Primary quiet to close out $7.26 billion week; Hecla up, Rite Aid gains again

By Paul Deckelman and Paul A. Harris

New York, June 30 – The high-yield primary market fell silent on Friday, closing out its busiest week in a month. It was also the final session of June, the calendar second quarter and the first half.

No new dollar-denominated and fully junk-rated deals were heard to have priced during the session, which saw only light activity flows and many market participants leaving early ahead of next week’s Independence Day holiday in the United States.

Only one prospective new deal was on the forward calendar as the session began, for Hecla Mining Co. – but by the end of the session, that was gone too, as the silver miner announced that it would not go through with the deal under the current market conditions.

Friday’s primary shutout left the week’s total of new dollar-denominated junk bonds from domestic or industrialized-country borrowers right where it had ended on Thursday, at $7.26 billion, up from last week’s $3.27 billion, according to data compiled by Prospect News.

Traders saw continued relatively brisk activity on an otherwise quiet day in newly priced issues such as Venator Materials plc, Carrizo Oil & Gas, Inc., Commercial Metals Co., VeriSign, Inc. and Zayo Group, LLC, all of which had priced on Thursday.

Away from the new deals, Rite Aid Corp. paper showed continued strength, a day after the drugstore chain announced a major asset sale, with the proceeds mostly slated for debt paydown.

Statistical market performance measures were mixed for a fourth consecutive session on Friday, after having turned mixed on Tuesday and then staying that way since then.

The indicators were also mixed versus where they had finished out last Friday, when they had been lower all around from the previous week. This week was the indicators’ second mixed performance in the last three weeks.

Deals ahead

Primary market news slowed to a trickle on Friday as some market participants prepared to take an extended weekend that will stretch through Tuesday, July 4, America’s Independence Day national holiday, although the U.S. markets will be open on Monday.

The only news in the dollar-denominated primary market was negative.

Hecla Mining decided not to proceed with its $500 million offering of eight-year senior notes, saying that current terms and conditions were not sufficiently attractive.

Earlier in the week the deal had been whispered in the high 5% to 6% area, an investor said.

The week ahead, which will be interrupted by the Independence Day market close on Tuesday, could be a quiet one, a trader said on Friday.

However there are deals ahead, sources say.

Avantor could show up in July with $2.25 billion of high-yield notes via Goldman Sachs.

Background buzz from the dealer has the bonds – part of the debt financing backing the acquisition of VWR International LLC – possibly coming with a 7-handle yield, a trader said on Friday.

Commitments on the $2.25 billion bridge loan backing the bonds were due Friday, an investor said.

And there are bound to be plenty more deals ahead, said the investor, who made reference to a story that appeared in the June 28 New York Times Dealbook, reporting that equity sponsors have been raising cash at a pace not seen since 2008.

Citing an estimate from research firm Preqin, the Times said there is about $920 billion available in private equity, which, factoring in leverage, comes to more than $3 trillion to deploy.

CMC di Ravenna starts Monday

There was news out of Europe on Friday.

Italian civil engineering firm CMC di Ravenna plans to start a roadshow on Monday for a €250 million offering of five-year senior notes, a debt refinancing deal being helmed by BNP Paribas.

And Paris-based Antalis International announced Friday that it plans to sell €325 million of senior secured notes due 2024.

Thursday outflows

Daily cash flows for dedicated high-yield bond funds were decidedly negative on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $489 million of outflows on the day.

Actively managed funds sustained $140 million of outflows on Thursday.

Those daily fund flow numbers come on the heels of $1.735 billion of outflows for the week to Wednesday’s close, reported Thursday by Lipper US Fund Flows.

Dedicated bank loan funds, meanwhile, were positive on Thursday, seeing $130 million of inflows on the day.

However the loan funds sustained significant outflows – $264 million – in the week to Wednesday's close, the trader said, citing information reported by Lipper US Fund Flows.

Ending a busier week

With the withdrawal of the Hecla Mining deal, the lack of any new deals pricing during the day left the week’s tally of new dollar-denominated junk issuance right where it had finished out Thursday’s session, with $7.26 billion having priced in 14 tranches, according to data compiled by Prospect News.

This week’s issuance was more than the combined total of the $3.27 billion which had priced in six tranches last week, ended June 23, plus the $3.21 billion which got done in eight tranches the week before that, ended June 16.

This week thus ended up as the biggest new-issuance week seen in Junkbondland in more than a month, since the week ended May 26, when $9.69 billion of new paper had priced in 18 tranches.

But month, quarter less busy

According to the Prospect News data, the high-yield market closed out the month of June having priced $20.57 billion in 40 tranches.

That was down from the $25.72 billion of new junk paper which had gotten done in 50 tranches in May, and well down from March’s $43.13 billion in 73 tranches, the heaviest new-issue month for the year so far.

It was also down from the $22.13 billion which priced in 32 tranches in June of 2016.

This year’s calendar second quarter meanwhile saw $61.52 billion of new junk paper priced in 124 tranches.

That was down from the first-quarter total of $84.93 billion in 150 tranches and down as well from last year’s second-quarter total of $80.44 billion in 111 tranches, the Prospect News data indicated.

As the first half of the year came to a close, the latest week’s primary activity pushed year-to-date issuance for 2017 so far up to $146.45 billion in 274 tranches, running about 28% ahead of the $114.21 billion which had priced in 164 tranches by this point on the 2016 calendar.

Full-year issuance in 2016 finished at $226.78 billion in 359 tranches – which ran 12.9% behind the $260.02 billion which had gotten done in 408 tranches in 2015, the data showed.

A quiet day

Traders reported a generally quiet level of activity on Friday.

One said that it was “a struggle” to find any kind of two-sided trades. Total volume according to the Trace system, he addedm was around $1 billion, far less than usual.

At most of the big banks, he said, “everybody left around noon, it seems – especially since they had no deals to price.”

Recent deals stay busy

A market source said that the Most Actives list, such as it was, “was dominated by the new deals,” although even their volume was off from the levels seen on Thursday.

Houston-based energy exploration and production operator Carrizo Oil & Gas’ 8¼% notes due 2025 gained 1 point on the day, finishing at 102 bid, on volume of more than $30 million, including round-lot volume of over $18 million.

Spin-off chemical manufacturer Venator Materials’ 5¾% notes due 2025 edged upward by ¼ point on the day, a source said, closing at 101 bid, with over $24 million of the Woodlands, Texas-based company’s new paper changing hands.

The source said that Irving, Texas-based steel and metal products producer and recycler Commercial Metals’ 5 3/8% notes due 2027 firmed smartly, by 1 3/8 points, closing at 101 7/8, with over $12 million traded.

Reston, Va.-based internet security and services company VeriSign’s 4¾% notes due 2027 were seen 1/8 point higher at 101 1/8 bid, with over $11 million traded.

Boulder, Colo.-based communications infrastructure provider Zayo Group’s 5 3/8% 2027 add-on notes were holding steady around 104½ bid, with nearly $10 million traded.

Rite Aid continues to roll

Away from the new issues, a trader said that Rite Aid Corp.’s 6 1/8% notes due 2023 were 1 point better at 98½ bid, on volume of more than $35 million, topping the day’s Most Actives list.

That advance came on top of a nearly 3 point gain seen in the Camp Hill, Pa.-based drugstore chain operator’s bonds on Thursday, spurred by the news that Rite Aid had abandoned its plans to merge with larger Rival Walgreens Boots Alliance, Inc. and will instead sell Walgreens some 2,186 of its more than 4,600 stores for $5.175 billion. It plans to use most of the proceeds to pay down its more than $7 billion of debt and halve its 6.8 times leverage ratio as a result

Murray Energy moves up

Murray Energy Corp.’s 11¼% notes due 2021 gained nearly 2 points on the session to close at 75 ¾ bid, a trader said, with more than $23 million of the St. Clairesville, Ohio-based coal operator’s bonds having traded.

The company made it into the news twice on Thursday: it saw its ratings upgraded by Moody’s Investors Service – but suffered adverse action by a federal appeals court which overturned a decision by a lower court that had forced the Environmental Protection Agency to report on how regulations impacted the coal industry. Murray was the driver behind having the study carried out.

In the legal action, a federal appeals court ruled there was no need for a study that had forced the EPA to write a report on how the Clean Air Act had affected the coal industry, media reports said.

The decision, which stems back to a decision by a West Virginia court decision last year, is expected to be appealed by Murray Energy.

At the same time, Moody’s completed a review of the company’s credit ratings and lifted the corporate family rating to B3 from Caa2, probability of default rating to B3-PD from Caa2- PD, first-lien term loan to B2 from Caa1 and second-lien debt to Caa2 from Caa3.

The review was begun in March after Murray said it will contribute $60 million in cash to Foresight Energy LLC in the form of common equity, and exercise its option to acquire an additional 46% voting interest in Foresight Energy GP LLC, thereby increasing its voting interest to 80%.

Moody’s said the ratings reflect its expectation that Murray Energy will exercise substantial control over Foresight’s dividend distribution policies, because following the increase in voting interest, the company can now appoint all but one of Foresight’s board members.

Indicators stay mixed

Statistical market performance measures were mixed for a fourth consecutive session on Friday after having turned mixed on Tuesday and then staying that way since then.

The indicators were also mixed versus where they had finished out last Friday, when they had been lower all around from the previous week. This week was the indicators’ second mixed performance in the last three weeks.

The KDP High Yield Daily Index retreated by 2 basis points on Friday to end at 72.22 after gaining 8 bps on Thursday, rebounding from a loss on Wednesday.

Its yield rose by 1 bp to 4.95%, its first widening out after having come in over the previous four straight trading days, including a 2 bps tightening on Thursday.

But those levels compared favorably with the 72.01 index reading and 5.03% yield seen last Friday, June 23.

The Markit CDX Series 28 High Yield Index finished Friday up 3/16 point at 106 7/8 bid, 106 15/16 offered, after losing 13/32 point on Thursday.

For the week, though, the index finished off from last Friday’s 107 1/16 bid, 107 3/32 offered close.

The Merrill Lynch North American High Yield Index posted its sixth consecutive advance on Friday, gaining 0.033%, on top of Thursday’s 0.088% upturn.

Friday’s improvement raised the index’s year-to-date return to 4.91% from 4.876% on Thursday, although it remained below its high point for the year to date of 5.173%, recorded on June 14.

For the week, the index gained 0.297%, bouncing back from last week’s 0.342% decline.

© 2015 Prospect News.
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