Primary quiets, awaits restructured Kindred two-parter; energy leads market lower

By Paul Deckelman and Paul A. Harris

New York, Dec. 10 – Pricing activity in the high-yield primary sphere dried up on Wednesday, with syndicate sources reporting that no new dollar-denominated and junk-rated paper had come to market during the session.

The primary failed to even match Tuesday’s quiet session, when $125 million of 2025 notes priced in a quickly shopped add-on transaction from commercial real estate company CBRE Group, Inc.

However, things were happening behind the scenes, with what is expected to be the last remaining megadeal of the year, a $1.35 billion two-part offering from Kindred Healthcare Escrow Corp. II, heard to have been restructured, which pushed the pricing of the Louisville, Ky.-based health-care facilities operator’s deal back a day, till Thursday.

Nothing else seemed to be going on in the dollar market, although the sources said that in the euro space the eight-year offering backing the pending acquisition of Singapore-based hearing instrument manufacturer Siemens Audiology Solutions had been downsized to €275 million. The roadshow for that offering is slated to wrap up on Thursday.

Away from the new-deal arena, energy names were once again driving the overall market to a loss of between ½ to ¾ point, as oil prices resumed their slide Wednesday after actually having risen on Tuesday.

Among the credits leading that retreat were familiar names like California Resources Corp., Halcon Resources Corp. and Sandridge Energy Inc.

Apart from the energy credits, gym operator 24 Hour Fitness Worldwide Inc.’s bonds fell badly, although no fresh negative news was seen that might explain the slide.

Statistical market-performance measures were lower across the board on Wednesday after having been mixed on Tuesday. It was their third time on the downside out of the last four sessions.

No deals

No deals priced on Wednesday as the new-issue market labored to work through a relatively small year-end calendar against a backdrop of volatility in the global capital markets, sources said.

The technical backdrop for the high-yield market showed marked deterioration on Tuesday, the most recent day for which fund flow numbers were available, according to an investor.

On Tuesday, high-yield exchange-traded funds saw $82 million of daily outflows. Actively managed funds saw a whopping $992 million of outflows.

Kindred rejiggers $1.35 billion

There were developments on deals already aboard the calendar and expected to price by the end of the week.

Kindred Healthcare Inc. undertook changes to the $1.35 billion two-part offering of senior notes (/B-/) backing its merger with Gentiva Health Services, Inc.

The company withdrew a proposed tranche of 10-year notes.

Left in place is a tranche of eight-year notes, which come with three years of call protection. The initial call premium is increased to par plus 75% of the coupon from 50% of the coupon.

In addition, the financing will now include a tranche of non-callable five-year notes.

Tranche sizes remain to be determined.

Price talk was expected on Wednesday afternoon but was not available at press time, according to market sources.

The deal is set to price Thursday morning.

Citigroup is the left bookrunner. J.P. Morgan, Guggenheim and Morgan Stanley are the joint bookrunners.

Siemens downsizes bonds

Siemens Audiology Solutions downsized its offering of eight-year senior notes (B2//) to €275 million from €315 million and shifted the €40 million of proceeds to its term loan B, now sized at €745 million equivalent.

The roadshow for the notes offer is scheduled to wrap up on Thursday.

Joint bookrunner Deutsche Bank will bill and deliver. Goldman Sachs and UBS are also joint bookrunners.

Little recent-issue trading

In the secondary realm, traders said that with the continued slide in energy prices and the accompanying fall in the bonds of oil and natural gas exploration and production companies and other energy operators, there was not much activity in recently priced bonds.

“The focus in the secondary has shifted back into energy,” one trader said, “where it’s been the past few days.”

“It’s funny how we’ve shifted back and forth from only being focused on new deals to only being focused on one thing” other than new deals – in this case, energy.

CBRE Group’s 5¼% notes due 2025 were being quoted at 102¼ bid, 103¼ offered, up around ¼ point on the session, though only on light volume.

The bonds have gradually firmed from the 101.5 level at which the Los Angeles-based commercial real estate firm had priced its quickly shopped $125 million add-on issue on Tuesday.

Wednesday saw a falling-off of activity in Monday’s offerings from Westmoreland Coal Co. and OneMain Financial Holdings Inc., both of which had been among the most actively traded notes on Tuesday but which were much less active Wednesday.

A trader quoted Westmoreland’s 8¾% senior secured first-lien notes due in January of 2022 at 99 bid, 99½ offered, calling them down ¼ point on the day, while a second pegged the bonds at 98¾ bid, 99¼ offered – not too far from the 98.708 level at which the Englewood, Colo.-based coal producer had priced its downsized $350 million issue on Monday as a regularly scheduled forward calendar offering to yield 9%.

Two traders separately saw OneMain Financial’s 6¾% notes due 2019 at par bid, 100 3/8 offered, down about 3/8 point on the day, while its 7¼% notes due 2021 were off ¼ point at 100¼ bid, 100 5/8 offered.

The Baltimore-based consumer lending company – the former CitiFinancial – priced $700 million of the 2019 notes and $800 million of the 2021 notes, both at par, on Monday, coming off the calendar.

Energy ‘like a broken record’

Away from those new issues, a trader compared the behavior of the energy sector – whose bonds have been dropping steadily along with world crude oil prices over recent days and weeks – to “a broken record.”

“Every day, energy is getting killed.”

The oil and gas names, and the coal producers, were dragging the overall market down by around ¾ point on Wednesday, he said, “and it seemed like there were a lot of offers today.”

Los Angeles-based E&P operator California Resources’ 6% notes due 2024 were Junkbondland’s busiest credits on Wednesday, with over $52 million having changed hands.

The trader saw those bonds down 3 points on the day, last trading at 83½ bid. Its 5½% notes due 2021 lost 2¼ points to close at 84 bid on volume of more than $23 million.

Houston-based Halcon Resource’s 8 7/8% notes due 2021 lost 3¼ points to close at 68½ bid with over $25 million having traded.

Sector peer and practically next-door neighbor Energy XXI Ltd.’s 7½% notes due 2021 plunged by 4 points to 51¼ bid, with over $18 million having traded.

Oklahoma City-based oiler SandRidge Energy’s 7½% notes due 2021 were seen down ½ point at 59 bid, with over $14 million having changed hands.

The energy angst continued against a backdrop of steadily falling crude oil prices. Benchmark West Texas Intermediate crude slipped by $2.88, or 4.5%, at $60.94, its lowest price since June 2009.

A trader said that while there were “a couple of names that were up 1 or 2 points, they were doing nothing in the way of real volume.”

Instead, he added, “there were more sellers out there, sellers of pretty good size.”

Tough time for 24-Hour

Away from the energy arena, a trader saw 24 Hour Holdings’ 8% notes due 2022 having “dropped 7 or 8 points on the day,” while a second said the loss may have been as much as 9¾ points, to 76¼ bid, on $6 million of volume.

It was the second straight session of big declines in those bonds, with a market source noting that on Tuesday they had fallen to an 83-to-84 context after having been in the lower 90s last week.

There was no fresh news out on the San Ramon, Calif.-based fitness-club operator that might explain the steep decline, although the market source said the privately held company had done a conference call on Monday or Tuesday, the details of which were not disclosed.

One of the traders meantime quipped that “maybe they’re running out of fat people.”

Indicators resume slide

Statistical indicators of junk market performance turned lower on Wednesday after having been mixed on Tuesday. They were down all around for the third session in the last four.

The KDP High Yield Daily index suffered its fourth straight loss as it fell by 17 basis points to end at 70.56, its second consecutive new low for the year. On Tuesday, the market measure had plunged 35 bps.

Its yield ballooned out by 21 bps to 6.03%, its fourth successive widening. It had shot up by 11 bps on Tuesday.

The Markit CDX North American High Yield Series 23 index dropped by 23/32 point to close at 105 17/32 bid, 105 9/16 offered, after having edged up by 1/32 point on Wednesday. It was the index’s fourth loss in the last five sessions.

The Merrill Lynch U.S. High Yield Master II index saw its fourth successive setback on Wednesday, declining by 0.399%, on top of Tuesday’s 0.603% retreat.

The latest loss dropped its year-to-date return to 1.716% from Tuesday’s 2.123%.

Wednesday’s close was its first time under the 2% level since Feb. 20, 2014, when it had closed at 1.952%, and was its lowest finish since Feb. 17, 2014, when it ended the day at 1.60%.

The year-to-date return also remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

Several other index components notched new marks for the year. Its yield to worst rose to a third consecutive new high for the year at 6.765%, up from the previous high of 6.663% on Tuesday.

Its spread to worst rose to 529 bps over comparable Treasuries, its third consecutive new wide point of the year. On Tuesday, it had risen to 515 bps.

And its average price fell to 98.53176, its fourth straight new low for the year, from Tuesday’s 98.95249.

According to the Finra-Bloomberg Active US High Yield Bond Index, junk market volume fell on Wednesday for the fifth time in the last six sessions. It declined to $4.195 billion from $4.306 billion at Tuesday’s close.

© 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.