No dollar deals price, Murphy Oil slates; new MGM Growth, Builders, Veritas issues active

By Paul Deckelman and Paul A. Harris

New York, Aug. 10 – The high-yield primary market slowed markedly on Wednesday, with syndicate sources seeing no new dollar-denominated and fully junk-rated bonds pricing during the session in contrast to the $1.5 billion of such new paper which had gotten done during Tuesday’s session, on top of another $405 million of notes held by dealers being sold in a separate transaction.

The day’s only real news in the new-deal precincts was energy operator Murphy Oil Corp.’s announcement that it will sell $500 million of eight-year notes and use the proceeds to repay its existing 2017 notes.

With no fresh new deals having priced, traders said the market’s attention largely swung to aftermarket trading in a number of recently priced offerings.

They saw active dealings in some of the paper which had come to market on Tuesday, including the eight-year notes from construction materials manufacturer Builders FirstSource Inc. and the 10-year paper from gaming REIT MGM Growth Properties LLC.

There was also brisk activity in the bonds of Veritas Technologies LLC that dealers holding that paper had put on the market on Tuesday.

Away from the recently priced deals, traders saw a second straight day of gains in busy activity for Valeant Pharmaceuticals International Inc. following the drug maker’s release of second-quarter financial notes and guidance going forward, although those gains were considerably smaller than those seen on Tuesday

Statistical market performance measures turned mixed on Wednesday after being higher across the board for four straight sessions; they had first improved last Thursday and then stayed higher in the subsequent sessions as well after having been mixed over the previous four consecutive trading days.

Murphy Oil whisper 7¾% to 8%

New issue news volume slowed dramatically on Wednesday.

In the dollar-denominated market, Murphy Oil took a place aboard a thin pre-Labor Day new deal calendar as it rolled out a $500 million offering of eight-year senior notes (B1/BBB-/BB+).

The BBB- investment grade rating from S&P notwithstanding, the deal is in the market with some juice: initial yield guidance is 7¾% to 8%.

Keep in mind that of six deals talked with yields during the Monday and Tuesday sessions, five came yielding 4½% or less: HCA at 4½%, MGM Growth at 4½%, Hilton at 4¼%, Graphic Packaging at 4 1/8% and NXP at 3 7/8%.

J.P. Morgan is the lead bookrunner for the Murphy Oil deal which is scheduled to remain in the market into the week ahead.

The El Dorado, Ark.-based independent oil and natural gas exploration and production company plans to use the proceeds for general corporate purposes which may include the repayment, repurchase or redemption of its 2½% notes due 2017.

Veritas euro tranche

A dealer offering of €240.3 million of Veritas US Inc. and Veritas Bermuda Ltd. 7½% senior secured notes due Feb. 1, 2023 (B1/B+) priced at 93.5 to yield 8.841% on Wednesday.

The reoffer price came rich to price talk in the 93 area.

Morgan Stanley, BofA Merrill Lynch, UBS, Jefferies, Citigroup, Goldman Sachs and Mizuho were the sellers.

Dealers converted a Veritas hung bridge loan into the senior secured notes due Feb. 1, 2023 in the wake of the postponement of debt financing backing the buyout of the company by the Carlyle Group from Symantec Corp. in November 2015.

A $405 million tranche of the Veritas 7½% senior secured notes due Feb. 1, 2023 (B1/B+) was priced at 93.5 to yield 8.841% on Tuesday.

Dog days, but stay tuned

A quick canvassing of market sources on Wednesday turned up mixed opinions as to how active the high-yield primary will be, now that the traditionally slow Dog Days of August have arrived.

Dealers are saying that most of the pre-Labor Day calendar has already come, a portfolio manager reported.

However a syndicate banker advised that it is too early to start thinking about that August fishing trip.

There will be business ahead, said the banker, adding that more announcements are pending in the present week.

ETF inflows continue

Cash flows for dedicated high-yield bond funds remained positive on Tuesday, the most recent session for which data was available at press time, according to a buyside source.

For the fourth consecutive day high-yield ETFs saw strong inflows: this time $270 million on the day.

It follows $809 million of combined inflows during the three preceding sessions encompassing Aug. 4, 5 and 8.

The inflows represent a big turn in the cash tide of the ETFs, which saw $2.8 billion of outflows in nine sessions leading up to Thursday, Aug. 4, sources say.

Actively managed funds, meanwhile, saw $40 million of inflows on Tuesday.

MGM Growth actively traded

In the secondary market, traders said that the day’s focus seemed to be on recently priced new issues, among them MGM Growth Properties’ 4½% notes due 2026.

A trader said that the bonds traded at around 100 1/8 bid, down 5/8 point on the session, on volume of over $39 million.

A second trader pegged the bonds in a 100 1/8 to 100 3/8 context.

Yet another trader said that the bonds traded between 99 15/16 and 101 during the day, with the last prints going off between 100¼ and 100 5/16.

“What a piece of garbage,” he exclaimed.

The company, a Las Vegas-based real estate investment trust specializing in gaming and lodging industry properties, priced $500 million of the notes at par on Tuesday in a quick-to-market transaction via its MGM Growth Properties Operating Partnership LP and MGM Finance Co-Issuer Inc. subsidiaries.

They had initially moved around in a 100¼ to 101¼ bid context before settling in on Tuesday night around 100¾ bid.

Builders bonds hold steady

Also among the new deals which had priced on Tuesday, the Builders FirstSource 5 5/8% senior secured notes due 2024 “traded a little bit, at levels similar to [Tuesday],” one market source said, quoting the notes in a 101¼ to 101½ bid context.

A second trader saw the bonds trading between 101 and 101 5/8 during the day before finally ending at 101 bid, 101¼ offered.

At another desk, a market source said the bonds were finishing up at 101 3/16 bid, which he called down 7/16 point, with more than $36 million having traded.

The Dallas-based building supplies company had priced $750 million of the notes at par on Tuesday in a quickly shopped offering. They had shot up to 101½ bid in initial aftermarket dealings of more than $56 million.

Kennedy-Wilson climbs

A trader said that Kennedy-Wilson Holdings, Inc.’s new 5 7/8% notes due 2024 had pushed up to 101 bid, 101¼ offered, after the Beverley Hills, Calif.-based real estate investment company had priced $250 million of the notes as a quickly shopped add-on to its existing notes.

The add-on had priced at par after the deal was upsized from $200 million originally.

Veritas bonds better

Not strictly a conventional new junk bond issue, the Veritas US Inc., and Veritas Bermuda Ltd. 7½% senior secured notes due 2023 were seen by traders as jumping to around 96 bid on Wednesday after having priced at 93.5 to yield 8.841% on Tuesday.

More than $22 million changed hands.

The transaction – brought by dealers holding the paper after a hung-up bridge financing had been converted into bonds – was upsized to $405 million from $387 million.

Valeant firms again

For a second straight session traders said that Valeant Pharmaceuticals’ bonds were higher across the Laval, Que.-based drugmaker’s capital structure.

A trader saw its flagship issue, the 6 1/8% notes due 2025, up ½ point at 87 7/8 bid, with over $45 million traded. The rise came on top of the more than 4 point gain seen on Tuesday on volume of more than $60 million.

The company’s 5 3/8% notes due 2020 firmed by 7/8 point to 93 7/8 bid as over $22 million changed hands; on Tuesday, those bonds had jumped by nearly 5 points on volume of over $50 million.

The bonds improved in the wake of Valeant’s report of second-quarter financial results Tuesday, including guidance, details on the company’s internal restructuring plans and an update on its debt-reduction efforts.

Its recently installed chairman and chief executive officer declared on Tuesday that Valeant “remains committed” to paying down at least $1.7 billion of permanent debt this year as it tries to chop down its total debt load of more than $31 billion.

He said that the company had reduced debt by some $880 million since the end of the first quarter.

He also said that Valeant would enter talks with its banks on some covenant changes in its credit agreement.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday after having been higher across the board for four straight sessions.

The KDP High Yield Index rose by 8 basis points on Wednesday to end at 69.81, its fifth straight gain and seventh upturn in the last eight sessions; it had also risen by 14 bps on Tuesday.

Its yield narrowed on Wednesday by 3 bps, to 5.46%, its fifth straight narrowing, after having come in by 4 bps on Tuesday.

However, the Markit Series 26 CDX Index suffered its first loss after five straight gains and third loss in the last eight sessions, easing by nearly 1/8 point on Wednesday to finish at 104 9/16 bid, 104 19/32 offered; on Tuesday it had been up by that same 1/8 point.

The Merrill Lynch High Yield Index, in contrast, was up for a sixth successive session, firming by 0.075%, on top of Tuesday’s 0.351% gain.

The gains of the last six sessions follow a six-session slump before that.

Wednesday’s advance brought the index’s year-to-date return up to 13.438%, its fourth consecutive new peak level for the year, eclipsing the former mark of 13.353%, which had been set on Tuesday.

Tuesday’s close had marked the first time that the index’s return was finishing above the 13% level since Dec. 12, 2012, when it had closed out that year at 15.583%.

© 2015 Prospect News.
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