Clear Channel prices week’s sole dollar deal; junk slides as oil, stocks fall; Third Avenue angst

By Paul Deckelman and Paul A. Harris

New York, Dec. 11 – The high-yield primary market – finally – saw its first dollar-denominated pricing in a week on Friday.

But the smallish deal from Clear Channel International BV, coming late in the session, was largely overshadowed by a broad-based market downturn.

Traders said that Junkbondland moved lower in tandem with a selloff in equities sparked in part by the continued erosion in world crude oil prices that has seen them driven down to their lowest levels in at least seven years.

That helped to hammer junk oilers such as California Resources Corp., Chesapeake Energy Corp., EP Energy Corp. and WPX Energy, Inc.

Even away from the recently beleaguered energy and mining spheres, traders said that junk in general was lower, some issues by multiple points, as the market followed the lead of sagging equities.

Adding further to the negative witch’s brew were investor jitters on Thursday’s news that Third Avenue Management LLC plans to liquidate its underperforming Third Avenue Focused Credit junk bond mutual fund, barring investor redemptions while it winds the fund down, and similar news on Friday about Stone Lion Capital Partners LP, which barred redemptions in its credit hedge funds.

Back in the primary arena, Clear Channel International priced $225 million of five-year notes at a discount to par – the first dollar-denominated, fully junk-rated deal to price since last Friday’s issue from ClubCorp. Holdings, Inc.

The week’s $225 million issuance total was well down from the $4.19 billion that priced in 10 tranches the week before, ended Dec. 4, according to data compiled by Prospect News.

The deal brought year-to-date dollar junk-bond issuance to $263 .01 billion in 415 tranches – which still left that total running 15.9% behind the $312.94 billion which had priced in 582 tranches by this time last year.

Statistical measures of junk market performance were lower across the board for a fifth consecutive session on Friday.

They were also lower all around versus where they had finished out last Friday – the first lower week after three straight weeks during which the indicators had been mixed.

Clear Channel at a discount

Clear Channel priced the week’s sole dollar-denominated deal on Friday.

Issuing via Clear Channel International BV, the company sold a $225 million issue of 8¾% five-year senior notes (B2/B/BB-) at 99.012 to yield 9%.

The coupon, discount and yield came in line with final talk.

However that talk backed up considerably from early guidance in the 7½% area, a market source said.

Heading into Thursday the deal was still being discussed in the 8% area, the source added.

In a late restructuring which was announced at the same time price talk came out, call protection was increased to two years from one year.

Goldman Sachs was the sole bookrunner for the deal which sees the company making loans to entities within its capital structure. Proceeds will ultimately fund a cash dividend to the controlling stockholder, iHeartCommunications, Inc. iHeartCommunications may use those proceeds for its own corporate purposes, including debt repayment.

Eyeing year end

In the wake of Friday’s Clear Channel deal, two offerings remain in the market.

Kraton Polymers, LLC started a roadshow on Monday for a $425 million offering of eight-year senior notes (B3/CCC+).

The acquisition deal, via Credit Suisse, Nomura and Deutsche Bank, was set to price late during the week just completed.

However there was no news on the deal Friday.

And NGL Energy Partners LP remains in the market with a $300 million offering of five-year senior notes (B2/BB-/BB-), which launched at the end of November.

Both deals are facing market conditions that are difficult in the extreme, sources said on Friday.

“Things were sloppy all week and they were worse today,” a debt capital markets banker said shortly after the close.

“At this point we may just be done for the year,” the banker added.

Negative flows on Thursday

Cash flows for dedicated high-yield funds were negative on Thursday, the most recent session for which data was available at press time, according to a buyside source.

High-yield ETFs saw $181 million of outflows on the day. Actively managed funds saw $535 million of outflows.

That news followed a Thursday afternoon report from Lipper-AMG that the funds saw $3.5 billion of aggregate outflows on the week to Wednesday’s close.

Meanwhile, dedicated bank loan funds saw $305 million of outflows on Thursday, including $45 million of outflows from bank loan ETFs.

The Thursday outflows from high yield and bank loans were broad based, the buysider said.

‘A pretty ugly day’

A trader succinctly characterized Friday’s session as “a pretty ugly day.”

At another desk, a trader, when asked what was lower, responded “everything was lower. Everything was down points,” estimating the magnitude of the losses suffered by most issues as being between ½ point and 4 points.

“There was across-the-board pressure on names, with no rhyme or reason, just heavy selling.

“It was a pretty big mess,” he concluded.

However, he did add the caveat that while the junk market had clearly been in retreat, “it was orderly,” rather than being a rout.

“Bonds traded down points on decent volume but there was some orderly selling. It wasn’t like every bid that was down 2 points guys were coming in and hitting them.”

But he allowed that “there was consistent selling by accounts throughout the day, as equities were under pressure and everything was under pressure.”

Stocks fell across the board, leading the way downward for other risk-asset classes like junk bonds.

The bellwether Dow Jones Industrial Average swooned by 309.54 points, or 1.76%, to close at 17,265.21, with other, broader indexes, suffering similar sized losses

Faltering funds cause angst

A trader at another shop opined that “we have some mutual funds that are having some issues barring withdrawals so I think there are big liquidity concerns right now in the junk world.”

He was referring to Thursday’s news that distressed debt investment guru Martin Whitman’s $784 million Third Avenue Focused Credit Fund would liquidate due to poor bond market trading conditions that made it virtually impossible to raise cash to meet redemption pressures – and in the interim, while the fund was being shut down, investor redemptions were barred. That means affected investors may not receive all of their money back for months – or even more.

Then on Friday, the Street’s second casualty of the current market downturn showed up, as Stone Lion Capital Partners suspended redemptions for its credit hedge funds, which manage $400 million, for an indefinite period of time. It did not say when investors might get their money back.

The trader continued that “spreads were gapping out. It was not a great day.”

He added that both junk and equities had seen “a flight to quality, obviously, with Treasuries bid up pretty strongly.”

Energy under pressure

One of the traders said that energy issues were at the heart of the day’s downturn.

He noted the continued fall in crude oil prices, with West Texas Intermediate crude falling to $35.58 per barrel, down $1.18, or 3.21%. Crude is now at its lowest levels in seven years.

Among specific credits, Los Angeles-based exploration and production operator California Resources benchmark 6% notes due 2024 were seen by a trader going home at 40¾ bid, 42¼ offered, down more than 2¼ points on the session.

Oklahoma City-based oiler Chesapeake Energy’s 5¾% notes due2023 dropped 3 points on the session to 30 bid, 31 offered.

Houston-based EP Energy Corp.’s 9 3/8% notes due 2020 plunged more than 5 points to 70 bid on brisk volume of over $13 million.

And Tulsa-based E&P company WPX Energy’s 7½% notes due 2020 were down nearly 6 points, at 84¾ bid.

New Clear Channels better

Away from the energy space, the new Clear Channel International 8¾% five-year bonds were seen going out at par bid, 100¾ offered, up from 99.012 level at which the San Antonio, Texas-based outdoor advertising company priced its deal.

However, the company’s existing 7 5/8% notes due 2020 lost 1½ points to end at 88¾ bid on substantial volume of over $24 million traded.

Its 6½% notes due 2022 dropped by 2¾ points to 91½ bid, with over $20 million having changed hands.

Indicators’ slide deepens

Statistical measures of junk market performance were lower across the board for a fifth consecutive session on Friday, their sixth lower session in the last seven trading days. They had turned lower on Monday after being mixed last Friday, Dec, 4, and remained on the downside all week.

They were also lower all around versus where they had finished out last Friday – the first lower week after three straight weeks during which the indicators had been mixed.

It was their second lower week in the last five, and their third lower week in the last 10 weeks.

The KDP High Yield Daily Index plummeted by 66 basis points on Friday to end at 63.82, its seventh straight loss after three successive gains, and its eighth loss in the last 11 sessions. It had lost 5 basis points on Thursday.

Friday’s close represented a sixth consecutive new low for the year and a new 52-week low for the index, eclipsing Thursday’s prior mark of 64.48.

It was also the index’s lowest finish since July 20, 2009, when it went home at 63.55

Its yield ballooned upward by 22 bps on Friday to end at 7.45%, after having edged up by 3 bps on Thursday.

Friday’s close was its seventh straight widening and its eight in the last in the last 13 sessions.

Friday’s yield marked a fifth consecutive new high for 2015, surpassing the former 2015 highest yield of 7.23%, set on Thursday.

Friday’s levels compared unfavorably to the 65.48 index reading and 6.97% yield recorded last Friday.

The Markit Series 25 CDX North American High Yield Index nosedived by 1 29/32 points on Friday to close at 99 bid, 99 3/32 offered, its fifth straight loss after one gain and its sixth loss in the last seven sessions. It had fallen by 15/32 point on Thursday.

Friday’s close was also well down from last Friday’s finish at 102 7/16 bid, 102 15/32 offered.

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