Vantage, Best Buy, Chemours among busiest junk names; Vantage dives; Dish coming with deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 2 – Some new names made their way to the top of the high-yield Most Actives list on Wednesday, temporarily pushing aside such familiar credits as California Resources Corp. The oil and natural gas exploration and production operator, usually right up there among the busiest issues in Junkbondland, saw only a relative handful of large trades and eased slightly on the day.

The big name of the day was Vantage Drilling Co., whose bonds fell after Brazil’s state-run energy company, Petroleo Brasileiro SA, informed Vantage that it was cancelling its contract for one of Vantage’s offshore drilling rigs, alleging an unspecified breach of contract. Vantage denies any such allegation, but its bonds still slid at least 6 points on the news.

Traders also saw a fair amount of activity, this time on the upside, in retailer Best Buy Co. Inc., although they saw little fresh news on the specialty retailer, which did get a ratings upgrade last week.

There likewise seemed to be no fresh news out on Chemours Co., but that chemical manufacturers’ bonds were active, with one issue seen up and another seen down on the day.

The new-issue sphere remained quiet, with no pricings of anything imminent. But syndicate sources heard that satellite broadcaster Dish Network Corp. is readying a giant-sized offering for some time after Labor Day. Its existing bonds were firmer.

Traders said the overall market tone seemed a little stronger Wednesday, though quietly so.

Statistical measures of junk market performance started moving higher across the board on Wednesday after having been lower all around on Tuesday and mixed over the two sessions before that. They had most recently been higher last Thursday.

Dish for September

The primary market remained shuttered on Wednesday, with no deals priced or announced.

However, a post-Labor Day deal pipeline – expected to come to $25 billion to $35 billion for the month, pending market conditions – continued to swim into view.

Dish Network is expected to come to market during September seeking to place $3.3 billion of junk bonds to repay business credits extended in last year's AWS-3 wireless spectrum auction.

Underwriters remain to be announced. (See related story in this issue.)

Mixed flows

The cash flows of the dedicated high-yield funds were mixed on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield exchange-traded funds sustained $224 million of outflows during the session.

However, asset managers saw $172 million of inflows on Tuesday.

New names in the spotlight

In the secondary market, a trader characterized Wednesday’s activity as “pretty, pretty quiet. Not a lot was going on.”

For the first time in a few sessions, he said, “there were some newer names that were active today outside of the norm” – the energy credits such as California Resources, whose bonds, considered a reliable proxy for crude oil market movements, have been among the most widely traded in junk over the past several sessions as oil prices gyrated.

“Obviously that’s been active, with the volatility in crude. But with that kind of easing up a little bit today, there were some other names that took front stage.”

Vantage falls

One such name was Vantage Drilling. Its 7½% note due 2019 “looks like it traded pretty good volume,” a trader said in quoting those bonds down “about 7 points or so. Big volume, right at the top on volume.”

A second trader said that more than $36 million of those notes had changed hands, “the highest volume of any.” He called them down 6 points on the session, seeing them go home at 41 bid.

Vantage’s 7 1/8% notes due 2023 likewise finished the day at 40½ bid, on over $9 million of volume.

Bonds of Offshore Group Investment Ltd., the issuing entity for the Cayman Islands-based maritime energy driller, were down sharply on the late-Tuesday announcement by Vantage that Petrobras America, Inc. and Petrobras Venezuela Investments & Services BV – units of Brazil’s state-run energy company, Petrobras – were terminating the contract under which they had leased Vantage’s Titanium Explorer ultra-deepwater drilling rig since 2009.

Vantage said that the notice it had gotten from Petrobras alleged that Vantage has breached its obligations under the contract between the two companies but did not offer any kind of an explanation for that claim.

Vantage “strongly disagrees with the allegations of contractual breaches made by PAI and PVIS in the notice” and has filed for arbitration to challenge the Petrobras assertions; it calls the allegations “a wrongful attempt to terminate the drilling contract” and insists that it is in compliance with all of its obligations under the contract.

One of the traders pointed out that Petrobras’ own bonds were among the busier names on the day, with its 6 1/8% notes due 2016 at 100½ bid, down ¾ point on the day, with over $33 million traded, and its 6¼% notes due 2024 off by more than ¼ point at 86½ bid, on volume of more than $15 million.

Best Buy, Chemours gain

Among the other actively traded issues on the day, a trader said that “Best Buy was another one,” with its 5½% notes due 2021 up ½ point on the day at 107 bid, with over $22 million traded.

There was no fresh news seen out on the Minneapolis-based electronics and appliance retailer, although Fitch Ratings last week upgraded the company’s long-term issuer default rating to BBB- from BB with a stable outlook.

Fitch said that the upgrade reflects “an expectation that management’s successful focus on higher margined products and services, coupled with expense reductions, will allow annualized EBITDA to remain at or more than $2 billion.”

Despite recent sales declines “related to both secular trends in key categories, as well as strengthened competition from lower-priced players and online merchants,” Fitch said, on the upside, Best Buy “is using its real estate assets, broad product offering and existing services infrastructure to strengthen customer relationships and capitalize on anticipated growth in the connected home business.”

“There were some other notable new names here,” a trader said, seeing Wilmington, Del.-based chemical maker Chemours “pretty active,” with its 6 5/8% notes due 2023 up ½ point, ending at 86¼, with over $22 million traded.

Its 7% notes due 2025 lost ½ point to close at 84 bid, with over $19 million changing hands.

There was no fresh news out about the company.

Elsewhere, with Dish Network said to be preparing a new deal, the Englewood, Colo.-based satellite television broadcaster’s existing 5 1/8% notes due 2020 were seen up 9/16 point, at just over 98 bid, on volume of over $10 million.

California Resources easier

In the energy realm, California Resources’ benchmark 6% notes due 2024 eased by ½ point to 73¼ bid.

Volume in the normally busy Los Angeles-based exploration and production operator was only about $5 million, a trader said.

Crude oil prices were on the upside but not radically so, with October-delivery West Texas Intermediate crude up 84 cents, or 1.9%, on the New York Mercantile Exchange, ending at $46.25. WTI had plunged by nearly $4.00 per barrel on Tuesday after having shot up sharply in each of the previous three sessions, the biggest such three-day gain seen in a quarter of a century.

Concerns could limit primary

Regarding the post-holiday primary market taking shape, one of the traders said “obviously, there was no primary market [during the session], and we probably won’t see anything until next week some time at the earliest.”

Noting the predictions of a $25 billion to $35 billion primary pipeline, he allowed that historically, September “is a bigger month” than the languid earlier-summer months of June, July and August, but he added that “the only caveat is if we still have this [financial market] volatility, I think it’s going to be difficult for paper to price. That may crimp some of this new issuance that’s in the pipeline at the month. But we’ll see.”

He noted that the leadership of the Federal Reserve will be meeting on Sept. 16-17, with much speculation over whether the U.S. central bank will finally announce a long-expected hike in interest rates at that time.

On top of that, financial markets in China continue to struggle, along with that major country’s economy, with global financial markets in turn unsettled and the energy markets also volatile as the price of crude oil gyrates, so despite the traditional pent-up demand for new junk paper following the usual late-August/early-September lull, “there’s a lot of things that will be in play when we get back from Labor Day.”

Indicators head higher

Statistical measures of junk market performance moved higher across the board on Wednesday after having been lower all around on Tuesday and mixed over the two sessions before that. They had most recently been higher last Thursday.

The KDP High Yield Daily index rose by 4 basis points on Wednesday to end at 67.88 after having dropped by 16 bps on Tuesday and having risen over three straight sessions before that, including Monday’s 14-bps gain. The index has now been higher in four out of the last five sessions and in five out of the last seven sessions.

Its yield, meanwhile, came in by 3 bps on Wednesday to close at 6.38% after having risen by 8 bps on Tuesday. The yield has now narrowed in four sessions out of the last five and in five sessions out of the last seven.

The Markit Series 24 CDX North American High Yield index firmed by 3/16 point on Wednesday to go home at 104 bid, 104 1/32 offered. It was the index’s first upturn after three consecutive sessions on the decline, including Tuesday’s 21/32 point loss.

The Merrill Lynch North American Master II High Yield index finished up by 0.08% on Wednesday after having lost 0.121% on Tuesday. It has now been on the upside in four sessions out of the last five and in five sessions out of the last seven.

Wednesday’s upturn put its year-to-date return back in the black at 0.027%, compared with Tuesday’s 0.053% cumulative deficit. On Monday, the index had gotten back into positive territory after having shown a loss for the year since Aug. 20.

However, it still remains well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

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