Enova caps slower $4.4 billion week; Tesla, Staples pressured; Calpine mostly off on buyout

By Paul Deckelman and Paul A. Harris

New York, Aug. 18 – The high-yield primary market saw a single smallish deal on Friday, syndicate sources said, bringing to a close a mid-summer week considerably more relaxed than the heavy issuance seen in the two immediately preceding weeks.

Online financial services provider Enova International Inc. had the day’s sole dollar-denominated and fully junk-rated deal, a $250 million issue of seven-year notes that priced following a roadshow.

Those notes edged up a little when they hit the aftermarket, a trader said, though on not much volume.

The Enova deal raised the week’s total of new junk bond issuance to $4.4 billion in eight tranches – a little more than half the amount which priced in each of the previous two weeks, which had been the busiest new-deal weeks in Junkbondland in the past few months. Year-to-date issuance meantime remains well ahead of last year’s pace.

Among recently priced deals, traders said that the new bonds of electric car manufacturer Tesla, Inc., office supplies retailer Staples Inc. and heavy equipment manufacturing and service company H&E Equipment Services, Inc. were among the most actively traded high-yield credits on the day, with Tesla and Staples continuing to struggle, trading well under their par issue prices. However, H&E Equipment continues to trade at a solid premium to par.

Away from the new deals, the news that power generation company Calpine Corp. is to be acquired in a $5.6 billion deal – $17 billion including assumed debt – resulted in active trading for some of its bonds, mostly at lower levels on the day.

Statistical market performance measures turned mixed on Friday after being lower across the board on Thursday.

The indicators were also mixed on the week versus where they had finished out last Friday, Aug. 11. It was their second mixed performance in the last three weeks.

Enova empties calendar

Enova International cleared the active forward calendar as it priced a $250 million issue of seven-year senior notes (Caa1/B-) at par to yield 8½% on Friday.

The yield printed on top of both price talk and early guidance in the 8½% area.

Jefferies was the active bookrunner.

In the wake of Enova’s deal, the primary market could be quiet indeed during the run-up to the Labor Day holiday weekend, the traditional summer-fall threshold in the bond market, a trader said.

Outlooks for the post-Labor Day period in the primary market continue to take shape, with some participants seeing an active fall in the works.

Big outflows for ETFs

Daily cash flows for dedicated high-yield bond funds were mixed on Thursday, with high-yield ETFs seeing chunky outflows.

The ETFs sustained $408 million of outflows on the day.

Actively managed funds were flat to slightly positive, seeing $5 million of inflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that dedicated high-yield bond funds sustained $2.19 billion of outflows in the week to Wednesday’s close.

Dedicated bank loan funds were also flat to slightly positive on Thursday, seeing $10 million of inflows on the day.

EPFR reports sizable outflow

In another indicator of investor cash leaving the high-yield market, fund-tracking service EPFR Global of Cambridge, Mass. saw a net outflow during the week ended Wednesday from the various funds it follows “in that same ballpark” as the big cash loss seen for this reporting week by Lipper, a market source said Friday.

That stood in contrast to the preceding reporting week, ended Aug. 9, when EPFR had seen a modest net inflow to the funds “about double” the $124 million cash addition that Lipper saw that week, the source indicated.

EPFR’s methodology differs from Lipper’s, as its fund universe includes many mutual funds and ETFs domiciled outside the United States, such as strictly European junk funds and broader global funds versus Lipper’s solely domestic orientation.

The two services’ overall respective weekly results usually point pretty much in the same general direction in terms of a given week having an inflow or an outflow; sometimes their numbers track fairly closely, as happened to be the case this week, while other weeks, they may diverge widely.

New issuance lessens

Friday’s new deal from Enova International brought the amount of new dollar-denominated and fully junk-rated paper which had priced this week to $4.4 billion in eight tranches, according to data compiled by Prospect News.

That was well off from the $8.05 billion which priced in 12 tranches the previous week, ended Aug. 11 – the most intense new-issue volume seen since the week ended May 26, when $9.69 billion had gotten done in 18 tranches.

The week before that, ended Aug. 4, had also been unusually busy, with $7.54 billion pricing in 14 tranches during the week.

This week’s deals lifted year-to-date issuance for 2017 to $173.99 billion in 323 tranches, about 16.5% ahead of the $149.34 billion which had priced in 223 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Enova improves slightly

In the secondary arena, a trader quoted Enova’s 8½% notes due 2024 in a 100¼ to 100½ bid range, up from the par level at which the Chicago-based provider of online financial services to consumers and small businesses had priced its regularly scheduled forward calendar offering.

However, he added that he “did not see too much trading in it.”

H&E Equipment holds gains

The trader also said that the new eight-year issue from H&E Equipment Services “traded pretty well,” seeing the bonds in a 101¼ to 101½ bid context.

At another desk, a market source pegged those notes at 101 3/8 bid, calling them unchanged on the day.

More than $23 million of the notes changed hands in Friday’s dealings, on top of the more than $35 million which traded on Thursday, putting the issue high up on the Most Actives list both days.

H&E, a Baton Rouge, La.-based heavy equipment manufacturer and services provider, priced $750 million of those notes at par Thursday in a quick-to-market transaction.

Trinseo, Big River stay strong

Among some of the recent issues which were also more than holding their own amid a generally softer junk market, Trinseo’s 5 3/8% notes due 2025 “hung in there,” one of the traders said, moving as high as a 101¾ to 102¼ before settling in around a 101½ to 102 bid context.

The Berwyn, Pa.-based manufacturer of plastics, latex binders and synthetic rubber priced $500 million of those notes at par off the forward calendar on Tuesday after the offering was upsized from $450 million originally.

Big River Steel LLC’s 7¼% senior secured notes due 2025 were seen on Friday opening around 102¾ to 103¼, ultimately finishing in a 103 to 103½ bid context.

The Osceola, Ark.-based flat-rolled steel mini-mill operator brought $600 million of the notes to market at par on Tuesday after that forward calendar offering was upsized from an originally announced $500 million.

Big River’s issue has been a standout performer in the aftermarket, quickly moving above the 101½ bid mark when they were freed to trade and pushing up to above 103 bid by later in the week.

New deals on the downside

However, not all of the recently priced new issues have been doing as well in the aftermarket,

For instance, a trader saw Tesla’s 5.3% notes due 2025 trading between 97¼ and 97¾ bid on Friday, which he said was well in from levels around 99½ to par earlier in the week.

A second trader quoted the bonds at 97 1/8 bid, 97 5/8 offered, while a third saw them ending at 97½ bid, calling that down about 1/16 to 1/8 point on the day. Over $28 million of those notes changed hands on Friday.

On Thursday, Tesla had been the day’s volume leader in Junkbondland, with turnover of more than $86 million on the session.

The Palo Alto, Calif.-based electric car manufacturer and energy storage products company had priced $1.8 billion of the notes at par last Friday – the biggest junk bond deal since satellite broadcaster Sirius XM Radio Inc.’s $2 billion two-part offering priced back on June 26.

The forward calendar transaction was upsized from an originally announced $1.5 billion.

Elsewhere among the recent new deals, a trader said that Staples’ 8½% notes due 2025 “have struggled as well” since that $1 billion issue priced on Monday.

He said that he “didn’t really see it at all” in Friday’s dealings, adding that “you can always tell when they are not doing well – the thing just goes radio silent.”

At another shop, though, a market source did see the Staples paper trading down ¼ point on the day at 97¼ bid on volume of more than $18 million.

The Framingham, Mass.-based office supplies retailer priced its regularly scheduled deal at par on Monday after first downsizing it from an original $1.6 billion and then downsizing it again to its eventual $1 billion size from $1.3 billion.

Calpine mostly lower

Away from the new deals, the news that Houston-based power producer Calpine Corp. has agreed to be acquired by Energy Capital Partners for $15.25 per share, or $5.6 billion total – with an enterprise value, including assumed debt, of around $17 billion – proved to be unpopular with the company’s bondholders.

A trader said its 5¾% notes due 2025 traded actively, with more than $37 million moving around – topping the day’s Most Actives list – but they went home about unchanged from recent levels at 93 1/8 bid.

Calpine’s 5 3/8% notes due 2023 lost 1½ points, ending at 96 bid, with over $24 million traded.

Its 5½% notes due 2024 ended down 1 5/8 points from recent round-lot levels at 92 7/8 bid on volume of around $11 million.

And its 5 7/8% notes due 2024 nosedived by more than 9 points on the day, also cascading down to 92 7/8 bid, with around $8 million traded.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday after being lower across the board on Thursday. It was the third mixed session in the last four trading days.

The indicators were also mixed on the week versus where they had finished out last Friday, Aug. 11. It was their second mixed performance in the last three weeks.

For a second consecutive session, the KDP High Yield Daily Index lost 7 basis points on the day, ending at 71.83. It was the third straight loss for the index, which had also been down by 7 bps on Tuesday and by 2 bps on Wednesday, after being unchanged on Monday and 3 bps better on Tuesday.

Its yield rose by 2 bps on Friday to 5.30%, its third straight widening. The yield had also been up by 1 bp on both Wednesday and Thursday, following Tuesday’s 1 bp tightening – the first time the yield had come in after six consecutive days before that during which it had risen.

Friday’s levels compared unfavorably to the 71.96 index reading and 5.26% yield figure seen at the close on the previous Friday.

The Markit CDX Series 28 High Yield Index edged upwards by a little over 1/32 point on Friday, finishing at 106 15/32 bid, 106½ offered. On Thursday, it had lost more than 17/32 point after being unchanged on Wednesday and up for a third consecutive session on Tuesday. That followed a six-session slump.

However, the index was down from its close last Friday at 106 9/16 bid, 106 19/32 offered.

The Merrill Lynch North American High Yield Index lost 0.135%, its second downturn in a row. On Thursday it had backpedaled by 0.094% versus its 0.082% gain on Wednesday. The recently choppy index had also been down on Tuesday and up on Monday after four straight losses before that.

Friday’s retreat lowered the index’s year-to-date return to 5.355% from 5.498% on Thursday. It was also down from its Aug. 2 close at 6.233%, its 2017 year-to-date peak level.

For the week, however, the index gained 0.036% in contrast to the previous week’s 0.786% loss, which was its first weekly setback after four straight weeks on the upside.

With 33 weeks in the books so far this year, the index has now risen in 25 of those weeks and has fallen in the other eight.

© 2015 Prospect News.
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