Primary quiet to close $6.36 billion week; new Western Digital stays busy; oil names slide

By Paul Deckelman and Paul A. Harris

New York, April 1 – Nobody was playing any jokes on junk bond investors on Friday – the traditional April Fool’s Day – but nobody was pricing any new deals either as the high-yield primary fell silent for the first time in a week.

That lack of pricing activity left the dials on new-deal meter right where they had finished the first quarter on Thursday, with $6.359 billion of new U.S. dollar-denominated and fully junk-rated paper having come to market this week in six tranches, up from the $5.75 billion of such paper from domestic or industrialized-country borrowers that had gotten done last week in eight tranches, according to data compiled by Prospect News. Last week had one fewer trading session since the fixed-income markets in the United States were closed for Good Friday.

The week’s issuance brought the year-to-date new-deal total in Junkbondland up to $32.387 billion in 50 tranches, although that still badly lagged the market pace seen a year ago, when $89.635 billion of new bonds had priced in 133 tranches by this point on 2015’s calendar – a nearly 63.9% year-over-year drop, according to the data.

Syndicate sources said that only one prospective new deal was announced during the session. Quorum Health Corp. is expected to start a roadshow in the upcoming week for a $400 million offering of seven-year notes.

Among recently priced new issues, traders said that Western Digital Corp.’s giant-sized new two-part offering continued to top the Most Actives list, although volume levels for the computer hard-drive manufacturer’s deal were well down from what they had been on Thursday, when several hundred million dollars of each tranche traded.

Other recent deals seen continuing to do well in the aftermarket on Friday included Thursday’s offering by Zayo Group LLC and, from earlier in the week, HD Supply, Inc.

Away from the new, or recently priced offerings, traders saw a widespread pullback in such energy issues as Oasis Petroleum Inc., Whiting Petroleum Corp. and Continental Resources, Inc., as world crude oil prices went south on indications that Saudi Arabia will not freeze its crude output unless other major players do so as well.

Statistical market performance measures turned mixed on Friday after having been higher across the board for a second consecutive session on Thursday and having been lower all around for five straight sessions before that.

For the week, the indicators were higher, in contrast with last week’s lower readings; it was the indicators’ sixth week out of the past seven on the rise.

Quorum Health starts Monday

The primary market put up a goose egg on Friday.

No junk bonds were priced.

One deal was announced.

Quorum Health plans to start a roadshow on Monday for a $400 million offering of seven-year senior notes (Caa1/CCC+).

The deal is set to price late in the week ahead.

Credit Suisse, UBS, BofA Merrill Lynch, Citigroup, J.P. Morgan, Wells Fargo, RBC and SunTrust are the joint bookrunners.

Proceeds will be used to help fund the spinoff of the company from Community Health Systems Inc.

The week ahead

The first full week of April gets underway to a thin calendar.

In addition to Quorum Health, Diebold Inc. is expected to price a $500 million offering of eight-year senior notes (B2/B+).

The deal has been shaping up with a yield in the high 7% to low 8% context, a trader said on Friday.

The acquisition-related deal is expected to price on Tuesday.

J.P. Morgan and Credit Suisse are the joint bookrunners.

New issue activity should pick up, provided market conditions remain supportive, sources said as the March-April crossover week wound down.

Look for deals in the foods, health care and financial sectors, a trader said.

Thursday inflows

Cash flows for dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw a substantial $389 million inflow on the day.

Asset managers were also strongly positive, seeing $165 million of inflows on Thursday.

Thursday’s daily numbers come on the heels of news that high-yield funds sustained $545 million of outflows during the week to Wednesday’s close, as reported late Thursday by Lipper.

Western Digital again tops actives

For a second consecutive session, the new Western Digital 10½% notes due 2024 topped the junk bond world’s Most Actives list.

A trader said: “Yesterday they traded boatloads” – more than $400 million of those bonds and its companion issue of 7 3/8% senior secured notes due 2023. He saw considerably reduced, but still busy volume on Friday.

He saw the 10½% notes down ½ point to 100 1/8 bid, “still on heavy volume,” which he estimated at well over $70 million.

At another desk, a trader said that by the time the dust had settled more than $89 million of the notes had changed hands.

He said the bonds were down ¼ point on the day, ending at 100 3/8 bid

The 7 3/8% notes due 2023, meantime saw more than $30 million of turnover on Friday, with a market source calling the bonds unchanged at 102 1/8 bid.

A second trader said they were up 3/8 point on the day at 102 3/8 bid, 102 5/8 offered.

And a third trader pegged the bonds up 1/8 point on the day at 102¼ bid.

The Irvine, Calif.-based computer disk-drive manufacturer priced a total of $5,255,000,000 in two tranches in a regularly scheduled forward calendar deal on Wednesday, consisting of a split-rated (Ba1/BBB-/BBB-) $1,875,000,000 of the 7 3/8% notes and a purely junk-rated (Ba2/BB+/ BB+) $3.35 billion of the 10½% notes. Both tranches priced at par.

The overall size of the offering was reduced from an originally planned $5.6 billion, with the $375 million difference going instead to the company’s concurrent term loan borrowing.

The size of the split-rated secured offering was upped by $375 million from an originally planned $1.5 billion.

The difference was made up by downsizing the purely junk unsecured tranche by $750 million from $4.1 billion originally – $375 million shifted to the secured notes and $375 million shifted out of the junk offering to the term loans.

On Thursday, a trader saw more than $330 million of the 10½% unsecured bonds changing hands and estimated that over $200 million of the 7 3/8% secured bonds had traded.

Zayo moves up

A trader said that the new Zayo Group Holdings 6 3/8% notes due 2025 “got as good as the par level” in morning dealings, before coming off those highs to end at 98 13/16 bid – still well up from the 97.76 level at which Zayo, a Boulder, Colo.-based-telecommunications company specializing in broadband network infrastructure, had priced the quick-to-market $550 million add-on to its existing bonds.

The issue priced to yield 6.707% after it was upsized from $350 million originally.

Another trader said that “there were “about a dozen [$1 million or more round-lot] trades, which he said lifted the bonds to their zenith at 99½ bid, “before they traded off their highs by about a point and finished the day at 98 5/8.”

Activity in HD

Yet another busy bond on Friday was the HD Supply 5¾% notes due 2024, with a market source seeing it down 1/8 point at 102 5/8.

Another source had the company’s paper up by 1/8 point at 102 7/8 bid, with over $9 million traded.

HD Supply, an Atlanta-based distributor of building maintenance products, tools and supplies, priced $1 billion of 5¾% notes due 2024 at par in a quick-to-market offering on Monday.

The notes had been the single busiest issue on Tuesday, when over $59 million traded, finishing around the 101 3/8 bid level. The bonds had moved up to a 102 to 103 bid context by the end of the week.

Oil issues down

A trader said that “an active name today was the Continental Resources, 5% notes due 2022.”

He said that “a lot of the oil stuff got hit because oil was down pretty good today – but this was only down 1 point, to 86. That’s not dreadful for them.”

More than $41 million of those bonds traded on the day.

Among other names that he saw on the downside were Oasis Petroleum’s 6 7/8% notes due 2022, which lost 1 point to 73½ bid, on volume of over $15 million.

A second market source pegged those bonds at 73¼ bid, down 1¼ points on the day.

And the first trader said that Whiting Petroleum’s 5¾% notes due 2021 were big losers on the day, down 3¼ points to 63¾.

“All of these were fairly actively traded today,” he said with Whiting’s turnover at more than $13 million.

The slump extended as well to Anadarko Petroleum Corp.’s split-rated issues, including its 5.55% notes due 2026, which were down 5/8 point at 100½, with over $61 million traded.

The proximate cause of Friday’s energy sector retreat was a big drop in world crude oil prices, spurred on by reports that Saudi Arabian officials have indicated that kingdom will not freeze its production output without Iran and other major global producers doing so as well.

The benchmark U.S. crude oil grade, West Texas Intermediate for May delivery lost $1.55 per barrel on Friday trading on the New York Mercantile Exchange, settling at $36.79 – its first loss after two straight gains and five consecutive losses before that.

Meanwhile global benchmark Brent crude for June delivery – the new front month – slid by more than 4% on the day, falling $1.66 per barrel in trading on the London ICE Futures Exchange to settle in at $38.67. It was the June contract’s first loss after two straight gains and four losses before that.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday after having been higher across the board for a second consecutive session on Thursday and having been lower all around for five straight sessions before that.

For the week, the indicators were higher, in contrast with last week’s lower readings; it was the indicators’ sixth week out of the past seven on the rise.

The KDP High Yield Daily Index posted its third straight gain on Friday and its seventh such advance in the last 12 sessions, rising by 11 basis points to end at 65.74. That gain was on top of the 18 bps improvement on Thursday and the 22 bps jump on Wednesday, which had broken a five-session slump before that.

The index’s yield, though, rose by 3 bps to 6.66%, an unusual move. Generally speaking, the yield moves inversely to the index reading, falling when the index rises and vice versa.

It was the first such widening after two straight sessions of declining yield – it had tightened by 7 bps on Wednesday and another 4 bps on Thursday.

Those levels compared with the index reading of 65.62 and yield of 6.63% at the end of last week.

The Markit Series 26 CDX North American High Yield Index was unchanged on Friday, finishing the day at 102 11/16 bid, 102 23/32 offered. That was the level to which it had risen by gaining 5/32 point on Thursday, its second straight rise since Markit had “rolled” its index, or had begun a new series with a different roster of credit default swaps contracts than previously.

For that reason, the index’s end-of-week reading is not directly comparable to the previous week’s Series 25 close of 101 7/8 bid, 101 29/32 offered.

The Merrill Lynch North American High Yield Master II Index saw its first loss after two straight gains, dropping by 0.013% on Friday. It had improved on Thursday by 0.253%, its second gain in a row.

Those upside sessions had followed five consecutive losses before that; they marked the marked the index’s fifth gain in the last 10 sessions.

It had also risen by 0.489% on Wednesday, versus Tuesday’s 0.305% loss.

Friday’s setback pulled the index’s year-to-date return down to 3.234% from 3.247% on Thursday.

For the week, the Merrill Lynch index rose 0.339% – its first weekly gain after last week’s loss of 0.104%. It was the sixth weekly gain in the last seven weeks.

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