Spectrum drive-by opens year’s final month, new bonds firm; energy names gyrate at lower levels

By Paul Deckelman and Paul A. Harris

New York, Dec. 1 – The high-yield market got back to work on Monday following its lengthy Thanksgiving holiday break, which included Friday’s shortened and only sparsely attended session, and headed into the homestretch for the year.

December opened with one quick-to-market pricing – a $250 million transaction from consumer products maker Spectrum Brands Inc. That 10-year deal was heard by trader to have firmed by around a point from its issue price in brisk trading.

Among recently priced names, traders also saw considerable activity in KLX Inc.’s new eight-year issue, which fell about 1 point, in line with an overall easier market.

Other recent deals seen off from last week’s highs included Springleaf Finance Corp. and CDW Corp.

Apart from the deals that have already priced, junk market syndicate sources heard of several other prospective new deals being pitched to potential investors via roadshows, including offerings from Cott Beverages, Inc., Real AlloyHolding Inc., OneMaine Financial Holdings, Inc. and Superior Plus LP.

Outside of the new deal realm, energy names remained volatile, gyrating around at levels well below where they had been last week. While there was a sizable jump in world commodity markets in crude oil prices from the grossly oversold levels seen last week, energy sector bond prices only firmed modestly off their lows.

Among the oil and natural gas sector names seeing busy activity at those lower levels were California Resources Corp., Linn Energy LLC and Halcon Resources Corp.

Statistical market performance measures were lower across the board for a second consecutive session on Monday.

However, flows of fresh cash into and out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed a small inflow of about $45 million in the latest reporting week, partially rebounding from a larger outflow seen the week before.

Spectrum Brands drives by

The post-Thanksgiving week got under way with just one deal pricing in the high-yield primary market.

Spectrum Brands priced a $250 million issue of 10-year senior notes (B3/B) at par to yield 6 1/8% in a drive-by.

The yield printed in the middle of the 6% to 6¼% yield talk.

Credit Suisse and Deutsche Bank were the joint bookrunners.

The Madison, Wis.-based consumer products company plans to use the proceeds to fund the acquisition of Procter & Gamble Co.'s Pet Care business, as well as to repay bank debt and for general corporate purposes.

Cott Beverages starts Tuesday

Apart from the Spectrum Brands drive-by, the early December forward calendar saw a meaningful buildup.

Cott Beverages plans to start a roadshow on Tuesday in New York for a $615 million offering of five-year senior notess.

Joint bookrunner Barclays will bill and deliver for the acquisition financing deal. Credit Suisse, J.P. Morgan, BofA Merrill Lynch and Deutsche Bank are also joint bookrunners.

Real Alloy roadshow

Real Alloy Holding is roadshowing a $300 million offering of five-year senior secured notes.

The acquisition deal is in the market via SGH Escrow Corp., a subsidiary of Signature Group Holdings, Inc., which is also the parent of Real Alloy.

The notes are expected to price late this week or early next week.

Goldman Sachs and Deutsche Bank are the joint bookrunners.

OneMaine kicks off $1 billion

OneMaine Financial began a roadshow on Monday for a $1 billion two-part offering of senior notes (B2/B+).

The deal, which is expected to price on Dec. 8, is coming in tranches of five-year notes and seven-year notes.

Citigroup is the bookrunner.

Proceeds will be used to repay inter-company debt from Citigroup.

Superior Plus plans roadshow

Superior Plus plans to start a roadshow on Tuesday for a C$200 million offering of seven-year senior notes.

Scotia, BMO and NBF are the joint bookrunners.

The Calgary, Alta.-based diversified liquified petroleum company plans to use the proceeds to repay bank debt and for general corporate purposes.

Spectrum Brands trades up

In the aftermarket, the new Spectrum Brands 6 1/8% notes due 2024 were moving higher after the issue was freed for trading.

One trader pegged the bonds at 101 bid, up from the par level at which the quickly shopped $250 million issue had priced.

A second saw the bonds at 100 7/8 bid and said that volume in the new deal was over $416 million, putting it high up on the day’s list of most-active issues.

KLX issue heavily traded

Among recently priced new deals, KLX’s 5 7/8% notes due 2022 were among the most actively traded credits in Junkbondland on Monday, with over $20 million seen having changed hands.

The notes were being quoted around a par-to-101 1/8 bid context – down nearly a point from prior levels north of 102 bid.

A trader located the notes at 101 bid, 101½ offered, calling them down 1 full point on the session, while a second trader, who also had the bonds going home at that level, said they were down 1 1/8 points on the day.

KLX, which will be spun off from Wellington, Fla.-based aircraft interiors producer B/E Aerospace, Inc., priced $1.2 billion of the notes on Nov. 21 at par as a scheduled forward-calendar offering.

The notes initially traded in a 100½ -to 100¾ context after they were priced, but had jumped to around the 102 level by the following Monday and stayed there for another week before coming down.

Springleaf, CDW trade lower

As for other recently priced issues, a trader saw Springleaf Finance’s new 5¼% notes due 2019 at 100 1/8 bid, 100½ offered.

He called that down 3/8 of a point from the levels those bonds held late last week.

Evansville, Ind.-based consumer loan company Springleaf Holdings priced $700 million of the notes at par last Tuesday in a quick-to-market offering via its indirect, wholly owned Springleaf Finance subsidiary.

The deal priced after the issue was upsized from an originally announced $500 million. It came too late in the day on Tuesday for any aftermarket dealings at that time, but had moved up to around a 100½ to 100 7/8 context by Wednesday before giving up some of those gains on Monday.

Elsewhere, CDW Corp.’s 5½% notes due 2024 were seen by a trader having dipped below their issue price, trading Monday at 99¼ bid, par offered.

The Vernon Hills, Ill.-based technology services provider priced its quick-to-market $575 million issue via its CDW Finance and CDW LLC subsidiaries at par on Nov. 24. The bonds mostly stayed around par in subsequent dealings.

Energy names still beleaguered

Despite the active dealings in the new Spectrum Brands and KLX notes, a trader said that “the real focus” of Monday’s market was the energy names, which remained volatile in the wake of recently falling world crude oil prices and the failure of OPEC oil ministers to come to any agreement at their meeting last week on curbing output in order to stabilize those prices.

“The [exploration and production] names were down generically about 5 points on Friday,” as oil prices slid following the end of the OPEC meeting.

“Then there was follow-on trading today, with some lows down as much as 5 to 7 points.”

He said that after initially moving lower, the oil bonds “did catch a bid” as oil prices rose by as much as $3 per barrel in Monday’s commodity trading, bouncing back from last week’s badly oversold levels.

“They were filling in bids, especially in the better-quality, BB type names.”

Benchmark West Texas Intermediate crude oil, after initially plumbing a five-year bottom at $63.72, bounced off those lows and ultimately finished up $2.85 – a 4% rise – to $69 a barrel. It was the largest one-day gain in U.S. crude since August of 2012.

But while the oil credits got something of a boost from the upturn in crude prices, the trader cautioned that the bonds “weren’t closing at their lows, but they were still near them.”

Among the most actively traded E&P names, he said, was Los Angeles-based E&P operator California Resources Corp.

The company’s 6% notes due 2024 were perhaps the busiest junk credit of the day, with over $40 million having changed hands. They ended at 85½ bid, down 4½ points, while its 5½% notes due 2021 lost 1 point to close at 89 bid, on over $14 million of volume.

Linn Energy’s 6½% notes due 2019 slid as low as 82½, before coming off that low to end at 83 bid – still well down from levels around 90 where the Houston-based energy company’s paper had traded at the end of last week. Over $24 million changed hands in odd-lot dealings alone, with a heavy volume of smaller round-lot trades as well.

Houston-based Halcon Resources’ 8 7/8% notes due 2021slid more than 8 points on the day to end at 68½ bid, on over $18 million of volume.

Indicators stay lower

Statistical indicators of junk market performance were lower across the board for a second consecutive session on Monday, after having been higher all around over the two sessions before that.

The KDP High Yield Daily index plunged by 37 basis points to end at 71.33, on top of its 18 bps fall on Friday.

The yield ballooned out by 13 bps to 5.62%, after having risen by 8 bps on Friday.

The Markit CDX North American High Yield Series 23 index suffered its second straight loss on Monday, declining by 9/32 point to 107 bid, 107 1/32 offered. On Friday, the index had fallen by a similar 9/32 of a point.

The Merrill Lynch U.S. High Yield Master II index also spent a second successive session on the downside, moving down by 0.069%, in addition to the 0.228% that it lost on Friday.

That dropped its year-to-date return to 3.32% – its lowest level since Oct. 16, when it fell to 2.638%. That was down from 3.998% on Friday and well down from its peak level for the year of 5.847%, recorded on Sept. 1.

According to the Finra-Bloomberg Active US High Yield Bond index, junk market volume rose to $$3.379 billion on Monday from just $292 million during Friday’s abbreviated and only lightly-attended session.

Funds gain $45 million

Flows of fresh cash into and out of high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed a small inflow during the latest reporting week, partially rebounding from a larger outflow seen the week before.

Market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that some $44. 487 million more came into those weekly reporting-only funds than left them during the week ended Nov. 26. The figures normally circulate on the junk market late in the day on Thursday, but were delayed this week due to Thursday’s market close due to the Thanksgiving holiday.

That followed the $280.7 million outflow reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended Nov. 19, which had snapped a winning streak of four consecutive weekly inflows.

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