Sensata drives by post-holiday; California Resources off, Roundy’s climbs; funds lose $1.8 billon

By Paul Deckelman and Paul A. Harris

New York, Nov. 12 – It was back to work on Thursday in Junkbondland following the unusual mid-week holiday break seen Wednesday in observance of Veterans Day.

One deal priced during the session – Dutch industrial technology company Sensata Technologies Holding NV’s quickly shopped $750 million offering of 10.25-year notes, according to syndicate sources. Traders reported no initial aftermarket activity in the new issue.

The sources also heard that the pending four-part, dual currency megadeal from Silicon Valley high tech company Veritas Technologies LLC was upsized by $250 million to $2,525,000,000 equivalent. They also said that pricing on the deal would likely be put off until the coming week.

Away from the new-deal realm, California Resources Corp.’s bonds fell in active trading after the oil and natural gas exploration and production company announced plans for a debt exchange at a discount.

The company said it would issue up to $1 billion of new seven-year secured notes in exchange for a portion of its existing 2020, 2021 and 2024 notes – with total consideration for any tendered bonds accepted by the company set at 80 cents on the dollar.

Even without the exchange offer, those California Resources bonds would have likely finished lower on Thursday in line with falling crude oil prices, which declined to their lowest levels since late August after a considerably larger than expected rise in U.S. oil stockpiles last week.

The unexpectedly large gain – more than four times what analysts were expecting – dragged such California Resources sector peers as Chesapeake Energy Corp. lower in active dealings.

On the upside, Roundy’s Inc.’s bonds traded actively, and at considerably higher levels than previously, on Wednesday’s announcement that supermarket giant Kroger Co. will acquire the regional grocery chain operator for $178 million in cash, plus assumption of $646 million of debt.

Statistical measures of junk market performance remained lower across the board.

Another numerical gauge – flows of investor cash into or out of high-yield mutual and exchange-traded funds, considered a key barometer of overall junk market liquidity trends – turned negative in the latest reporting week, with $1.8 billion of net outflows.

Sensata drives through

The primary market saw a single deal clear the market on Thursday, as Netherlands-based Sensata Technologies priced a $750 million issue of 10.25-year senior notes (Ba3/BB) at par to yield 6¼% in a drive-by.

The yield printed on top of yield talk.

The acquisition financing deal was two-times oversubscribed, according to a buyside source.

BofA Merrill Lynch, Barclays, Morgan Stanley, Goldman Sachs, Mizuho and RBC were the joint bookrunners.

Veritas upsizes bonds

Elsewhere Veritas Technologies upsized its four-part offering of high-yield notes to $2,525,000,000 from $2,275,000,000 equivalent.

The company shifted the $250 million equivalent of proceeds to the secured bonds from its concurrent term loan, which it downsized to $2.21 billion from $2.46 billion.

The bond upsizing comes in the two tranches of seven-year senior secured notes (B1/B+) – one each in dollars and euros – which were increased to $750 million equivalent from $500 million equivalent.

The overall size of the eight-year senior unsecured notes (Caa1/CCC+) – also coming in dollar- and euro-denominated tranches – remains unchanged at $1,775,000,000 equivalent.

Individual tranche sizes remain to be determined.

The calendar

Although earlier in the week the Veritas bond deal appeared to be headed toward a Friday pricing, it has now been moved into the week ahead, sources said on Thursday.

Likewise for the downsized American Energy – Permian Basin, LLC $530 million offering of five-year senior secured first-lien notes (B2/B), sources say: the deal, reduced from $560 million, appeared headed toward a Friday pricing but now appears to have been moved into the week ahead.

There are two dollar-denominated deals that appear more likely to clear by Friday’s close. However the market awaits official price talk on both of them.

Qorvo Inc. has been roadshowing a $1 billion two-part offering of senior notes (Ba1/BB+).

The deal is coming in tranches eight-year notes with early guidance in the high 5% yield context, and 10-year notes with early guidance in the low 6% context.

Also Team Health, Inc. is in the market with a $545 million offering of eight-year senior notes (B2/B). Early yield guidance is 6¾% to 7%.

Both deals are possible Friday business, sources say.

Given that, the market did not look good to one investor who took a telephone call late Thursday.

There appears to be a scare in the market, said the investor, who added that any bad news about a company lately has the tendency to push the prices of its bonds down 8 to 10 points.

Corporate earnings are once again calling into question the strength of the U.S. economy, the source remarked, making reference to disappointing recent earnings reports from department store companies Macy’s and Nordstrom.

Alliance talk is 5% to 5½%

In the European primary market Alliance Data Systems Corp. talked its €300 million offering of unrated eight-year senior notes to yield 5% to 5¼%.

Books close 8 a.m. ET Friday and the debt refinancing deal is set to price subsequently.

New Sensata not seen

In the secondary arena, several traders said that they had not seen any immediate aftermarket activity Thursday in the new 6¼% notes due in February 2026 issued by Sensata due to the lateness of the hour at which the Almelo, Netherlands-based industrial technology company’s offering came to market.

However, late in the session one of the traders said he had seen some of the bonds trading around 100½ bid.

Recent notes a little lower

A trader said that Monday’s offering of 5 7/8% notes due in February 2026 from HCA, Inc. was “pretty active, right around the par level.”

That was down about ½ point from the 100½ to 100¾ context at which the huge Nashville-based hospital operator’s bonds had gone home on Tuesday, before the Veterans Day holiday.

Another market source said that more than $64 million of those bonds changed hands, finishing at 100¼ bid, ½ point down from its previous levels.

HCA had priced its quick-to-market $1 billion offering at par.

One of the traders said that in general, “the recent deals were a little softer,” in line with the overall easier market.

He said that among the recently priced offerings seen lower Thursday were Charter Communications, Inc., First Data Corp. and Molina Healthcare, Inc., all of which were down by ¼ of a point.

California Resources slides

The news that California Resources is trying to take out some of its existing bond debt by offering new notes to the existing debtholders pushed those existing bonds several points lower, in heavy trading.

One trader saw the Los Angeles-based oil and gas E&P company’s benchmark 6% notes due 2024, down around 3 points on the session as things drew to a close, around a 65½ to 66 bid context.

“Those things were trading all day long,” he said.

At another shop, a trader estimated that almost $70 million of the notes had changed hands. He saw the bonds going home at 100 bid, 100½ offered, down around ½ point.

One of the traders saw the 5½% notes due 2021 likewise off 3 full points, just like the 2024 notes, with over $25 million having moved around in a 65 7/8 to 66½ context, while the company’s 5% notes due 2020 had dropped 5 full points to around 68½ bid on volume of over $32 million.

“That was the ugly one of the day, California Resources,” one of the traders opined.

The company said that it would issue up to $1 billion of 8% second-lien notes due 2022 to holders of the existing paper whose notes were accepted for exchange.

It will give those holders who tender their notes on or before the early participation deadline of 5 pm ET on Nov. 25 total consideration of $800 of the new notes per $1,000 principal amount of the old notes tendered and accepted under the offer. That price includes a $50 per $1,000 principal amount early participation premium.

Investors tendering their notes after the early participation deadline will receive $750 of the new bonds for each $1,000 principal amount of the old notes.

The offer expires on Dec. 10.

Energy names off

One of the traders suggested that “even if there were no exchange offer, CRC would have been off on the day anyway,” in line with a general slide in energy credits, pulled lower by sinking crude oil prices.

Another trader said that Chesapeake Energy’s paper behaved typically, with its 5¾% notes due 2023 “down around 2½ to 3 points” at about 55 bid, with over $22 million having changed hands.

He saw the Oklahoma City-based oiler’s 6 5/8% notes due 2020 trading around 61¾ bid, 62 offered, calling them down a deuce on the day, with over $22 million traded.

Chesapeake and other energy credits retreated as crude oil prices remained in freefall. December-delivery West Texas Intermediate crude swooned by $1.18, or 2.80%, settling at $41.75 per barrel Thursday on the New York Mercantile Exchange, its lowest level since Aug. 28.

Crude slid after the U.S. Energy Information Administration reported that domestic crude oil stockpiles grew for a seventh consecutive week last week – and grew at a greater rate than analysts were expecting.

The EIA said that the stockpiles increased by 4.2 million barrels during the week ended Nov. 6 – about four times the roughly 1 billion barrel increase the analysts had been looking for.

Roundy’s on a roll

A trader said that Roundy’s bonds were bucking the overall negative trend, having pushed up smartly on the news that the Milwaukee-based supermarket chain has agreed to be acquired.

That news – released on Wednesday, when the domestic junk market was essentially closed – produced just a handful of trades up around a 110 to 112½ bid context, more than double its last previous price of around 55 bid, recorded at the end of October.

On Thursday, the company’s bonds continued to trade very actively at the higher levels seen during Wednesday’s non-session.

One trader said that they had moved up to around 112 5/8 bid from prior levels around 112 bid, with over $28 million traded.

Cincinnati-based food retailer Kroger will pay $178 million in cash and will assume Roundy’s $676 million of outstanding debt.

Indicators remain weaker

Statistical measures of junk market performance were lower across the board on Thursday.

Excluding Wednesday, when the market was not officially open and some indexes did not publish, Thursday would be the indicators’ sixth straight rise and their seventh loss in the last 12 sessions, with several days in that stretch when the various indicators finished either higher or mixed.

The KDP High Yield Daily index did not publish on Wednesday in observance of the holiday. On Thursday, it dropped by 33 basis points from Tuesday’s close to end at 66.32, its fifth straight loss and its sixth loss in the last nine sessions.

Its yield rose by 10 bps on Thursday to 6.81% – its fifth straight widening and sixth gain in the last seven sessions.

The Markit Series 25 CDX North American High Yield index did publish on Wednesday, but it was unchanged from Tuesday’s level of 102 11/32 bid, 102 3/8 offered. On Thursday, the market measure fell by 11/16 point to 101 21/32 bid, 101 11/16 offered.

It was the index’s first loss after one session of being unchanged, and counting several previous losing sessions, fifth loss within the last six trading days

And the Merrill Lynch North American Master II High Yield index lost ground, retreating by 0.486%. The index did publish on Wednesday, edging up by 0.02% after having suffered through five straight sessions of losses before that, including Tuesday’s 0.226% setback.

Thursday’s sizable loss sent the index’s year-to-date return further into the red with a 1.287% cumulative loss, versus Wednesday’s 0.806% and Tuesday’s 0.825%.The new year-to-date losses do still remain well above the index’s worst 2015 year-to-date deficit, the 3.069% of red ink recorded on Oct. 2.

Junk funds see outflows

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed major net redemptions by investors in the latest reporting week – the first such outflow after five consecutive weeks before that during which inflows had been seen.

Sources familiar with the fund-flow statistics said that $1.8 billion more left those weekly reporting funds than had come into them during the week ended Wednesday, in contrast to the previous week’s $2.048 billion cash injection (see related story elsewhere in this issue).

This week’s downturn came as no surprise to market-watchers who track the daily ebb and flow of cash into or out of the funds; one such market source told Prospect News that on Tuesday, the ETFs were showing a $106 million outflow on the day, while the actively managed funds generated $55 million of outflows that session.

And another source said that he was hearing that “things look pretty lousy out there right now.”

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