Primary quiet to close out $5.3 billion week; market tries to rebound from Thursday slide

By Paul Deckelman and Paul A. Harris

New York, July 18 – Friday was a quiet day in Junkbondland, as market participants – still a little shell-shocked from Thursday’s broad market downturn and the news of massive outflows this week from high-yield mutual and exchange-traded funds – tried to mount a comeback.

Traders said they were at least partly successful. For one thing, Thursday’s slide seemed to be just a one-off event, generating no downside momentum.

There was no strong snap-back either, making for a fairly quiet session, although traders said some of the issues which had seen notable losses on Thursday, such as the big new three-part offering from American Energy-Permian Basin, LLC, appeared to have come at least part of the way back from their Thursday lows.

There was no pricing activity, at least in the dollar-denominated segment of the junk market. The sole pricings seen were denominated in other currencies – euros for French equipment rental company Loxam SAS’s two-part offering of seven-year senior secured notes and eight-year senior subordinated notes, and Canadian dollars for Calgary, Alta.-based natural gas producer Perpetual Energy Inc.’s upsized issue of five-year notes.

Back in the dollar realm, Kosmos Energy Ltd. was heard by syndicate sources to be getting ready to hit the road to market its $300 million offering of senior secured notes.

With no new dollar-denominated, fully-junk-rated deals having priced during the session, the week’s new-issuance total stayed where it had closed out on Thursday at $5.31 billion in 17 tranches, according to data compiled by Prospect News. That was down from the $6.81 billion in 12 tranches that came to market in the week ended July 11.

That weekly issuance tally, in turn, lifted year-to-date new issuance to $192.79 billion in 371 tranches, according to the data – running just under 10% above the pace seen at this time last year, which ended up a near-record year for new junk bonds. Some $175.31 billion had priced in 399 tranches by this point on the calendar last year.

Statistical measures of junk market performance meanwhile were seen mixed on the session, partially recovering from Thursday’s across-the-board slide.

However, they all remained below the levels seen the previous Friday for a second consecutive week.

Loxam prices €660 million

France-based equipment rental company Loxam priced €660 million of notes in a resized two-part transaction that saw €10 million of proceeds shifted to the senior secured tranche from the senior subordinated tranche on Friday.

The debt refinancing deal included an expanded €410 million tranche of seven-year senior secured notes (/BB-/) which priced at par to yield 4 7/8%. The tranche was originally to be €400 million. The yield printed at the wide end of the 4¾% area yield talk.

Loxam also priced a reduced €250 million tranche of eight-year senior subordinated notes (/B/) at par to yield 7%. The tranche was initially €260 million. The yield printed at the wide end of the 6¾% to 7% yield talk.

Both tranches were becalmed in the secondary market where they straddled their issue prices, according to a trader.

The 4 7/8% notes due 2021 were at 99 7/8 bid, par 3/8 offered, in highly illiquid market conditions, the trader said on the telephone, speaking as the New York session wound up on Friday afternoon.

Loxam’s 7% notes due 2022 were at 99¾ bid, par 3/8 offered, the source added.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, Credit Suisse, Credit Agricole CIB, Natixis and SG CIB were also joint bookrunners

Elsewhere in the euro-denominated market another France-based issuer, Winoa Group, wrapped up its roadshow on Thursday and had been expected to price its deal on Friday. However no terms surfaced, and the deal was pushed into the week ahead, according to a market source.

Earlier in the day a London-based sell-side source said that the whisper on Winoa was 7% to 7½%. However at Friday’ New York close a trader on the East Coast of the United States was hearing 7½% to 8%.

Deutsche Bank and KKR are leading the deal.

Widening with the market

With the widening of the high-yield market that took place during the latter half of the past week, initial guidance on some of the deals launched earlier in the week appears to have been overtaken by market conditions, a trader said late Friday.

Initial guidance for Transworld Systems Inc.’s $440 million offering of seven-year senior secured notes (/B/) was in the 8% area, the trader said. However it is now more likely to reach the market in the context of 8¼% to 8½%, the source said, adding that the deal is still coming together.

The deal, via BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, BMO Securities, Macquarie Capital and Nomura is expected to price during the early part of the week, the trader added. Proceeds will be used to help fund the buyout of the company by Platinum Equity.

Early guidance for Citgo Petroleum Corp.’s $650 million offering of eight-year senior secured notes (B1/BB-) was in the high 5% yield context, the trader said, and added that a widening market will likely move that discussion higher.

Deutsche Bank is the left bookrunner for Citgo. RBS is the joint book bookrunner.

“The market felt pretty bad today,” said the trader, speaking at the Friday New York close.

“Things were a little better at the end of the day, as people were trying to add a couple of names.

“But it was still down ¼ point on the day.”

The primary market will continue to operate, the trader forecast.

However the deal parade could slow down somewhat as the banks will be measuring the market before making any announcements.

“There is going to be some temperature-taking, now,” the trader said.

“If it feels okay they’ll bring a deal.”

ETFs lead the retreat

Also on Friday, market-watchers continued to parse Thursday’s news that high-yield funds had seen $1.68 billion of outflows for the week to Wednesday’s close.

Those negative flows tend to represent the “fast money” in high yield, a trader said, referring to exchange traded funds (ETFs).

ETFs sustained about $1.1 billion of the negative flows, whereas actively managed funds saw $613 million of outflows for the week, the trader added.

The source also said that the last time the market saw a bigger weekly outflow was a little less than a year ago, when, in the week ending Aug. 21, 2013, high yield sustained $2.33 billion of outflows. That was the period when word slipped from the Federal Reserve Bank that its long standing economic stimulus regime, known as quantitative easing, might be “tapered,” the trader recounted.

Actively managed funds were a bigger component of last August’s outflow, said the trader who put together information based on runs from that time frame.

The conclusion is that this time around the real money accounts, the actively managed funds, are seeing a lower volume of redemptions than the fast money ETFs, the trader said.

Therefore the present situation should be less dire than that seen last August, when real money accounts were seeing a greater volume of redemptions.

Having said as much, however, this trader – like his counterpart above – said that there was a lot of selling going on late in the past week.

The source reported seeing as many as 50 BWICs on Thursday, whereas a typical day in the market might generate around 20.

There were bids, but not many, the trader added.

Kosmos Energy roadshow

Kosmos Energy plans to start a roadshow on Monday in London for a $300 million offering of seven-year senior secured notes (expected ratings /CCC+/B).

The deal is playing to both high yield and emerging markets audiences. Kosmos Energy is based in Hamilton, Bermuda, and has an office in Dallas. It has operations in Ghana, Ireland, Mauritania, Morocco and Suriname.

Global coordinator and joint physical bookrunner Barclays will bill and deliver. BNP Paribas is also a global coordinator, joint physical bookrunner.

BofA Merrill Lynch, HSBC, Credit Agricole CIB, SG CIB, Standard Bank and Standard Chartered Bank are bookrunners.

The oil and gas exploration and production company plans to use the proceeds to repay a portion of its outstanding debt and for general corporate purposes.

Perpetual Energy upsizes

Perpetual Energy priced an upsized C$125 million issue of five-year senior notes (expected Caa1/confirmed CCC+) at par to yield 8¾% on Friday, according to a press release from the company.

The deal was increased from C$100 million.

Scotia Capital Inc., BMO Nesbitt Burns Inc. and CIBC World Markets Inc. were the joint bookrunners.

The Calgary, Alberta-based natural gas producer plans to use the proceeds for general corporate purposes and to redeem its 7¼% convertible debentures due Jan. 31, 2015.

Market firms off lows

A trader said that “not a lot” was happening in the secondary sphere on Friday, “not a lot at all.”

He said that at his shop, “we were busy in the morning, and the market seemed to try to come back a little bit – and I think that actually it did.”

He noted that stocks, which had fallen badly on Thursday amid new geopolitical worries between the shooting down of a Malaysian jetliner over the troubled Ukraine region and the widening conflict between Israel and the Palestinians in Gaza, were higher across the board on Friday – the Dow Jones Industrial Average rose 123.37 points or 0.73%, to end at 17,100.18, while the Standard & Poor’s 500 index – which on Thursday had suffered its worst one-day beating since early April - gained 20.10 points or 1.03%, to 1,978.22. The Nasdaq Composite index advanced 68.70 points, or 1.57%, to 4,432.15.

And specifically in the junk market, he pointed out that the Markit CDX index was up, “which kind of implies people putting money back into high yield.”

While “things did get beaten up” on Thursday, with the extent of the carnage “depending upon the bond and the sector, I would say, on balance, that if we were off 1 point yesterday [Thursday], we came back ¼ [point] today.”

However, a second trader was a little more cautious in his assessment.

From where he sat, “the market felt unchanged, even though the equity market was doing better. Our market was kind of blah – no great shakes. If somebody was bidding something up, there wasn’t a lot of size buying. If someone was trading something down, there wasn’t too much size to it.”

He said that such behavior was typical of “the dog days of summer. It’s a one-sided market. If you have one side of a trade, it’s very tough to find the other.”

He allowed that Friday’s session was characterized by neither a continuation of Thursday’s retreat nor any kind of decisive rebound.

Where there was selling both on Thursday and again on Friday, he said, “it was the high-dollar bonds that have risen over the past six months or so. The high-dollar stuff is what I saw coming out.”

However, he didn’t see “any fire sales.”

American Energy on the rebound

Among specific issues, traders saw American Energy-Permian Basin’s three new tranches of bonds trading up from the lows they had hit during Thursday’s market downturn.

A trader saw the company’s floating-rate notes due 2019 up about 3/8 point on Friday, ending at 98 7/8 bid, 99 1/8 offered.

On Thursday, he said, those bonds had swooned by 1 1/8 point from their previous levels just below par.

He saw the issuer’s 7 1/8% notes due in November 2020 up 5/8 point on Friday to 99½ bid, 99¾ offered in contrast to Thursday’s 1 1/8 point downturn, while its 7 3/8% notes due in November 2021 had improved by ¼ point to 100 1/8 bid, 100 3/8 offered. On Thursday, the ’21s had lost over 1 point.

A second trader said that he “really didn’t see very much in them,” quoting the floaters at 98½ bid, 99 offered, while the other two issues “were trying to hold in there.” He pegged the 7 3/8s at 100 1/8 to 100 3/8 offered, while the 7 1/8s were at 99¾ bid, 100¼ offered.

The Oklahoma City-based oil and natural gas operator had priced $350 million of the floating-rate notes on Wednesday as part of its $1.6 billion three-part transaction, upsized from $1.4 billion originally.

Those floaters had priced at 99 with a coupon of 650 basis points over the Euribor borrowing rate, and had gotten as good as 99 3/8 bid, 99 5/8 offered in initial aftermarket dealings – before sliding to about a 98 to 99 context on Thursday, in line with the overall market downturn.

It had priced $650 million of the 7 1/8% notes and $600 million of the 7 3/8% notes, both at par, and the two tranches had firmed smartly, with the 7 1/8s getting as good as 101 bid, 101¼ offered, while the 7 3/8s had reached 101 1/8 bid, 101 3/8 offered. However, on Thursday, the 7 1/8s had been seen closing as low as 98¾ bid, 99 offered, while the 7 3/8s had retreated to 99¼ bid, par offered.

Rex tries to rally

A trader said that his shop had been active in Rex Energy Corp.’s 6¼% notes due 2022, which he said “were down 1 point from new issue.”

The State College, Pa.-based exploration and production company had priced $325 million of the notes at par on Monday in a quick-to-market deal, and they had jumped in the initial aftermarket dealings as high as 101 bid, 101¼ offered.

However, after that the bonds began to come in, culminating in a 1½-point slide on Thursday that took them down as low as 98½ bid, 99 offered.

Several traders saw the Rex bonds having moved back up from those lows to around 99 bid on Friday.

Market indicators turn mixed

. Statistical indicators of junk market performance were mixed on Friday, after having turned decisively lower on Thursday.

However, for a second consecutive week, they were lower across the board versus where they had finished the previous Friday.

The KDP High Yield Daily index slid by 12 basis points Friday to end at 74.15, its fourth straight loss. On Thursday, the index had plunged by 17 bps. The index has now been down in 11 sessions out of the last 12.

Its yield rose by 4 bps to 5.22%, its third straight widening. On Thursday, it had ballooned upward by 10 bps.

Those levels compared unfavorably to the 74.62 index reading and 5.07% yield recorded at the end of the previous week on Friday, July 11.

The Markit CDX Series 22 index, on the other hand, gained 9/32 point to finish at 108 1/8 bid, 108 3/16 offered. On Thursday, it had fallen by 23/32 point to finish at 107 7/8 bid, 107 15/16 offered – its first finish under 108 since May 26, when it had closed at 107 15/16 bid, 108 offered.

But for the week, the index finished down from the previous Friday’s 108½ bid, 108 9/16 close.

© 2015 Prospect News.
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