CDW, Hudbay drive-bys and NRG Yield price as market loss ends July; funds down $1.48 billion

By Paul Deckelman and Paul A. Harris

New York, July 31 – The high-yield market took a decided downturn on Thursday to close out the month of July – but the carnage still could not stop the junk primary sphere from pushing across a trio of new deals totaling $1.28 billion, syndicate sources said, a little more than the $1.18 billion of new dollar-denominated, fully junk-rated paper that had gotten done in two tranches on Wednesday.

CDW Corp., a provider of computer hardware and software and information technology services, brought a quickly shopped $600 million issue of eight-year notes to market via a pair of financing subsidiaries.

Also driving by was Canadian mining concern Hudbay Minerals, Inc. with an upsized $170 million add-on to its existing 2020 notes.

Earlier in the session, energy generation company NRG Yield Inc. priced the day’s sole regularly scheduled offering off the forward calendar, an upsized $500 million of 10-year notes via an indirect financing subsidiary.

When they hit the aftermarket, traders said that both the new NRG Yield and Hudbay bonds firmed a little, while CDW arrived too late for any kind of secondary dealings.

They also saw a broad-based Junkbondland downturn as high yield followed the lead of the sharply lower equities market. Most secondary issues were seen down anywhere from ½ point to 1 full point, but nothing stood out, volume-wise, with many participants just hugging the sidelines and waiting for the storm to blow over.

Even new or recent issues were not immune to the generally negative tone. Traders saw downturns in the Level 3 Communications, Inc. megadeal that had come to market on Tuesday and some of the other deals that priced along with Level 3, such as Compressco Partners, LP and Consol Energy Inc.

Statistical market performance indicators fell for a fifth consecutive session on Thursday.

Another indicator – the flow of cash into or out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall junk market liquidity trends – saw its third straight huge loss.

Junk funds lose $1.48 billion

As Thursday’s session was winding down, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $1.48 billion more left those funds during the week ended Wednesday than had come into them.

It was the third consecutive outflow topping $1 billion. It followed the $2.38 billion hemorrhage reported last week by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended July 23 and the $1.68 billion cash bleed seen the week ended July 16.

The outflow in the July 23 week had been the largest since the $3.28 billion plunge seen exactly one year earlier for the week ended July 24, 2013, according to a Prospect News analysis of the data.

Over the past three weeks, the funds have seen a net outflow of $5.54 billion.

Although inflows to the weekly-only reporting funds have still now been seen in 21 of the 30 weeks since the start of the year, according to the analysis, against just nine outflows, the past three weeks of red ink have eliminated most of the net gains that had been built up during the first half of the year.

The latest week’s outflow dropped the year-to-date cumulative net inflow number to an estimated $1.19 billion from the previous week’s $2.66 billion and left it well below the $6.68 billion recorded in the July 9 week, the peak inflow level for the year.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

In 2013 – which had 53 reporting weeks due to a statistical quirk – inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime also saw its third straight outflow and its second consecutive week of outflows topping the $4 billion mark, according to a market source.

EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper’s strictly domestic orientation. Accordingly, the two services’ weekly numbers are also generally quite different. While their respective weekly results usually point pretty much in the same direction, that has not always been the case; in some weeks in which AMG/Lipper showed outflows, EPFR saw overall inflows.

It thus has recorded inflows in 24 out of the 30 weeks since the start of the year, against six weekly outflows during that time.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable, more so than those of other, larger cash sources, and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which has mostly continued on into this year as well.

A trader said that the big outflow in the latest week came as no surprise. Over the past few sessions, he said, and continuing on Thursday, “you saw redemptions right across the board at most of the mutual funds and the ETFs.”

CDW drives by

The news flow remained strong and steady during the Thursday primary market session.

Three issuers completed single-tranche dollar-denominated deals to raise a combined total of $1.28 billion.

CDW LLC and CDW Finance Corp. priced a $600 million issue of eight-year senior notes (B3//) at par to yield 6%.

The yield printed on top of yield talk.

Morgan Stanley & Co. LLC and Barclays were the bookrunners for the quick-to-market debt refinancing deal.

NRG upsizes

NRG Yield priced an upsized $500 million issue of 10-year senior notes (Ba1/BB+) at par to yield 5 3/8%.

The acquisition deal was upsized from $400 million.

The yield printed at the wide end of yield talk in the 5¼% area.

BofA Merrill Lynch was the left bookrunner. Citigroup Global Markets Inc., Goldman Sachs & Co. and RBC Capital Markets were the joint bookrunners.

Hudbay upsizes 9½% notes tap

Hudbay Minerals priced an upsized $170 million add-on to its 9½% senior notes due Oct. 1, 2020 (B3/existing B-) at 107 to yield 7.502%.

The deal was upsized from $150 million.

The reoffer price came at the cheap end of the 107 to 107.5 price talk.

RBC was the bookrunner for the quick-to-market add-on.

Proceeds will be used to repay debt of its new roughly 96%-owned subsidiary, Augusta Resource Corp., and for general corporate purposes.

BWAY dividend deal

BWAY Intermediate Co., Inc. plans to price a $770 million offering of seven-year senior notes (Caa2//) in the middle part of the week ahead.

BofA Merrill Lynch is the bookrunner.

The Atlanta-based supplier of general line rigid containers plans to use the proceeds to pay a special dividend.

Brundage-Bone roadshow

Brundage-Bone Concrete Pumping, Inc. plans to roadshow a $140 million offering of seven-year senior secured notes through the week ahead.

Jefferies LLC is the bookrunner.

Proceeds will be used to fund the acquisition of Brundage-Bone, a Denver-based provider of concrete pumping services, by Peninsula Pacific Strategic Partners LLC.

Domus Vi atop talk

In the European primary market session, France-based elderly care services provider Domus Vi priced a €355 million issue of seven-year senior secured notes (/B/) at par to yield 6 7/8%.

The yield printed on top of yield talk.

Joint bookrunner Goldman Sachs will bill and deliver. Deutsche Bank and Natixis were also joint bookrunners.

Upon release from escrow, proceeds, along with proceeds from an equity contribution, will be used to finance the acquisition of the company by PAI Partners, to repay bank debt and to pay interest on the existing convertible bonds.

Grainger upsizes 5% notes tap

Grainger plc priced an upsized £75 million add-on to its 5% guaranteed secured notes due Dec. 16, 2020 at 101.125 to yield 4.792%.

The debt refinancing deal was upsized from £50 million.

Bookrunner HSBC will bill and deliver. Barclays, Lloyds, Royal Bank of Scotland and Santander were also bookrunners.

NRG, Hudbay issues gain

In the secondary market, a trader said that the new NRG Yield 5 3/8% notes due 2024 opened at par when they were freed and then stayed in a par to 100½ context.

He said “I would have thought” that the new bonds might have gotten clobbered on a day like Thursday, when most names were at least being quoted down between ½ point and 1 point or even more in some cases, “but I guess it’s a go-go name.”

A second trader quoted the new issue going home somewhere between 100½ and 101.

The Princeton, N.J.-based power generation company had priced its upsized $500 million issue at par via its NRG Yield Operating LLC indirect subsidiary.

A trader saw Hudbay’s 9½% notes due 2020 at 107¾ bid, 108¼ offered after the Toronto-based mining company’s upsized add-on had priced at 107.

Traders said they saw no immediate aftermarket dealings in CDW’s new 6% notes due 2022, owing to the relative lateness of the hour at which the Vernon Hills, Ill.-based computer hardware and software distributor and information technology provider’s deal finally priced.

Meanwhile, on Thursday’s conference call following CDW’s second-quarter results, its chief financial officer outlined the company’s plans for redeeming all of its outstanding secured 2018 notes and some of its unsecured 2019 notes and discussed the thinking behind CDW’s refinancing strategy. (See related story elsewhere in this issue.)

Market heads lower

Away from the modestly firmer levels seen in the new NRG Yield and Hudbay issues, observers said that the junk market was closing out July barely staggering across the finish line.

“The market has sold off for a while,” a trader said, estimating a broad-based generic drop of about ¾ point to 1 full point.

“It was definitely down,” he added. “The more go-go names were the ones that were getting hit, the more liquid names.”

However, he cautioned that “some things were just quoted lower without a ton of trading, which I think is a bit different.”

“But there was no question about it,” he concluded, “the market was 100% down, maybe a point across the board.”

But is that necessarily a bad thing?

Given the dearth of recent activity in the secondary market outside of a handful of large-volume names, with not a lot of paper available for purchase, the downturn caused some selling, leading the trader to opine that “there are some wide markets I haven’t seen in a long time. It’s nice to see more activity.”

“The market was down pretty hard,” a second trader said, “although that didn’t stop the new issues from coming.”

He said that secondary names were down by ½ point to 1 point “and new issues were pricing maybe 25 basis points cheaper than they might have yesterday [Wednesday].”

With a brisk series of mutual fund and ETF redemptions during the day, “the ETF arb[itrage] guys came in first thing in the morning with ‘bid-wanted’ lists. I saw ‘bid-wanted’ lists of $100 million bonds, that sort of thing.”

However, he said that “people put bids on them, nothing traded off he lists, so people were like ‘screw these guys.’”

Overall, he said, “this has been one of those markets where you don’t know what to believe – what you can believe and what you can’t believe.”

Recent deals seen lower

Among some of the recently priced issues, traders saw considerable erosion.

For instance, Level 3’s new 5 3/8% notes due 2022 – which priced at par on Tuesday via the Broomfield, Colo.-based fiber-optic network operator’s Level 3 Escrow II, Inc. financing subsidiary after the drive-by deal was enlarged to $1 billion from $600 million originally but which then struggled in the aftermarket – lost even more ground on Friday.

Its bonds had been mired in a 99½-to-par range post-pricing, on heavy trading both Tuesday and Wednesday, but on Thursday, they slid as much as 1¼ point, said a trader who pegged the notes at 98¼ bid, 98¾ offered.

Another market source saw them in a 98 to 98½ context.

Consol Energy’s 5 7/8% notes due 2022 retreated by 1 3/8 point on Thursday, a trader said, locating the bonds at 101½ bid, 102¼ offered.

The Pittsburg-based natural gas and coal company had priced $250 million of the notes as a quick-to-market add-on to the existing tranche on Tuesday at 102.75 to yield 5.308% and they had initially traded up to 102 7/8 bid, 103 3/8 offered.

Oklahoma City-based oilfield services company Compressco Partners’ 7¼% notes due 2022 were trading around on Thursday at 98½ to 99, a trader said, which was down from Wednesday’s levels around 100¼ bid. The company had priced $350 million of the notes on Tuesday at 98.508 to yield 7½%.

Quiet session ahead

With the usual “summer Friday” syndrome, a trader suggested that Friday would be “one of those ‘get it done early’ sessions tomorrow.

“I think the market still needs to digest, with all of the noise out there.

“I think our market just stays where it is tomorrow.”

Market indicators down again

Statistical indicators of junk market performance were in retreat for a fifth consecutive session on Thursday.

The KDP High Yield Daily index plunged by 46 basis points on Thursday to end at 73.31 – its low point for this year so far and the lowest the index has been since Sept. 11, 2013, when it had closed at 73.25. It was the index’s fifth straight loss, including Wednesday’s 13 bps loss.

Its yield ballooned out by 14 bps to 5.44%, its fourth consecutive widening out. On Wednesday, it had risen by 3 bps for a second consecutive session.

The Markit CDX Series 22 index swooned by 29/32 point on Thursday to 106 5/8 bid, 106 11/16 offered.

On Wednesday, it had been virtually unchanged on the day after having posted four straight losses before that.

The widely followed Merrill Lynch High Yield Master II index plunged by 0.616%, its fifth straight loss. That followed Wednesday’s 0.166% downturn.

Thursday’s slide dropped the index’s year-to-date return to 4.243% – its weakest finish since May 12, when it closed at 4.195%. It had ended on Wednesday at 4.889% and remained even further down from the 5.751% return recorded on July 7, the peak level so far for 2014.

The index’s yield to worst shot up on Thursday to 5.752% – a new high point for 2014. It had stood at 5.437% on Wednesday. Thursday’s yield eclipsed the previous high-water mark of 5.735% set back on Feb. 4.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.