Primary quiet as deals pushed off, closing $5.7 billion week; market struggle continues

By Paul Deckelman and Paul A. Harris

New York, Aug. 1 – The high-yield market began the month of August on Friday as inauspiciously as it had closed out July on Thursday – under pressure, with many more credits quoted down rather than up on the day.

There was also a dearth of new activity going on in the primary market; syndicate sources said that a number of junk deals which had been considered as “possibles” for pricing on Friday were instead pushed off until the coming week, including the offerings from energy operators Warren Resources, Inc., Sunshine Oilsands Ltd., Rooster Energy Ltd. and Jupiter Resources Ltd., as well as non-energy name NCSG Crane & Heavy Haul Corp.

Terms did surface on one deal, from builder William Lyon Homes, Inc. – which had priced late Thursday, by which time most participants had left for the day, so its pricing and the terms did not become landmarks until Friday morning.

That brought the week’s tally of new dollar-denominated and fully junk-rated paper up to just under $5.7 billion in 16 tranches, up from $4.56 billion that came to market in eight tranches during the previous week, ended Friday, July 25, according to data compiled by Prospect News.

That, in turn, raised year-to-date issuance to $203.1 billion in 395 tranches, up 7% from the pace seen at this time last year. Some $189.9 billion had priced in 438 tranches by this point in the calendar last year.

Traders did not see very much activity in recent deals, with only Level 3 Communications, Inc.’s $1 billion issue standing out, as it continued to lose ground

Elsewhere, the traders saw the market remaining mostly softer, although the easing was not as dramatic as Thursday’s downturn. Volumes were considered light.

Statistical market performance indicators fell for a sixth consecutive session on Friday and also turned lower across the board versus where they had closed out the previous week, when they had been mixed. It was their third lower week in the last four.

Deals delayed

The dollar-denominated high-yield primary market was becalmed by volatility on Friday, as a handful of deals expected to price before the weekend were pushed into the Aug. 4 week, sources said.

The high yield index lost 2 points during the month of July, a portfolio manager said on Friday morning.

And high-yield exchange-traded funds saw a massive $577 million of outflows on Thursday, the manager added, citing a report from J.P. Morgan.

It was the second largest daily outflow from high-yield ETFs on record, the source said.

That news trailed a report on Thursday from Lipper-AMG that dedicated high yield funds, including ETFs, saw $1.48 billion of outflows for the week to Wednesday’s close.

William Lyon at wide end

Late Thursday William Lyon Homes priced $300 million of eight-year senior notes (B3/B-) at par to yield 7% in a restructured deal.

The yield printed at the wide end of the 6¾% to 7% yield talk.

A proposed $50 million add-on to the William Lyon Homes Inc. 5¾% senior notes due April 15, 2019 was withdrawn, and the proceeds rolled into the new 7% notes due 2022.

J.P. Morgan, Citigroup and Credit Suisse were the leads.

The Newport Beach, Calif.-based homebuilder plans to use the proceeds to finance a portion of its acquisition of Polygon.

The week ahead

Meanwhile, deals that had been expected to price Friday were pushed back into the Aug. 4 week.

They included Warren Resources’ $300 million of eight-year senior notes (Caa1/B-) via left bookrunner BMO and joint bookrunners Jefferies and Wells Fargo.

Also moved back was the downsized Sunshine Oilsands $200 million offering of three-year senior secured notes via Imperial Capital.

Rooster Energy’s $100 million offering of five-year senior secured notes (Caa1/CCC+), also via Imperial, was pushed back as well.

NCSG Crane & Heavy Haul’s $310 million offering of senior secured second-lien notes due 2019 (expected ratings B3/B-), via left bookrunner Goldman Sachs and joint bookrunner RBC was also moved to the Aug. 4 week.

And Jupiter Resources’ $1,125,000,000 offering of eight-year senior notes, via Credit Suisse, TD, RBC, Barclays, Goldman Sachs, UBS, Deutsche Bank and Nomura, was also taken down from Friday’s expected docket of deals.

They join deals already on the road and already scheduled to price in the Aug. 4 week, including Milestone Aviation Group Ltd.’s $350 million offering of three-year senior notes via J.P. Morgan, BofA Merrill Lynch, Deutsche Bank, SunTrust, Huntington and Jefferies.

Also aboard for the week ahead is Brundage-Bone Concrete Pumping, Inc.’s $140 million offering of seven-year senior secured notes, led by sole bookrunner Jefferies.

And BWAY Intermediate Co., Inc. is expected to price $770 million of seven-year senior notes (Caa2) via sole bookrunner BofA Merrill Lynch during the coming week.

Recent deals a mixed bag

In the secondary arena, a trader said that he had not seen any activity in the new 7% notes due 2022 that builder William Lyon Homes had priced at par late Thursday.

Among Thursday’s other deals, a trader said that HudBay Minerals, Inc.’s 9½% notes due 2020 were trading in a 107 to 107 3/8 bid context versus the 107 level at which the Toronto-based mining company’s quick-to-market add-on issue had priced to yield 7.502% after upsizing to $170 million from an original $150 million.

However, a market source at another desk – who had seen the bonds firm smartly by around ¾ point from their issue price despite the generalized market downturn – called those notes up another 1/8 point on the day at 107 7/8 bid, 108 3/8 offered.

A trader said that NRG Yield, Inc.’s 5 3/8% notes due 2024 were “still wrapped around par,” where the Princeton, N.J.-based power generation company had priced its $500 million offering via its NRG Yield Operating LLC subsidiary, after upsizing the transaction from an originally announced $400 million.

A second trader, though, said he had not seen any activity in the credit on Friday.

A third pegged them at 100½ bid, 101 offered, calling that unchanged on the day.

Going back a little further, that trader saw Consol Energy Inc.’s 5 7/8% notes due 2022 off by ½ point at 101 bid, 101¾ offered. The Pittsburgh-based coal and natural gas company had brought a quickly shopped $250 million add-on to its existing bonds to market on Tuesday, pricing it at 102.75 to yield 5.308%. However, those bonds had slid 1 3/8 point on Thursday amid the general market downturn, finishing at 101½ bid, 102¼ offered and continued that retreat on Friday.

Level 3 retreat continues

The day’s big loser was Level 3 Communications’ new 5 3/8% notes due 2022, with a trader seeing the already battered bonds down another full point on Friday, retreating to 97¼ bid, 97¾ offered.

A second trader also saw the bonds at that level and expressed agreement with the view, bandied around in some quarters, that the Broomfield, Colo.-based fiber-optic telecom network operator’s drive-by megadeal had been “the dog of the week.”

Level 3 had priced that $1 billion of notes – radically upsized from the originally announced $600 million – at par on Tuesday afternoon, and they had eased in initial aftermarket dealings to around a 99¾ bid context on volume of more than $47 million.

On Wednesday, the deal continued to struggle, dipping by another 5/8 point to just above the 99 level on still-busy volume of over $37 million.

When the whole market turned south on Thursday, Level 3 had led the way, falling about 1 point to a 98 to 98¼ bid context, setting the stage for Friday’s continued decline.

But another trader – who saw the bonds fall another point on Friday to around 97 from Thursday’s 98 close – saw those bonds later in the session at around 97½ bid.

While acknowledging that the bonds were still trading off from where they had been on Thursday – let along their par issue price – he pointed out that there had been enough investor demand for the credit to warrant a strong upsizing.

He suggested that “perhaps it just got into the market at a really bad time.”

Another soggy session

Overall, a trader complained of fatigue, characterizing Wednesday, Thursday and Friday’s sessions as “a crazy three days.”

“There were a lot of quotes, and [again] the ETFs were selling” although he added that “not all bids were being hit.”

While the market was “spotty,” he said that he “did see better buying interest as the day was going on, even though it was on the lighter side. So the buyers have returned, I can happily report that to you.”

He said that there was “not a ton” of activity happening.

While the market “got clobbered yesterday [Thursday] but a majority of it was quotes.

“Paper did trade down yesterday, but it was more the go-go names. Today, it was the same situation but the buyers came back in.”

He said there was “not as much trading” as had been seen earlier in the week – and reminded everyone that it was “still a summer Friday.”

Another trader said that “we had another crummy session today.

“Volumes are very, very light and things are down generically by probably another point overall.”

Noting the lack of any new-deal pricings, he suggested that “anything that was supposed to [price] has been pushed back to next week.”

Market indicators keep sliding

Statistical indicators of junk market performance were in retreat for a sixth consecutive session on Friday, and were also down all around from where they had closed out the previous week, when they were mixed. This week, however, was the third week in the last four during which the indicators have been down across the board versus the previous Friday.

The KDP High Yield Daily index plunged by 52 basis points on Friday to end at 72.79 – its low point for this year so far, and the lowest the index has been since June 26, 2013, when it had closed at 72.35. It was the index’s sixth straight loss, coming on top of Thursday’s 46 bps swoon.

Its yield ballooned out by 17 bps to 5.61%, its fifth consecutive widening out. On Thursday, it had shot up by 14 bps.

Those levels compared unfavorably to those of last Friday, July 25, which saw an index reading of 74.05 and a yield of 5.22%.

The Markit CDX Series 22 index lost 3/8 point on Friday to close at 106 7/32 bid, 106 9/32 offered, its second straight downturn. On Thursday, it nosedived by 29/32 point, after having been virtually unchanged on Wednesday – but it had suffered four straight losses before that.

The index was well down from the 107 23/32 bid, 107¾ offered level at which it had finished the previous Friday.

The widely followed Merrill Lynch High Yield Master II Index plummeted by 0.537% on Friday, its sixth straight loss. That followed Thursday’s even steeper 0.616% plunge.

Friday’s slide chopped the index’s year-to-date return down to 3.683% – its weakest finish since April 29, when it closed at 3.623%. It was down from Thursday’s 4.243% and remained even further down from the 5.751% return recorded on July 7, the peak level so far for 2014.

For the week, the index collapsed by 1.419%, its biggest weekly loss for the year. It was the second such loss in three weeks and the fourth in the last six weeks. With 31 weeks in the books so far this year, gains have been seen in 23 weeks, versus eight weeks of losses. Last week the index had risen by 0.188% to finish at 5.176%.

Among the other index components, its yield to worst shot up on Friday to 5.936%, a second consecutive new high point for 2014, eclipsing the previous high-water mark of 5.752%, set on Thursday.

Its spread to worst versus comparable Treasuries spiked up to 444 bps from Thursday’s 423 bps, matching the wide point for the year that had been set back on Feb. 4.

© 2015 Prospect News.
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