New deals remain on hold, recent issues firmer, though quiet; correction names continue comeback

By Paul Deckelman and Paul A. Harris

New York, Aug. 23 – The high yield market spent Tuesday pretty much the same way as it had on Monday – with no new primaryside activity seen and an overall sense of quiet prevailing.

Participants said that the new-deal arena remains shut, with nothing seen changing that between now and the Labor Day holiday weekend.

In the secondary realm, traders said that some of the recently priced issues, such as Big Tex Trailers and

Tallgrass Energy Partners, LP continued to add to the gains seen since their respective pricings last week – but activity levels remained extremely light, with just a couple of million of any of the new deals having been traded.

Bonds of private prison operators Corrections Corp. of America and GEO Group, Inc. remained better bid for on Tuesday – continuing the snapback which had begun on Friday following Thursday’s swoon on the news that the U.S. Justice Department will begin phasing out the use of privately run corrections facilities such as those run by the two companies.

Energy names were meantime mixed, even as oil prices surged after having been sharply lower on Monday.

Statistical market performance measures turned better across the board on Tuesday after having been mixed for two consecutive sessions before that, their third higher session in the last five trading days.

The new deal market is closed until September, sources continued to say on Tuesday.

However, without offering any specific names, a syndicate banker said that September should bring a decent amount of new deal volume.

“You have the stock market at all-time highs,” the banker said.

“Bond prices are bid up in the secondary market.

“And people have cash to put to work, the source added.

“September should be pretty good.”

Inflows on Monday

The cash flows of the dedicated high yield bond funds were positive on Monday, according to an investor.

High yield ETFs saw $51 million of inflows on the day.

Actively managed funds was $30 million of inflows on Monday.

Dedicated bank loan funds attracted more that both high yield bond sectors put together, taking in $146 million on Monday, including $23 million into bank loan ETFs.

Recently priced issues were seen continuing to add to the gains seen since their pricing last week.

A trader said that Big Tex Trailers’ 9 5/8% senior secured noted sue 2023 had pushed up to a 103¼-to-103¾ bid context, versus a 102½-to-103 bid level on Monday.

However, only about $3 million of the Southlake, Texas-based freight container company’s new deal traded in round lots on Tuesday, a far cry from the busy dealings they had seen after that $670 million offering had priced at par as a regularly scheduled forward calendar offering last Wednesday.

A trader said that Tallgrass Energy’s 5½% notes due 2024 had pushed up to 102 3/8 bid on Tuesday, up 5/8 point on the session from Monday’s close.

The Leawood, Kan.-based energy master limited partnership’s deal was probably the busiest of the recent new deals on Tuesday – but even that only amounted to around $6 million, he said.

The company had priced $400 million of the notes at par on Thursday off the forward calendar.

Diamond Resorts International Inc.’s 7¾% senior secured notes due 2023 firmed to 101 bid, a gain of about 1/8 point on the day, but only on $1 million traded; the Las Vegas-based hospitality and vacation ownership company’s $500 million of those bonds had traded around the par level all last week after the issue – upsized from an originally announced $400 million – had priced there on last Wednesday.

The other half of that regularly scheduled megadeal – the company’s $600 million of 10¾% senior unsecured notes due 2024 – gained ½ point on the session, finishing at 97 bid, on volume of around $4 million, after having dipped to around 96½ after having priced at 98.69 to yield 11%.

Oil names mixed

A trader said that “oil had a nice snapback today – but the market didn’t really react when it went down, so it really hasn’t moved much in terms of prices.”

The key domestic crude grade, West Texas Intermediate for October delivery – the new front month – rose by 69 cents per barrel on the New York Mercantile Exchange, settling at $48.10, after having plunged by $1.47 per barrel on Monday, its first loss after seven straight gins.

Brent crude for October delivery, the main international crude grade, likewise shot up by 80- cents on the London ICE Futures Exchange, to $49.96, shaking off two straight losses, including Monday’s $1.72 per barrel nosedive. Brent had risen over six straight sessions before those twin losses.

But while the commodity’s price gained, energy bonds were mixed on the day.

A trader said EP Energy Corp.’s 9 3/8% notes due 2020 slipped a quarter-point to 65¾. That trader also saw MEG Energy Corp.’s 6 3/8% notes due 2023 falling a touch to 78¾.

California Resources Corp.’s 8% second-lien notes due 2022 were meantime steady at 67¾.

Among emerging market names, Petróleos de Venezuela SA’s bonds were pushing up, though on no fresh news.

The company said back in July that it was working on a debt swap for debt coming due in 2017. Barring such a deal, the company will have to pay about $2.3 billion in amortization for said bonds.

The state-owned oil company is not, however, said to be looking at an exchange for its 2016 maturities.

A trader said the 5 7/8% notes due 2027 added almost a point to close at 37, while the 6% notes due 2026 gained under half a point to finish at 37½.

The 5¼% notes due 2017 improved a point to 70, the trader said.

Jail names continue firming

A trader said that private prison names Corrections Corp. of America and GEO Group “were better bid out there.” on Tuesday.

He said that “:they were heavier, and the stocks really rallied Monday morning, and you saw the bonds react as well, and they were continuing to trade higher.”

Those bonds – all trading above par – had nosedived into the 90s, and in some cases, as low as the 80s – last Thursday when the U.S. Justice Department announced that it will begin phasing out the use of privately run corrections facilities such as those run by the two companies.

Overall market better bid

Overall, a trader said, “most stuff is generally better bid.”

He said that things “were lower earlier – but then the CDX rallied 1/8 to ¼ point.

“The whole market feels kind of better bid.”

He added that “you don’t have a lot of retail interest [in the issues] per se – I think there’s a lot of guys that are happy that it’s not going down, and a few guys are looking to dip their toes in. But it hasn’t been an all-out lift-a-thon.”

Indicators turn northward

Statistical market performance measures turned better across the board on Tuesday after having been mixed for two consecutive sessions before that, their third higher session in the last five trading days.

The KDP High Yield index gained 7 basis points on Tuesday to end at 70.38, versus Monday’s 2-bps loss. That established new year-to-date and 52-week highs, eclipsing the old mark of 70.33, set on Friday.

Its yield though, remained at 5.26%, unchanged for a second consecutive session, after having come in by 2 bps on Friday, which in turn had followed 1 bp rise on Thursday.

The Markit Series 26 CDX index was also better, gaining nearly ¼ point on Tuesday to end at 104 15/16 bid, 105 offered, its second gain in the last four sessions. It had fallen for two straight sessions before that, including Monday’s 7/32 point decline.

And the Merrill Lynch High Yield Index rolled unstoppably on, notching its 15th gain in a row.

The index firmed by 0.157% on Tuesday, on top of Monday’s 0.035% rise.

The streak-prone index’s gains of the last 15 sessions follow a six-session slump before that.

Tuesday’s upturn brought the index’s year-to-date return up to 14.388%, its 13th straight new peak level for the year, versus Monday’s 14.209% close.

Stephanie N. Rotondo contributed to this review.

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