European primary sees activity; Tesla, other recent deals busy; funds lose $277 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 31 – As expected, the domestic primary market continued its summertime snooze on Thursday, with no activity anticipated until after the upcoming Labor Day holiday break in the United States.

But syndicate sources said there was some life seen in the European high-yield market – which has also been fairly quiet of late – as Swedish commercial and residential property developer Fastighets AB Balder brought an issue of long-maturity hybrid securities to market.

And they heard tanker and cargo-ship company Stolt-Nielsen Ltd. getting ready to shop around to investors a five-year issue of bonds denominated in either dollars or Norwegian kroner.

Back on the domestic scene, despite the recent lack of any new-deal activity, August’s total issuance of new dollar-denominated and junk-rated paper still handily topped July’s small total and was comparable with year-ago levels, while year-to-date issuance is running smartly ahead of last year’s pace, data compiled by Prospect News indicated.

Electric car manufacturer Tesla, Inc.’s recently priced eight-year issue continued to attract considerable investor attention, moving up on the session.

And traders said that a number of other recently priced issues – which had lately been little seen – were once again trading around on Thursday, including names such as Post Holdings, Inc., Diamond Offshore Drilling, Inc., Staples, Inc. and Restaurant Brands International Inc.

Away from the new deals, strengthening crude oil prices helped to push up energy names such as California Resources Corp.

Statistical market performance measures were trending higher on Thursday, their second straight upside session.

But another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – fell for a third consecutive week, according to numbers released on Thursday, as $277 million more left those weekly reporting-only domestic funds than came into them during the week ended Wednesday, Aug. 30.

That net outflow follows the cash loss of $1.01 billion for the seven-day period ended Aug. 23, which in turn had followed an even larger outflow of $2.19 billion during the week ended Aug. 16 (see related story elsewhere in this issue).

Balder prices hybrid

The European market generated new issue news on Thursday.

Fastighets AB Balder priced €350 million of 3% hybrid securities (Ba2/BB+) at 99.389 to yield 3 1/8%.

The yield priced inside of the 3½% initial yield talk.

The notes have a 61-year final maturity, rendering them due in March 2078. They become callable on March 7, 2023.

Deutsche Bank, Nordea, HCM, SEB and Handelsbanken were the joint bookrunners.

The hybrids came in conjunction with a €500 million issue of investment grade 1 7/8% non-hybrid senior notes.

The Gothenburg, Sweden-based commercial and residential property developer plans to use the proceeds for general corporate purposes.

Stolt-Nielsen mandate

Looking to the Sept. 4 week, Stolt-Nielsen will start out with the spotlight to itself when it begins meeting with fixed-income investors on Tuesday ahead of a possible offering of five-year senior bonds.

The deal could come in dollar-denominated or Norwegian krone-denominated notes.

The London-based company mandated Danske Bank, DNB Markets, Nordea and Swedbank to arrange the meetings.

Proceeds would principally be used to refinance notes maturing in March 2018.

Meanwhile the dollar-denominated primary market remained quiet on Thursday and is expected to remain quiet on Friday ahead of the extended Labor Day holiday weekend in the United States, which gets underway following Friday’s close.

Forecasts for September issuance have run between $15 billion and $30-plus billion. Average September issuance over the past five years has been $36.6 billion, according to Prospect News data.

August is busier month

Although no new dollar-denominated and junk-rated issues from domestic or industrialized-country borrowers were heard to have priced on Thursday – the ninth consecutive shutout session – primaryside sources said that August had still been a fairly productive month in Junkbondland.

According to data compiled by Prospect News, August closed out with $19.76 billion of new paper having gotten done in 35 tranches, accounting for 11.32% of the junk market’s year-to-date issuance so far.

That was well up from the anemic $8.58 billion of such paper which had gotten done in 20 tranches during July, or just 4.92% of the year’s total so far. July was the slowest month in terms of new issuance since February of 2016, when $8.1 billion of new paper priced in just 14 tranches.

August’s issuance was still well down from March of this year, the busiest month to date, coming in at less than half the $43.13 billion priced in 73 tranches. March accounted for fully 24.71% of all of the new issuance seen so far this year.

August’s issuance levels were meantime down just a little from the $21.44 billion of new paper which priced in 38 tranches in August 2016.

The August issuance brought total issuance for 2017 so far up to $174.54 billion in 326 tranches.

That was running a comfortable 16.5% ahead of the $149.74 billion which had been priced in 226 tranches by this point on the calendar last year.

Secondary volume pick-up

Although a trader said Thursday’s session saw “not a lot to do today,” with junk market participants basically running out the clock ahead of the three-day Labor Day holiday weekend in the United States, at another desk, a trader said that volume actually wasn’t so bad.

“He saw total volume ending up around $2.2 billion, which he called “not so horrendous” – it was certainly more active than Wednesday’s roughly $1.5 billion total.

However, he acknowledged that “a normal day would see $3 billion to $4 billion” of turnover.

That having been said, even with the improved volume levels, Thursday was “a pretty lackluster day” in terms of anything actually happening, the trader added.

Tesla again is tops

Looking at specific credits, a trader said that once again on Thursday – as had been the case on Wednesday and during most of the last few sessions – “the new Teslas were again pretty active volume-wise” while moving up “about ¼ point or so.”

He saw those 5.3% notes due 2025 ending at around 98¾ bid.

Tesla, another trader said, “was the most active name. It’s been grinding higher over the last couple of days.”

A market source at another desk pegged the notes at 98 11/16 bid going home, seeing them up by just under ½ point on the session on volume of more than $32 million, up from $22 million on Wednesday, when the notes had also led the Most Actives list.

The Palo Alto, Calif.-based electric car manufacturer and power storage technology company priced that $1.8 billion forward calendar issue at par back on Aug. 11 after upsizing it from $1.5 billion.

Since then, those bonds have been actively traded most days.

After pricing, Tesla struggled in the aftermarket, eventually moving down to around 97-handle territory.

But after bottoming down there, its bonds have been moving up the last few sessions to current levels.

Recent deals resume trading

Besides Tesla, traders noted that a number of recently priced issues were suddenly active on Thursday after having been virtually in hiding for a number of sessions.

Among the new deals ending up on the Most Active list Thursday was Post Holdings’ 5¾% notes due 2027, which “traded a lot today,” a market source said, seeing the notes move up to above the 104 area from around 103 previously.

He said he did not know if there was any news out on the company that might explain that more than 1 point rise on volume of over $17 million.

The St. Louis-based maker of breakfast cereals and other consumer packaged foods priced $750 million of those notes on Aug. 7 as an add-on to its existing $750 million of notes.

That quick-to-market deal priced at 105.5 to yield 4.871% after the issue was upsized from $500 million originally.

Dynegy Inc.’s 8 1/8% notes due 2026, which priced the same day as the Post issue, gained ¼ point Thursday to end at 103¼ bid, with over $10 million changing hands.

That quickly shopped offering from the Houston-based power-generating company came to market at 99.259 to yield 8¼% after being upsized to $850 million from $600 million.

Houston-based marine energy drilling contractor Diamond Offshore7 7/8% senior secured notes due 2025 gained 1 point Thursday to end at 100½ bid, a trader said, estimating volume at about $9 million.

Diamond Offshore priced $500 million of the notes at 99.272 to yield 8%, in a regularly scheduled forward calendar offering on Aug. 1.

Staples’ 8½% notes due 2025 shot up 7/8 point on the day Thursday to close at 97¾.

The Framingham, Mass.-based office supplies retailer priced $1 billion of the notes at par on Aug. 14 after that regularly scheduled transaction was downsized, first from an originally announced $1.6 billion to $1.3 billion, and then to $1 billion. Those bonds struggled from the get-go in the aftermarket, recently bottoming around 96 bid, and then moving back up to current levels since then.

Restaurant Brands International’s 5% senior secured notes due 2025 were up ¼ point on Thursday to around 102¾ bid, also on about $9 million of volume.

The Oakville, Ont.-based operator of the Burger King, Tim Hortons and Popeyes Louisiana Kitchen fast-food chains priced $1.3 billion of those notes at par on Aug. 8 after the quickly shopped deal was upsized from $1 billion originally.

Energy names improve

Away from the recent deals, a trader said that “the oil stuff was better today,” aided by a sharp rise in crude oi prices. October-delivery West Texas Intermediate crude jumped by $1.27 per barrel in Thursday trading on the New York Mercantile Exchange, settling at $47.23.

He saw California Resources’ sector benchmark 8% notes due 2022 better by ¾ point at 55¼ bid.

A second trader located those bonds 1 point higher on the day at 55¾ bid.

More than $13 million of the Los Angeles-based oil and natural gas exploration and production company’s paper changed hands.

Also in that sector, Calgary, Alta.-based shale oil prodder MEG Energy’s 7% notes due 2024 moved up by ½ point to 79¾ bid.

British offshore oil drilling contractor Ensco’s 4½% notes due 2024 were seen up nearly 1½ points on the day at 73¾ bid.

However, a trader noted that not all of the energy names were finishing on the upside.

He saw Houston-based driller Atwood Oceanics – which is in the process of being acquired by Ensco – lower on the day, its 6½% notes due 2020 down 5/8 point at 97 7/8 bid.

And he saw Houston-based EP Energy’s 8% notes due 2025 down 1¼ points at 66 bid.

Supermarkets seen better

In the supermarket sector – recently reeling as retailing giant Amazon.com completed its acquisition of upscale grocer Whole Foods Markets and proceeded to slash prices on many items by as much as 43% – traders saw some improvement, finally.

A trader said the sector was “pretty quiet” – but he saw Fresh Market Inc.’s 9¾% notes due 2023 “trading a little” and moving up to by ¼ point to 76 bid, its first gain in a number of sessions.

A trader saw Ingles Markets Inc.’s 5¾% notes due 2023 up ¼ point at 98½ but said that the issue “probably was just lifted by the overall [firm] market rather than a company or industry specific development.

BI-LO Holdings Inc.’s 9¼% notes due 2019 were up more than a deuce on the day at 88¾ bid.

Indicators continue firming

Statistical market performance measures finished higher across the board for a second straight session on Thursday. They had moved up on Wednesday after being mixed on Tuesday and up for three straight sessions before that.

The KDP Daily High Yield Index jumped by 10 basis points on Thursday to end at 72.07, its seventh straight advance. The index had moved up by 3 bps on Wednesday after inching up by 1 bp on Tuesday.

Its yield came in by 2 bps to close at 5.21%, its fourth straight narrowing. It had also tightened by 1 bp on both Tuesday and Wednesday after narrowing by 3 bps on Monday.

The Markit CDX Series 28 High Yield Index rose by 7/32 point on Thursday to close at 107¼ bid, 107 9/32 offered, on top of Wednesday’s 5/32 gain. Those advances followed Tuesday’s 1/16 point easing, which had been its first loss after three straight gains.

And the Merrill Lynch North American High Yield Index firmed by 0.181% on Thursday, its second straight gain. It was also up by 0.089% on Wednesday, versus Tuesday’s 0.019% loss, which had been its first setback after six sessions on the upside.

Thursday’s advance raised the index’s year-to-date return to 6.093% from 5.901% on Wednesday. It remained down from its Aug. 2 finish at 6.233%, its 2017 year-to-date peak level.

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