pricing in eight tranches the week before, ended Jan. 26.

Junkbondland new-deal activity has been on the slide over the past four weeks since peaking at the $8.31 billion which got done in 14 tranches the week before that, ended Jan. 19 – a feat that was all the more notable since that week was one trading day shorter than usual, with fixed-income markets in the United States closed on Jan. 15 in observance of the Martin Luther King Day federal legal holiday.

As of the close Friday, year-to-date issuance had edged up to $29.6 billion in 56 tranches – about 13.4% behind the $37.66 billion which had gotten done in 68 tranches by this point on the calendar last year.

It was the second straight week in which 2017 issuance was around 13% ahead of 2018’s on a year-to-date basis.

The week before, ended Feb. 2, the 2017 and 2018 new-issuance totals were about even – and just a few weeks ago this year’s primary pace was running some 30% above last year’s at the same time. The gap was closed due to the recent slide in this year’s issuance, combined with a pick up in issuance which occurred during the corresponding period in 2017.

For all of 2017, junk market issuance came to $281.57 billion in 524 tranches, running 24.1% ahead of the $226.78 billion which had priced in 359 tranches in 2016, the Prospect News data indicated

Little activity in recent issues

In the secondary market, traders reported a generally sleepy session ahead of the Presidents Day holiday weekend, with one declaring that “people were just really going through the motions.”

However, he saw the overall tone continuing to improve, as had been the case over the previous two or three sessions.

The traders saw little real activity in new or recently priced deals. One market source, for instance, said that there was “none” in terms of trading in the new Jones Energy Holdings issue of 9¼% senior secured first-lien notes due 2023.

The Austin, Texas-based oil and natural gas exploration and production company’s $450 million forward calendar deal – co-issued with its Jones Energy Finance Corp. subsidiary – priced on Monday at 97.526 to yield 9 7/8%.

It was actively traded during the week, topping the Most Actives list on both Tuesday and Wednesday with volumes of $40 million and $22 million, respectively, and had initially firmed as high as a 99½ to par bid level, before coming off from those highs.

It had last traded on Thursday around the 99 bid mark.

Most other new deals were likewise seen little traded.

Apex Tool Group LLC’s 9% notes due 2023 were seen up 3/16 point on the day Friday to 99 15/16 bid, but on only about $2 million traded.

A trader said that the sole recently priced issue showing “half-way decent volume” Friday was Sanchez Energy’s 7¼% senior secured first-lien notes due 2023.

He saw those notes up ½ point on the day to end at 99¾ bid, with over $12 million having traded.

The Houston-based E&P operator priced an upsized $500 million issue of that paper off the forward calendar on Dec. 7 at 98.973 to yield 7½%.

© 2015 Prospect News.
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