Cox Media skyrockets; Korn Ferry trades up; oil patch firms

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 13 – The domestic high-yield primary market was quiet on Friday. However, the Dec. 9 week ranked second for new deal activity since the end of September.

While many predicted the week would mark the end of activity for the year, there still may be more in store for 2019 with markets strong.

And January is already expected to be active.

Meanwhile, the secondary space closed the week on firm footing with news of a completed phase 1 deal between the United States and China and crude oil futures settling above $60 a barrel.

New paper remained the focus of trading activity.

Cox Media Group’s newly priced 8 7/8% senior notes due 2027 (Caa1/CCC+) skyrocketed in active trading in the secondary space.

While the CCC space has been an underperformer for most of the year, the paper has been making a comeback in December.

Korn Ferry’s 4 5/8% senior notes due 2027 (Ba3/BB) were also trading at a large premium to their issue price.

With crude oil futures on the rise, Friday was a strong day for the oil patch with the energy sector paring some of their losses after a disappointing year.

Still open?

The new issue market remained quiet on Friday.

Even so, the busy Dec. 9 week saw the second-highest amount of issuance since the end of September, with $7.8 billion clearing ahead of Thursday's close.

At the start of the week the market was rife with forecasts that Friday's close would bring down the curtain on the 2019 new issue market.

However, in the later stages of the week some observers asserted that market conditions are ideal. And against such a backdrop 2019 issuance may have a little way left to run.

Whereas the new issue market limped into year-end in 2018, since Thanksgiving, in the present year, it has been bearing down upon 2020 with the force of an express train.

It's going to be a busy January, an investment banker said on Friday.

Some people who have been planning for January might be tempted to move up timing because conditions right now are so ideal.

Although no one professed visibility on deals for the Dec. 16 week, let alone specific names or sectors, there is the sense that further late-year passes at the primary market – especially from well-known opportunistic issuers able to come with drive-by deals – are at least under consideration, a trader said.

Cox Media skyrockets

While Cox Media’s junk bond offering experienced pushback during the subscription process, the newly priced 8 7/8% notes due 2027 skyrocketed in the aftermarket.

The 8 7/8% notes were changing hands at 103½ bid, 103¾ offered in high volume activity on Friday, sources said.

The strong performance of the notes was attributed to their high coupon.

However, the deal experienced some pushback before pricing with the issue amount downsizing, pricing widening and covenants changing.

Cox Media priced a downsized $1,015,000,000 issue of the 8 7/8% notes at par on Thursday.

The issue size decreased from $1,165,000,000 with the concurrent term loan upsizing by $150 million.

The yield printed in the middle of the 8¾% to 9% yield talk, which widened from earlier guidance in the low 8% area.

There were also covenant changes related to the company’s ability to disburse cash and incur additional debt, a market source said.

Cox Media is a well-known name in the leveraged loan space, sources said.

While the junk bonds were heard to be playing to $1.6 billion of demand, the concurrent term loan was playing to $4 billion of orders, a market source said.

Korn Ferry trades up

Korn Ferry’s 4 5/8% senior notes due 2027 were trading at a large premium to their issue price in the secondary space.

The 4 5/8% notes were seen changing hands at 101 bid, 101½ offered, according to a market source.

The deal was heavily oversubscribed during bookbuilding and was heard to be playing to $1.4 billion of orders, sources said.

Korn Ferry priced a $400 million issue of the 4 5/8% notes at par on Thursday.

Pricing came at the tight end of yield talk in the 4¾% area. Initial guidance was in the high 4% to 5% area.

The management consultancy company has a good business model and strong fundamentals, a market source said.

CCC returns

While an underperformer for much of the year, the CCC space was firming towards the year’s end.

Spreads in the CCC space narrowed 50 basis points in the first two weeks of December, netting 200 bps of returns, according to a BofA Global Research note.

The CCC space was responsible for the majority of returns in December, which was led by the energy sector, according to the note.

There has been a general trend in the secondary space recently of people moving out of BB names and into single-B credits in search of better returns, a market source said.

Junk bonds from smaller single-B issuers may be the outperformers in the year to come, according to the research note.

However, many will be looking to the CCC space, sources said.

Energy strong

Friday was a strong day for the energy sector with crude oil futures flirting with $60 a barrel, a market source said.

Several names in the space were trading up on the improvement.

California Resources Corp.’s 8% senior notes due 2022 gained 2 points to close Friday at 39.

Chesapeake Energy Corp.’s 8% senior notes due 2027 rose 1 point to 62. The 8% senior notes due 2025 were also up 1 point to 59.

The barrel price of WTI crude for January delivery broke past $60 a barrel on Friday to settle at $60.07, an increase of 89 cents or 1.5%.

It was the first time crude oil futures have broached the $60 threshold since September.

With crude oil futures on the rise, the energy sector pared their losses from a disastrous year and fueled hope for a further recovery, sources said.

$480 million Thursday inflows

The cash flows of the junk funds, as an expression of present market sentiment, are unmistakably positive.

The dedicated high-yield bond funds saw $480 million of daily net inflows on Thursday, according to a market source.

High-yield ETFs saw $405 million of inflows on the day.

Actively managed high-yield funds saw $75 million of inflows on Thursday, the source said.

News of Thursday's daily cash flows trails a Thursday afternoon report that the dedicated junk funds saw $939 million of net inflows in the week to the Wednesday, Dec. 11 close, according to Lipper US Fund Flows.

The breakdown of that weekly inflow saw $603 million flowing into the ETFs, and $336 million into the actively managed funds—the biggest weekly inflow to actively managed funds since mid-September, the market source said.

For the year to Thursday's close the dedicated high-yield bond funds saw $18.8 billion of net inflows, representing the largest yearly inflows to junk since 2012, the source said.

Indexes gain

Indexes closed out the week on strong footing with all seeing cumulative gains.

The KDP High Yield Daily index gained 7 bps to close Friday at 71.35 with the yield now 5.05%.

The index gained 14 bps on Thursday, 4 bps on Wednesday, 4 bps on Tuesday and 10 bps on Monday.

The index saw a cumulative gain of 39 bps on the week.

The ICE BofAML US High Yield index climbed above 13% returns on Friday.

The index was up another 25 bps with year-to-date returns now 13.45%.

The index jumped 29.7 bps on Thursday, was up 13.8 bps on Wednesday, 13.9 bps on Tuesday and 9.7 bps on Monday for a cumulative gain of 92.1 bps on the week.

The CDX High Yield 30 index gained 9 bps to close Friday at 108.96.

The index rose 21 bps on Thursday and skyrocketed 114 bps on Wednesday, which was attributed to Dean Foods being dropped from the index.

The index was down 2 bps on Tuesday and 26 bps on Monday. It saw a cumulative gain of 116 bps on the week.

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