Junk primary silent as month opens, $1.2 billion week ends; new Boyd bonds retreat, ONO up

By Paul Deckelman and Paul A. Harris

New York, June 1 - The high-yield primary market - whether participants were apparently cowed into silence by Thursday's report of a third consecutive week of junk bond mutual fund outflows, or by Friday's fearsome stock market carnage following a much weaker than expected U.S. job-creation number for May - opened the month of June by doing exactly nothing. There were no pricings, no new-deal announcements from prospective borrowers, or even any price talk or other news on any of the few forward calendar deals which are seen possible for the first half of the new month.

That threw a wet blanket over a holiday-shortened week which saw just four transactions having priced in the domestic junk market, generating $1.235 billion of new dollar-denominated paper. The deals produced total proceeds of $1.174 billion, since two of those transactions priced at steep discounts to par.

That lagged even the $2.069 billion in seven tranches that had come to market the previous week, ended May 25, which up till now had been the quietest new-issuance week so far this year. New issuance was on a week-to-week decline for a third straight week.

The new deal from Boyd Gaming Corp. - which came to market on Thursday and then firmed a little in initial aftermarket dealings before closing wrapped around its issue price - was seen having fallen nearly 2 points Friday.

Thursday's other deal, from energy operator Comstock Resources, Inc., was quoted below issue, but not by too much.

But Wednesday's deals - from casino company Rivers Pittsburgh Borrower LP and a unit of Spanish cable operator Grupo Corporativo ONO SA -seemed to actually be holding their own, and then some, with the latter's previously untraded new bonds quoted several points above their deeply discounted issue price.

Away from the new deals, traders saw junk lower pretty much across the board, including repeat volume leader Ford Motor Co. and Chesapeake Energy Corp., another big-volume name.

Statistical measures of junk market performance were meantime all down on the day and down from a week ago as well.

Gloomy news stills primary

The primary market hunkered down on Friday as volatility in the global capital markets intensified on the back of negative economic news from China, the United States and, of course, Europe.

"You're not going to see much activity in the primary market if things remain this heavy," a New York investment banker commented at mid-morning.

Other syndicate bankers had more or less the same color.

From the buyside, a high-yield fund manager said that finding the right price for a new bond in a market this volatile is not an easy thing to do, which tends to force investors to the sidelines.

BWICs or feelers?

This investor related seeing a considerable number of bid wanted in competition (BWIC) proposals on Friday.

"That could tell you that things have gotten worse," said the investor.

"Or it could just be that people are using them as a means for price discovery, which I suspect is the case."

The investor tested this theory by slightly low-balling on one such proposal.

"My bids didn't get hit, which is telling me that the motivation to sell is not all that strong," the buysider said.

Coupon day

Should the volatility let up in the week ahead a ramp-up in primary market activity should not take long to materialize, the investor said.

"Today was coupon day," the manager stated, "not a big one, but people are getting in cash."

Also, early in the June 4 week, CIT Group Inc. will redeem $2 billion of its 7% series C senior notes due 2017, further filling cash coffers, the buysider added.

"A week from now things could be very different.

"You don't want to be caught sitting around with a lot of cash in a market that favors the investor the way that this one has been doing."

In the run-up to May, the market favored the issuer, according to the manager, who added that a lot of bonds sold during the phenomenal rally that was taking place in the late first quarter of 2012, and into the second quarter, are now languishing below issue price.

However lately deals are favoring the buyside.

Take, for example, the Misys plc 12% second-lien term loan due 2019 - a $615 million mid-May deal structured conspicuously like a bond, and which drew a lot of attention from high-yield investors. It was priced to yield 13%, the bond investor said.

"When that deal came into the market conversations had the yield coming in the tens," the investor said.

On Friday the deal was trading 96¼ bid, 97 offered, versus its issue price of 953/4.

"You don't want to miss out on a deal like that when there is such a generous concession to market conditions," the buysider asserted.

"When that market turns that bond stands to be a spectacular outperformer.

"And you only get concessions like that when the market is unusually volatile."

A down day

A secondary market trader noted the pronounced slide in the equity markets that followed Friday morning's report of considerably weaker-than-expected job creation in the United States during May - just 69,000 new jobs created, well short of the approximately 150,000 that Wall Street had been expecting. The non-farm payroll numbers for both March and April were also revised downward.

That caused stocks to swoon, with the bellwether Dow Jones Industrial Average plummeting by 274.88 points, or 2.22%, closing at 12,118.57 - in negative territory compared with where it began the year. The broader Standard & Poor's 500 and Nasdaq Composite indexes each also closed down more than 2% on the day.

In Junkbondland, though, the trader said, "obviously the overall tone was sloppy - but it's not catastrophic.

"It wasn't getting totally destroyed."

He said that "volume was extremely light," apart from the Ford and Ford Motor Credit Co. LLC issues and a few other high-volume credits like Chesapeake Energy.

"What's really going to happen is we'll find out next [i.e. this upcoming] week what's going to take place. People just threw up their hands today and there was extremely light volume."

A second trader, though, said that he was "not shocked. Everything was down today. We saw extended weakness" all around.

Boyd gets bopped

Among the recently priced deals, a trader said that Boyd Gaming's new 9% notes due 2020 went out Thursday night quoted around par bid, 101 offered, "but now they're trading with a 98-handle."

He said that "first thing this morning" he saw the bonds in a 98-to-99 context, "which means that they're weaker," perhaps around 98 to 98¼ or 98½ bid.

A second trader quoted those bonds at 98 bid, 98½ offered. While yet another saw them trading between 98 and 99, calling that down nearly 2 points.

The Las Vegas-based casino operator had priced its quickly-shopped $350 million offering - upsized from an originally announced $300 million - at par on Thursday. They initially traded between 100¼ and 100¾ in the aftermarket, but went home wrapped around, or slightly under, their par issue price.

River Pittsburgh still strong

But while Boyd was having its problems, the week's other gaming-industry deal - for Pennsylvania casino operator Rivers Pittsburgh Borrower LP and its Rivers Pittsburgh Finance unit - seemed to be holding a winning hand.

A trader on Friday said that those 9½% senior secured second lien notes due 2019 "were still hanging in there," seeing that paper in a 101¼ to 101½ context.

The company priced its $275 million deal - downsized from an originally planned $300 million - on Wednesday at par.

He noted that the bonds had traded as high as the 102-plus area both in Wednesday's initial aftermarket dealings and again on Thursday, but said that given the overall weaker tone in the market, their Friday level "isn't that bad" - especially when compared with the Boyd deal's struggles.

"Go figure," he said, adding "and Boyd's not a bad credit."

He theorized that a lot of times, "the underwriters don't support the deals and that's a problem" in trying to figure out why Boyd - a more established presence in the casino industry than Rivers Pittsburgh - was having such trouble.

A second trader said that he had not seen any dealings in the Pittsburgh deal on Friday, while yet another quoted the bonds as having held onto their previous gains around the 102¼ level.

Comstock eases from issue

Away from the two gaming names, a trader said that Comstock Resources Inc.'s 9½% notes due 2020 "were hanging in" around 94¾ bid, 95¼ offered.

That was below the 95.304 level at which the Frisco, Tex.-based energy exploration and production company's quick-to-market $300 million had priced to yield 10 3/8%, after having been upsized from and originally announced $250 million.

Still, given everything, he said, "that's not too bad."

Saying 'yes' to ONO

The surprise performer of the session seemed to be Grupo Corporativo ONO SA's $310 million issue of 8 7/8% senior secured notes due 2018, brought to market Wednesday by the Spanish cable and broadband operator's Nara Cable Funding Ltd. unit.

Those quickly-shopped bonds - structured as a "mirror" tranche to its existing $1 billion of the same kind of bonds that priced in January - priced at 85 to yield 12.298%, some 267 basis points wide of the 9 5/8% yield at which the original tranche at come to market.

They originally were not seen trading around, but one trader quoted them on Friday at 86½ bid, 87 1/8 offered.

A second saw them doing even better, in an 89-90 context, although that was still below the 92 level at which the first trader saw the original tranche of bonds trading back on May 11.

Primary to pull back?

One of the traders said that given the recent weakness seen in the junk market - including the three consecutive weeks of outflows from high-yield mutual funds, which are considered a good proxy for overall market liquidity trends - new issuers might be reluctant to launch any deals in the current risky environment.

"We're going to start seeing a lot of postponements [of new deals] because companies may not want to accept the higher rates" that investors are now demanding in order to buy these deals.

He noted that just last week, two prospective deals were pulled from the forward calendar - Waukesha, Wis.-based power generator manufacturer Generac Power Systems Inc.'s planned $425 million offering of eight-year notes and Redmond, Wash.-based specialty chemical maker Univar, Inc.'s $750 million seven-year deal. Before that, several other possible junk deals bit the dust as well.

Buying back bonds?

The trader also said that an emerging trend in the junk market is companies buying back their own debt.

"What you're starting to see is that with the recent pullback in bonds [prices], and a lot of these companies being flush with cash, they're starting to nibble away and buy their debt back."

He added that this was "something that you hadn't seen for many months."

He said that in many cases, the companies were quietly going to the open market to buy their bonds back, rather than doing a heavily publicized tender offer at or above the current market price of the bonds.

"If they have cash, they can just nibble away" at their outstanding debt loads.

"If their bonds came at par a while ago and now they can buy them at 93 or 94 cents on the dollar, and they have a lot of cash, maybe they'll go for it."

Ford action continues

For yet another consecutive session, Ford Motor Co.'s bonds and those of its auto-loan financing unit, Ford Motor Credit Co. LLC, were at the top of the volume lists - where they have been ever since Moody's Investors Service last week upgraded the Dearborn, Mich.-based Number-Two U.S. carmaker's ratings, and those of its financial unit, to an investment-grade Baa3.

That opened the floodgates for buying by investment-grade funds whose charters heretofore barred the buying of such bonds, and other high-grade accounts too, accounting for much of the heavy Ford volume in recent sessions.

A trader said he had seen a news story "indicating that "they're going to take Ford out of the high-yield indexes and put them into the high-grade indexes," now that both Moody's and Fitch Ratings both have Ford and Ford Credit as investment-grade companies.

He said that "those buyers wanted to get in ahead of that," and were also drawn by the yields in the 2% to 5% range - laughable by junk bond investor standards but powerful stuff to high-grade investors used to bonds yielding 1%, or even below.

On Friday, Ford's benchmark 7.45% bonds due 2031 topped the junk world's most-actives list, with over $58 million of those bonds having changed hands. Although Ford has recently been driven higher by all of the new buying, on Friday it was considerably lower. The trader pegged those bonds at 128¾ bid, 129¼ offered - down 1 7/8 points.

Indicators down on day, week

Statistical indicators of market performance were on the slide on Friday and were down on the week as well.

The Markit Group CDX North American Series 18 High Yield Index saw its third consecutive loss, dropping by 11/16 to 91 7/8 bid, 92 1/8 offered, after having lost 9/16 point on Thursday.

That left it well below the 93 5/8 bid, 93 7/8 offered reading seen at the end of the previous week, ended May 25.

The KDP High Yield Daily Index meanwhile was down for a third straight session, ending off 31 basis points at 72.01. It had eased by 6 bps on Thursday. Its yield rose by 10 bps on Friday to 7.18%, after having been unchanged the day before.

A week before, the index had stood at 72.38, with a yield of7.09%.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its third straight loss on Friday, falling by 0.471%, on top of Thursday's 0.042% decline.

The latest loss left its year-to-date return at 4.448%, down from Thursday's 4.942%. It was the lowest level for the year-to-date figure since the 4.29% reading back on Feb. 22. Those levels remain well down from the peak level for 2012 so far, 6.80%, set on May 7.

The index lost 0.384% on the week, its fourth consecutive weekly loss. A week ago, it lost 0.245% on the week, with a year-to-date reading of 4.851%.

© 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.