Primary stays quiet, Alliant deal price talk emerges; Peabody, AK Steel gain, Toys rebounds

By Paul Deckelman and Paul A. Harris

New York, July 28 – The high-yield primary arena was quiet for a second consecutive session on Tuesday, with syndicate sources having seen no pricings of any new dollar-denominated and fully junk-rated bonds by domestic or industrialized country borrowers.

The sources did hear price talk come out on specialty insurance brokerage firm Alliant Holdings’ $535 million offering of eight-year notes, currently in the midst of a roadshow but with pricing expected later in the week.

All of the other activity in the new-issue market came from across the pond, with British retailer House of Fraser (Funding) plc heard to have priced €175 million of five-year secured notes.

Back in the dollar market, the new eight-year notes from Dallas-based building products provider Builders FirstSource, Inc. continued to trade busily in the aftermarket.

But existing credits were the main focus in Junkbondland on Tuesday in the absence of any new-deal activity.

AK Steel Corp.’s notes firmed smartly, along with the metals maker’s shares, after its second quarter results weren’t as bad as expected and the company and other domestic steelmakers filed anti-dumping claims on their rivals in China and elsewhere abroad.

Peabody Energy Corp.’s paper firmed, after the coal miner – while reporting worse second-quarter results versus a year ago – said that its $2 billion of liquidity and the fact that it has no debt maturities coming up for more than three years gave it ample time to let the market recover before having to deal with its nearest maturity.

Toys ‘R’ Us Inc.’s bonds bounced off the lows they had hit on Monday.

That was in line with a firmer tone in the junk market, as statistical performance indicators were higher across the board Tuesday after seven consecutive sessions on the downside.

House of Fraser sells floater

One deal cleared during Tuesday’s session in the high-yield primary market.

House of Fraser priced a £175 million issue of three-month Libor plus 575 basis points five-year floating-rate senior secured notes (B3/B) at 99.

The coupon and reoffer price came on top of price talk.

HSBC was the bookrunner.

The London-based department store group plans to use the proceeds to refinance its existing senior secured notes and its revolver and for general corporate purposes.

With House of Fraser having cleared, one announced deal remains active in the European new issue market.

Cognita Financing plc is marketing £280 million of six-year senior secured notes (B2) on a roadshow scheduled to wrap up on Friday.

Alliant sets 8¼% area talk

Alliant Holdings talked its $535 million offering of eight-year senior notes (Caa2/CCC+) to yield in the 8¼% area.

Books close Wednesday and the deal is set to price Thursday morning.

UBS is the lead left physical bookrunner. Morgan Stanley is the joint physical bookrunner and Jefferies, KKR, Macquarie, MCS and Nomura are joint bookrunners.

Notwithstanding the $2.9 billion of announced business still remaining to be cleared on the active forward calendar it could be a quiet finish to the summer of 2015, a syndicate official said on Tuesday.

Don’t look for major deal announcements before Labor Day, the debt capital markets banker warned during a telephone conversation.

Outflows on Monday

Dedicated high-yield funds saw cash outflows on Monday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs sustained $153 million of outflows on the day.

Asset managers saw $15 million of outflows.

Dedicated bank loan funds sustained $55 million of outflows on Monday.

Busy Builders FirstSource

In the secondary sphere, traders were seeing better levels in most issuers on Tuesday as the oversold high-yield market successfully attempted to break out of a seven-session skiddating back to July 17.

This included the most recent junk bond pricing – Builders FirstSource’s 10¾% notes due 2023.

A trader on Tuesday saw the bonds at 99¾ bid, 100¼ offered, calling that a gain of 3/8 point.

Another trader also pegged the bonds at 99¾ bid, calling it a ¼ point rise.

And at another desk, a market source had the bonds a little higher, quoting them at 100 1/8 bid, which he called up 1/8 point, on volume of over $10 million.

The building supplies distributor had priced its $700 million issue at par on Friday in a regularly scheduled forward calendar offering that had been downsized from an originally shopped $750 million.

WPX notes move up

Elsewhere among recently priced issues, WPX Energy, Inc.’s 7½% notes due 2020 were seen by a trader as rising by 1 full point on the session to 100¼ bid, 101 offered.

He saw the company’s 8¼% notes due 2023 also at 100¼ bid, 101 offered, calling that up by 7/8 point.

The Tulsa, Okla.-based exploration and production company priced $500 million of each series of those notes on July 17 as part of a two-part offering totaling $1 billion, downsized from $1.2 billion originally.

But after pricing at par and initially trading at or above that level, both tranches had run into trouble last week, declining to a 99ish bid context and pretty much staying there.

AK Steel improves

Away from the new issues, traders saw solid gains in AK Steel’s various issues, after the West Chester, Ohio-based steelmaker beat analysts’ expectations for the second quarter, posting a smaller than forecast quarterly loss.

Compounding the positive impact of the not-so-bad news, AK joined U.S. Steel Corp. and several other domestic industry peers in filing an unfair trade practices claim against rivals in China and seven other countries, alleging that they dumped cheap cold-rolled steel on the market.

With those positives, a trader said, AK’s benchmark 7 5/8% notes due 2020 jumped to 66 bid, which he called a 6 point surge over Monday night’s levels.

He suggested that the bonds – which had been eroding for the last few sessions – were being helped by “a pretty big short squeeze.”

He opined that “their whole [capital] structure was better.”

At another desk, a trader said more than $22 million of the 7 5/8% notes had traded, rising more than 6 points.

Peabody pops up

Traders saw Peabody Energy’s badly oversold notes in a recovery mode on Tuesday, with its 10% second-lien notes due 2022 ½ point better at 47½ on volume of more than $20 million.

“Those traded the most,” a trader said.

The St. Louis-based coal producer reported quarterly earnings which were lower, in line with expectations.

However company executives were upbeat about Peabody’s liquidity and capital structure (see related story elsewhere in this issue).

Toys takes ground back

Away from the energy and natural resources segment, traders noted that Toys ‘R’ Us’ paper, which had been hammered down on Monday, seemed to have recovered somewhat on Tuesday.

One saw its 10 3/8% notes due 2017 jump 6 points to the 82-83 bid level after having plunged around 6 points into the mid-70s on Monday.

Its 8½% first lien notes were seen up ½ to ¾ point on Tuesday to around the 99 level. On Monday, they had slid by 2½ points on the day.

The bonds had originally fallen Monday against the backdrop of news reports indicating that several insurance companies that sell credit insurance to the struggling Wayne, N.J.-based specialty retailer’s vendors – the toy and game companies and other children’s product manufacturers and distributors that keep its store shelves stocked – are removing Toys ‘R’ Us from some policies and declining to renew coverage in other cases.

However on Tuesday some analysts suggested the fears were overdone.

Indicators break out of slump

Statistical measures of junk market performance decisively snapped a seven-session losing streak on Tuesday.

The KDP High Yield Daily Index rose by 6 basis points to finish at 68.84, after having fallen for seven straight sessions before that, and in eight out of the previous 10 sessions.

On Monday, the index had swooned by 25 basis points, plummeting down to 68.78 – a new 52-week low for the index. In the process, it had broken the old mark of 69.01, which had been set on Dec. 16, 2014, and reached the index’s lowest closing level since Oct. 5, 2011, when it had finished at 68.53.

Its yield, meanwhile, was unchanged at 6.08%, after even consecutive sessions during which it had widened out, including Monday’s 7 bps rise.

The Markit Series 24 CDX North American High Yield Index moved up by 13/32 point on Tuesday to end at 105 7/8 bid, 105 15/16 offered. It was the first upturn after seven straight losses, and eight losses in the previous nine sessions, including Monday’s 5/16 point retreat.

The Merrill Lynch North American Master II High Yield Index also put an abrupt end to a seven-session skid on Tuesday, rising by 0.137% on the day, after having fallen by 0.379% on Monday.

Tuesday’s improvement brought its year-to-date return up to 1.172% from Monday’s finish at 1.033% – the index’s lowest closing level since Feb. 3, when it had ended at 1.027%.

However, the year-to-date figure meantime remained 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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