Euro junk market busy; domestic sphere ends August quietly; Freeport off on oil, mine mishap

By Paul Deckelman and Paul A. Harris

New York, Aug. 31 – The high-yield market on Wednesday was really a tale of two markets as it closed out the month of August.

The domestic dollar-denominated arena remained deadly dull ahead of the rapidly approaching extended Labor Day holiday break in the United States, which will commence with Friday’s abbreviated session and then include a full market shutdown on Monday.

While nothing was really doing in the dollar segment of Junkbondland, it was quite a different story in the European theater, with two new deals announced and a euro-denominated crossover transaction actually getting done.

That would be General Motors Financial Co. Inc.’s split-rated €750 million of seven-year senior notes.

Back among the purely junk-rated non-dollar issuers, British financial services company Arrow Global Finance plc was heard by syndicate sources to have begun shopping around a £220 million offering of eight-year senior secured notes, with pricing seen likely by the end of the week.

And Italian oilfield services provider Saipem SpA was seen bringing an offering of either five-year or seven-year euro-denominated notes or possibly both.

Back in the mostly sleepy dollar-denominated realm, traders saw Freeport-McMoRan Inc.’s paper mostly lower, some on active volume.

Among the negative factors seen hurting those bonds were a slide in world crude oil prices and news of an accident at a Freeport-run copper mine in Chile that forced a suspension of operations there.

Not much else was seen really shaking during the session. There was only very light volume in recently priced deals such as Tallgrass Energy Partners, LP, National CineMedia, LLC, Boise Cascade Co. and MGM Resorts International. All but the latter deal were seen hanging on to solid aftermarket gains they had notched when they began trading following their respective pricings.

Statistical market performance measures were mixed for a second consecutive session on Wednesday.

Arrow Global roadshow

Arrow Global Finance began a roadshow for a £220 million offering of eight-year senior secured notes (existing ratings B1/BB).

The roadshow wraps up on Friday.

Goldman Sachs, HSBC and JPMorgan are the global coordinators and physical bookrunners for the debt refinancing deal.

Saipem euro deal

Italian oilfield services provider Saipem plans to place euro-denominated senior notes (Ba1/BB+) subject to market conditions.

The Milan-based company plans to sell five-year and/or seven-year notes.

The deal is being shopped to investors across Europe in a marketing effort that was set to conclude on Wednesday.

Banca IMI, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan, Mediobanca and UniCredit are managing the sale.

Crossover deal

In the crossover market, General Motors Financial priced a €750 million split-rated issue of 0.955% seven-year senior notes (Ba1/BBB-/BBB-) at a 95 basis points spread to mid-swaps on Wednesday.

The deal tore through talk.

The spread came 5 bps inside of the 100 bps to 105 bps spread talk. Initial guidance was in the 120 bps area.

Active bookrunner Barclays will bill and deliver. Commerzbank, Credit Agricole CIB and JPMorgan were also active bookrunners.

Limited action in dollar market

Away from the sterling and euro-denominated deals, traders said that not too much was going on in the dollar-denominated portion of the junk bond market on Wednesday.

“There was not a lot to look at here,” one of them opined, adding that “a lot of things are just kind of sloshing around unchanged, with lighter volumes.”

He said that “volumes were pretty light, and inquiries were pretty light, and we’ll probably see more of the same tomorrow [Thursday] and on Friday – and probably worse.”

He said that “Freeport was a mover in the names, the stuff that was going on today.”

Freeport-McMoRan lower

The trader said that he was seeing Phoenix-based gold and copper mining and oil and natural gas company Freeport-McMoRan’s paper, such as its 4.55% notes due 2024, “off about ¾ point today, probably in sympathy with WTI being off a point and a half.”

West Texas Intermediate for October delivery, the benchmark U.S. crude oil grade, plunged by $1.65 per barrel in New York Mercantile Exchange trading on Wednesday, settling at $44.70. It was crude’s third straight loss after two consecutive gains and its fourth downturn in the last six sessions.

The key international oil grade, Brent crude, was also sharply lower on the London ICE Futures Exchange on Wednesday.

The expiring October contract nosedived by $1.33 per barrel to $47.04 – its second loss in a row, after three straight gains, and its third downturn in the last six sessions.

A trader at another shop saw the 4.55% notes finishing down ¼ point on the day, at 88 bid, with over $15 million traded, the most in the company’s capital structure.

That small loss followed Tuesday’s nearly 2-point swoon in the 4.55% notes, which dropped them down to a little above 88 bid, on more than $18 million traded.

Among the other Freeport bonds, its 3 7/8% notes due 2023 dropped by ¾ point on Wednesday, a market source said, ending at 86½ bid, on volume of over $12 million.

Its 3.55% notes due 2022 closed at 88 bid, unchanged on the day, with over $13 million having changed hands.

In addition to weakness in oil prices, Freeport’s paper was likely affected by the news, announced on Tuesday, that some operations were halted at its 51%-owned El Abra mine in Chile after a worker died due to an accident at its acid unloading terminal.

Some – but not all – of the suspended operations were resumed on Wednesday, according to news reports.

Recent deals hold gains

Elsewhere, traders said there was not much going on – not even very much trading in the new deals that had come to market earlier in the month.

They said that most of those deals were holding the gains they had notched when they were freed for aftermarket dealings.

A trader saw Tallgrass Energy Partners’ 5½% notes due 2024 closing out the month at 102½ bid, 103½ offered. That was unchanged on the day but well up from the par level at which the Leawood, Kan.-based energy master limited partnership had priced its $400 million deal on Aug. 18.

National CineMedia’s 5¾% notes due 2026 were seen down 1/8 point on the day at 102 5/8 bid, 103 5/8 offered. They had priced at par on Aug. 16.

Boise Cascade’s 5 5/8% notes due 2024 were also off 1/8 point at 102 1/8 bid, 102 5/8 offered, though up from their Aug. 16 par pricing.

MGM Resorts’ 4 5/8% notes due 2026 ended the day unchanged at 98 7/8 bid, 99 3/8 offered – though that was well down from par, where they had priced on Aug. 16.

Indicators stay mixed

Statistical market performance measures were mixed for a second consecutive session on Wednesday. They had turned mixed on Tuesday, after having been higher all around on Monday, which had followed three straight mixed sessions at the end of last week.

The KDP High Yield index rose by 2 bps on Wednesday to end at 70.67, its fourth straight gain and its sixth upturn over the last seven sessions, including Tuesday’s 4 bps increase, which had followed a 15-bps jump on Monday.

During Tuesday’s session, the index had firmed smartly to hit an intraday high of 70.73, a new year-to-date and 52-week high point.

Its Wednesday close at 70.67 was its fourth straight new closing year-to-date and 52-week peak levels, surpassing the former mark of 70.65 that had been set on Tuesday.

Its yield came in by 1 bp on Wednesday to 5.19%, after having tightened by 3 bps on Tuesday, which had followed an unchanged reading on Monday. Wednesday was the third narrowing in the last four sessions.

But the Markit Series 26 CDX index lost about ¼ point on Wednesday, its second straight downturn, finishing at 104 13/32 bid, 104 7/16 offered. On Tuesday, the recently choppy index had retreated by nearly 1/16 point, versus Monday’s 3/16 point gain. Wednesday was the index’s third setback in the last four sessions.

And the Merrill Lynch High Yield index was likewise lower for the first time after three straight better sessions, losing 0.065% on Wednesday, versus Tuesday’s 0.095% improvement. It was the index’s second loss in the last five sessions.

Earlier in August, the index had put together a winning streak of 16 consecutive upside sessions, dating from Aug. 3 and running through Aug. 24.

Wednesday’s loss dropped the index’s year-to-date return to 14.577% from Tuesday’s 14.651% finish, which had been its third straight new year-to-date high for 2016.

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