Firmer junk market quietly heads into holiday break; new Conduent paper well above issue price

By Paul Deckelman and Paul A. Harris

New York, Nov. 23 – High-yield market participants headed home for the Thanksgiving Day holiday break in the United States on Wednesday with no new activity seen in the primary arena and not much to speak of going on in the secondary market either.

In the primary, the cupboard had been pretty much cleared with the pricings on Monday and Tuesday of Genesys Telecommunications Laboratories, Inc.’s and Conduent Inc.’s issues plus the two-part megadeal from Studio City Co. Ltd., which attracted both junk and emerging markets investors.

With those offerings out of the way, primaryside players said that only a smallish Canadian dollar-denominated secured paper deal from Source Energy Services remains on the calendar.

Looking ahead, though, they said that following the extended holiday weekend, the upcoming week could be a busy one, with several new deals on tap as Junkbondland begins its stretch run toward the end of the year.

In Wednesday’s secondary market, Tuesday’s deal from Xerox Corp. spinoff Conduent was quoted by traders remaining north of the 103 bid mark – a sharp appreciation from its below-par issue price, although they said there was relatively little actual trading volume.

The Studio City and Genesys Laboratories deals also continued to hold their solid aftermarket gains, again on quiet volume.

The most active credit among those recently coming to market was Bombardier, Inc.’s five-year issue, which was off slightly on the day.

Names such as Frontier Communications Corp., Freeport-McMoRan Copper & Gold Inc., Clear Channel Communications Inc. and Valeant Pharmaceuticals International, Inc. were among the most active established issues.

Statistical market performance measures were higher across the board for a third consecutive session on Wednesday.

Week ahead

There were no new deal announcements, nor did any deals price on Wednesday as the market in the United States headed into the extended Thanksgiving holiday weekend.

Only one deal was on the active calendar.

Source Energy Services is in the market with a C$130 million offering of unrated senior secured first-lien notes, via left bookrunner BMO Capital Markets Corp., set to price in the week ahead.

However, the post-Thanksgiving week could start with a burst of new issue business, according to a trader who is looking for as many as three deal announcements on Monday.

Look for one deal from the energy sector on Monday, the trader advised.

Tuesday inflows

The cash flows of the dedicated high-yield bond funds were positive on Tuesday, the most recent session for which data was available at press time, the trader said.

High-yield exchange-traded funds saw $414 million of inflows on the day.

Actively managed funds saw $10 million of inflows on Tuesday.

Conduent issue stays aloft

In the secondary market, traders saw this week’s new issues pretty much hanging onto the aftermarket gains they had notched on Monday or Tuesday following their respective pricings, but on not much volume in Wednesday’s exceedingly dull pre-holiday dealings.

Conduent’s 10½% notes due 2024 were seen by a trader at mid-morning in a 103¼ bid context.

Later on in the day, a market source at another desk pegged them in a 103-to-103 3/8 bid context. He noted that was “well up from 98 and change” where the $510 million issue had priced on Tuesday but actually little changed from the strong levels above 103 at which the bonds had gone home Tuesday in their initial aftermarket dealings.

He said that while more than $31 million of the notes had traded late Tuesday, volume on Wednesday fell to around $4 million.

Conduent – a Norwalk, Conn.-based business process services company being spun off by document technology giant Xerox – priced its deal, part of the financing for that coming separation, at a deeply discounted 98.672 to yield 10¾% after the forward calendar offering was downsized from an originally announced $750 million.

The deal got done, but not without a struggle.

The company had to tweak the structure by offering investors an extra year of call protection beyond the three years that was initially shopped around and had to make certain other covenant concessions to bring it across the finish line. It ultimately priced greatly wider than initial guidance envisioning a yield of between 7¾% and 8% and wider as well by 75 basis points from the official yield talk of 9¾% to 10%.

Genesys, Studio City hold gains

The two other deals that had already priced this week – purely junk-oriented Genesys Telecommunications Laboratories’ offering and Studio City’s junk and emerging markets deal – were also seen on Wednesday pretty much hanging onto the gains that each of those transactions had notched after their respective pricings.

A trader said that “not much traded” in Studio City’s 5 7/8% senior secured notes due 2019, citing volume of around $5 million on Tuesday and $2 million on Wednesday.

He saw the issue locked with “bids and offered the same” around the 101¼ level, around where that $350 million tranche had finished on Tuesday after the Macau-based gaming and lodging company had priced the regularly scheduled forward calendar offering at par as part of a two-part $1.2 billion offering.

The other half of that megadeal, its $850 million of 7¼% senior secured notes due 2021, stayed in a 100¾-to-101 1/8 bid range, little changed from the levels it reached when it was freed for trading late Tuesday after pricing earlier at par.

The trader said that around $3 million of the notes changed hands on Wednesday.

Monday’s new issue from Genesys Telecommunications Laboratories was seen similarly quiet on Wednesday, with only about $1 million of trading seen, around 103¼ bid.

Genesys, a San Francisco-based communications solutions provider, had priced $700 million of those 10% notes due 2024 at par in a regularly scheduled forward calendar deal as part of the financing for its acquisition of Interactive Intelligence Group, Inc., an Indianapolis-based provider of cloud and on-premises communications solutions.

When that paper hit the aftermarket later Monday, the new bonds had quickly pushed up to a 101-to-102 bid context, helped by what one trader called “that nice fat coupon.”

They continued to firm on Tuesday, tacking on more than 1 point to end quoted above the 103 bid level, and continued to hover above that on Wednesday.

Bombardier stays busy

Traders said that other recently priced new issues also continued to mostly hold onto their recent gains, albeit in very quiet trading on Wednesday.

The busiest of the lot was Montreal-based aircraft and railroad equipment manufacturer Bombardier’s 8¾% notes due 2021.

Around $10 million of those bonds traded, the only recently priced deal to reach that threshold on Wednesday.

A market source located the notes at 98½ bid, calling them down ¼ point on the session.

Bombardier priced that $1.4 billion bond behemoth last Wednesday at 99.001, yielding 9%, after a short roadshow. The deal had struggled in the aftermarket from the get-go, initially treading water around its issue price but then falling into 97ish-bid territory at the end of last week.

However, the bonds had battled their way back to just under their 99 issue price by Tuesday, helped by the news that the company had won a large equipment and maintenance contract from a Montreal-area commuter rail system.

Established issues mixed

Away from the new deals, traders said that not much was going on in the way of bond-price movements, though some credits had what one called “decent enough”-sized trading volume for a sleepy pre-holiday session.

Stamford, Conn.-based wireline telecom operator Frontier Communications’ 11% notes due 2025 – considered a high-beta benchmark issue whose movements frequently reflect the market’s overall tone – were seen by a trading source on Wednesday off by around 5/16 point at 98¾ bid, on volume of more than $17 million.

Also in the communications sphere, San Antonio, Texas-based broadcasting and outdoor advertising giant iHeart Media Inc.’s 9% notes due 2019, originally issued when the company was still named Clear Channel Communications, were quoted up nearly ¾ point on the day at 78 3/8 bid, with over $13 million traded.

Phoenix-based metals mining and energy company Freeport-McMoRan’s 3.55% notes due 2022 were seen ¼ point better around 94 5/8 bid, on over $13 million of volume.

And Laval, Quebec-based drug maker Valeant’s 6 1/8% notes due 2025 eased by 1/8 point on the session to 78 1/8, also on around $13 million of turnover.

Indicators stay strong

Statistical market performance measures were higher across the board for a third consecutive session on Wednesday. They had initially turned higher on Monday after having weakened last Friday and stayed up there on Tuesday and again on Wednesday, which was their fourth strong session in the last five trading days.

The KDP High Yield index firmed by 4 bps on Wednesday to close at 70.11, its third consecutive gain and sixth such advance in the last seven sessions. On Tuesday, it had risen by 13 bps.

The index’s yield was unchanged at 5.86%, its second such unchanged finish in the last three sessions. It had come in by 5 bps on Tuesday, after having been likewise unchanged on Monday and wider last Friday.

The Markit Series 27 CDX index was also unchanged on the day104 15/32 bid, 104½ offered, after having posted its second gain in a row on Tuesday, when it was up by 17/32 point, on top of Monday’s 3/8 point rebound from a 3/16 point loss last Friday.

The Merrill Lynch High Yield index notched its third straight gain and its sixth in the last seven sessions, improving by 0.027% on Wednesday, after having gained 0.335% on Tuesday.

That lifted its year-to-date return to 14.913% from 14.882% at the close on Tuesday, although those levels remain well under its peak level for the year so far of 16.768%, set on Oct. 25.

© 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.