Primary ends $976 million week quietly; recent deals firm but Frontier lags; Cablevision slides more

By Paul Deckelman and Paul A. Harris

New York, Sept. 18 – The high-yield market saw a quiet session on Friday – the last summer Friday of the year – with traders reporting a mixed bag of bond price movements in the secondary and no new deals having priced in the primary for a second straight day.

Among prospective new deals currently on the forward calendar, Beacon Roofing Supply Inc. disclosed plans to participate in a conference call with investors on Monday to discuss a $300 million offering of eight-year senior notes, while education software provider Ellucian’s planned offering of eight-year notes was heard to have been downsized by $100 million, with those proceeds shifted to a concurrent bank loan financing.

The lack of any pricing activity on Thursday and again on Friday left the week’s total of new U.S. dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers right where it had been at the close on Wednesday, $976 million in three tranches.

That was well down from the previous week, ended Sept. 11, during which $8.65 billion had priced in eight tranches – the heaviest new-issuance week Junkbondland had seen since the week ended June 5, when $9.83 billion of such paper had gotten done in 16 tranches, according to data compiled by Prospect News. Most of last week’s issuance, though, was attributable to just one big deal – Stamford, Conn.-based wireline telecom and broadband internet service provider Frontier Communications Corp.’s three-part $6.6 billion offering of five-, seven- and 10-year notes that priced last Friday.

The week’s activity lifted year-to-date new-deal issuance to $215.07 billion in 347 tranches – down nearly 9.8% from the pace seen at this time a year ago, when $239.51 billion had come to market in 450 tranches, according to the data.

Last week, this year’s new-issuance pace had lagged behind year-ago levels by around 8.1%.

Among recently priced issues, traders said that this week’s offerings from Berry Plastics Group Inc. and Fresenius SE & Co. KGaA were showing aftermarket strength. But they said the Frontier Communications bonds continued to struggle in secondary dealings.

Cablevision Systems Corp.’s bonds were losing ground for a second consecutive session following Thursday’s surprise announcement that the media company had agreed to sell itself to Europe’s Altice NV in a largely debt-funded transaction for more than $17 billion.

Statistical measures of junk market performance turned lower across the board on Friday after having been mixed for seven consecutive sessions and for eight sessions out of the previous 10 trading days.

Those indicators were also lower all around versus where they had finished last Friday, Sept. 11, when they had been higher week-over week. It was their first lower week after two higher weeks sandwiched around the week ended Sept. 4, when they had been mixed. The three weeks before that had been lower on a Friday-to-Friday basis.

Beacon sets investor call

No deals priced during Friday’s session in the primary market.

Beacon Roofing Supply disclosed plans to participate in a conference call with investors on Monday to discuss its $300 million offering of eight-year senior notes (B3/B+).

The offer is also set to run an investor roadshow and price on Thursday.

Wells Fargo is the left bookrunner for the acquisition-financing deal. Citigroup, BofA Merrill Lynch, J.P. Morgan and SunTrust are the joint bookrunners.

Ellucian downsizes

Dealers rejiggered the financing for the buyout of Ellucian (Sophia LP) on Friday, shifting $100 million of proceeds to the term loan B from the junk bond offer.

The financing is now coming in the form of an $1.56 billion term loan, upsized from $1.46 billion, and $490 million of eight-year senior notes (Caa2/CCC+) downsized from $590 million.

Price talk on the bonds, in the market via issuing entities Ensemble Merger Sub Inc. and Sophia Finance Inc., has yet to surface.

However pricing is expected to widen substantially from early whisper in the low 8% context, market sources say.

There is an anchor order in the 9½% area, a trader said on Friday afternoon.

Morgan Stanley, BofA Merrill Lynch, J.P. Morgan, Barclays, BMO, Deutsche Bank and Jefferies are the joint bookrunners for the buyout deal.

Friday’s news flow from the European market was extremely thin.

Credit Suisse sent out save-the-date request to investors for an upcoming high-yield issue from a technology, media and telecommunications company, according to a market source who added that an investor lunch is scheduled on Monday.

Recent bonds hold their own

In the secondary market, a trader said that “the new issues from the last couple of days continue to do well,” quoting Berry Plastics’ 6% senior secured second-priority notes due 2022 at 101 bid, 101¼ offered.

“Berry,” a second trader said, “is hanging around the 101 to 101¼ level, so they’re sticking right in there, kind of unchanged from yesterday.”

A third trader also located the bonds there, although he called that ¼ point off Thursday’s levels.

But while the price levels were about unchanged, one thing that was considerably different than Thursday’s session was the relative fall-off in volume from Thursday, when more than $79 million of the notes had changed hands, making Berry easily the busiest junk credit of the session.

Berry, an Evansville, Ind.-based plastic packaging manufacturer, priced its $400 million quick-to-market issue on Wednesday at par via its Berry Plastics Escrow Corp. special-purpose financing vehicle.

The bonds initially moved up about ½ point in relatively thin post-pricing dealings, but then tacked on about a point in Thursday’s busy trading and were seen holding around those higher levels on Friday.

Wednesday’s other deal – the Fresenius 4½% notes due January 2023 – were “holding around a 101 bid,” one of the traders said.

A second saw those notes up ¼ point on the day, at 101 1/8 bid, 101 5/8 offered.

Fresenius, a Bad Homburg, Germany-based provider of kidney dialysis products and services, priced $300 million of the notes at par on Wednesday via the company’s Fresenius US Finance II, Inc. special-purpose funding vehicle.

Market participants noted that before the pricing, Fresenius had been on a non-deal roadshow in the United States on Monday and Tuesday.

The bonds firmed about 1/8 point in thin initial aftermarket dealings after their pricing; then on Thursday, activity picked up as over $18 million traded, putting the new deal among the busiest high-yield credits of the day, with the bonds seen having gotten as good at 100 7/8 bid, 101 3/8 offered. They continued to firm on Friday.

Frontier struggle continues

That new-deal firmness did not carry over to last Friday’s big deal from Stamford, Conn.-based wireline telecom operator Frontier Communications, which initially firmed smartly after pricing but which has been trending lower all of this week, and in active trading.

A market source said “those new FTRs traded lower today,” with the 8 7/8% notes due 2020 at 99¾ to par, the 10½% notes due 2022 at 99½ bid and the 11% notes due 2025 at 98¼ to 98½.

He said they rose originally after pricing at par, the five-years to around 101½ bid and the seven- and 10-years to above 102 bid. Then, “initially they got chopped down with the downgrade of Sprint earlier in the week, and that brought them below par.”

Telecom issues generally retreated following Moody’s Investors Services’ downgrade on Wednesday of Overland, Kan.-based wireless carrier Sprint Corp.

“They did see a pop of ½ to ¾ [point] after the Fed meeting yesterday and then today they’ve pulled back.

He noted the active volume in the bonds all week, declaring that “they’ve been heavily traded, for sure.”

That active volume carried through to Friday, with another trader seeing over $24 million of the seven years having changed hands, quoting them at 99¾ bid, down 1/8 point.

He saw more than $20 million of the five-year paper trading at an even par bid, down ¼ point, while over $16 million of the 10-years moved around, dropping ¾ point to 98½ bid.

At yet another desk, a trader theorized that Friday’s retreat in Frontier “could just be people looking to get out of stuff before the weekend – but the 11% traded into a 98½ bid that left them at 98¼ to 98½.

“The only one still trading close to par is the five-year,” quoting that tranche at 100 1/8 bid, while the 10½s were at 99½ to 99¾.

Frontier priced $1 billion of the five-years, $2 billion of the seven-years and $3.6 billion of the 10-years, all at par, in a regularly scheduled forward calendar offering last Friday.

The long-awaited $6.6 billion deal was the second-biggest offering the junk market has seen so far this year according to data compiled by Prospect News, taking a back seat only to Canadian drug manufacturer Valeant Pharmaceuticals International Inc.’s $8.5 billion three-part transaction on March 13.

Cablevision carnage continues

Away from the recent new deals, traders said that Cablevision’s bonds were being beaten down for a second straight session as investors reacted negatively to the news that the Bethpage, N.Y.-based cable systems operator and publisher of New York suburban newspaper Newsday has agreed to be acquired by Luxembourg-based cabler Altice NV in a largely debt-funded LBO transaction valued at more than $17 billion.

A trader said that the company’s 5 7/8% notes due 2022 had traded at a last print of 83, which he said was “3 points lower from where they went out last night.” On Thursday, more than $40 million of the notes traded and it plunged more than 11 points to end at 86 bid.

The volume leader in the Cablevision structure on Friday was the company’s CSC Holdings LLC 5¼% notes due 2024, which were down a deuce on the day at 84¼ bid, with over $19 million traded. They had lost some 7¼ points on Thursday to end at 86¼, with more than $23 million changing hands.

Its 8% notes due 2020 were down 1 1/8 points at 100¼ bid on Friday, after having lost more than 7 points on Thursday.

‘A mixed bag’

Overall, a trader said that Friday’s junk market was “kind of a mixed bag – some issues were trading off ½ point or 1 point, some were unchanged, and some were better. It was really a mixed bag.”

He characterized things as “fairly quiet outside of the new issue-type names that were trading.”

A second trader opined that “stuff performed better than I would have thought, with stocks down as much as they were and with oil.”

The bellwether Dow Jones Industrial Average plunged by 290.16 points, or 1.74%, to end at 16,384.58, with analysts theorizing that the Federal Reserve’s failure to announce a hike in U.S. interest rates Thursday spooked the market, seeing that as a signal of bad economic conditions.

Meanwhile crude oil for October delivery lost $2.22, or 4.26% in Friday trading on the New York Mercantile Exchange – which in turn caused energy credits such as California Resources Corp. to head lower. The Los Angeles-based oil and natural gas exploration and production company’s benchmark 6% notes due 2024 lost 3 points on the day to end at 64¾ bid, with over $23 million traded.

The second trader said that against those headwinds, bonds benefitted from “a pretty good rally in Treasuries” in response to the Fed’s non-move.

Overall, he said “generically, some stuff was off ¼, other stuff was close to unchanged.”

Indicators turn lower

Statistical measures of junk market performance turned lower across the board on Friday after having been mixed for seven consecutive sessions and for eight sessions out of the previous 10 trading days.

Those indicators were also lower all around versus where they had finished last Friday, Sept. 11, when they had been higher week-over week. It was their first lower week after two higher weeks sandwiched around the week ended Sept. 4, when they had been mixed. The three weeks before that had been lower on a Friday-to-Friday basis.

The KDP High Yield Daily Index suffered its sixth straight loss on Friday, dipping by 6 basis points to end at an even 67.94, falling below the psychologically significant 68.00 mark for the first time since Sept. 4, when it had finished at 67.99. On Thursday, it had given up 3 bps, on top of Wednesday’s 21 bps plunge.

Its yield, meanwhile, rose by 2 bps for a second consecutive session to end at 6.36%, its third widening in a row, fourth in the last five sessions and fifth in the last seven sessions.

Those levels compared unfavorably to the 68.26 index reading and 6.25% yield seen last Friday.

The recently strong Markit Series 24 CDX North American High Yield Index finally threw in the towel on Friday and posted its first loss after six straight gains, seven gains in the previous eight sessions and nine in the previous 12 trading days.

The index retreated by 11/32 point on Friday to end at 104 19/32 bid, 104 5/8 offered. On Thursday, it had edged up by 1/16 point.

Friday’s close was down from 104 5/8 bid, 104¾ offered last Friday.

And the Merrill Lynch North American Master II High Yield Index remained at lower levels for a seventh straight session Friday, losing 0.136%, on top of Thursday’s 0.048% easing.

Friday’s loss knocked its year-to-date return down to 0.135% from 0.271% on Thursday. Those levels remain well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

For the week, the index was off by 0.546% – its first lower week after three straight weekly gains. It had risen by 0.456% last week, when its year-to-date return had been 0.685%.

© 2015 Prospect News.
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