Silence on Starwood; Denbury improves; CIT at par; J.C. Penney under pressure; Diamondback mixed

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 16 – After a burst of activity in the domestic primary market earlier in the week, one deal remains on the active forward calendar.

Starwood Property Trust, Inc. is still in the market with its $300 million offering of five-year senior bullet notes (Ba3/BB).

The deal was expected to price on Wednesday but there was again radio silence on the deal’s status on Thursday.

Meanwhile, the secondary space firmed on Thursday as equities rebounded and the barrel price of West Texas intermediate crude oil for September delivery improved slightly.

However, J.C. Penney Co., Inc.’s junk bonds were under pressure after the company reported a large earnings miss and slashed its forward guidance.

Denbury Resources Inc. 7½% senior secured second-lien notes due Feb. 15, 2024 (B3/B+) remained active and were seen slightly improved on Thursday after lagging their issue price in high-volume trading Wednesday.

CIT Group Inc.’s newly priced 4¾% senior notes due Feb. 15, 2024 were wrapped around par on Thursday after also at times lagging their issue price on Wednesday.

Diamondback Energy, Inc.’s junk bonds were mixed in scattered trading after the company announced it will acquire Energen Corp. in an all-stock deal valued at about $9.2 billion.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall liquidity trends in the junk market – continued a streak of inflows for the week ended Aug. 15, adding $197 million, according to fund-flow statistics generated by AMG Data Services Inc.

The week marks the third consecutive week of inflows after a choppy year that has seen outflows reach record levels.

The cumulative outflow for the year now totals about $18.193 billion, according to a Prospect News analysis of the reports by the Arcata, Calif.-based unit of Thomson Reuters Corp’s Lipper analytics division.

Dog days

With the active forward calendar having dwindled down to one deal, the market's focus zeroed in on the Starwood Property Trust’s $300 million offering of five-year senior bullet notes (Ba3/BB), which was announced Tuesday and set to price Wednesday.

Heading into the Thursday close it has been radio silence on the Starwood Property deal, sources say, with some speculating that it has been sidelined by volatility.

However, there were no official announcements.

The company came to the new issue market seeking to repay secured debt and help fund its purchase of the GE Energy Project Finance debt business from General Electric.

The sound of crickets pervaded the air Thursday, as the Dog Days of August – the mid-to-late August interval leading up to the extended Labor Day holiday weekend – appear to have taken hold of the primary market.

There is an expectation that one or more quick-to-market deals could still appear during the pre-Labor Day interval.

However, roadshow starts ahead of the holiday weekend, which gets underway following the Aug. 31 close, seem less and less likely, a syndicate banker said.

Following the Labor Day weekend, which divides summer from fall in the bond market, new issue activity is expected to pick up, with the driving force being a substantial pipeline of merger and acquisition financing deals, sources say.

J.C. Penney down

J.C. Penney’s junk bonds were under pressure after the company reported a large earnings miss and slashed its forward guidance prior to the market open.

The notes were seen down several points in high-volume activity. J.C. Penney’s 8 1/8% notes due 2019 were seen trading at 102 3/8 bid, 102½ offered Thursday afternoon, a market source said.

The notes were trading just shy of 104 in the run up to the earnings announcement.

The department store chain’s 5 5/8% senior notes due 2020 traded in a wide range during Thursday’s session. The notes were seen as low as 93½ after closing Wednesday at 98½.

J.C. Penney reported a second-quarter earnings loss per share of 38 cents versus analyst expectations for a loss per share of 8 cents.

The company also slashed its forward guidance for 2018 with full year losses per shares now expected to be 80 cents to $1, a significant drop from its previous guidance of a loss per share of 7 cents to earnings per share of 13 cents.

Denbury improves

After lagging their issue price in high-volume trading on Wednesday, Denbury Resources recently priced 7½% senior notes due 2024 were seen slightly improved on Thursday.

The notes were quoted at par ¼ bid, par ½ offered on Thursday with most trades wrapped around par ¼, sources said.

The notes were quoted at 99¾ bid, par ¼ offered on Wednesday and were seen trading between 99½ and par 1/8.

While the notes were sloppy on Wednesday, their performance was impacted by the large drop in crude oil, a market source said.

The price of crude oil saw a slight rebound on Thursday, settling at $65.46 after dropping more than $2 to $65.01 on Wednesday.

Denbury priced an upsized $450 million issue of the senior secured second-lien notes at par in a drive-by on Tuesday. The issue size was increased from $400 million.

The yield printed in the middle of yield talk in the 7½% area.

CIT Group at par

CIT Group’s recently priced 4¾% senior notes due Feb. 2024 were largely wrapped around par on Thursday.

The notes were also slightly improved after lagging their issue price in secondary trading on Wednesday.

The 4¾% notes were seen trading in a range of 99¾ to par on Wednesday.

CIT Group priced a $500 million issue of the notes at par to yield 4¾% on Tuesday. The yield printed on top of yield talk.

Diamondback mixed

Diamondback Energy’s junk bonds were mixed in the wake of its announcement that it will acquire Energen in an all-stock deal valued at about $9.2 billion, a market source said.

Diamondback Energy’s 4¾% senior notes due November 2024 were up 1½ points at 101 bid.

However, the longer-maturity Diamondback 5 3/8% senior notes due May 2025 were 3/8 of a point to ½ point lower at 102¾ bid. Previously, the 5 3/8% notes were seen at 103 1/8 bid.

Energen’s high-grade bonds, the 4 5/8% senior notes due September 2021, which were referred to as yield-to-call paper subsequent to the announcement of the acquisition, did not appear to be trading, the source said.

The Energen acquisition was Diamondback’s second in the space of a week.

On Aug. 8, Diamondback announced it will acquire Ajax Resource LLC in a cash-and-stock transaction worth about $1.25 billion.

Indexes mixed

Three benchmarks for the high-yield secondary market were mixed on Thursday after all posted losses on Wednesday.

The KDP High Yield Daily index was down 2 basis points to close Thursday at 70.32 with the yield now 5.88%.

Thursday marked the index’s third consecutive day of losses. It was down 5 bps on Wednesday and 5 bps on Tuesday after opening the week flat.

The Merrill Lynch High Yield index rebounded on Thursday marking gains that outstripped Wednesday’s losses. The index was up 13.5 bps on Thursday with the year-to-date return now 1.467%.

The index was down 12.9 bps on Wednesday, up 2.5 bps on Tuesday and down 4.3 bps on Monday.

The CDX High Yield 30 index pared its losses from Wednesday and climbed 14 bps to close Thursday at 106.73.

The index was down 25 bps on Wednesday, up 11 bps on Tuesday and down 10 bps on Monday.

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