Junk market little changed in short holiday session; Antero sees activity, Forest drop done

By Paul Deckelman and Paul A. Harris

New York, Dec. 24 – High-yield market participants headed home for the holidays on Wednesday, with little real trading seen in a quiet market, which saw an abbreviated pre-holiday session.

And although the Securities Industry and Financial Markets Association recommended a 2 p.m. [ET] Wednesday closing time, ahead of Thursday’s full market close for the Christmas holiday, a trader said at mid-morning the reality was that “it’s pretty tough to get people on the phone – people are already leaving.”

With trading volume way down, even versus Tuesday’s relatively sedate levels, even the busiest credits only racked up a couple of million dollars of activity apiece, including Antero Resources Finance Corp., Peabody Energy Corp., and, away from the volatile energy sphere, Gannett Co. Inc. and Reynolds Group Issuer LLC. Each of these was up or down no more than a fraction of a point.

In contrast to recent days, which saw brisk activity in many energy issues such as California Resources Corp. and SandRidge Energy, Inc., they were little traded. Meanwhile, crude oil prices – a key driver in the gyrations of energy-sector bonds over the last few months – moved lower after an unexpected jump in United States petroleum inventories was reported.

Tuesday’s fall in Forest Oil Corp. bonds – which were down about another 6 or 7 points from where they had finished last week, when those bonds had plunged badly – came to a halt; the bonds were seen essentially untraded and unchanged.

Traders did not see any aftermarket activity in the new Real Alloy Holding Inc. four-year senior secured notes that priced on Tuesday – an issue believed by market sources to have been the final deal of 2014.

A news-free Christmas Eve

Amid extremely thin liquidity in the junk bond market, the primary market did not generate any news on Christmas Eve, according to a market source.

No activity is expected for the remainder of 2014.

Endo plans $1 billion of bonds

Endo International plc disclosed plans to sell a $1 billion of new senior notes to fund its acquisition of Auxilium Pharmaceuticals Inc.

In a Wednesday filing with the Securities and Exchange Commission, the company said that the financing will also include a $500 million incremental term loan.

Citigroup Global Markets Inc. is the lead bank on the new debt. Deutsche Bank Securities Inc. is the administrative agent on the existing credit facility.

Other funds for the acquisition will come from cash on hand.

Closing is expected in the first half of 2015.

Market activity falls off

With a scheduled half-day session heading into Thursday’s holiday, compounded by inclement weather – but no white Christmas – in New York and other northeastern U.S. business centers, attendance, as could be expected, was very light and activity very dull.

“There is absolutely nothing going on, with almost no volume on Trace – and that’s it,” a trader declared as he summed up the market session in a nutshell.

A second trader said that “volumes are down,” with many market participants having already left by mid-day.

Antero leads slim activity

With no real trading happening, even the busiest of names saw, at the most, perhaps a few million dollars of turnover.

A trader said the biggest-volume credit he had seen by mid-day, with the session fading fast, was Antero Resources’ 5 3/8% notes due 2021, about $6 million of which changed hands.

The Denver-based oil and natural gas exploration and production company’s paper was seen going home at 97½ bid, up ¼ point on the day.

Among other relatively active credits, St. Louis-based coal producer Peabody Energy’s 6% notes due 2018 were seen up 1/16 point at 91 13/16 bid, with over $5 million having traded.

McLean, Va.-based publishing, broadcasting and digital media operator Gannett’s 5 1/8% notes due 2020 eased by ¼ point to 101¾ bid on volume of over $4 million.

New Zealand-based packaging products producer Reynolds Group’s 8¼% notes due 2021 ended at 103 1/8 bid, up ¼ point, on volume of $4 million.

Oil names seen quiet

Other than Antero Resources and Peabody, energy-sector credits were little seen – even names that would normally be found on the Most Actives list.

There were no trades seen in Los Angeles-based E&P company California Resources’ usually busily traded 6% notes due 2024, last seen at 87½ bid at Tuesday’s close.

That was also the case for its 5% notes due 2020, which had last been seen at 89½ bid, and its 5½% notes due 2021, last seen at 88 bid on Tuesday.

Oklahoma City-based SandRidge Energy’s 7½% notes due 2021 were up 1¼ points at 67½, but on only a handful of small odd-lot trades.

Forest Oil swoon dies down

Traders reported no follow-up activity on Wednesday to Monday and Tuesday’s decline in Forest Oil’s notes – which itself had been a resumption of the big downward move recorded last week after the Denver-based oil E&P company had announced that it had completed its all-stock merger with sector peer Sabine Oil & Gas LLC – but on revised terms, structured so as to allow the new combined company to evade having to buy back some $800 million of Forest’s bonds under the change-of-control provisions in the notes’ indentures.

That shock, announced on Dec. 16, resulted in Forest’s 7¼% notes due 2019 and its 7½% notes due 2020, plunging as much as 40 points during that session, down to the low-to-mid 40s from pre-news levels in the 80s, where they had held steady in the months since the Sabine deal was announced despite overall energy sector weakness, on the bondholders’ assumption that they would soon be made whole when the paper was taken out at 101% of its face value.

The bonds were falling anew in a few small trades on Monday and active round-lot dealings on Tuesday, coming to a rest in a 37-to-38 bid context, down about 7 or 8 points from last week’s levels.

On Wednesday, a trader said that the 7½% notes were untraded, while perhaps 50 bonds (i.e., $50,000) of the 7½% notes had changed hands between 37 and 38 bid in a series of smallish odd-lot transactions.

“You had three bonds trade, 10 bonds trade, 20 bonds – it’s really nothing.”

A second trader saw the bonds unchanged and said that 37-to-40 would cover both issues, with “virtually no trades – call them unchanged.”

He said that he had seen “maybe 2 or 3 quotes, no real activity.”

Several market sources said they did not know why the bonds had suddenly resumed their dive on Monday and Tuesday after having steadied in the 40s last week following the steep nosedive.

One trader suggested that “perhaps guys just threw in the towel and were selling it,” once they realized that there would be no reprieve, and the bonds would not be going back up into the 80s.

A second – perhaps with visions of an upcoming holiday dinner in the back of his mind – colorfully likened the two-stage fall in the bonds to “what happens when you have the leftovers on your dinner plate, and you try to put them down the sink into the garbage disposal.” He said that was like the first big initial fall in the bonds down to the 40s. Then, he continued, “now that the disposal is starting to churn and is sucking the stuff down the drain, that’s the next 8-to-10-points.”

Another trader was of the opinion that “there’s going to be a lot of litigation to come out of this thing” on the part of angry bondholders.

No trading in new Real Alloy

No trades were seen in Real Alloy Holding’s SGH Escrow Corp. 10% senior secured notes due in January of 2019.

The Sherman Oaks, Calif.-based company had priced $305 million of the bonds at 90.827 on Tuesday to yield 13%.

A trader said that “nothing has traded in that one.”

The issue is expected to have been the final junk bond deal of 2014, with no other prospective transactions seen on the forward calendar ready to go, with just one week left in the year.

According to data compiled by Prospect News, year-to-date issuance stood at $314.55 billion in 589 tranches, running about 2.5% behind the pace seen a year ago, when $322.74 billion of new junk paper had priced in 676 tranches by this point on the calendar.

This year’s new issuance had actually led last year’s pace for a number of months, but eventually lost that lead on a combination of recently deteriorating junk market conditions curtailing new issuance, plus a strong surge in primary activity at this time last year.

Indicators move higher

Statistical indicators of junk market performance turned better across the board for a second consecutive session on Wednesday after having been mixed on Monday. Wednesday was the fifth session in the last six during which the indicators were better all around.

The KDP High Yield Daily index rose for a sixth consecutive session, gaining 12 basis points to end at 70.88 after having advanced by 15 bps on Tuesday.

Its yield came in on Wednesday by 6 bps to 5.54%, its sixth straight narrowing. It had tightened 5 bps on Tuesday.

And the Merrill Lynch U.S. High Yield Master II index posted its sixth successive advance on Wednesday, gaining 0.038%, on top of the 0.137% rise on Tuesday.

That lifted the index’s year-to-date return to 2.363% Wednesday from 2.324% at the close on Tuesday.

Despite the strong rebound seen since the middle of last week – when the index had actually dipped into the red on a cumulative basis for the first time since October 2011 – that year-to-date return remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

Sara Rosenberg contributed to this market comment.

© 2015 Prospect News.
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