Post-holiday primary quiet; new Dynegy slides in heavy trading; Endeavour jumps after filing

By Paul Deckelman and Paul A. Harris

New York, Oct. 14 – The high-yield market re-opened on Tuesday after its Columbus Day holiday break on Monday, but the primary sphere essentially remained in a vacation mode, with no new deals pricing or even being announced.

Only two smallish deals were seen being actively shopped around at this point – a $200 million seven-year offering from Providence Service Corp., a Tucson, Ariz.-based provider of human social services, and a $150 million secured offering from Houston-based energy operator BPZ Resources, Inc.

In the secondary market, the recent new offerings from Dynegy Inc. were easily the day’s most actively traded bonds, each of the power generation company’s three tranches of new paper racking up volume in the tens of millions of dollars. But most of the activity in those bonds – which had jumped in initial aftermarket dealings following their pricing on Friday – was on the downside, in line with overall market heaviness.

There was also brisk trading at higher levels in Friday’s other deal – Metaldyne Performance Group, Inc.’s eight-year notes.

Overall, traders said that things were things were generically lower by around ½ point, reflecting continued recent equity weakness and, especially among the energy credits, the effects of sliding oil prices. Oil and gas sector names seen under pressure included Energy XXI Gulf Coast, Inc., Quicksilver Resources, Inc. and Precision Drilling Corp. – although Endeavour International Corp.’s bonds jumped in the wake of the exploration and production company’s holiday-weekend Chapter 11 filing.

Statistical indicators of market performance were lower across the board, continuing last week’s slide in most of those market gauges – although several of them had appeared to be higher in extremely quiet dealings on Monday, despite Columbus Day.

Primary news expected

The primary market put up a goose egg on Tuesday. No issues priced, nor were any deals announced.

The Wednesday session ought to produce some news on the new issue front, according to a trader.

One reason for Tuesday’s dead calm in the primary market was the three-day Columbus Day holiday in the United States, as market participants resumed their positions following the extended weekend, the source said.

The market was modestly lower on Tuesday, the trader said, but added that some names saw improvement during the course of the session.

While Dynegy’s new deal was lower on the day, the company’s 7 5/8% senior notes due Nov. 1, 2024 (B3/B+) ended the session at 101 bid, 101 1/8 offered, up from par 1/8 bid, par 5/8 offered in the morning, said the trader, noting that U.S. stock indexes finished the Tuesday session mixed.

The Dynegy 7 5/8% notes priced in a $1.25 billion tranche, and came at par on Friday, part of a massive $5.1 billion three-part senior notes transaction.

A thin calendar

There was no news Tuesday regarding a pair of off-the-run names in the market with small-ish deals, sources said.

Providence Service Corp. is in the market with a $200 million offering of seven-year senior notes (B3/B-) via BofA Merrill Lynch, RBC and SunTrust.

When announced, the Providence deal had a timeline which would have seen it pricing before last Friday's close.

And BPZ Resources is marketing $150 million of five-year senior secured notes via Seaport Global.

Meanwhile new issue forecasts were tentative.

Although the trader expects the Wednesday session to come with news in the new issue market, others were less certain.

“There are deals that need to come,” a portfolio manager said, mentioning Scientific Games Corp.’s $3.45 billion of notes to help fund the acquisition of Bally Technologies Inc.

The deal, backed by a J.P. Morgan-led one-year bridge loan, is expected to come in the form of $750 million of secured paper and $2.2 billion of eight-year unsecured notes.

“Opportunistic issuers may step away for the time being,” the investor said, adding that the markets lately are being roiled by less-than-stellar global growth expectations.

One issuer that fell into the “opportunistic” category, but recently pulled away, was Breitburn Energy Partners LP which postponed its $400 million offering of 8.5-year senior notes (expected ratings B3/B-) due to market conditions last week.

Despite the fact that the junk market has only lately risen off of historically low yields, rates could move back in issuers' favor, said a source close to the Breitburn deal.

With the Fed telegraphing a dove-ish stance on rates into the foreseeable future, high yield could well tighten once more, added the source who agreed to speak on background.

More recently DryShips Inc. pulled its planned $700 million offering of three-year senior secured notes due to market conditions and has instead agreed on a $350 million bridge facility to help fund the upcoming maturity of its 5% convertible senior notes. However the DryShips deal, which the company was hoping to price with a 7% coupon at a deep discount that could have rendered a double-digit yield, was not seen so much as an “opportunistic” play but rather more of a distressed situation, a sellside source said on Tuesday.

Lately outflows

Meanwhile the cash-tide of the high-yield bond asset class has lately been negative, according to a portfolio manager.

High-yield exchange-traded funds saw $98 million of outflows on Monday, while actively managed high-yield funds saw a whopping $455 million daily outflow that day.

Last Friday’s flows were also negative, said the manager, who was citing information contained in a report from JPMorgan. On Friday ETFs saw $81 million of outflows while actively managed funds saw $5 million of outflows.

Flows were positive the previous day, Thursday, Oct. 9, with ETFs seeing $334 million of inflows and actively managed funds seeing $295 million of inflows

Hence, with three sessions in the book from the present reporting period, which ends with the Wednesday close, flows are positive by a nose: $7 million.

Dynegy dominates most actives

In the secondary market, a trader said that the big new three-part issue from Houston-based power-generating operator Dynegy “certainly topped the list of Trace items.”

He said that those bonds – which firmed smartly above the 101 bid mark in initial aftermarket dealings following their pricing on Friday – had come off those highs by Tuesday.

He saw Dynegy’s 6¾% notes due 2019 trading around par, with “the other two in a 100½ to 101 context.”

Another trader said that those 2019 notes were trading around par with over $83 million having changed hands – easily topping the Junkbondland list of most-active credits. He called the bonds down ½ point. Dynegy had priced $2.1 billion of the bonds – slightly upsized from the originally planned $2 billion – at par, after restructuring their maturity to five years from 5.25 years.

He saw more than $57 million of the Dynegy 7 3/8% notes due 2020 having moved around, calling them down ½ point at 100¾ bid. The company had priced $1.75 billion of those notes at par on Friday.

And there was more than $36 million of turnover in the final tranche of that $5.1 billion tripartite deal, the $1 billion of 7 5/8% notes due 2024. Like the other parts of that deal, Dynegy had priced them at par on Friday, and they had shot up in immediate aftermarket trading, but had come back down by Tuesday to around the 101 level, the trader said.

Another market source pegged the latter bonds at 100 5/8 bid.

Metaldyne moves up

A market source pegged Metaldyne Performance Group’s new 7 3/8% notes due 2022 at 101 1/8 bid, on volume of more than $28 million.

The Plymouth, Mich.-based automotive components manufacturer had priced $600 million of those notes at par on Friday, after downsizing the deal from the initial $700 million.

Safeway deal slides

Among other recently priced offerings, a trader said the new Albertson’s Holdings LLC 7¾% second-lien senior secured notes due 2022 “have been going down every day since they’ve priced,” quoting the bonds at 96 3/8 bid, which he called down 3/8 point on the session.

In contrast to the Dynegy and Metaldyne deals, he said that “there were hardly any traded” on Tuesday.

Another market source saw those bonds even lower, quoting them going home 95½ bid, 96½ offered, a loss of 1¼ points on the day.

Albertson’s, a Boise, Idaho-based grocery company, priced the notes last Wednesday at 98.55 to yield 8%. The bond deal – downsized from its original size of $1.625 billion, then downsized again, first to $1.375 billion, then $1.245 billion and then finally to $1.145 billion – is part of the financing for Albertson’s acquisition of rival supermarket chain operator Safeway.

CalRes stays busy

A trader noted that fully a month after its pricing California Resources Corp.’s $5 billion three-part offering was still being actively traded.

He saw some $42 million of the Los Angeles-based energy exploration and production company’s 6% notes due 2024 having traded, going home at 99 5/8 bid, calling them down 1½ points.

“We’re seeing high volumes in recent new issues, including California Resources,” another trader said, “but they’re now below par.”

The company’s 5% notes due 2020 were finishing at 98 7/8 bid, on over $22 million of volume.

California Resources priced $2.25 billion of the 6% notes and $1 billion of the 5% notes, at par, back on Sept. 11. It also came to market with $1.75 billion of 5 ½% notes due 2021, also at par.

One of the traders suggested that CalRes was being dragged down by investor perceptions of overall oil industry weakness.

Oil names knocked around

“There was weakness in the oil and gas sector,” another trader said. “Those names were under pressure, along with oil,” which slid to its lowest prices since June of 2012 after the International Energy Agency cut its forecast for oil demand growth to its weakest in five years.

Among the sector names feeling the pinch were Energy XXI Gulf Coast, whose 6 7/8% notes due 2024 dropped to just under 80 bid, a loss of more than 8 points.

Quicksilver Resources’ recently battered 11% notes due 2021 fell more than 5 points to 55 bid.

Precision Drilling’s 5¼% notes due 2024 eased by 4 points to 92¼ bid.

Endeavour up

But several traders saw Endeavour International’s 12% notes due 2018 better by more than 11 points on the day to close at 75 bid, versus week-earlier levels in the lower 60s.

The rise followed the announcement that the Houston-based energy operator had filed for Chapter 11 bankruptcy, after coming to an agreement with the majority of its debt holders on a restructuring plan that will cut its more than $1.2 billion debt load by $568 million.

The company and its debtors anticipate a quick restructuring, with emergence from Chapter 11 expected in mid-April.

Indicators move lower

Statistical indicators of junk market performance resumed their recent plunge on Tuesday, which for all intents and purposes was their fifth consecutive downside session, although several of the indices that were published on Monday – despite the Columbus Day market holiday – showed improvements that day, though on extremely light volume. Counting the Monday results, it was still the fifth lower session out in the last six trading days.

The KDP High Yield Daily Index saw its fifth consecutive loss on Tuesday, sliding by 35 basis points to end at 71.30 – not only a new low for the year, but the index’s lowest finish since Dec. 1, 2011, when it had closed at 71.28. On Friday, the index had dropped by 37 bps. The index was not published on Columbus Day.

Its yield meantime ballooned out by 10 bps to 5.82% on Tuesday, its fifth straight rise. It had also risen by 7 bps on Friday.

The Markit CDX Series 23 index was off for a third straight session on Tuesday, falling by 21/32 point to 104 13/32 bid, 104 15/32 offered. It had dropped by a similar amount on Friday from where it had closed out on Thursday – the first trading session following the index’s usual semiannual “roll” last week into its new series from the previous Series 22. On Monday, it had eased marginally.

The Merrill Lynch High Yield Master II Index fell by 0.328% on Tuesday, lowering its year-to-date return to 3.068%. That was down from the 3.349% cumulative return seen Friday, when the index was off by 0.482%, and down as well from the 3.407% seen on Monday, when the index gained 0.56%, though in very light dealings.

The year-to-date return remains well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed due to the Labor Day holiday break.

Several index components reached new marks for the year on Tuesday. The spread to worst versus comparable Treasury issues widened out to 493 bps, eclipsing the previous wide point of 485 bps set on Sept. 29.

Its average price dropped to 101.023, down from its previous low of 101.322601, also set back on Sept. 29.

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