Calumet deal closes out $3.7 billion week; new Microns heavily traded; energy names move down

By Paul Deckelman and Paul A. Harris

New York, April 15 – The high-yield primary arena saw a single pricing on Friday to close out a considerably less busy week than the week before.

Calumet Specialty Product Partners LP, a producer and marketer of specialty hydrocarbon products, priced a $400 million issue of 4.75-year senior secured notes.

Traders did not report any immediate aftermarket activity in the new issue.

That Calumet deal capped off a week which saw $3.76 billion of new U.S. dollar-denominated and fully junk-rated notes come to market – less than half of the $10.92 billion that priced in nine tranches the previous week, according to data compiled by Prospect News.

The week’s new issuance raised the 2016 year-to-date total of such bonds from domestic or industrialized-country issuers to $47.07 billion in 67 tranches, although that was running nearly 58% behind the pace seen a year ago, when $111.46 billion had priced in 163 tranches by this point on the calendar, the data indicated.

In the secondary market, traders saw very heavy dealings in the new Micron Technology, Inc. 6.5-year senior secured notes that priced Thursday off the high-yield desks despite having investment-grade ratings and covenants. The notes remained up from their issue price.

Elsewhere, Western Digital Corp. notes got slammed for a second consecutive session, hurt by investor angst about the high-tech sector after competitor Seagate Technology released disappoint preliminary quarterly numbers.

Oil and natural gas names like Chesapeake Energy Corp. and Oasis Petroleum Inc. moved lower in line with falling crude prices.

Statistical market performance measures were mixed on Friday after having been higher across the board in each of the previous five sessions. It was the third mixed session in the last 11 trading days.

However, those indicators were all higher versus where they had finished out last Friday, after having been mixed the week before. It was the second stronger week in the last three.

Calumet prices 11½% notes

Calumet Specialty Products priced a $400 million issue of 11½% senior secured notes at 98.273 on Friday.

The Indianapolis-based producer and seller of specialty hydrocarbon products plans to use the proceeds from the Rule 144A and Regulation S issue to repay borrowings its revolving credit facility, to terminate or cash collateralize certain of its existing hedging obligations and for general partnership purposes.

Calumet was the only deal to price Friday as the high-yield primary market paid out news in mean amounts.

Fresh Market to market deal

Fresh Market plans to start a roadshow on Monday for an $800 million offering of seven-year first-priority senior secured notes.

The buyout deal in in the market with initial guidance in the mid-9% yield context, a trader said.

An investor call is also scheduled to take place on Monday.

The roadshow wraps up on Thursday and the deal is set to price after that.

Joint bookrunner Barclays will bill and deliver RBC, Jefferies, Macquarie and UBS are also joint bookrunners.

NBTY roadshow timing

Elsewhere NBTY Inc. is expected to start a roadshow late in the week ahead for its planned $1,075,000,000 offering of senior notes due 2021 (Caa1).

Barclays will lead the debt refinancing deal.

NBTY will also put in place a $1.4 billion term loan via BofA Merrill Lynch and Barclays.

NBTY and Fresh Market board a thin active calendar.

Prime Finance, Inc. started a roadshow on Thursday for $3.14 billion of second-priority senior secured notes due 2023 (B3/B-).

Early guidance has that deal shaping up with a yield of 9%.

An investor call is scheduled for on Monday.

Deutsche Bank is the left bookrunner for the buyout/merger deal.

Proceeds will be used to help fund the buyout of ADT Corp. by affiliates of Apollo Global Management, LLC and the merger of ADT with Protection 1.

The issuing entities are Prime Security Services Borrower, LLC and Prime Finance, Inc.

Beyond the active calendar, the pipeline is not massive, sellside sources said on Friday.

The market is in a natural trough with respect to refinancing transactions due to the high volume of bond refinancing that has taken place during the past four years, a debt capital markets banker observed.

As to the week ahead, look for about $5 billion or so of issuance in the run-up to next Friday’s close, the source said.

Daily inflows on Thursday

Cash flows for dedicated high-yield bond funds were positive on Thursday, a trader said.

High-yield ETFs saw $275 million of inflows on the day.

Actively managed funds saw $80 million of inflows on Thursday.

The news follows Thursday’s report that dedicated high-yield funds saw $84.6 million of inflows for the week to Wednesday’s close, according to AMG/Lipper.

Meanwhile dedicated bank loan funds also saw positive cash flows of $20 million on Thursday, the trader said.

New Micron issue trades heavily

In the secondary market, a trader said that Thursday’s new crossover issue from Micron Technology “was clearly the busiest issue of the day.” He saw nearly $200 million of those 7½% senior secured notes due September 2023 changing hands.

He attributed the intense interest in the bonds – from both high-yield accounts and from investment-grade buyers – to the relatively generous 7½% yield.

He said that the bonds traded between 100½ and 101½ bid during the session, but saw the last trades of the day going off in a 100 5/8 to 101 7/8 bid context.

Micron, a Boise, Idaho-based semiconductor manufacturer, priced its $1.2 billion issue of the bonds at par on Thursday in a regularly scheduled forward calendar offering that was upsized from an originally shopped $1 billion.

Although the bonds have investment-grade ratings and covenants, they were trading off the high-yield desks.

Late Thursday after pricing, they moved as high as a 101 3/8 to 101 5/8 context but a trader saw them on Friday morning around 100½ to 100¾ bid.

New Charter holds gains

Thursday’s other new deal – Charter Communications Inc.’s 5½% add-on notes due 2026 – were seen on Friday trading fairly actively, holding onto the gains they notched in initial aftermarket dealings after the issue had priced.

A trader said that more than $11 million of the notes changed hands on Friday, calling them unchanged at 101½ bid.

Another market source pegged the bonds Friday trading between 101 and 101 5/8 bid.

Charter, a Stamford, Conn.-based cable and broadband service provider, priced the deal as a $300 million add-on to its existing CCO Holdings, LLC/CCO Holdings Capital Corp. notes, a $1.2 billion deal that it had priced just a week ago.

The fungible add-on notes priced at 100.375 to yield 5.451% in a quick-to-market transaction.

After coming to market, the bonds headed upward, on over $23 million of volume Thursday.

The bonds moved back up to around the 101 to 101½ bid context at which the original notes had been trading on Tuesday and Wednesday, before news of the add-on offering.

Western Digital drops again

For a second consecutive session, Western Digital’s bonds were taking it on the chin on Friday, as investors reacted badly to sector peer Seagate Technology’s forecast of lower revenues.

Irvine, Calif.-based computer hard-drive maker Western Digital’s split-rated 7 3/8% senior secured notes due 2023 were seen by a trader to have lost nearly 1 full point, closing at 100½ bid on volume of over $87 million.

Its fully junk-rated 10½% senior unsecured notes due 2024 were down a deuce on the day to end at 95½, with more than $57 million of turnover, making it the busiest purely junk-rated issue of the day.

On Thursday, the secured 2023 notes had fallen some 1 3/16 points on the day ending at around 101 5/16 offered, a market source said, with over $119 million traded.

The unsecured 2024 notes, meanwhile, had fallen 2 3/8 points on the session to the mid-97 area. Over $60 million of the bonds traded.

The bonds were hammered down after Western Digital sector peer Seagate announced that it expects to report revenue of about $2.6 billion when it delivers its fiscal third quarter results on April 29. That’s down from previous guidance of $2.7 billion and would represent a 21% year-over-year revenue decline and its fifth straight quarterly revenue shortfall.

Seagate also projected that it will report a 23% profit margin – down from its previous guidance of 25.6%.

Seagate blamed the weaker numbers on lower demand for disk drives in the business sector, as well as weaker demand for disk drives among China-based personal computer manufacturers.

Energy names trade off

Away from the Western Digital saga, traders saw various energy company bonds lower, among them Oklahoma City-based oil and natural gas operator Chesapeake Energy’s 8% notes due 2022. They were off 3¼ points on the day, a trader said, at 57¼ bid. Volume was more than $23 million.

Houston-based exploration and production company Oasis Petroleum’s 6 7/8% secured notes due 2022 were down 7/8 point at 81 5/8 bid, on volume of over $10 million.

At another desk, Los Angeles-based E&P company California Resources Corp.’s 6% notes due 2024 lost 1 point, ending at 28 bid, 30 offered.

The bonds fell in line with a third straight day of lower oil prices, erasing much of the gains seen earlier in the week.

West Texas Intermediate for May delivery was down $1.14 Friday on the New York Mercantile Exchange, settling at $40.36 per barrel.

June-delivery Brent crude lost 74 cents per barrel on the London ICE Futures exchange, settling at $43.10.

Prices fell on market skepticism that major international producers, meeting this weekend in Doha, will be able to reach agreement on output cuts to support oil prices.

Indicators turn mixed

Statistical market performance measures were mixed on Friday after having been higher across the board in each of the previous five sessions. It was the third mixed session in the last 11 trading days.

However, those indicators here all higher versus where they had finished out last Friday, after having been mixed the week before. It was the second such stronger week in the last three.

The KDP High Yield Daily Index notched its sixth straight gain on Friday, moving up by 16 basis points to end at 66.85. That followed Thursday’s 21 bps jump, and rises of 32 bps on Wednesday and 24 bps on Tuesday.

Its yield, meantime, came in by 4 bps to 6.38%, its third straight narrowing. It had tightened by 5 bps on Thursday and by 11 bps on Wednesday, after having been unchanged on Tuesday.

Those levels compared favorably with last Friday’s 65.88 index reading and 6.59% yield.

However, the Markit Series 26 CDX North American High Yield Index saw its first loss Friday after five consecutive advances; it slipped 3/16 point to end at 102 19/32 bid, 102 21/32 offered, in contrast to Thursday’s gain of 5/32 point and Wednesday’s 1/8 point upturn.

But for the week, it was up from last Friday’s close at 102 bid, 102 1/32 offered.

The Merrill Lynch North American High Yield Master II Index finished up for a sixth consecutive session on Friday, adding on 0.022%, on top of Thursday’s 0.272% improvement.

That lifted its year-to-date return to 5.351%, its fifth successive new peak level for the year, from the previous mark of 5.328%, set on Thursday.

For the week, the index soared by 1.579% – one of the biggest weekly gains on record. That was its third consecutive weekly gain after one loss and its eighth weekly advance in the last nine weeks.

Last week, the index had risen by 0.464%, to finish with a 3.713% year-to-date return.

© 2015 Prospect News.
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