Primary quiet; Men’s Wearhouse dives on numbers, Cenveo up on sale, funds lose $3.5 billion

By Paul Deckelman and Paul A. Harris

New York, Dec. 10 – The high-yield primary market saw little in the way of activity on Thursday in either its domestic dollar-denominated segment or in its recently busy euro-denominated portion.

An expected Thursday pricing from a unit of billboard company Clear Channel Outdoor Holdings, Inc. had not taken place by the market’s close, leaving that $225 million of five-year notes as possible Friday business.

Chemical manufacturer Kraton Performance Polymers, Inc., continued to shop a $425 million offering of eight-year notes around to prospective investors.

In the secondary market, Men’s Wearhouse Inc.’s notes plunged by 8 points in heavy trading after the men’s apparel retailer reported ugly third-quarter numbers and not-reassuring guidance.

On the upside, Cenveo Corp.’s bonds firmed smartly in busy dealings, helped by the news that the printing company will sell its packaging unit.

Existing Clear Channel Outdoor bonds fell in brisk trading ahead of the company’s anticipated new deal.

Recently beleaguered steel names like AK Steel Holding Corp., and energy credits like California Resources Corp. were seen better on the day.

However, statistical measures of junk market performance were lower across the board for a fourth consecutive session on Thursday. The indicators had turned lower all around on Monday, after having been mixed on Friday. It was the fifth lower session in the last six trading days.

And high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – turned sharply negative in the latest reporting week, posting their biggest net outflow of the year and one of the largest such cash losses ever recorded as $3.463 billion more left the weekly reporting-only domestic funds in the form of investor redemptions than had come into them during the week ended Wednesday.

U.S. primary stays quiet

No issues were priced during the Thursday primary market session.

Although the European new issue market has seen three issuers raise a combined €768 million since Monday, there has been no dollar-denominated high yield issuance in the week to Thursday's close.

Little if any primary market activity is expected in the run-up to the new year, sources have been saying since early in the week.

Buyside and sellside sources, anticipating news late Thursday that dedicated high-yield funds have undergone their biggest weekly outflows of cash in several years, continued to profess this view throughout the session.

Nevertheless, three deals remain on the active forward calendar, although only two of those have generated news in the past week.

Clear Channel International BV, a unit of Clear Channel Outdoor Holdings, has been roadshowing a $225 million offering of five-year senior notes (B2/B) via bookrunner Goldman Sachs.

The deal, which had been scheduled to price Thursday, has been discussed in a 7% to 8% yield context, sources say.

It appears more likely to shape up around 8%, a trader said on Thursday, adding that there is a good deal of reverse inquiry involved in the deal.

Kraton Polymers LLC started a roadshow on Monday for a $425 million offering of eight-year senior notes (B3/CCC+).

The acquisition deal, via Credit Suisse, Nomura and Deutsche Bank, was set to price late this week.

Early guidance had the notes coming in a mid-10% yield context, sources say.

However there has been no recent word on the Kraton deal, the trader said on Thursday.

There have been no updates in well over a week on a deal from NGL Energy Partners LP.

The company remains in the market with a $300 million offering of five-year senior notes (B2/BB-/BB-), a deal that launched at the end of November.

Formal talk has yet to be announced.

However the deal – emanating, as it does, from the battered energy sector – is facing headwinds, market sources say.

Pricing, which started in the 9% area, has been on the march, lately heard in the 11½% to 12% range.

Most recently 12% seems to be the number, a buyside source said.

Clear Channel trades off

In the secondary market, existing paper from Clear Channel Outdoor Holdings was seen trading lower, ahead of the planned new offering by the San Antonio, Texas-based outdoor advertising company.

A trader saw its 7 5/8% notes due 2020 fall 2¾ points on the day, ending at 89¼ bid with over $9 million having changed hands.

The company’s 6½% notes due 2022 lost 3 points, closing at 94¼ bid.

Men’s Wearhouse mauled

The “big loser of the day,” one of the traders said, was Men’s Wearhouse’s 7% notes due 2022, which slid 8 points to close at 65 bid, on more than $55 million of volume.

A second trader said that the Houston-based men’s apparel retailer’s notes “have been all over the place today” at sharply lower levels, dropping from Wednesday’s closing levels around 73 bid.

He saw them trading anywhere from a low of 64 to a high of 67¼ bid, and while he heard of some markets as high as a 68-to-70 context, “I did not see any trading up there.”

The company’s bonds had been trading as high as the 104 mark as recently as Nov. 4 but fell to 97 bid the following session, Nov. 5, when it released its preliminary fiscal third-quarter results and outlook projections, which it said at the time would “reflect significant comparable sales weakness” at its Jos. A. Bank subsidiary. The bonds kept right on falling through November and on into early December as the official earnings release date got closer.

When the quarterly earnings came out on Thursday, they confirmed the bad news contained in the earlier release.

The company said that during the third quarter ended Oct. 31, comparable sales decreased 14.6% from year-earlier at Jos. A. Bank, “far below our earlier expectations.” This decrease was primarily driven by a decline in traffic as the company began the transition away from the unit’s traditional “Buy-One-Get-Three” promotional events.

The Jos. A. Bank results more than offset gains at the parent company’s own stores, and caused Men’s Wearhouse to take a $90 million non-cash impairment charge related to the lessened value of the Jos. A. Bank name, and to book a 56 cents per share loss.

Its New York Stock Exchange-traded shares plunged by $3.12, or 16.97%, ending at $15.27 on volume of 22 million shares, over 12 times the norm.

Cenveo climbs on sale

On the upside, news that Cenveo plans to sell its packaging unit for $105 million helped to push the Stamford, Conn.-based printing company’s 11½% notes due 2017 up by 8 points on the session, a trader said, to 94¼ bid.

More than $12 million of the notes traded.

He said the news also brought its 6% notes up by more than 4 points on the day to a 79 bid context from prior levels around 75.

AK Steel better

A trader saw improvement in AK Steel’s 7 5/8% notes due 2020, quoting the West Chester, Ohio-based integrated metals producer’s paper at 38 bid, a gain of nearly 6 points on the day.

He cited the company’s announcement of plan to increase the price of the steel alloys it sells, strengthening revenues.

Energy seen better

Recently beleaguered and highly oversold energy credits were also improved on the day, another market source said, even though crude oil prices continued to retreat amid a production glut.

He quoted Los Angeles-based exploration and production company California Resources’ 6% notes due 2024 around 44 bid, calling that up 1 point.

Indicators slide continues

Statistical measures of junk market performance were lower across the board for a fourth consecutive session on Thursday. The indicators had turned lower all around on Monday after being mixed on Friday. It was the fifth lower session in the last six trading days.

The KDP High Yield Daily Index lost 5 basis points on Thursday to end at 64.48, its sixth straight loss after three successive gains and its seventh loss in the last 10 sessions. It had retreated by 9 bps on Wednesday on top of Tuesday’s 52-bps plunge.

Thursday’s close represented a fifth consecutive new low for the year and a new 52-week low for the index, eclipsing Wednesday’s prior mark of 64.53.

It was also the index’s lowest finish since July 22, 2009, when it went home at 64.24.

Its yield edged up by 3 bps to end at 7.23%, after gaining 1 bp on Wednesday, which had followed two straight sessions on Monday and Tuesday during which it had ballooned upward by 11 bps each day.

Thursday’s close was its seventh widening in the last 12 sessions.

Thursday’s yield marked a fourth consecutive new high for 2015, surpassing the former 2015 highest yield of 7.20%, set on Wednesday.

The Markit Series 25 CDX North American High Yield Index fell by 15/32 point on Thursday to close at 100 31/32 bid, 101 offered, its fourth straight loss after one gain and its fifth loss in the last six sessions. It had

Been down by 1/8 point Wednesday and had swooned by 19/32 point on Tuesday.

Funds plunge by $3.5 billion

Another statistical measure – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – turned decidedly negative in the latest reporting week, posting its biggest net outflow of the year and one of the largest such cash losses ever recorded.

Some $3.463 billion more left those weekly-reporting-only domestic funds in the form of investor redemptions than had come into them during the week ended Wednesday – the third biggest decline on record.

The outflow easily dwarfed the $397.6 million inflow reported last Thursday for the trading week ended Dec. 2 (see related story elsewhere in this issue).

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