Junk stays quiet as holiday approaches but Lindorff talks euro deal; funds lose $227 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 3 – The high-yield market passed another largely quiet session on Thursday, the last full trading day before the Labor Day holiday break in the United States.

While Friday’s session is officially a regular day, traders said the reality is that it would likely be a lightly staffed abbreviated session, with many market players expected to make an early exit. The market will be closed on Monday.

For the first time in a few weeks, there was some new-deal news coming out of Europe, with Norway’s Lindorff Group AB heard to have set price talk on an upsized €230 million two-part add-on to the financial information services providers’ existing notes; the deal was on track to be the first euro-denominated junk transaction to get done in the past month.

However, the domestic primary arena remained stilled, apart from expectations that major issuers such as Frontier Communications Corp. and Dish Network Corp. will be bringing deals to market after the holiday break.

Among existing issues, there was more trading in Vantage Drilling Co., in the aftermath of the news that Brazil’s state-run oil company had abruptly cancelled its contract with the provider of maritime energy drilling services, alleging that Vantage had breached the terms of the agreement, which the company denies.

Oil prices were again modestly firmer, aiding such energy names as California Resources Corp. and SandRidge Energy Inc.

Statistical measures of junk market performance were higher across the board for a second straight session on Thursday. They had improved on Wednesday, after having been lower all around on Tuesday and mixed over the two sessions before that.

However, 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 redemptions by investors for a second consecutive week, and for a fifth week out of the last six, as $227 million more left those funds than came into them in the reporting week ended Wednesday, and the funds’ year-to-date flows deficit deepened.

That outflow came on the heels of the $1.602 billion cash loss that was reported last week for the seven-day period ended Aug. 26 (see related story elsewhere in this issue).

Lindorff upsizes taps

The high yield primary broke out of a two-week dormancy with news from Europe.

Oslo-based financial information services provider Lindorff Group set price talk for an upsized €230 million two-part secured add-on deal (B2/BB-).

An upsized €200 million add-on to the company’s Euribor plus 550 basis points floating-rate secured notes due Aug. 15, 2020 is talked at 99.5. The size is increased from €150 million.

In a tranche added subsequent to Thursday’s deal announcement, Lindorff talked a €30 million add-on to its 7% senior secured notes due Aug. 15, 2021 at 106.

The overall size of Thursday’s transaction is increased from €150 million.

Joint bookrunner Goldman Sachs International will bill and deliver. Deutsche Bank and Nordea are also joint bookrunners.

Books were scheduled to close Thursday. No terms were available at press time, sources said.

The issuing entity is Lock AS.

Proceeds will be used to repay bank debt.

Should terms emerge on the Lindorff deal on Friday it will be the first straight-out junk deal to clear the market in nearly a month.

The last offering came on Aug. 5 when French electrical home equipment retailer BUT SAS priced a €66 million add-on to its 7 3/8% senior secured notes due Sept. 15, 2019 (B) at 102.5 to yield 6.67%

In the interim a split-rated deal came in an investment-grade execution.

On Aug. 12, MPT Operating Partnership LP, the operating partnership of Medical Properties Trust, Inc., priced a €500 million issue of split-rated seven-year senior notes (Ba1/BBB-) at par to yield 4%.

A decent euro pipeline

Apart for the Lindorff deal, the euro-denominated high-yield market is apt to sit tight for the rest of the week as issuers there have a look at non-farm payrolls data in the United States and the news out of the European Central bank, a London-based syndicate source said on Thursday.

Provided there is a modicum of stability there should be primary market activity in the week ahead, the source added.

Although the September European pipeline is not huge, it does contain 10 to 12 deals, half of which are buyout financings that dealers, keen to move bridge loans off their books, will almost certainly try to bring during September, the official said, adding that present month in the European new issue market is expected to be slow and steady.

The dollar pipeline

Meanwhile a substantial September dollar-denominated pipeline, expected to come to $25 billion to $35 billion, is taking shape, sources say.

Frontier Communications Corp. is expected be first out of the gate in the post-Labor Day week, when it kicks off a $6.5 billion multi-tranche bond deal expected to launch on Wednesday, sources say. J.P. Morgan will lead.

Dish Network Corp. may not be far behind, sources say. Dish is expected to come with $3.3 billion of bonds, with proceeds to repay approximately $3.3 billion of “very small business” credits awarded to Northstar Wireless, LLC and SNR Wireless, LLC in last year’s AWS-3 wireless spectrum auction held by the U.S. Federal Communications Commission (FCC).

In an Aug. 17 memorandum, the FCC found that Dish holds 85% equity interests in Northstar and SNR, rendering those entities ineligible for the credits awarded to small businesses participating in the auction. Hence Dish has 30 days to put up $3.3 billion in cash or standby letters of credit.

Bookrunners for the Dish deal have not yet been announced, sources say.

Charter Communications Inc. could be close at hand with $3.5 billion of senior notes via Credit Suisse to help fund acquisition of Time Warner Cable Inc.

The September pipeline is also expected to include Mallinckrodt plc, with $1.1 billion of notes via Deutsche Bank to help fund the acquisition of Therakos Inc. from Gores Group.

Beacon Roofing Supply Inc. is expected in September with $300 million of eight-year senior notes via Citigroup and Wells Fargo to help fund acquisition of Dallas-based roofing supplies wholesale distributor Roofing Supply Group.

And deals are expected in September from both Gaming and Leisure Properties, Inc. and Pinnacle Entertainment, Inc. to help fund the merger of those two companies and repay debt, according to sources who say that the combined bond portion of the financing could come to $3.6 billion.

Activity level off

In the secondary arena, traders saw a not unexpectedly quieter level of activity on Thursday, the final full session heading into the upcoming Labor Day holiday break.

Even though the session was ostensibly a regular session, “it got pretty quiet by late morning [ET], all the way through,” one said.

“The market in general felt pretty lax by noon,” he added.

Besides the usual pre-holiday lassitude, he pointed out that some investors were playing it cautious ahead of the August U.S. job numbers scheduled to come out at 8:30 a.m. ET on Friday. Analysts say that strong non-farm payrolls data and/or improvements in the unemployment rate would be interpreted as giving the Federal Reserve the green light to finally raise U.S. interest rates for the first time in years when the central bank’s policy-making committee meets around the middle of the month.

Vantage continues to trade

Among specific credits, were was more trading Thursday in the bonds of maritime energy drilling contractor Vantage Drilling, whose bonds nosedived on Wednesday in active trading on the news that Petroleo Brasileiro SA, the Brazilian state energy company, had abruptly pulled out of its lease agreement for one of Vantage’s ultra-deepwater drilling rigs, Titanium Explorer.

On Thursday, Vantage’s Offshore Group Investment Ltd. bonds – the issuing entity for the Cayman Islands-based company – were trading in a 40 to 40½ bid context, which a market source said was more or less unchanged after their 6 or 7 point fall on Wednesday.

He said that “not nearly as many” traded on Thursday as had changed hands on Wednesday.

Another secondary source pegged Vantage’s 7½% notes due 2019 at 39 15/16 bid, calling them down more than ¾ point on the day on volume of over $8 million – well below the more than $36 million that had traded on Wednesday but still enough to put the credit among the Most Actives in a generally dull market.

Vantage’s bonds had plunged on Wednesday on its late-Tuesday announcement that two Petrobras subsidiaries, Petrobras America, Inc. and Petrobras Venezuela Investments & Services BV were terminating the agreement under which they had leased Titanium Explorer since 2009.

Vantage said that the notice it had gotten from Petrobras alleged that Vantage has breached its obligations under the contract between the two companies, but did not offer any kind of an explanation for that claim.

Vantage “strongly disagrees with the allegations of contractual breaches made by PAI and PVIS in the Notice,” and has filed for arbitration to challenge the Petrobras assertions; it calls the allegations “a wrongful attempt to terminate the drilling contract,” and insists that it is in compliance with all of its obligations under the contract.

Energy names improve

Elsewhere among energy-related names, several oil and natural gas exploration and production companies were seen having firmed during the day, helped by a modest rise in crude oil prices. The U.S. benchmark grade, West Texas Intermediate, for October delivery, gained 50 cents, or 1.1%, finishing at $46.75 per barrel. It had risen 84 cents in Wednesday’s New York Mercantile Exchange trading.

A trader said that Oklahoma City-based SandRidge Energy’s 8¾% notes due 2020 had firmed by 3½ points on the day to end at 69¾ bid.

He said that California Resources’ 6% notes due 2024 rose more than a deuce on the day, finishing at 76 bid.

Another market source quoted those bonds at a more restrained 74 bid, 75 offered, which he called up 1 point on the day.

Denver-based MarkWest Energy Partners, LP’s 4 7/8% notes due 2024 were going home at 95 bid, up nearly 2½ points on the day

A mixed bag

Elsewhere, a trader said that Dish Network’s 5% notes due 2023 were up by 1¼ points, ending at 89¾, presumably helped by indications the Englewood, Colo.-based satellite television broadcaster will be doing a big new deal soon, as noted.

However, another trader said Dish’s 5 7/8% notes due 2024 had moved up perhaps ¼ point to 91½ bid on one round-lot trade, “so it doesn’t look like very much.”

Wilmington, Del.-based chemical maker Chemours Co. – one of the junk market’s most active issues on Wednesday, though on no news – was again trading around on Thursday. Over $15 million of its 6 5/8% notes due 2023 moved around, losing ¾ point on the day to go home at 85½ bid.

A trader estimated them down ½ to ¾ point on the day.

Indicators stay higher

Statistical measures of junk market performance were higher across the board for a second straight session on Thursday. They had improved on Wednesday after having been lower all around on Tuesday and mixed over the two sessions before that.

The KDP High Yield Daily Index rose by 7 basis points on Thursday to end at 67.95 after gaining 4 bps on Wednesday. Before that, it had dropped 16 bps on Tuesday but had risen over three straight sessions before that, including Monday’s 14 bps gain. The index has now been higher in five out of the last six sessions and in six out of the last eight sessions.

Its yield, meanwhile, came in by 4 bps on Thursday to close at 6.34%, on top of its 3 bps tightening on Wednesday, which followed a rise of 8 bps on Tuesday. The yield has now narrowed in five sessions out of the last six and in six sessions out of the last eight.

The Markit Series 24 CDX North American High Yield Index firmed by 3/32 point on Thursday, finishing at 104 3/32 bid. 104 1/8 offered. It had also risen by 3/16 point on Wednesday. It was the index’s second straight upturn after three consecutive sessions on the decline, including Tuesday’s 21/32 point loss.

The Merrill Lynch North American Master II High Yield Index rose by 0.243% on Thursday, its second straight gain. It had also finished up by 0.08% on Wednesday, after having lost 0.121% on Tuesday. The index has now been on the upside in five sessions out of the last six and in six sessions out of the last eight.

Thursday’s improvement raised its year-to-date return to 0.270%, versus Wednesday’s 0.027%.

However, it still remains well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

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