Market quiet ahead of holiday, but Plantronics, Berry busy; Midstates placement caps $6.3 billion week

By Paul A. Harris and Paul Deckelman

New York, May 22 – The high-yield market quieted down quite a bit on Friday, traders said, ahead of the three-day Memorial Day holiday break in the United States.

Desks were lightly staffed, if at all, and many market participants made an early exit, even before the official abbreviated 2 p.m. ET close recommended by the Securities Industry and Financial Markets Association.

There was little or no activity in the primary market, with the forward calendar having been pretty much cleared over the last several sessions.

The only real news to emerge was an announcement by Midstates Petroleum Co. Inc. that the company had done a $625 million private placement of senior secured notes as one of several transactions allowing the energy exploration and production company to improve its balance sheet and enhance its liquidity. News of the company’s move gave a boost to its several issues of outstanding bonds, which were up in active dealings.

The week’s tally of new fully junk-rated and dollar-denominated paper from domestic or developed-country issuers came to $6.29 billion in 10 tranches, according to data compiled by Prospect News.

That was off from $8.63 billion in 19 tranches which priced last week, ended May 15.

The week’s new issuance, in turn, raised Junkbondland’s year-to-date total to $153.40 billion in 241 tranches, running around 8% ahead of last year’s new-deal pace, which saw $142.64 billion priced in 260 tranches at this point on the 2014 calendar. However, that represented a slower pace; last week, new issuance had been running around 17% ahead of last year.

Among recently priced deals, Thursday’s issues from Plantronics, Inc. and Berry Plastics Corp. were among the most actively traded credits, with communications equipment manufacturer Plantronics’s paper seen having firmed smartly from its issue price, while Berry’s bonds continued to trade slightly below their pricing level.

Statistical indicators of market performance were mixed on the session on Friday, after having been higher across the board on Thursday and lower all around for three sessions before that.

The indicators were meanwhile finishing out the week below where they had ended last Friday – their first lower week after having been mixed for two weeks before that.

Deals to come

Amid low liquidity, the high-yield primary market did not generate news during Friday’s abbreviated session ahead of the three-day Memorial Day weekend in the United States.

However there was a decent amount of deal chatter throughout the morning.

Among issuers expected to bring offerings in the post-Memorial Day week there appeared to be solid information on at least two, sources said.

Informatica Corp. is expected to kick off a $750 million offering of eight-year notes on Tuesday, according to a high-yield bond investor.

Goldman Sachs will lead the deal, the source said.

The investor expects the bonds to come with credit ratings in the triple-C range and added that the deal could be expected to come together with a yield around 7½% to 7¾%.

Proceeds will be used to help fund the buyout of the Redwood City, Calif.-based enterprise software company by Permira funds and Canada Pension Plan Investment Board.

And split-rated Medical Properties Trust, Inc. (Ba1/BBB-) plans to begin a series of meetings with fixed-income investors on Tuesday ahead of a possible euro-denominated debt offering, depending market conditions.

The meetings are being arranged by Goldman Sachs, Credit Agricole CIB and Credit Suisse.

“It probably won’t be a huge week,” a debt capital markets banker said shortly after the Friday close, adding that $6 billion to $7 billion of issuance may be all that can be expected during the foreshortened post-Memorial Day week.

That issuance amount could push significantly higher if the offering to help finance Altice’s partial acquisition of Suddenlink Communications launches in the week ahead, said the banker.

Earlier in the pre-Memorial Day week, there was news that the transaction, in which Altice is buying 70% of the share capital in Suddenlink, is expected to generate $1,755,000,000 in new debt.

J.P. Morgan Securities LLC, PJT Partners and BNP Paribas Securities Corp. acted as financial advisors to Altice.

CommScope via J.P. Morgan

Aside from Informatica and Medical Properties, there is a decent bet that CommScope Holding Co., Inc. will show up with a $2 billion two-part notes offer via J.P. Morgan, according to a buyside source.

CommScope, Inc. plans to sell $500 million of senior secured notes due 2020. Proceeds, along with cash on hand, will be used to repay a portion of the company’s existing term loan.

And CommScope Technologies Finance LLC plans to sell $1.5 billion of senior unsecured notes due 2025. Proceeds from the unsecured notes, along with proceeds from a concurrent $1.25 billion term loan, will be used to fund the acquisition of the Broadband Network Solutions business of TE Connectivity, Ltd.

Thursday’s flows were mixed

The daily cash flows for dedicated high-yield funds were mixed on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $204 million of outflows on the day.

Actively managed funds saw $10 million of inflows on Thursday.

Meanwhile dedicated bank loan funds saw $10 million of daily inflows on Thursday.

This was the fifth consecutive positive daily flow for bank loan funds, breaking a long streak of mixed and negative flows, the source noted. He added that with the 10-year Treasury yielding above 2.2%, and a central bank that won’t remain patient indefinitely with respect to short term rates, people may be finding floating-rate assets more and more attractive.

Waiting for the Fed boss

In the secondary sphere, a trader said that “the [financial] markets are kind of flat, as you would anticipate, going into a holiday.”

For that reason, he said, “it was difficult to get a real gauge of the market, it was so quiet and illiquid.”

With not much happening in the way of new issues, he said participants spent a dull morning waiting for Federal Reserve chair Janet Yellen’s mid-afternoon address before a business group in Rhode Island at which the central bank chief was expected to shed light on the Fed’s plans for raising interest rates (Yellen eventually said that with a slowdown earlier in the year apparently now past, the central bank would likely begin to finally raise interest rates later this year).

The trader said that in anticipation of the Fed boss’ comments, “Treasuries are at the lows, stocks are off the lows but negative, credit indexes are at the lows of today, oil’s off.”

He said that after the latest economic data, expectations were that “there is a potential that they go [with a rate hike] early, before the end of the year,” potentially putting a damper on fixed income.

Plantronics sizzles...

Among specific issues, a trader said that “yesterday’s [Thursday] deals are trading actively, just ripping right off the screen. He saw Plantronics’ 5½% notes due 2023 as the most active name, with over $70 million having changed hands.

A second trader noted that “we got involved in the new Plantronics,” seeing those notes having “moved right up to 101” from the par level at which the Santa Cruz, Calif.-based communications equipment manufacturer’s regularly scheduled $500 million issue had priced late in the session on Thursday – too late for any trading at that time.

He saw the bonds going out around a 101 to 101½ bid context.

A trader at another desk also saw those bonds in a 101 to 101½ bid area, on volume topping $70 million.

...but Berry fizzles

In contrast to Plantronics, Thursday’s $700 million issue of 5 1/8% second priority senior secured notes due 2023 from Berry Plastics was seen in trouble most of the day.

“Berrys were softer,” a trader said about the Evansville, Ind.-based maker of plastic packaging products.

He quoted the bonds at 99 1/8 to 99 5/8, down from the par level at which the company had priced its quick-to-market offering on Thursday.

“The word was that [the issuer and its underwriters] kind of pushed the pricing on that one. Most accounts were thinking that 5½% was the right level.”

He noted that the bonds finally priced to yield 5 1/8%, “but people were hoping for cheaper.”

So, he said, the bonds were being offered at a 99¾ level.

He called the company “a good name – but in this environment, pushing the pricing like that is just asking for trouble and it did not trade well on the break.”

“Some of my guys [accounts] just passed on Berry, a second trader said, calling the 5 1/8% coupon “just ridiculous.”

Another trader pegged the bonds down ½ point on the day at 99½ bid, seeing over $21 million having traded, putting the credit high up on the Most Actives list.

Thursday’s third deal, from Canadian energy company Paramount Resources Ltd., “went home yesterday [Thursday] at 100¼ to 100½ – but we didn’t see any of them today,” one of the traders said.

However, a market source at another shop said that over $13 million of those 6 7/8% notes due 2023 traded as the debt moved up ½ point to 100 7/8 bid.

The company priced that regularly scheduled forward calendar deal on Thursday at 99.533 to yield 6.95%, after the issue was upsized to $450 million from $400 million originally.

Midstates trades on debt moves

Away from the new deals, one of the traders noted busy activity in Midstates Petroleum’s existing bonds after the Tulsa, Okla.-based exploration and production company announced that it had undertaken a series of moves to improve its balance sheet and augment its liquidity – one of the few features in a market otherwise mostly dominated by trading in new issues.

Midstates’ 9¼% notes due 2021 gained 1½ points to close at 46½ bid, with more than $20 million seen having traded.

Its 10¾% notes due 2020 ended at 48 bid, up ¾ point, as over $13 million traded.

Midstates announced that it had completed a series of transactions that “substantially” increase its liquidity to approximately $420 million.

Chief among these was its issuance of $625 million of 10% senior secured second-lien notes. A portion of the net proceeds were used to fully repay borrowings under Midstates’ revolving credit facility, with the remainder held in cash for general corporate purposes.

Midstates also exchanged $279.8 million of the 10¾% notes and $350.3 million of the 9¼% notes for $504.1 million of new third-lien senior secured notes, representing an exchange at 80% of par value. The third lien notes will pay cash interest of 10%, or can be paid in kind with a 2% step up.

At the same time, the company also amended its revolving credit facility to provide additional covenant flexibility and to allow for the issuance of the second-lien notes and the exchanges. Upon completion of the transaction, the company’s borrowing base under its revolving credit facility was reduced to $253 million. The next borrowing base redetermination is scheduled for October 2015.

Indicators turn mixed

Statistical market performance indicators turned mixed on Friday, after having been higher across the board on Thursday. Before that, they had been lower all around over the previous three sessions.

They were meanwhile lower versus were they had finished out the previous week on Friday, May 15.

The KDP High Yield Daily Index was unchanged at 71.42, after having risen by 6 basis points on Thursday, its first gain after three consecutive losses.

Its yield was unchanged at 5.25%, after having come in by 1 bp on Thursday, its first narrowing after two consecutive sessions of having widened out.

Those levels compared unfavorably with a 71.48 index reading and 5.24% yield last Friday.

The Markit Series 24 CDX North American High Yield lost 3/32 point on Friday to end at 107 1/32 bid, 107 3/32 offered, after having risen by 7/32 point on Thursday. Friday’s downturn was its fourth in the last five sessions.

It was also down from the previous Friday’s 107 7/32 bid, 107¼ offered.

But the Merrill Lynch North American Master II high yield index saw its second straight upturn, firming by 0.009% on Friday, after having risen by 0.12% on Thursday, breaking a three-session losing streak.

Friday’s gain lifted the index’s year-to-date return to 3.896% from 3.887% on Thursday, although it remained below its peak level for the year of 3.952%, set on April 27.

While it was up over the last two sessions, the index was off by 0.014% on the week – its first weekly loss after two straight weeks on the upside, including the 0.037% rise last week, when the return to date stood at 3.91%.

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