Quiet end to $9.7 billion week: no pricings; Cablevision downsizes deal; recent issues retreat

By Paul Deckelman and Paul A. Harris

New York, Sept. 9 – The high-yield primary market took a well-deserved breather on Friday following two whirlwind sessions on Wednesday and Thursday in which more than $9.7 billion in new dollar-denominated, fully junk-rated paper had come to market from domestic or industrialized-country issuers – the heaviest volume of new issuance seen in weeks, bringing to an abrupt end the lengthy mid-summer new-deal drought.

Primaryside sources reported that they had heard no new deals completed during the session – although there had been talk that cable television and media company Cablevision Systems Corp. would complete a planned megadeal-sized offering of 10.5-year notes.

As of late Friday, there was no official word on whether that had in fact happened – but the sources did hear that Cablevision had downsized its offering by $600 million, shifting that amount into a concurrent bank debt financing deal the company is doing.

The sources also said that industrial materials maker Versum Materials, Inc. will be shopping a new eight-year deal around to potential investors during the coming week.

Secondary market traders meantime said that – as had been the case on Thursday – the new issues which had priced during the bond binge on Wednesday and Thursday were dominating the Most Actives list on Friday.

However, they said that those new deals were almost uniformly lower, in line with an overall weaker junk bond market.

Even deals which had initially performed strongly in the aftermarket, such as Wednesday’s offering from aluminum products maker Novelis Corp. or Thursday’s deals from Beazer Homes USA, Inc. and BMC Stock Holdings, Inc. handed back much of their hefty gains.

In line with that weaker overall market, statistical market performance measures were down across the board on Friday, after having firmed on Thursday.

And the indicators were down all around on a week-over-week basis as well, after having been higher last week.

Cablevision downsizes

Cablevision Systems Corp. downsized its offering of 10.5-year senior guaranteed notes (Ba1/BB-) to $1.3 billion from $1.91 billion and shifted the $600 million of proceeds to its concurrent bank loan late Friday.

The bond deal – which rolled out in the morning as a drive-by, expected to clear before the weekend – was in the market with price talk of 5½%, a trader said, but added that Friday’s market turbulence no doubt impacted the execution.

JP Morgan, Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, RBC, SG and TD are managing the sale.

Versum roadshow

Versum Materials is expected to start a roadshow during the week ahead for a $425 million offering of eight-senior senior notes.

Deutsche Bank will lead the offering, which is expected to price during the Sept. 19 week.

The Lehigh Valley, Pa.-based industrial materials company plans to use the proceeds to help fund a proposed pro rata distribution of Versum common stock to its stockholders and Versum’s expected distribution of cash to Air Products prior to the spinoff of Versum from Air Products.

Elsewhere the week ahead could be a busy one, sources say.

However, the capital markets turbulence which saw the Down Jones Industrial Average drop by 2.13% at the same time that Treasuries sold off on Friday might cause the calendar to back up, a trader said late in Friday’s session.

Mixed flows

Cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a portfolio manager.

High-yield ETFs sustained $110 million of outflows on the day.

However actively managed funds saw $60 million of inflows on the session.

Those tallies trail news on Thursday that the dedicated high-yield bond funds saw $610 million of inflows during the week to Wednesday’s close, according to a report from Lipper US Fund flows.

Meanwhile bank loan funds saw strong inflows of $100 million on Thursday, the portfolio manager said.

Biggest week in several months

Even with no new deals pricing on Friday, in the absence of official word on the Cablevision offering, this week was the busiest in Junkbondland in quite some time.

Some $9.72 billion of dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers priced, according to data compiled by Prospect News – and this during a week that was one day shorter than usual, with the market having been closed this past on Monday in observance of Labor Day.

That stood in stark contrast to last week, ended Sept. 2, during which no such paper at all was priced – the first week this year in which absolutely no dollar paper had come to market, even surpassing the week ended July 1, which had seen one single-tranche deal totaling $250 million, for Flagstaff Bancorp, Inc., get done as a private placement.

This week was one of the biggest by volume so far this year, surpassing the most recently seen heavy-volume week, the $8.20 billion that priced in 11 tranches during the week ended Aug. 12.

However, it fell short of matching the biggest week so far this year, the week ended June 10, when $12.01 billion priced in 15 tranches.

The latest week’s new deals brought the year-to-date issuance total up to $159.28 billion in 240 tranches.

That was running 22.6% behind the new-deal pace seen at this time last year, when $205.69 billion had priced in 333 tranches by this point on the calendar, the Prospect News data indicated.

Last week, this year’s new-issuance pace had trailed 2015 by 26.8% year over year.

Recent deals retreat

As had been the case on both Wednesday and again on Thursday, the new deals pretty much monopolized investor attention on Friday, dominating the Most Actives list.

But the deals were almost universally lower than where they had finished up on Thursday.

A trader said that Friday was “a pretty sloppy day. I think all of this new issuance definitely weighed” on the market.

He opined that “the flippers definitely got greedy – and they got caught.”

He said that those trading in the new deals, for the most part “still made some money – but definitely not what they planned.”

He also noted the big drag on the junk market exerted by the stock market, which had its worst one-day session in a number of weeks, with all of the major indexes well down on the day.

Among the specific issues, the busiest junk credit was the new Hertz Corp. 5½% notes due 2024, which a market source saw ending right at its par issue price, down 5/8 point on the day, with $57 million having changed hands.

Antero Midstream Partners LP’s 5 3/8% notes due 2024 finished off ¾ point at 100¾ bid, with over $40 million traded.

Even issues which had dome fairly well in the secondary market on Wednesday and Thursday were ending lower. Beazer Homes’ 8¾% notes due 2022 closed at 102¼ bid, down 1¼ points from the highs above 103 that they had reached on Thursday, on volume of over $22 million.

BMC Stock Holdings’ 5½% senior secured notes due 2024, which had shot up to 102 bid after their Thursday pricing at par, “lost a lot of their wind,” one of the traders said, seeing the bonds closing in a 100¼ to 100¾ bid context, with around $14 million traded.

Novelis’ 5 7/8% notes due 2026, which had been the standout aftermarket performer among the new deals on Wednesday, rising to 101¾ bid and then holding onto most of that during Thursday’s session, dropped by 1¼ points on Friday, closing at 100¼ bid. Over $14 million traded.

And some bonds fell below their issue price, including Ardagh Group SA’s 7 1/8% notes due 2023, which had priced at par on Wednesday; by Friday, a trader said, “it was a dog,” falling to 99 bid, 99½ offered.

Indicators head south

Statistical market performance measures were down across the board on Friday, after having firmed on Thursday.

And the indicators were down all around on a week-over-week basis as well, after having been higher last week.

The KDP High Yield Index plunged by 24 basis points on Friday to end at 70.54, after having posted two straight gains before that, including Thursday’s 5-bps rise.

That left the index closing the week well down from Thursday’s 70.78 close – its newly established year-to-date and 52-week highs.

Its yield meantime gapped out by 7 bps to 5.27% after having come in by 1 bp to 5.20% on Thursday, its second consecutive narrowing.

Those levels compared unfavorably with the 70.66 index reading and 5.20% yield seen at the close last Friday, Sept. 2.

The Markit Series 26 CDX Index lost almost 1 full point on Friday, finishing at 103 21/32 bid, 103 11/16 offered, after having been unchanged on Thursday. It lost nearly 5/32 point on Wednesday.

It finished down from last Friday’s 104 9/32 bid, 104 19/32 offered.

And the Merrill Lynch High Yield Index saw its first loss after five straight sessions on the upside, retreating by 0.386%, versus Thursday’s 0.052% improvement.

Friday’s loss dropped its year-to-date return to 14.548% from Thursday’s 14.992%, which had been its fourth straight new 2016 peak cumulative level.

For the week, the index was off by 0.038% – its first weekly downturn after five straight weekly gains, including last week’s 0.11% upturn, which left its year-to-date return at 14.592%.

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