Primary quiets down, though Michael Baker slates deal; new QEP steady; Windstream falls; oils, Valeant jump

By Paul Deckelman and Paul A. Harris

New York, Nov. 7 – The high-yield primary market went silent on Tuesday as far as new-deal pricings go – its first such shutout since back on Oct. 20.

However, there was activity going on behind the scenes, as engineering firm Michael Baker International, LLC was heard by syndicate sources to be shopping around a $227.5 million secured notes offering, with pricing seen likely by the end of the week.

The sources meantime reported that previously announced deals from Pentagon contractor Kratos Defense & Security Solutions, Inc. and dry-bulk shipping company Navios Maritime Holdings Inc. were being actively marketed to investors.

Among recently priced deals, secondary market traders said that Monday’s issue of 8.25-year notes from energy operator QEP Resources Inc. was holding onto the solid gains it had notched when it hit the aftermarket.

But the day’s other transaction, from telecom provider Windstream Holdings, Inc., moved down sharply Tuesday after having already priced at a discount.

Away from the new deals, energy names such as California Resources Corp., Denbury Resources Inc. and QEP’s existing bonds all firmed smartly, riding their upside momentum of the past several sessions – even though world crude oil prices declined after three straight advances.

Valeant Pharmaceuticals International Inc.’s bonds also moved up, as the Canadian drugmaker reported third-quarter earnings and reported continued progress in cutting its massive debt load using asset-sale proceeds and generated cash flow.

Statistical market performance measures turned lower all around on Tuesday, after having been mixed on Friday and again on Monday. Before that, they had fallen across the board on Thursday, after having been mixed over the previous four sessions.

Michael Baker secured deal

With no issues pricing Tuesday, the high-yield bond syndicates lined up deals set to allocate during the back half of the Nov. 6 week.

Michael Baker International, LLC is marketing $227,500,000 of 5.25-year senior secured notes in a deal that is set to price at the end of the week.

Jefferies is the lead left bookrunner for the debt refinancing.

Meanwhile, as the market awaited official talk, Kratos Defense & Security Solutions, Inc. circulated initial price guidance of 6½% to 6¾% on its $300 million offering of eight-year senior secured notes (S&P: B), a trader said.

The deal, via lead left bookrunner Goldman Sachs, is expected to price Wednesday.

And Navios Maritime Holdings Inc.’s $300 million of five-year senior secured notes are in the market with initial guidance in the 10% area, the trader said, adding that the deal is expected to price on Thursday.

CMC di Ravenna talk 6% to 6¼%

In the European market Cooperative Muratori & Cementisti – CMC di Ravenna talked €325 million of senior notes due 2023 to yield 6% to 6¼%.

The debt refinancing deal is set to price Wednesday.

Spanish ferry operator Naviera Armas, SA began a roadshow on Tuesday for a €300 million offering of floating-rate senior secured notes due 2024.

Morgan Stanley International is leading the deal.

Proceeds will be used to fund the acquisition of Trasmediterranea, SA and to refinance part of existing debt of Trasmediterranea.

Mixed Monday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Monday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs sustained $319 million of outflows on the day.

However actively managed funds saw $10 million of inflows on Monday.

Dedicated bank loan funds were also negative on Monday, sustaining $90 million of outflows. Of that amount, $23 million flowed from bank loan ETFs, the trader said.

New QEP notes firm...

In the secondary market, traders saw continued strength in the new QEP Resources 5 5/8% notes due in March of 2026.

The Denver-based independent oil and natural gas exploration and production company’s new issue had firmed to above the 102 bid level on Monday after that quickly shopped $500 million offering had priced at par, and “they held in there” on Tuesday, one trader said, pegging the paper at 102¼ bid, which he called unchanged on the session, on “decent volume.”

...but Windstream issue falters

But the trader said that Monday’s other new deal – Little Rock, Ark.-based telecommunications services provider Windstream Holdings’ 8 5/8% first-lien senior notes due 2025 – “definitely did not hold in there,” seeing that paper down 2½ points on the day, cascading down to 96 3/8 bid.

“They were not doing well at all,” he emphasized.

A second trader agreed that the issue “traded down right out of the gate” when it was freed for secondary dealings, dropping to 96 3/8 bid, which he called a 2 5/8 point loss on the day.

The $400 million offering – structured as an add-on to new notes that the company intends to issue as part of an exchange offer for some of its existing bonds that it is currently pursuing – priced at 99 bid on Monday, yielding 8.802%, after the regularly scheduled forward calendar transaction was upsized from an originally announced $250 million.

Energy issues improve

One of the areas investors were focused on Tuesday was the energy space, which was broadly higher.

A trader saw California Resources’ 8% notes due 2022 “going like gangbusters today,” seeing the bonds push up to around 73 5/8, while a second market source called the bonds better than 2-point gainers on the day, finishing at 74¾ bid.

And a third desk had the Los Angeles-based E&P company’s paper moving all the way up to 75, calling it better than a 1¼ point rise on the session.

Other energy credits were likewise trading strongly, such as Plano, Texas-based Denbury Resources’ 6 3/8% notes due 2021, quoted up some 2½ points at 77½ bid.

New-issuer QEP Resources’ existing 5¼% notes due 2023 were seen having finished at 101¼ bid, up by 1¾ points on the day.

Traders said that the recently strong energy names continued to firm even though crude oil prices – whose parallel recent strengthening was the driver for the bonds’ upside momentum – finally weakened on Tuesday after having posted big gains of more than $1 per barrel both on Friday and again on Monday.

Tuesday’s trading was another matter, with December-delivery West Texas Intermediate crude, the benchmark U.S. oil grade, finishing down 15 cents per barrel in New York Mercantile Exchange trading, at $57.20.

Key international grade North Sea Brent for January delivery fell by 58 cents per barrel in Tuesday’s London futures trading, settling at $63.69 per barrel.

Valeant gains on numbers

Elsewhere, Valeant Pharmaceuticals’ bonds were better after the Laval, Que.-based drug manufacturer reported unexpectedly better third-quarter numbers, helped by strength in its Bausch & Lomb optical care products division.

Its bonds “were up big,” a trader said, seeing the company’s 6 1/8% notes due 2025 up 2 points on the day at 85¼ bid, while its 5 7/8% notes due 2023 and 5½% notes due 2023 were also up by a deuce on the day at 86 bid and 85 3/8 bid, respectively.

“Their whole [capital] structure was up 1½ to 2½ points or so,” a trader at another desk said.

For the third quarter ended Sept. 30, Valeant reported net income of $1.3 billion, or $3.69 per share, versus a loss of $1.22 billion, or $3.49 per share, a year earlier.

On the company’s conference call with analysts, its executives noted that Valeant had cut its huge debt burden by more than $6 billion since the 2016 first quarter, and had fulfilled its immediate target of eliminating $5 billion of debt through the use of asset-sale proceeds and cash flow it generates ahead of its February 2018 target date (see related story elsewhere in this issue).

Indicators turn lower

Statistical market performance measures turned lower all around on Tuesday, after having been mixed on Friday and again on Monday. Before that, they had fallen across the board on Thursday, after having been mixed over the previous four sessions.

The KDP High Yield Daily Index lost 4 basis points on Tuesday to end at 72.23, after having gained 2 bps each on both Friday and again on Monday. It had also lost 3 bps last Thursday.

Its yield widened out for a second consecutive session, rising by 3 bps to 5.17%, after having widened by 1 bp on Monday, following Friday’s 7 bps tightening.

The Markit CDX Series 29 High Yield Index lost nearly 9/32 point on Tuesday, going out at 107 31/32 bid, 108 offered. On Monday. It had risen by 1/8 point, its first gain after three straight downside sessions.

And the Merrill Lynch North American High Yield Master II Index saw a fourth straight loss, dropping by 0.079% on Tuesday, after having eased by 0.003% on Monday.

The latest loss dropped the index’s year-to date return to 7.354% from Monday’s close at 7.439%. It was down as well from the 7.636% cumulative return posted on Oct. 24 – the peak YTD return for 2017 so far.

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