Primary lull continues, although American Eagle seen on tap; recent QVC deal remains active

By Paul Deckelman and Paul A. Harris

New York, Aug. 12 – The high-yield primary market went 0-for-2 on Tuesday, enduring a second straight session in which no new paper priced.

However, syndicate sources did hear price talk emerge on American Eagle Energy Corp.’s $175 million five-year secured notes deal, which is expected to come to market on Wednesday.

Among recently priced issues, for a second consecutive session there was notable activity in the split-rated QVC Inc. 10.5-year notes and 20-year notes, both of which continued to ease from last week’s pricing levels.

Friday’s offering from Intrepid Aviation Group Holdings LLC was seen a little lower on the day. Several of the deals that priced at the end of July, such as NRG Yield, Inc. and HudBay Minerals, Inc., were quoted higher.

There was some follow-through buying in El Paso Pipeline Partners, LP bonds, which had jumped in active dealings on Monday after corporate parent Kinder Morgan, Inc. announced plans to purchase all of the outstanding stock of El Paso and several other affiliated companies as it streamlines its corporate structure.

NII Holdings Inc.’s bonds were down – some by as much as 8 points – after the provider of wireless service to several Latin American countries said it will likely have to file for Chapter 11.

Statistical indicators of junk market performance were mixed for a sixth session out of the last seven after having moved higher across the board on Monday for the first time since July 23.

American Eagle Energy talks 11%

For the second consecutive session, the high-yield primary market put up a goose egg on Tuesday, with no deals pricing, as sources continued to express skepticism that the new-issue market will see a meaningful pre-September regeneration.

There was news on one of three deals currently on the active calendar.

American Eagle Energy talked a $175 million offering of five-year senior secured notes (Caa1/CCC) to yield in the 11% area.

Price talk came in on top of earlier guidance, according to a trader.

The deal is expected to price on Wednesday.

GMP Securities is the bookrunner.

Also expected to price this week is the XPO Logistics, Inc. $500 million offering of five-year senior notes (B1/B-).

The deal is being discussed in a context that would have the yield printing in the high-7% range to the low-8% range, a trader said on Tuesday.

Credit Suisse, Morgan Stanley, Citigroup and Deutsche Bank are joint bookrunners for the acquisition financing.

Also in the market is Rooster Energy Ltd. with a $100 million offering of five-year senior secured notes (Caa1/CCC+), according to an informed source.

Imperial Capital is the sole bookrunner.

The deal launched in the middle of last month but remains active, the source said.

Elsewhere, the theme in the primary market increasingly seems to be “See you in September.”

The post-Labor Day period is likely the timeframe for the return of the Jupiter Resources Ltd.’s $1,125,000 offering of eight-year senior notes backing an acquisition, a debt capital market banker said on Thursday.

The deal, via Credit Suisse, TD Securities, RBC, Barclays, Goldman Sachs, UBS, Deutsche Bank and Nomura, was initially slated to price in early August.

In the wake of the sell-off, the deal has been variously reported by market sources to be “sidelined” or postponed” due to market conditions.

Dollar Tree bridge, and others

The syndication effort for the $2.8 billion bridge loan backing Dollar Tree, Inc.’s acquisition of Family Dollar Stores, Inc. has wrapped up, according to a sellside source.

That effort resulted in at least a partial syndication of the bridge risk, the source added.

The Dollar Tree bridge is expected to be taken out by $2.8 billion of unsecured notes. And although the bond deal is expected to come post-Labor Day, it is not necessarily September business, the source said.

With the volatility in the high-yield market, which ramped up in mid-July and continues into the present, bridge syndications to high-yield accounts have become a great deal more challenging, market sources say.

In the hard-rallying market conditions that prevailed through a great deal of the past half decade, dealers increasingly invited the high-yield accounts to participate in the bridges in exchange for a fee. Also, the accounts that played the bridges felt their orders for the bonds that would take out the bridges would be more favorably regarded when it came time for allocations – when allocations were consistently perceived by the buyside as stingy – if those accounts participated in the bridges, although there was never any kind of quid pro quo, sources on both the buyside and sellside are quick to point out.

However the long-running rally is in the midst of a sustained intermission for the first time in many months, sources say. And with bond prices lately moving lower, allocations are less of a problem. Also, two swords hang above the heads of accounts that play the bridges: First, they are considered illiquid, and second, with uncertainty in the market due to the recent volatility, there is the chance that the bridge will fund, meaning that the participating accounts will have to pony up the cash until the bond market improves to the point that the bridge can be taken out at an acceptable level.

“Most banks would rather syndicate the bridges,” the sellside source said on Thursday.

“But right now it is more challenging to do so.”

QVC trades actively, again

In the secondary market, QVC’s 4.45% notes due 2025 were probably the most active issue for a second consecutive session Tuesday, racking up around $29 million of volume, about equal to Monday’s turnover.

A market source saw the bonds at 99 20/32 bid, calling them down 1/8 point on the day. They had also lost 1/8 point on Monday.

QVC, a West Chester, Pa.-based cable, satellite and broadcast television network specializing in televised home shopping, and a wholly owned subsidiary of Liberty Interactive Corp., priced a quickly shopped $600 million of those split-rated (Ba2/BBB-/BBB-) notes on Thursday at 99.86 to yield 4.467%.

The other half of that $1 billion two-part offering – QVC’s $400 million of 5.45% bonds due 2034 – meanwhile lost ¾ point on Tuesday, dropping to around 98 7/8, with over $17 million of the bonds having changed hands, putting the credit high up on the Most Actives list.

Those notes had priced at 99.784 to yield 5.468%. Unlike the 10.5-year notes, they had not been among the most actively traded credits on Monday.

QVC’s established 3 1/8% notes due 2019 were seen about unchanged at 101¼ bid, with more than $8 million traded.

Intrepid off, others firm

Back among the purely junk-rated recent new issues, a trader saw Intrepid Aviation Group Holdings’ $250 million add-on to its existing 6 7/8% notes due 2019 down 1/8 point at 101 7/8 bid, 102 3/8 offered.

The Stamford, Conn.-based commercial aircraft leasing company priced $215 million of the notes on Friday at 102 to yield 6.356% after upsizing the transaction from an originally announced $150 million.

Among issues that priced late last month, HudBay Minerals’ 9½%notes due 2020 were quoted up ¾ point, at 108 bid, 109 offered.

The Toronto-based mining concern had priced $150 million of those bonds as an add-on to its existing issue at 107 on July 31 after downsizing the quick-to-market offering from an original $170 million. The notes were priced to yield 7.502%.

A trader pegged Princeton, N.J.-based power generation company NRG Yield’s 5 3/8% notes due 2024 at 102 bid, calling them up 1 point on the session.

The company had priced $500 million of the notes at par on July 31 after having upsized the transaction from $400 million originally.

Level 3 Communications Inc.’s 5 3/8% notes due 2022 were seen up ½ point on Tuesday at 99 bid, 99¾ offered.

The Broomfield, Colo.-based fiber-optic telecommunications network operator drove by the market with $1 billion of the notes – up from an originally announced $600 million – at par on July 29 via its Level 3 Escrow II, Inc. financing subsidiary.

El Paso improves again

Away from the new deals, a trader saw continued activity in El Paso Pipeline Partners’ 7¾% notes due 2032, which had jumped 15 points on Monday.

“You did have some trading in it, though not a huge amount,” he said, seeing those bonds up another ¼ point on top of Monday’s surge, trading at 125¾ bid. He said volume was about $14 to $15 million, about matching Monday’s activity level.

As for the rest of the company’s bonds, or those of corporate parent Kinder Morgan, “there was no big movements, and no big volume.”

A market source at another desk, also seeing that 125¾ bid level, estimated that over $13 million had changed hands on Tuesday

The El Paso Pipeline bonds had jumped on Monday after Kinder Morgan, a Houston-based midstream energy company, announced plans to consolidate its corporate structure by acquiring the equity of its three affiliates – El Paso Pipeline Partners, Kinder Morgan Energy Partners, LP and Kinder Morgan Management, LLC – and folding them into one supersized corporate structure.

NII likely to file

One of the most active names in Junkbondland on Tuesday was NII Holdings Inc., whose debt tanked as the Reston, Va.-based provider of Nextel mobile services in Mexico and Latin America said a bankruptcy was in its future.

One trader said the 7 7/8% notes due 2019 fell 12 points to 67, with over $14 million of turnover, while the 11 3/8% notes due the same year were pegged at 70 offered.

The trader also saw the 7 5/8% notes due 2021 declining over 8 points to 16¾, also on volume of over $14 million, as the 10% notes due 2016 lost 6 points, closing around 20½. Over $11 million traded.

At another desk, a trader said both the 2019 maturities were off “a dozen points or so,” trading in the mid-60s. The 7 5/8% notes and 10% notes meantime dropped 5 to 7 points, he said, ending in the high-teens to 20 context.

For the second quarter, NII Holdings had a net loss of 77,000 subscribers, bringing its subscriber base to 9.4 million.

That figure represents a 6% decline year over year.

Consolidated operating revenue declined 23% to $969 million. Net loss widened to $623.3 million, or $3.62 per share, compared to a net loss of $396.4 million, or $2.30 per share, the year before.

Consolidated average monthly churn was 3.39%, versus 2.67% the previous year.

The company noted in its earnings release that its financial performance, combined with the likelihood that it will not be able to meet its debt obligations, make a bankruptcy filing foreseeable in the near future. In a 10-Q filed with the Securities and Exchange Commission, the company said that it has been speaking with interested parties in regards to acquiring some or all of its assets.

The company has also engaged in talks with bondholders.

As of June 30, NII Holdings was not in compliance with several of its indentures, including on Nextel Brazil’s local bank loans.

Moody’s Investors Service downgraded the company’s credit rating to Caa2 from Caa1, citing the probability of a bankruptcy filing.

Market signs turn mixed.

Statistical indicators of junk market performance turned mixed on Tuesday after having been higher across the board on Monday, the first such higher session seen since July 23. But they have now been mixed in six sessions out of the last seven, after having been lower for six straight sessions before that.

The KDP High Yield Daily index made it six higher sessions in a row on Tuesday, surging by 23 basis points to end at 73.38 after having strengthened 16 bps on Monday.

Its yield meanwhile came in by 5 bps for a second consecutive session, to 5.38%, its sixth consecutive narrowing.

But the Markit CDX Series 22 index eased by 1/32 point on Tuesday, to 107 3/16 bid, 107¼ offered, after having risen the previous two sessions, including Monday, when it was up by 5/32 point, and Friday, which had seen a 19/32 point climb after having been under pressure for the previous three sessions before that.

However, the widely followed Merrill Lynch High Yield Master II index notched its second straight gain on Tuesday, advancing 0.144%. That came on top of Monday’s 0.317% rise.

Tuesday’s upturn lifted the index’s year-to-date return to 4.611% from 4.461% on Monday, although it still remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

Stephanie N. Rotondo contributed to this review.

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