Real Alloy prices 2014’s last deal; energy names up with oil, but Forest Oil falls again

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 – The high-yield primary sphere saw what syndicate sources believe will probably be its final pricing for 2014, as Real Alloy Holding Inc. came to market Tuesday with a $305 million issue of secured four-year notes. That transaction – carrying a fat coupon but still having to price at a steep discount to par to get done – emptied the Junkbondland new-deal cupboard.

Traders did not see any real aftermarket in the bonds, nor was any activity seen in the last previous deal to price, last week’s $700 million two-part offering from Global Cash Access, Inc.

With little activity among the new or recent issues, investors were busy in the existing bonds of energy names, which were mostly higher on Tuesday in line with a jump in world crude oil prices, helped by better-than-expected economic growth projections in the United States, with the implication that this will cause demand for fuel to pick up.

Names seen trading around included Seventy-Seven Energy, Inc. and its former corporate parent, Chesapeake Energy Corp., as well as Linn Energy LLC, Denbury Resources Inc. and Samson Investment Co.

There was busy activity as well in Forest Oil Corp. paper, which had plunged precipitously a week ago on the news that the terms of its merger with sector peer Sabine Oil & Gas LLC had been restructured so that the combined company would not have to buy Forest’s bonds back under the change-of-control provision in the bonds’ indenture. Those notes were seen down an additional 6 to 8 points on Tuesday, although there seemed to be no fresh additional negative news that would explain the new retreat.

Statistical indicators of junk market performance turned better across the board on Tuesday after having been mixed on Monday. Tuesday was the fourth session in the last five during which the indicators were better all around.

Real Alloy prices

The quiet Tuesday session saw one deal clear the market.

Real Alloy Holding priced a $305 million issue of 10% senior secured notes due Jan. 15, 2019 (B3/B) at 90.827 to yield 13%.

Price talk was not broadly circulated on the deal, which was marketed during an early December roadshow and subsequently sidelined by market volatility.

The deal is expected to be the final one of 2014.

The new SGH Escrow Corp. (Real Alloy Holding) 10% notes due 2019 were 92 bid, 93 offered at the dealer, according to a trader.

Late Tuesday afternoon it was not seen trading in the Street, sources said.

Goldman Sachs was the left bookrunner for the acquisition deal. Deutsche Bank was the joint bookrunner.

With the pricing of the Real Alloy deal, the active forward calendar is clear and expected to remain so into the beginning of 2015, sources said.

Recent deals unseen in market

Traders did not see any initial aftermarket dealings Tuesday in Real Alloy Holding’s SGH Escrow 10% senior secured notes due in January of 2019, which had priced during the session.

They also had not seen any markets in the sole deal to price last week – Global Cash Access’ $700 million two-part offering.

The Las Vegas-based provider of cash access solutions and other services to the gaming industry priced $350 million of 7¾% senior secured notes due in March of 2021 at par last Thursday. It also came to market with $350 million of 10% senior unsecured notes due in January of 2022, which priced at 98.921 to yield 10.21%.

Energy improvement continues

Away from those new and recent pricings, the major focus of the day seemed to be energy names, which for the most part continued their robust comeback from the lows that they had hit a week ago, when they were pushed lower by falling crude oil prices.

On Tuesday, those oil prices firmed smartly, as U.S. government data indicating that gross domestic product grew at a 5% annual pace during the third quarter – the strongest pace since 2003 – boosted market expectations for increased American demand for petroleum-based fuels and other compounds. The January contract for the benchmark U.S. crude grade, West Texas Intermediate, recovering from the 5½-year lows that it fell to last Thursday, finished the session up $1.86 at $57.12.

A trader said that “energy in general has been strong – we’ve seen a bid to energy names.”

He said that oil and natural gas exploration and production credits “have been trading 4, 5, 6 points off their [recent] lows – a violent snap from hitting the lows and then coming back.”

He acknowledged that those bonds still had a long way to go before they were fully recovered from the plunge that they’ve taken since late November, after the failure of OPEC oil ministers to do anything to prop up falling crude prices by curbing output pulled energy bonds down sharply.

“They have a lot of wood to chop to make up ground,” he said, while projecting that a full recovery to former bond-price levels is “unlikely to happen with the environment of oil at $57.”

The recent snap-back from the lows the bonds had hit is partially a function of short-covering, he said, “but we’re also coming to year-end; guys are squaring up some positions. There are definitely buyers stepping in at or around these levels too – they’ve gotten to the point of being attractive to some investors.

“So that combination is giving a bid to the sector, for sure.”

Among specific energy credits, he said that Seventy-Seven Energy’s 6 5/8% notes due 2019 had been quoted last week trading in a 65-to-75 bid context.

He said the bonds of the Oklahoma City-based energy company – the former Chesapeake Oilfield Operating LLC – “were in the high 60s, and now they’re anywhere from 70 to 75 bid.”

He continued that “price discovery has been very, very difficult. You’ll see a Trace print at 70 – and then we’ll see a buyer step in, and the next print you see is at 75.”

He noted that this had recently happened on the downside as well, with a print showing up at a certain level “and the next print, as these bonds were getting sold off, gapping 5 or 10 points, in some instances – so it’s really no surprise we’re seeing this go the other way as well.”

Seventy-Seven’s former corporate parent, Chesapeake Energy, was also seen around; the trader said that its 6 1/8% notes due 2021, which finished at 105 5/8 bid, had traded up 1 point from Monday’s levels, “so I’m assuming the structure itself was better by 1 point or so.”

At another desk, the company’s 6 5/8% notes due 2020 were seen up ½ point at 107½ bid.

Other gainers on the day included Linn Energy’s 7¾% notes due 2021, which were up 1 point at 84 bid, and Denbury Resources’ 6 3/8% notes due 2021, 3-point gainers at 97½ bid.

A trader saw “a lot of activity” in Samson Investment’s 9¾% notes due 2020, with over $13 million traded. He pegged the Tulsa, Okla.-based independent O&G operator’s bonds in a 43½-to-44½ context, calling them unchanged.

Forest Oil resumes slide

Separately, Forest Oil’s bonds – which got massacred last week after the Denver-based oil and gas exploration and production company announced a change in the terms of its merger with Sabine Oil & Gas that allowed the company to evade buying back some $800 million of its outstanding bonds at 101% of their face value under the change-of-control provision in the notes’ indenture – had slid even lower during Tuesday’s dealings;

The company’s 7¼% notes due 2019 had originally dropped some 40 points last Tuesday, Dec. 16, to the low-to-mid-40s from pre-news levels around 85 the day before; a week later, they fell still further, going home on Tuesday at 38 7/8 bid on volume of more than $18 million.

Its 7½% notes due 2020 had been trading as high as 89 bid last week just before the news about the changed merger terms hit the market and finished last Tuesday around 47 bid. They held those levels for the next several sessions, and were quoted on Monday in small-sized trading at 45½. But on Tuesday, they plunged again, to 37½ bid, on volume of over $8 million.

There was no fresh news out about the company that might explain the renewed downward leg in the bonds.

Indicators move higher

Statistical indicators of junk market performance turned better across the board on Tuesday after having been mixed on Monday. Tuesday was the fourth session in the last five during which the indicators were better all around.

The KDP High Yield Daily index rose for a fifth consecutive session, gaining 15 basis points to end at 70.76 after having advanced by 7 bps on Monday.

Its yield came in on Monday by 5 bps to 5.6%, its fifth straight narrowing. It had tightened by 33 bps on both Thursday and again on Monday.

The Markit CDX North American High Yield Series 23 index gained 5/32 point on Tuesday to close at 106 9/16 bid, 106 19/32 offered, offsetting its 3/16 point loss on Tuesday. The index has now been higher in four of the last five sessions.

And the Merrill Lynch U.S. High Yield Master II index posted its fifth successive advance on Tuesday, gaining 0.137%, on top of Monday’s 0.268% rise.

That lifted the index’s year-to-date return to 2.324% from Monday’s 2.184%.

Despite the strong rebound seen since the middle of last week – when the index had actually dipped into the red on a cumulative basis for the first time since October 2011 – that year-to-date return remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

According to the Finra/Bloomberg high-yield bond index, junk bond volume fell to $1.88 billion on Tuesday from $2.025 billion at the close on Monday.

© 2015 Prospect News.
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