Junk primary falls silent ahead of holiday; new Elan, Century hold their own; Exide, Sears slide

By Paul Deckelman and Paul A. Harris

New York, May 24 - The high-yield market drifted through a shortened and largely dull session on Friday ahead of the three-day Memorial Day holiday weekend in the United States.

With all of the potential new deals that were actively being shopped around to investors having been brought to market over the past several sessions, essentially sweeping the forward calendar bare, there were no pricings on Friday, nor were any potential new issues announced, according to primary sphere syndicate sources.

Things were not much busier in the secondary realm. While an early closing of 2 p.m. ET had been recommended, the reality was that some shops were not staffed at all, others had just a skeleton staff of non-senior people in, and most of these wrapped up what little activity they were involved in well before the official close.

Traders said that several of the new deals which priced over the past several days, including the offerings from Elan Corp., plc, Century Aluminum Co. and B&G Foods, Inc. were seen pretty much holding their own in the aftermarket, while others, such as US Airways Group, Inc. and Intelsat SA, struggled to stay around their respective issue prices.

Away from the new deals, traders said that activity was light - but there was some downside movement in the bonds of Exide Technologies and Sears Holdings Corp. Storage battery maker Exide's bonds fell on reports the company was looking around for debtor-in-possession financing, considered a harbinger of a possible future bankruptcy filing, while retailer Sears' paper retreated after poor first-quarter numbers.

Statistical indicators of secondary market performance were down across the board, and also fell from their week-earlier levels.

Also in the realm of statistics, while no new deals were heard to have priced on Friday, the busy primaryside activity over the previous several days in the run-up to the holiday break generated new issuance on the week of some $11.87 billion of new U.S.-dollar denominated, fully junk-rated bonds from domestic or industrialized -country borrowers in 21 tranches, according to data compiled by Prospect News. However, while that was pretty busy, it was still off from the $15.5 billion of new paper in 31 tranches which had priced the week before, ended May 17, the second-heaviest weekly volume total so far this year.

The week's pricings lifted year-to-date new-deal activity to $154.26 billion in 337 tranches, running about 20.5% ahead of the activity pace seen at this time last year, according to the data.

Primary on hold

The primary market remained quiet, as expected on Friday heading into the three-day Memorial Day holiday weekend.

No deals priced and none were announced.

Dealers were mum as to how the week ahead might shape up, a trader said.

The week could get off to a slow start, a trader said, citing the fact that the final week in May is a holiday-shortened one.

Add to that a recent increase in volatility throughout the global capital markets, and the forecast is somewhat cloudy.

Heading into the weekend only one deal appeared on the active forward calendar.

InterGen NV plans to price an $800 million equivalent dual-currency offering, not in the week ahead, but in the first week of June.

The deal is coming in tranches of sterling-denominated eight-year notes, which have four years of call protection, and dollar-denominated 10-year notes, which have five years of call protection.

A European roadshow gets underway on Tuesday.

Deutsche Bank is the global coordinator. Barclays, BofA Merrill Lynch, Credit Suisse, Mitsubishi UFJ Securities and RBC are the joint bookrunners.

Sleepy secondary session

In the secondary market a trader said at mid-morning that "you didn't miss anything, and he wasn't far off the mark.

With the Securities Industry and Financial Markets Association having officially recommended an early close of 2 p.m. ET for U.S. fixed-income markets ahead of the three-day Memorial Day weekend - which includes a full market close on Monday - what little activity that did take place was pretty much over well before then.

"This was the day," another trader said with a laugh, "that if you could just disappear and have your associates watch the store - you would."

Thursday deals hang in there

With no newly priced paper to trade, attention centered on the deals which had come to market earlier in the week, even though traders said that was for the most part on pretty light volume.

Several traders saw the 6¼% notes due 2021 from Irish biotechnology company Elan Corp. continuing to trade well above the par level at which its upsized $850 million deal had priced on Thursday.

One saw those bonds - which had been formally brought to market by the company's Elan Finance plc and Elan Finance Corp. subsidiaries - trading at 101 bid, about in line with the 101-101½ range seen in Thursday's initial aftermarket dealings.

A second trader saw the bonds at 100¾ bid, 101½ offered, while a third pegged them as high as 101 1/8 bid, 101 5/8 offered.

One of the traders said that Century Aluminum's 7½% senior secured notes due 2021 traded during the morning at 98¾ bid, while a second, queried around mid-day, saw them going home at 99 bid, 99¼ offered, although he said that "they were hanging right in there," noting that "that one came at a discount, so [Friday's level] wasn't bad."

The Monterey, Calif.-based metals production company had priced its $250 million issue late in the session on Thursday at 98.532 to yield 7¾%. No immediate aftermarket activity had been seen following the pricing due to the lateness of the hour.

A trader saw Midstates Petroleum Co. Inc. and Midstates Petroleum Co. LLC's 9¼% notes due 2021at par bid, 100¼ offered on Friday.

The Houston-based independent oil and natural gas exploration and production company had priced its $700 million deal late Thursday at par, with no immediate aftermarket seen.

Earlier deals a mixed bag

Among the deals which priced earlier in the week, some seemed to be doing quite well, but others not so much.

A trader saw Provident Funding Associates, LP and PFG Finance Corp.'s 6¾% notes due 2021 at 102¼ bid on Friday.

That was up slightly from the 102 level at which the Burlingame, Calif.-based independent mortgage company's deal was seen hanging around on Thursday, and well up from the par level at which the $540 million transaction had priced late in the day on Wednesday, after upsizing from $500 million originally.

B&G Foods' offering of 4 5/8% notes due 2021 "did well, it really hung in there," said a trader Friday, quoting the notes at 101¼ bid, 101½ offered.

The Parsippany, N.J.-based maker of such well-known food brands as Cream of Wheat cereal, Polaner jams and jellies, Ortega Mexican-style food products and Accent spices had priced its quickly shopped $700 million of 4 5/8% notes due 2021 at par on Monday, and those bonds had just as quickly moved up to above 101 bid and stayed up there all week, with active aftermarket activity.

Another Monday deal seen hanging onto its gains was Concho Resources, Inc.'s $850 million add-on to its existing 5½% notes due 2023, quoted by a market source ion Friday around 104¾ offered. Around $6 million of those bonds changed hands.

The Midland, Texas-based energy operator priced its bonds at 103.75 to yield 4.884%, after having massively upsized the deal from the originally announced $500 million. The bonds had been quoted as high as 105 1/8 bid on Tuesday, and as low as 103 7/16 bid on Wednesday, before moving back up above the 104 bid level Thursday and staying there.

While those deals were seen more than holding their own in an overall market beset by pockets of softness, some of the week's deals were seen struggling just to stay around their respective issue prices.

For instance, a trader said that US Airways' 6 1/8% notes due 2018 "didn't do that great," quoting the bonds on Friday at 99 bid, 99 3/8 offered.

That was down from the par level at which the Tempe, Ariz.-based airline operator had priced its $500 million "fly-by" deal on Tuesday, after having upsized the offering from an originally announced $400 million.

The bonds stuck mostly around that issue price, or maybe a little above it, for most of the week, before nosing down to a 99ish level on Friday. The new US Air bonds were among the most actively traded Junkbondland issues during the week, although by Friday's half-session, that had dwindled to about $4 million, down from $11 million on Thursday and over $41 million on Wednesday.

A trader saw the week's biggest deal, for Luxembourg-based communications satellite operator Intelsat, failing to gain much in the way of altitude by the end of the week. He saw its $2 billion of 5½% guaranteed senior notes due 2023 at perhaps 100¼ bid, and its $635 million of 6 5/8% non-guaranteed senior notes due 2022 "right around issue."

The company's Intelsat Jackson Holdings SA subsidiary had priced the 2023 notes at par and the 2022 notes - an add-on to its existing bonds - at 106.25 to yield 5.596%, in a quick-to-market, $2.635 billion two-part transaction on Tuesday, and the bonds had mostly stayed near those respective pricing levels.

Exide on the slide

Away from the new-deal oriented activity, a trader said that Exide Technology's 8 5/8% notes due 2018 dropped down to a 65½ to 66¾ bid context on Friday - well down from prior levels in the lower 70s on Thursday.

A second trader said that the Milton, Ga.-based automotive and industrial storage battery systems manufacturer's paper gyrated wildly on reports that the troubled company is looking into arranging debtor-in-possession financing.

"They're talking about DIP financing - and DIP financing equates to bankruptcy," he declared in explaining why the company's bonds and shares were being viciously hammered.

He saw Exide's 8 5/8s fall as low as a 62-64 context from Thursday's levels in the 70s, "so they're pretty volatile."

He saw the bonds going home having bounced off their lows to finish around 67 or 68 bid, which he called down 3 or 4 points on the day, "so they've been on a wild ride - down 7 or 8 points, then they bounced back up."

He said that "all I had to see was 'DIP'" and he knew that Exide was in for some bumpy dealings.

The trader said that there was "a lot of volume" in the issue, estimating turnover of at least $40 million to $50 million "and possibly more."

The company's Nasdaq-traded shares meantime swooned in tandem with the bonds, nosediving by 33 cents, or fully 42.58% of their little remaining value, to end at 45 cents per share. Volume of 27.1 million shares was almost 11 times the norm.

Sears slips on numbers

The other big story in the junk secondary, one of the traders said, was Sears Holdings' 6 5/8% notes due 2018.

"A lot of them traded," one of those sources said, estimating that the bonds dropped by 1½ points to end at 98½ bid.

A second trader also saw the notes at 98 bid, 99 offered, calling them down 1½ points, on "good volume" of between $15 million and $20 million.

Its Nasdaq shares likewise dropped by $7.92, or 13.62%, to end at $50.25 on volume of 7.9 million shares, or about nine times the usual turnover.

The bonds fell after the Hoffman Estates, Ill.-based operator of the iconic Sears and Kmart department store chains reported a first quarter loss of $279 million, versus a year-earlier profit of $189 million.

A trader, noting the robust activity in the Exide and Sears bonds, opined that "they were pretty active traders on a quiet day. But it certainly wasn't quiet if you were trading those issues."

Market feels edgy

"Overall, a trader said that "everything is a little nervous as we come back to reality" after heady days at the beginning of the months which saw one advance on top of another, day in and day out.

He said that the widening out of the Treasury market curve - with the yield on 10-year government bonds having ballooned out to 2.013% at the close, versus a low of 1.62% in early May - "has spooked a lot of people, especially [holders of] the better quality stuff."

Market feels edgy

"Overall, a trader said that "everything is a little nervous as we come back to reality" after heady days at the beginning of the month which saw one advance on top of another, day in and day out.

He said that the widening out of the Treasury market curve - with the yield on 10-year government bonds having ballooned out to 2.013% at the close, versus a low of 1.62% in early May - "has spooked a lot of people, especially [holders of] the better-quality stuff."

Market indicators drop

Statistical junk performance indicators were seen lower for a second consecutive session on Friday, and were also mostly down across the board versus the levels seen at the close of the prior week on Friday, May 17.

The Markit Series 20 CDX North American High Yield Index lost ½ point on Friday to close at 105 5/8 bid, 105 7/8 offered, its third consecutive loss. On Thursday, the index had fallen by 3/8 point.

The index was also down versus its week-earlier level at 107 1/8 bid, 107¼ offered.

The KDP High Yield Daily Index was down by 3 basis points Friday to finish at 76.17, its second straight loss. On Thursday, it had swooned by some 29 bps.

Its yield rose by 1 bp to 5.12%, its second straight widening out. On Thursday, it had shot up by 9 bps.

Those levels compare unfavorably with the week-earlier 76.44 reading and 5.03% yield.

And the widely followed Merrill Lynch High Yield Master II Index lost 0.062% on Friday, its second straight loss. On Thursday, it was down by 0.37%.

The loss brought its year-to-date return down to 5.03% from 5.095% on Thursday. It was also below its peak level for the year of 5.835%, set on May 9.

On the week, the index lost 0.295%, its second consecutive weekly loss. In the week ended May 17, the index had dropped by 0.338% - its first weekly loss after three consecutive weeks of gains before that, with a year-to-date return of 5.34%.

© 2015 Prospect News.
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