Quiet end to $5.5 billion week; Great Lakes slates, new deals less busy; Penney off on results

By Paul Deckelman

New York, May 12 – The high-yield primary arena closed out the week on Friday with no dollar-denominated and junk-rated offerings pricing during the session.

What activity there was on the primaryside took place behind the scenes, as maritime construction contractor Great Lakes Dredge & Dock Corp. was heard to be shopping around a $325 million issue of five-year notes, seen as the coming week’s business. The company plans to use the proceeds to fund a concurrently announced tender offer for its existing 2019 bonds and to repay some revolving credit debt.

That deal joins the holdover offering from Tapstone Energy LLC as the only deals being actively shopped around in Junkbondland, following a veritable bond barrage over the past few sessions.

The lack of any new issues on Friday left the week’s total of new junk issuance at $5.5 billion in 12 tranches, most of that having taken place in just one session, Tuesday, according to data compiled by Prospect News.

In the secondary sphere, traders said there was not anywhere near the kind of brisk volume in the recently priced issues seen over the previous several sessions. However, they did report a fair amount of dealings in this week’s new bonds from Fortescue Metals Group Ltd., CDK Global Inc. and Century Communities Inc.

Away from the new deals, J.C. Penny Co. Inc.’s bonds were mostly quoted lower even as the retailer’s stock swooned after it reported wider net and earnings per share losses, and falling sales.

Statistical market performance measures were unchanged to higher on Friday. They had turned mixed on Thursday after being higher across the board on Wednesday.

The indicators were stronger versus where they had finished last Friday, when they had been lower than their week-earlier levels across the board.

Issuance edges upward

With no new deals heard to have priced during Friday’s session, indicators of new issuance volume ended the week where they had finished after the close on Thursday.

Some $5.5 billion of new dollar-denominated and fully junk-rated paper from domestic and industrialized-country borrowers had priced in 12 tranches during the first four trading sessions of the week, according to data compiled by Prospect News.

That was up modestly from the $4.99 billion of such paper which priced in nine tranches last week, ended May 5, and well up from the $1.72 billion which priced in 10 tranches the week before that, ended April 28.

This week’s primary activity raised year-to-date issuance for 2017 so far to $110.65 billion in 205 tranches – considerably more than the $74.89 billion which had priced in 102 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Full-year issuance in 2016 finished at $226.78 billion in 359 tranches –which ran 12.9% behind the $260.02 billion which had gotten done in 408 tranches in 2015.

Great Lakes slates

The only news seen coming out of the junk bond primary market during the session was the announcement that Great Lakes Dredge & Dock plans to sell a $325 million offering of five-year senior notes.

High-yield syndicate sources said that the Rule 144A/Regulation S deal is expected to come to market during the upcoming week via Deutsche Bank Securities Inc. and Sun Trust Robinson Humphrey, Inc.

The company is expected to kick off marketing with an investor call and a roadshow starting Monday.

The Oak Brook, Ill.-based global provider of coastal and inland river dredging services said that it will use the anticipated proceeds from the bond deal to fund its concurrently announced cash tender offer for its $275 million of 7 3/8% senior notes due 2019 and to redeem any notes not taken up in the tender offer.

Any remaining proceeds will be used to pay down senior secured revolving credit facility debt.

Tapstone still on tap

Great Lakes Dredge & Dock thus joins the only other prospective deal being shopped around, with this week’s burst of pricing activity having pretty much wiped the slate clean of everything else.

That remaining deal would be Tapstone Energy LLC, an Oklahoma City-based independent oil and natural gas company, which began shopping around a $300 million offering of five-year senior notes last week via Bank of America Merrill Lynch.

That deal’s roadshow, which began on May 3, wrapped up on Tuesday, with pricing a possibility any time after.

The company plans to use the deal proceeds for debt refinancing.

New-deal trading wanes

In the secondary arena, traders said that unlike the earlier sessions of the week, there wasn’t that much trading going on in recently priced junk bond deals on Friday.

Instead, more mainstream credits usually found on the Most Actives list pretty much dominated things.

For instance, a trader said that the single most active junk credit of the day was Frontier Communications Corp.’s well-established 10½% notes due 2022, which gained nearly 7/8 point on the session to close at 98 1/16 bid, on volume of around $24 million.

The Stamford, Conn.-based wireline telecommunications provider’s 11% notes due 2025, considered a junk market bellwether, was seen up 1/8 point at 92¾ bid, with over $21 million changing hands.

In contrast, probably the most actively traded of the recently priced deals was Australian iron ore miner Fortescue Metals’s 5 1/8% notes due 2024, which gained ¼ point on the day to end at 100¾ bid, on volume of around $13 million.

The new Century Communities 5 7/8% notes due 2025 eased by 1/8 point to end at 99 7/8 bid, on turnover of around $11 million, while CDK Global’s 4 7/8% notes due 2027 retreated by ¼ point to end at 100½ bid, also on volume of around $11 million.

In contrast, a trader said that he was “not showing any trades” in Salem Media Group Inc.’s 6¾% senior secured notes due 2024, which had distinguished themselves in active trading on Thursday, zooming to almost 3 points above their par issue price.

A second trader on Friday later said that he saw perhaps $6 million of the notes trading – versus over $51 million on Thursday – staying in a 102 5/8 to 102 7/8 bid context.

Penney gets punished

Away from the new deals, the news that J.C. Penney had posted worse-than expected first quarter financial results and sales figures pushed the troubled Plano, Texas-based department store chain operator’s bonds lower.

A market source saw its 5.65% notes due 2020 finishing at 100½ bid, which he called down 1¼ points. About $18 million of those notes traded.

However, a second trader pegged those same notes down perhaps ¼ point.

Another said that Penney’s bonds “didn’t come down by more than 1 point” even while the company’s New York Stock Exchange-traded shares were getting killed, finishing down 74 cents, or 13.99% at $4.55, their all-time low point.

The shares tumbled and the bonds stumbled after the company reported a first-quarter net loss of $180 million, or 58 cents per share – far wider than the year-ago $68 million, or 22 cents per share. Analysts were only expecting a similar-sized loss versus last year’s this time around.

Penney – in the process of closing 138 of its 1,014 locations nationwide – saw same-store sales drop by 3.5% from year-ago levels during the quarter, while total sales slid by 3.7% to $2.7 billion from $2.8 billion a year ago.

Wall Street was expecting a sales decline of only about 1.4% for the quarter.

Indicators show improvement

Statistical market performance measures were unchanged to higher on Friday. They had turned mixed on Thursday after having been higher across the board on Wednesday.

The indicators were stronger versus where they had finished last Friday, when they had been lower than their week-earlier levels across the board.

The KDP High Yield Daily Index was unchanged at 72.27 on Friday after firming for three consecutive sessions before that, including Thursday’s gain of 7 basis points and Wednesday’s 9 bps rise.

For a second straight session, the index’s yield came in by 1 bp, this time to 5.11%, matching Thursday’s tightening. It was the third consecutive narrower yield.

Those levels compared favorably with the 72.11 index reading and 5.16% yield at which the index had closed last Friday, May 5.

The Markit CDX Series 28 Index was unchanged on Friday at 107 9/16 bid, 107 5/8 offered. On Thursday, it had eased by 1/16 point after rising nearly 3/16 point on Wednesday.

For the week, the index was down from last Friday’s close at 107 5/8 bid, 107 21/32 offered.

The Merrill Lynch North American High Yield posted its fifth consecutive advance on Friday as it turned up by 0.039%, on the heels of Thursday’s 0.073% improvement.

Those five straight gains followed two successive losses and before that a streak of 11 gains in a row.

Friday’s upturn raised the index’s year-to-date return to 4.051% from Thursday’s 4.01% close.

Friday was the second straight new high point for the year.

Thursday’s close had also marked the index’s first time above the psychologically significant 4% mark so far this year and its highest close since ending at 17.489% on the last day of 2016.

For the week, the index was up by 0.351% – in contrast to the previous week’s loss of 0.144%, its first weekly downturn after five weekly advances.

© 2015 Prospect News.
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