Primary stays quiet, overall market firms; Bombardier up on Q4; funds plunge $6.3 billion

Paul Deckelman and Paul A. Harris

New York, Feb. 15– It was yet another quiet day in the high-yield primary market on Thursday as potential issuers and investors continued to try to read the tea leaves to determine when issuance might return to the junk bond market.

Syndicate sources did see some activity in the European segment of the junk world, however.

In the secondary realm, traders said that the market tone continued to improve on Thursday, with more issues seen up than down and the gainers seen notching bigger gains than the losses seen in losing issues.

Among recently priced deals, Jones Energy Holdings, LLC, which had come to market on Monday, was again among the most active issues, firming for a second straight day.

Away from the new names, Bombardier Inc.’s bonds firmed smartly after the Canadian aircraft and transportation manufacturer released favorable fourth-quarter results and held an upbeat conference call.

AMAG Pharmaceuticals Inc.’s notes jumped, in line with moves in its stock and its convertible issues, after the Food and Drug Administration approved of one of the company’s products.

Statistical market performance measures were higher on Thursday, their second strong performance in the last four trading days.

But another numerical indicator – flows of investors 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 – remained in negative territory for a fifth straight week, according to numbers released on Thursday. Some $6.31 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday. That outflow was not only by far the biggest cash drain seen so far this year, it was also the second-largest weekly outflow on record, dating back to 1992 (see related story elsewhere in this issue).

Cognita taps 7¾% notes

England-based Cognita priced the week’s second high yield deal – the first from Europe – when it made a £60 million tap of Cognita Bondco Parent Ltd. and Cognita Financing plc’s 7¾% senior secured notes due Aug. 15, 2021 (B3/B-) on Thursday.

The tap priced at 103.25 to yield 6.889%.

Morgan Stanley and KKR managed the sale.

The Thursday tap marked the third time that the Milton Keynes, England-based owner and operator of independent schools has tapped its 7¾% notes, having previously priced a £45 million tap in October 2016 and a £50 million tap in May 2017.

Thursday’s transaction increased the overall issue size to £435 million.

The European high-yield market could reactivate soon if the stability seen in the capital markets on Wednesday and Thursday continues, according to a London-based syndicate banker. The banker added that the market was taken somewhat by surprise by Thursday’s tap from Cognita.

There could be one or two deals in the European market soon, pending market conditions, the banker said.

A modest pipeline

The dollar-denominated primary market remained sidelined on Thursday but – like its European counterpart – should also reactivate soon if the capital markets continue to stabilize, sources say.

There is a modest pipeline of three to five deals, none of them big, a syndicate banker said.

All of them are market sensitive, the source added.

One prospective issuer has shifted its financing to the bank loan market, away from high yield, sources say.

TTM Technologies, Inc. had been expected to show up with a $300 million offering of unsecured notes backing its acquisition of Anaren Inc. However the company announced on Wednesday that it increased its bank loan to $600 million from $300 million.

The bond deal – mentioned as unsecured debt in a company filing – is not expected to materialize.

“The technicals of the bank loan market are healthy right now,” said a syndicate banker, who added that pricing in the bank loan market remains orderly, in part because floating-rate coupons protect investors from volatility in Treasuries.

The same is not necessarily been the case in high yield, where rising Treasury rates have caused issuers and investors to take a step back in order to reevaluate pricing.

Better market seen

In the secondary sphere, a trader said that “there were a lot of offer-wanteds today, and those bonds were moving higher.

“A lot of names were up.”

He opined that “more names were up than went down” – and he added that “if you take a look at the most active names that went down, they were mostly off by ¼, ½, ¾ point – nothing really big.

“But the ones that were up – many were up by 1 point, 2 points or even more.”

Bombardier flies on results

One name that he saw standing out on Thursday was Bombardier. The Canadian aircraft and transportation equipment manufacturer’s bonds were well up on the session after it reported better than expected fourth-quarter results.

Its most actively traded issue – the 6% notes due 2022 – jumped by 2½ points on the day to end at 100¼ bid, with more than $32 million changing hands.

Its 7½% notes due 2025 firmed by 1 7/8 points, ending at 103½ bid, on around $20 million of volume.

And its 8¾% notes due 2021 likewise improved by 1 5/8 points, closing at 110 5/8, a market source said, on nearly $15 million of turnover.

The notes headed skyward after the company reported its highest cash flow in seven years, bolstering prospects for its two-year-old turnaround plan.

Free cash flow zoomed by 76% to $872 million in the fourth quarter, beating analysts’ expectations.

On its conference call, Bombardier executives noted that it ended 2017 with $3.1 billion of cash and equivalents on hand and $1.2 billion in available credit under its revolving credit facilities – and, thanks to a bond deal, tender offer and redemption late last year, had eliminated its closest debt maturity (see related story elsewhere in this issue).

Jones improves again

For a third straight day, there was considerable activity in the new Jones Energy 9¼% senior secured notes due 2023.

The notes firmed by ½ point to 99 bid, with about $15 million traded.

That was on top of the more than $22 million traded on Wednesday and Tuesday’s more than $40 million of volume, topping the Most Actives list both of those days.

The Austin, Texas-based oil and gas exploration and production company had priced its $450 million forward calendar offering on Monday at 97.526 to yield 9 7/8%.

The bonds had initially pushed up to beyond 99 in aftermarket dealings on Monday, had dropped on Tuesday and early Wednesday, moving as low as 97½ – but then rebounded late Wednesday, showing small gains on the day, setting the stage for Thursday’s continued advance.

AMAG shows improvement

Elsewhere, AMAG Pharmaceuticals’ 7 7/8% notes due 2023 soared by more than 5 points on the day, ending at 97¾ bid on volume of more than $8 million.

Its 3.25% convertible notes due 2022 also climbed about 10 points on an outright basis to trade in the 97 range as its underlying equity soared.

AMAG stock closed Thursday at $17.95, an increase of 29.14%.

The shares were recently upgraded to a buy rating by analysts from Janney Montgomery Scott, who upped the price target to $45.00 from $16.65.

The Waltham, Mass.-based pharmaceutical company announced Thursday that the U.S. FDA had approved a drug-device combination product to reduce the risk of preterm birth in pregnant women that have experienced preterm birth in the past.

AMAG is collaborating on the drug-device product with Antares Pharma Inc. AMAG will produce and supply the drug to Antares, which will assemble and package the device.

Indicators turn better

Statistical market performance measures were higher on Thursday, their second strong performance in the last four trading days. They had turned mixed on Wednesday after being lower across the board on Tuesday and firming all around on Monday, their first overall stronger session since Jan. 25.

The KDP High Yield Daily Index jumped by 24 basis points on Thursday, ending at 70.46. It was the index’s second straight gain, having also edged up by 1 bp on Wednesday to end at 70.22 after plunging by 15 bps on Tuesday. It had also risen by 6 bps on Monday – its first advance after 11 consecutive losses, some of them sizable.

Its yield meantime came in by 10 bps to finish at 5.73%, its first narrowing after two wider sessions. It had risen by 1 bp on Wednesday and by 5 bps on Tuesday.

The Merrill Lynch High Yield Index improved after two straight sessions on the downside, firming by 0.486% on Thursday. That followed losses of 0.16% on Wednesday and 0.27%. It had also improved by 0.328% on Monday.

Thursday’s advance cut the index’s year-to-date deficit 0.726% from 1.206% on Wednesday and from the 1.248% cumulative loss posted on Friday, its second straight new widest deficit level for the year.

Its peak cumulative gain for the year so far was 0.936%, established on Jan. 26.

-Abigail W. Adams contributed to this review

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