Slow start to new month’s primary; Chesapeake falls on revolver amendment; funds lose $2.15 billion

By Paul Deckelman and Paul A. Harris

New York, Oct. 1 – The high-yield primary market began the month of October and the fourth and final quarter of the year on a quiet note on Thursday, continuing the pattern seen for all of this week.

No new issues were priced, or were even announced during the session.

The sole news coming out of the new-deal arena concerned price talk for a sterling-denominated add-on deal being shopped around by British tavern chain operator Stonegate Pub Co. Financing plc. There were no updates on timing for that offering.

Among the deals that have already priced, traders said that recent new issues, such as the bonds backing Altice NV’s acquisition of Cablevision Systems Corp., or the new issue from chemical maker Olin Corp., pulled back a little from the highs they set on Wednesday

But the big news of the session happened away from the primary sphere, as Chesapeake Energy Corp.’s bonds slid after the oil and natural gas company announced amendments to its revolving credit agreement – including one allowing it to incur up to $2 billion of junior-lien debt ranking above the existing bonds in Chesapeake’s capital structure.

Statistical measures of junk market performance were mixed on Thursday, in sharp contrast to their performance on Wednesday, when those market gauges had turned solidly higher across the board, breaking lengthy losing streaks for each of them.

Meanwhile, another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – saw net outflows of $2.152 billion in the latest reporting week, breaking a three-week string of net inflows to the funds.

Stonegate Pub talk is 99.5

The primary market was quiet Thursday save for one news item out of London.

Stonegate Pub Co. Financing talked an £80 million add-on to its 5¾% senior secured notes due April 15, 2019 (existing ratings B2/B+) to price in the 99.5 area.

There were no updates on the timing. The deal was scheduled to be rolled out during an investor conference call early Thursday and to price subsequently.

However no terms were available at press time, according to market sources.

Barclays is the bookrunner.

Secondary hampers Euro primary

Wide bid-offer spreads in the secondary market are hampering syndicate bankers’ efforts to efficiently price new issues, one factor that is impeding European issuance, a London-based debt capital markets banker said on Thursday.

Liquidity has been extremely thin, the banker said.

If you need a bid quickly the price will drop 4 or 5 points.

Volatility decreased a little on Thursday, said the banker who makes use of the iTraxx Euro Crossover index as one measure of chop in the market.

The iTraxx Crossover index was at 375 basis points bid late Thursday morning, Eastern Time.

That was down from 380 bps bid on Tuesday.

However the present week has seen considerable widening, the banker said, noting that on Monday, Sept. 14 the index was at 311 bps bid and by the end of last week it had widened to 350 bps.

Institutional investors seem to understand what’s going on and may be willing to return to the new issue market if they can be confident that deals will be correctly priced, the banker said.

Presently a sloppy secondary market is an impediment, the source added.

Add to that the fact that the European market was already shuttered as the volatility took hold.

Hence there are no deals in the European market like the recent Altice/Cablevision or Olin Corp. dollar-denominated deals which featured some double-digit coupons (Olin’s coupons were 9¾% and 10%, Altice’s were 10 1/8% and 10 7/8% for the unsecured notes) and were priced to move.

Amid the turbulence in the United States, those “priced-to-move” deals have held in, and were trading at premiums to their new issue prices on Thursday morning.

There are no such “juiced” bonds in Europe, however, the banker said.

That creates an even greater challenge for the European syndicate bankers to calibrate possible new issue prices, the source added.

Liquidity in U.S. junk

Meanwhile there are mixed reports on the liquidity in the U.S. high-yield market.

A sellside source described conditions quite similar to those related by the London-based debt capital markets banker: low liquidity and wide bid-offer spreads.

However a bond trader reported decent liquidity in the market on Thursday morning.

Deals in the market

With such a thin news flow the primary market’s focus has narrowed to two deals that were being actively marketed, heading into the present week.

Early in the week NN, Inc. talked its $300 million offering of eight-year senior notes (Caa1/B) to yield in the 9¼% area. Books were scheduled to close on Tuesday.

There has been no news on the deal since then, market sources say.

On Thursday NN increased pricing on its concurrent $525 million seven-year covenant-light term loan to Libor plus 475 basis points from earlier talk of 425 to 450 bps, according to a market source, and offered a greater discount by changing price talk to 98 from 99.

The only other deal in the market is SunOpta Foods Inc.’s $330 million offering of senior secured second-lien notes due 2022 which began roadshowing on Monday.

The deal, via BMO, Jefferies and Rabobank, is set to price in the week ahead.

A secondary trader meantime remarked that “the calendar looks pretty quiet, at least for the first week of October.

He noted that new issuance in September had been “light, versus what was expected,” with $25.42 billion of new U.S. dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers having come to market during the month in 25 tranches, according to data compiled by Prospect News – well below the optimistic projections early in the month for as much as $35 billion or $40 billion of new bonds by month’s end.

Chesapeake takes it on the chin

Back in the secondary market, one of the big names of the session was Chesapeake Energy, whose bonds fell sharply on news that the Oklahoma City-based energy exploration and production company’s amended revolver allows it to issue as much as $2 billion of additional junior-lien debt – which would be structurally superior to its unsecured notes.

“News of that amendment took the bonds lower by anywhere from 3 to 8 points on the day, depending on where on the [maturity] curve they are, a trader said.

He said the busiest bond in the structure was Chesapeake’s 6 5/8% notes due 2020.

Those bonds – which had finished trading on Wednesday at 73¾ bid – fell as low as 66 bid in early dealings Thursday, he said, “but then they went back up a little bit” to end the session at 69¼ bid.

A market source at another shop said that those Chesapeake notes were easily the most active of the purely junk-rated credits, with over $52 million having changed hands.

He also saw the notes going home at 69¼ bid, calling that a 4½ point slide.

That source also saw the company’s 5¾% notes due 2023 retreat by 2 5/8 points on the day, finishing at 63 3/8 bid, with over $32 million traded.

Chesapeake’s 4 7/8% notes due 2022 lost 3¼ points to finish at 62½ bid, on volume of over $19 million.

Recent bonds retrench

One of the traders said that some of the recently priced bonds that “had been the flyers yesterday [Wednesday] were pulling back today.”

For instance, he said that the 10 7/8% notes due 2025 brought to market last Friday by Neptune Finco Corp. along with CSC Holdings LLC as part of the financing for the Altice acquisition of Bethpage, N.Y.-based cable and newspaper operator Cablevision “were off about a half point or so,” after having pushed higher on Wednesday.

More than $31 million of the notes traded; he saw the notes finishing a little below 101 bid, after having risen more than 1½ points on Wednesday to around 101¼ bid.

At another shop, though, those Neptune Finco notes were seen having risen by 3/8 point to 101½.

The company’s 10 1/8% notes due in January 2023 were seen unchanged at 101 bid, with $23 million of turnover.

The first trader, meantime also saw Olin Corp.’s new 9¾% notes due 2023 off by ½ point to 103½ bid, after having risen by 2 points on Wednesday to finish around the 104 bid mark. More than $11 million of the Clayton, Mo.-based chemicals and ammunition manufacturer’s new notes – which also priced last Friday – changed hands on Thursday.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Thursday, after having firmed across the board on Wednesday to break out of a five-session losing streak.

The KDP High Yield Daily Index plunged by 25 basis points to end at 65.68 – a new low for the year so far, in sharp contrast to its performance on Wednesday, when the index had notched its first gain after 13 consecutive losses, jumping by 15 basis points, on top of a 26 bps drop seen on Tuesday.

Thursday’s retreat – its 14th in the last 15 sessions – dropped the index below its previous 2015 low point of 65.78, set on Tuesday. It now stands at its lowest level since hitting 65.67 back on Aug. 20, 2009.

Its yield rose by 6 bps Thursday to end at an even 7.00%; on Wednesday, it had come in by 8 bps, its first narrowing after 10 straight sessions during which it had widened.

The Markit Series 25 CDX North American High Yield Index stayed strong, however, rising by 3/32 point on Thursday to finish at 99 15/32 bid, par offered – its second consecutive gain. It had also firmed by 9/32 point on Wednesday, its first advance after having posted one loss since the index rolled over as scheduled to Series 25 on Monday from the previous Series 24, plus four straight losses before that on the index’s older version.

But the Merrill Lynch North American Master II High Yield Index – which had firmed on Wednesday by 0.148%, its first rise after 14 straight losing sessions – was once again lower on Thursday, by 0.202%.

That setback deepened its year-to-date loss to 2.724% from 2.527% on Wednesday. That left the index with its biggest cumulative loss of year so far, from the previous low point of 2.672% on Tuesday. The index is at its lowest level since Oct. 6, 2011, when it showed 2.93% of red ink year-to-date.

Junk funds show outflow

Another numerical market measure – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned decidedly negative as it showed major net redemptions by investors in the latest reporting week, breaking a string of three consecutive weeks which had seen net additions to the funds.

Some $2.152 billion more had left those weekly reporting-only funds than had come into them during the week ended Wednesday.

Thursday’s big outflow followed the $17.7 million cash addition that was reported last week for the seven-day period ended Sept. 23 (see related story elsewhere in this issue).

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.