LeasePlan shelves megadeal amid market volatility; most junk lower; funds lose $1.05 billion

By Paul Deckelman and Paul A. Harris

New York, Feb. 11 – The ongoing volatility in the capital markets claimed a victim in Junkbondland on Thursday, with syndicate sources saying that Dutch vehicle-leasing company LeasePlan Corp. NV had postponed its planned €1.55 billion three-part dual-currency bond offering, a deal that included a dollar-denominated tranche of five-year notes.

No deals were heard to have priced.

The sources also said that Canadian media company Corus Entertainment Inc. was getting ready to hit the road to market a planned Canadian dollar-denominated seven-year issue.

Among recently priced offerings, Charter Communications Inc.’s big eight-year offering from last week was among the day’s most actively traded high-yield credits; like almost everything else in the junk realm, those bonds were lower on the session.

With oil prices continuing their slide, traders said that energy names were in the forefront of the decliners, including California Resources Corp., Chesapeake Energy Corp. and Energy XXI Gulf Coast, Inc.

The split-rated oil and natural gas and mining concern Freeport-McMoRan Inc. dominated the Most Actives list, with most of its issues losing multiple points on the day.

Statistical measures of junk market performance turned lower across the board on Thursday after having been mixed on both Tuesday and Wednesday. It was the indicators’ second lower session in the last four trading days.

Another numerical gauge – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – continued on its mostly negative trend for the year so far, posting their second straight weekly outflow and their fifth downturn in the six weeks since the start of the new year. Some $1.048 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than had come into them during the week ended Wednesday.

LeasePlan postpones

No deals were priced on Thursday, as the primary market remained sidelined by ongoing volatility in the global capital markets.

Vehicle-leasing company LeasePlan cited adverse market conditions as it postponed its €1.55 billion three-part offering of senior secured notes (B1/BB+/BB-) on Thursday, sources say.

The deal included euro-denominated five-year notes talked to yield 7½% to 7¾% and dollar-denominated five-year notes talked to yield in the 8¼% area.

The dollar-denominated notes, talked 62.5 basis points behind the euro-denominated notes, were shaping up slightly wide of the 50 bps spread that circulated in earlier guidance, according to a sellside source.

LeasePlan was also selling euro-denominated seven-year notes talked to yield 8% to 8¼%.

The guidance on the seven-year notes was 50 bps behind that of the euro-denominated five-year notes, a greater concession than the issuer initially contemplated, according to the sellsider who said that early guidance had the seven-year notes coming about 30 bps behind the euro-denominated five-year piece.

The buyout deal had seen some pushback from investors because of the volatility in the European financial space and intense pressure on bank stocks, as well as recent negative headlines about the fortunes of Deutsche Bank, the sellsider remarked.

The euro-denominated tranches were said to be faring better than the single dollar-denominated tranche, a trader said on Thursday morning.

JPMorgan, Goldman Sachs International, Credit Suisse and ING were joint bookrunners.

Corus plans roadshow

Corus Entertainment Inc. is expected to start a roadshow on Tuesday for a C$300 million offering of seven-year senior notes (/B+/DBRS: B high), according to a buyside source.

Preliminary guidance has the deal coming with a yield in the 8% area, the source added.

RBC Capital Markets and TD Securities will be the leads.

Proceeds will be used to help fund the proposed C$2.65 billion acquisition of Shaw Media Inc. from Shaw Communications Inc. and to redeem C$550 million of Corus Entertainment 4¼% senior notes due Feb. 2, 2020.

Market moves lower

In the secondary arena, a trader exclaimed that Thursday was “a very bad day. Everything traded lower.”

Among the issues that he saw on the downside were California Resources’ 6% notes due 2024, which dipped below the psychologically significant 10 mark, ending at around 9 bid, with over $17 million of the Los Angeles-based oil and natural gas exploration and production company’s bonds seen having changed hands.

He saw the Algeco Scotsman Global Finance plc’s 10¾% notes due 2019 falling as low as 20¼ bid before going home at 22 – still down 12 points on the session from the 34 bid level at which they had ended on Wednesday. More than $6 million of the Baltimore-based trailer and modular space products provider’s bonds had traded during the session.

And he said that Bristow Group, Inc.’s 6¼% notes due 2022 trading in a wide 50 to 61 bid range, before finally finishing around 59 bid, down from prior levels about 66, although there were only a couple of round-lot trades seen. He said the bonds of the Houston-based provider of helicopter services to the offshore energy industry dropped “even though they had OK results” when the company reported third-quarter and nine-month financials earlier in the week.

“The sellers just came out,” he said.

Three-day weekend effect?

At another shop, a trader opined that “European dealers, U.S. dealers, hedge funds, ETF arbs and ETFs were pushing the market around.”

He said: “Real money, to a great extent, was on the sidelines, while people were sitting back and trying to assess where we’re headed next.”

He added that “there wasn’t a lot of credit news.”

He also raised the possibility that some of what went on was due to the upcoming three-day weekend – fixed-income markets in the United States will be closed on Monday in observance of Presidents Day – “which some people are turning into a four-day weekend” by planning to be out on Friday; amid the current market volatility, they might not want to be holding long positions in any kind of risky names over that long stretch.

Crossover names active

The trader continued that “some of the heaviest trading of the day took place in crossover names,” specifically singling out the split-rated (B1/BBB-/BBB-) Freeport-McMoRan.

Its 6½% notes due 2020 lost 1 11/16 points on Thursday, ending at just over 55 bid, with nearly $32 million of the issue traded.

The company’s 3.55% notes due 2022 were down 1 7/8 points at just over 48 bid, with over $26 million traded.

And its 3 7/8% notes due 2023 slid by 1¾ points to 47 bid, on more than $22 million of volume.

The Phoenix-based copper, gold and oil and natural gas company’s paper has been among the most actively traded issues ever since Moody’s Investors’ Service dropped its corporate family rating by four full notches to a very junky B1 from an investment-grade BBB- late last month, citing sagging world copper and crude oil prices.

The ratings cut initially caused huge selling in the company’s paper as high-grade accounts whose investment guidelines bar holding anything less than investment grade all around dumped the bonds; in the following days, Freeport rose smartly on substantial volume as some junk accounts took advantage and snapped up the split-rated paper.

But after that holiday – which lasted more than a week before finally running its course – the Freeport paper began acting more in line with other energy and natural resources names, mostly heading downward among weak commodity prices.

Energy names trade off

Energy names were once again among the more active issues, and mostly to the downside, reflecting the continued deterioration of crude oil prices.

“CalRes was one of was a heavily-rated name,” one of the traders said, “and Chesapeake, again.”

California Resources’ 8% notes due 2022 finished at an even 20 bid, a market source said, down 2¼ points on the day. With over $36 million traded, it was the most active junk bond on the day.

He also saw the company’s 6% notes around or just under 10 bid, with over $17 million traded.

Chesapeake Energy’s 8% notes due 2022 were down ¾ point on Thursday at 32¾ bid, with over $19 million traded, while the Oklahoma City-based natural gas and oil exploration and production operator’s 6 5/8% notes due 2020 ended down nearly a full point on the day at 13¾ bid, on volume of over $15 million.

Perhaps the “biggest loser” in the energy sector on Thursday was Energy XXI; the Houston-based E&P company’s 11% notes due 2020 plunged by 6 points on the session, ending at 10¾ bid, with over 415 million of volume.

The benchmark U.S. crude oil grade, West Texas Intermediate for March delivery, plummeted by $1.24 per barrel in Thursday dealings on the New York Mercantile Exchange, settling at $26.21. It was WTI’s sixth straight loss and eighth in the last nine sessions.

Global benchmark Brent crude for April delivery was not much better; it lost 78 cents per barrel on the London ICE Futures Exchange to settle at $30.06, more than giving back the 52-cent gain notched on Wednesday. Thursday’s loss was its fifth loss in the last six sessions.

Charter stays busy

Among recently priced issues, Charter Communications’ 5 7/8% notes due 2024 lost ¾ point on Thursday to end at 98½, with over $13 million traded. On Wednesday they had firmed to around the 99¼ bid mark.

The Stamford, Conn.-based cable operator priced its $1.7 billion of those notes via its CCO Holdings LLC and CCO Holdings Capital Corp. subsidiaries at par last Thursday after that quick-to-market offering was upsized from an originally announced $1.5 billion.

Indicators turn lower

Statistical measures of junk market performance turned lower across the board on Thursday after having been mixed on both Tuesday and Wednesday. It was the indicators’ second lower session in the last four trading days.

The KDP High Yield Daily Index nosedived by 55 basis points on Thursday to finish at 61.05, after having risen by 18 bps on Wednesday – its first upturn after seven straight losing sessions before that. Thursday’s reading set a new low for the year and a new 52-week low, surpassing the old mark of 61.41 set back on Jan. 20. It was the index’s lowest close since May 22, 2009, when it finished at 60.97.

Its yield shot up by 16 bps to 7.73%, after having come in by 3 bps on Wednesday. It was the third widening out in the last four sessions.

The Markit Series 25 CDX North American High Yield Index lost 17/32 point on Thursday to end at 96 7/16 bid, 96½ offered, its second straight loss and fifth such retreat in the last six sessions; the index had finished off by 5/32 on Wednesday.

The Merrill Lynch North American High Yield Master II Index plunged by 1.119% on Thursday, its fourth loss in the last five sessions. On Wednesday, the index had improved by 0.309%.

Thursday’s big loss raised the year-to-date loss to 5.142% from Wednesday’s 4.069%.

That marked its first cumulative loss greater than 5% this year and established a new mark for the worst cumulative deficit for the year, topping the old mark of 4.364%, set on Tuesday of this week.

That loss also surpassed the year-end 2015 loss of 4.643%, which had been the biggest loss the index had seen since it lost more than 30% in 2008.

Another component of the index, its yield-to-worst, rose to 10.099% from Wednesday’s 9.808% – its first time this year above the psychologically significant 10% mark.

Funds lose $1.05 billion

Flows of investor cash into or out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – continued on their mostly negative trend for the year so far, posting their second straight weekly outflow and their fifth downturn in the six weeks since the start of the new year.

Some $1.048 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than had come into them during the week ended Wednesday, also raising the fund’s cumulative outflow number to its highest level so far this year (see related story elsewhere in this issue).

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