Primary market still sidelined, though Warren on tap; busy McClatchy jumps on Gannett deal

By Paul Deckelman and Paul A. Harris

New York, Aug. 5 – The high-yield primary market remained essentially dead in the water on Tuesday, with no new dollar-denominated, fully junk-rated deals heard having priced.

Only one smallish prospective deal – a $125 million secured issue for Australia’s Linc Energy Ltd. – was heard by syndicate sources to have been announced.

The new-deal arena meantime awaited a possible pricing on Wednesday from New York-based energy concern Warren Resources, Inc.

In the secondary sphere, traders saw little or no activity in recently priced issues such as Monday’s offering from Sunshine Oilsands Ltd. or last week’s deal from William Lyon Homes, Inc.

But away from the new issues, there was no shortage of activity in the bonds of McClatchy Co. The newspaper publisher’s notes were the most heavily traded junk issue, gaining several points on the news that sector peer Gannett Co. Inc. plans to acquire the roughly 73% stake in online auto shopping website Cars.com that it doesn’t already own from McClatchy and several of its other joint venture partners, with McClatchy’s share of the proceeds figured at about $640 million.

However, there was meantime not much activity in Gannett’s own bonds. The company announced plans to finance the Cars.com purchase via the issuance of new notes plus a draw on its revolving credit line. It also revealed plans to essentially jettison its traditional newspaper publishing business – including its USA Today flagship publication – by spinning it off to its stockholders, retaining only its broadcasting and digital media interests, such as Cars.com.

Elsewhere, many companies were reporting earnings. Tenet Healthcare Corp.’s bonds gained after the hospital company put out its numbers. But energy concern Quicksilver Resources Inc.’s bonds and shares retreated after it missed analysts’ estimates.

Statistical indicators of junk market performance were mixed for a second straight session on Tuesday.

Linc Energy’s first-lien deal

The primary market spent Tuesday in the August doldrums, with no issues pricing and only one deal announcement.

Although details have yet to surface, Brisbane, Australia-based Linc Energy announced in a Tuesday press release that it plans to sell $125 million of first-lien senior secured notes.

Deutsche Bank, Credit Suisse and J.P. Morgan are the joint bookrunners, according to a market source who added that further details have not yet been announced.

Proceeds will be used to repay debt and for general corporate purposes.

Elsewhere, expect revised price talk on the Warren Resources $300 million offering of eight-year senior notes (Caa1/B-) early on Wednesday, according to an informed source who added that the deal could also price later in the day.

On July 30 the offer, which was in the market via left bookrunner BMO and joint bookrunners Jefferies and Wells Fargo, was talked to yield in the 8¼% area.

Since then, the market has seen a substantial sell-off – some suggest that it could be in the throes of a correction – and the exit of fast cash (especially the ETFs) as well as money from traditionally stronger hands represented by the actively managed accounts, sources say.

Big outflows from actively managed accounts

It is the latter category – the actively managed accounts – that have sustained conspicuous outflows over the past several days, sources from both the buy side and sell side said on Tuesday.

On Friday actively managed funds saw $2.3 billion of outflows, according to a buy-side source who related material in a report from JPMorgan.

Meanwhile a sell-side source mentioned seeing a report giving global daily outflows from dedicated high-yield funds, including ETFs, at $4 billion equivalent on Friday.

Monday saw the hemorrhaging slow, according to the buysider who – again relating material from a report by JPMorgan – said that actively managed accounts saw $1.1 billion of outflows, ETFs saw $39 million of outflows, and bank loan funds saw $360 million of outflows.

A big negative weekly number could be lying in wait when fund flows are reported on Thursday, the buysider said.

“Unless things turn around.”

That could happen, the source added, noting that a slight bid returned to high yield on Monday, and the market appeared to be on firmer footing early Tuesday, although with equities far from robust, that bid appeared to be trailing off.

By the end of the session, cash bonds were flat, and indexes were down 3/8 to ½ point, according to a high-yield syndicate official.

Price discovery

Meanwhile price discovery is underway in the primary market, impacting most, if not all, of the deals now on the active calendar, sources say.

While price talk is expected early Wednesday on Warren Resources (see above), pricing on other deals is still coming together, sources say.

“Right now people want to be certain that their deals will get done in line with price talk,” a syndicate official said on Tuesday.

“No one wants their deal to blow wide of talk, or to be postponed.

“So there is some extra caution right now.”

The BWAY Intermediate Co., Inc. $770 million offering of seven-year senior notes (Caa2/CCC) was being discussed in the high 8% yield context, according to a buy-side source who plays both bonds and loans.

The deal was announced on July 31, with the junk sell-off well underway, and seemed to be shaping up around 8¾%, the source said.

Price talk on the BWAY $1.1 billion six-year term loan B (B2/B-) is Libor plus 425 basis points with a 1% Libor floor at 99.50, the buysider added.

“That's 5½%,” said the manager, who factored the Libor spread and the floor and who expressed reticence at becoming involved in the loan at that level.

A quiet session

In the secondary market, a trader said “it doesn’t look like anything new has hit up yet.”

He said that “stuff is showing up on Trace trading – I don’t know whether it’s coming from the crossover accounts or desks, but I’m not hearing a lot of activity in the street.”

He added that “it seems like everyone’s on vacation.”

A second trader said that things were “pretty quiet – but there’s a lot of that going around.”

At another desk, a trader said “we started off looking better – some stuff was up and some was down.”

Recent deals unseen

A trader said that he had not seen any sign of the new Sunshine Oilsands 10% senior secured notes due 2017.

A second said that he had seen “a couple of prints right around 94, but nothing in the street.”

Noting that the issue was only $200 million, he speculated that with something that small, “sometimes it’s just gone.”

The Calgary, Alta.-based energy company priced its offering at 93.801 late Monday after the transaction was downsized from an originally planned $325 million.

No one was seeing any activity either in the new William Lyon Homes 7% notes due 2022, with the second trader noting that while the bonds had gone out around 99½ bid on Monday, as for Tuesday, “there really is no action in them that I can see,” just a couple of bid-wanted solicitations floating around.

The Newport Beach, Calif.-based homebuilder had priced $300 million of the bonds at par very late in the day on Thursday via its WLH PNW Finance Corp. subsidiary.

McClatchy moves up

Away from the new deals, a trader said the most active name in Junkbondland easily was McClatchy’s 9% notes due 2022, with over $53 million of the notes having changed hands, going out at 111 3/8 bid, up 1½ points.

Another trader, who also saw that volume of action and similar levels, noted that at one point during the session, the bonds had jumped as high as 115 3/8 bid, or up nearly 5½ points, in round-lot dealings, before coming off those highs to finish with more moderate gains.

The Sacramento-based newspaper and digital media publisher’s notes firmed solidly – and its New York Stock Exchange-traded shares gained 9 cents, or 1.97%, to end at $4.65 on nearly three times the normal volume – on the news that sector peer Gannett will buy the roughly 73% of Classified Ventures LLC, the parent of the Cars.com online auto sales website, for $1.8 billion from its several joint-venture partners. McClatchy, with a 25.6% stake in Classified Ventures, stands to get gross proceeds of about $640 million from the sale, with after-tax net proceeds of about $406 million.

A trader meantime saw “not a lot of activity” in Gannett’s bonds. He said the McLean, Va.-based publishing, digital media and broadcasting company’s capital structure “has a bunch” of different credits trading; the most active on Tuesday was its 6 3/8% notes due 2023, and even that only generated about $3 million of round-lot volume. He saw the bonds down ¼ point, last trading at 104¾ bid.

He said that as for the rest of the company’s issues, no more than $1 million of any one credit traded, with “no big change, one way or the other.”

Gannett said that it would finance the purchase of Classified Ventures via the issuance of new notes and a revolver draw.

It also announced plans to split itself in two, spinning off its legacy newspaper publishing business, including its flagship paper, USA Today, to its shareholders, while retaining its digital and broadcasting operations.

It said that all of the company’s existing debt will stay with the digital and broadcasting unit, so the publishing spin-off will be debt-free.

Earnings a mixed bag

Among companies reporting earnings on Tuesday, Tenet Healthcare’s 6% notes due 2020 were seen by a trader up 1¾ points, at 106½ bid.

The Dallas-based hospital operator reported a second-quarter loss of $26 million, or 27 cents per diluted share, compared with a loss of $50 million, or 49 cents per share, in the year-ago quarter.

On the other hand, Quicksilver Resources’ 7 1/8% notes due 2016 plunged by 3¼ points, to 85¼ bid. Its NYSE-traded shares slid by 28 cents, or 15.73%, to $1.50, on almost three times the normal volume, after the Fort Worth-based oil and gas company reported a loss of 7 cents per share, a penny or two above analysts’ estimates. It said revenues fell 9.3% versus the year-ago quarter to $107 million, also less than what Wall Street was anticipating.

Caesars seen active

Caesars Entertainment Corp.’s bonds were among the most actively traded credits on Tuesday. They were seen mostly lower, in line with a slide in the gaming giant’s shares, amid what could be called “dueling lawsuits” between the company and its creditors, with the latter alleging Caesars fraudulently transferred billions of dollars of assets to a new company to keep them out of the hands of the creditors in the event of a debt restructuring. The company, in turn, alleged that some of its big creditors are trying to panic the markets and push Caesars into a default a default so they can profit on derivatives trades.

A trader saw about $10 million of Caesars’ 10% notes due 2018 trading, in a 31-32 context, calling the bonds “pretty much unchanged.”

Another trader saw those bonds – originally issued by the Las Vegas-based gaming giant’s corporate predecessor, Harrah’s Entertainment Corp. – up 7/8 point on the day at 31 7/8 bid, on volume of over $11 million, and a third also saw the bonds up around 1 point, at 31¾ bid.

The company’s Caesars Operating Escrow LLC 9% notes due 2020 were seen by a market source having firmed by ½ point on the session to 83¾ bid on about $10 million of turnover.

However, many of the company’s other bonds were seen lower.

A trader said that the Caesars Entertainment Operating Co. 8½% notes due 2020 closed 1 point lower at 88 bid on volume of over $11 million.

He saw that entity’s 12¾% notes due 2018 down as much as 10 points in intraday trading before going home at around 35¼ bid, still a 4-point loss. But while there were a lot of trades, he said, “it was all odd lots.”

Two other issues also were seen down about 4 points on the day, though again, almost all of the busy dealings were in odd-lots rather than the larger round-lots.

The old Harrah’s 10¾% notes due 2016 dropped to 57 bid, while its 6½% notes due 2016 finished at 60½ bid.

At the same time, Caesars’ Nasdaq shares slid by $1.34, or 9.54%, to close at $12.71 on volume of around 4.6 million shares, about five times the norm.

The bonds and shares gyrated against the backdrop of further legal battling between the beleaguered gaming company and some of its bondholders.

A bondholders’ group filed suit with the Delaware Court of Chancery – Caesars is incorporated in Delaware, even though it is based in Nevada – alleging that the company had acted improperly late last year and earlier this year with the transfer of some of its assets – including Caesars’ interactive gambling unit, its Planet Hollywood casino in Las Vegas, Bally’s Las Vegas and Harrah’s New Orleans – to a newly formed entity, Caesars Growth Partners. They said this was done to keep those assets out of the reach of bondholders and other creditors in the event of a debt restructuring, a possibility that analysts have been talking about for some months now.

Caesars fought back with a lawsuit in New York, where many of its creditor firms are based, alleging that they were attempting to push the company into being declared in default in order to profit on CDS trades linked to its securities, using such tactics, the company said, as “unfounded threats and bogus allegations” aimed at panicking Caesars investors. The company also cited what it termed “meritless appearances before regulators” and the serving of what Caesars says was a “baseless” default notice in June.

Market indicators stay mixed

Statistical indicators of junk market performance were mixed for a second straight session on Tuesday. On Monday, they had snapped a six-session losing streak that had seen those indicators down across the board.

The KDP High Yield Daily index dramatically climbed out of the rut it had been in for the previous seven consecutive sessions, posting its first advance since July 23. It soared by 29 bps to finish at 72.90, after having lost 18 bps on Monday to bring it down to 72.61, 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. Monday’s loss followed even bigger declines of 52 bps on Friday and 46 bps on Thursday.

Its yield came in by 10 bps, to 5.59% - its first tightening after six straight widenings. On Monday, it had risen by 8 bps after having shot up by 14 bps on Thursday and then ballooning out by 17 bps on Friday.

However, the Markit CDX Series 22 index – which had jumped by 23/32 on Monday, its first gain after two losses before that – couldn’t maintain that momentum and fell by 3/8 point to 106 9/16 bid, 106 5/8 offered.

But the widely followed Merrill Lynch High Yield Master II index was higher for a second straight session, gaining 0.263%, on top of Monday’s 0.015%improvement – which had been its first advance after six straight losses, including Friday’s 0.537% swoon and Thursday’s even steeper 0.616% plunge.

Tuesday’s improvement lifted the index’s year-to-date return to 4.075% from 3.802% on Monday. However, it still remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

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