Primary ends week quietly though upcoming week seen busy; Endo falls on reduced guidance

By Paul Deckelman and Paul A. Harris

New York, May 6 – The high-yield primary sphere closed out the week on Friday on a quiet note.

Syndicate sources said that just one offering priced during the session – a smallish euro-denominated offering of five-year secured notes from chemical manufacturer Inovyn.

Meanwhile, the dollar-denominated junk market saw a second consecutive session in which no fully junk-rated dollar bonds from domestic or industrialized-country issuers priced – although sources said that in the week to come major investment banks could be shepherding as much as $10 billion in prospective new issues to market.

In the meantime, the lack of any new dollar bonds during the session left the week’s new-issuance total where it was at mid-week, with $3.77 billion of new junk paper having come to market in six tranches, down from the $5.80 billion which priced in eight tranches last week, according to data compiled by Prospect News.

That issuance raised the year-to-date total to $66.69 billion in 87 tranches, although that still lagged the year-earlier pace by 50.4%, with some $134.67 billion having priced in 203 tranches by this point on the calendar in 2015.

Among specific issues, Endo International plc’s bonds and shares were down sharply in heavy trading after the Irish pharmaceutical manufacturer released full-year guidance well below analysts’ expectations.

J.C. Penney Co. Inc.’s bonds followed its shares lower on news reports the department store retailer had sharply cut employee hours and had frozen overtime, among other measures to avoid missing its quarterly expense targets.

Statistical market performance measures were lower across the board for a fourth consecutive session on Friday; those losses followed three straight mixed sessions before that. Friday as the fifth such lower session in the last 10 trading days.

The indicators were also lower all around versus where they had closed out last week, after having been mixed the week before.

Inovyn prices tight

All of Friday’s primary market action took place in Europe.

However that is about to change in a big way, buyside and sellside sources said as the May 2 week wound down.

To recap the euro news in the new issue market, Inovyn Finance plc priced a €300 million issue of five-year senior secured notes (B2/B) at par to yield 6¼% on Friday.

The yield printed at the tight end of the 6¼% to 6½% yield talk.

The notes come with just 1.5 years of call protection, market sources noted: they are callable with a Bunds plus 50 basis points make-whole call until Nov. 15, 2017, then become callable at 103.125.

That’s an issuer friendly structural detail, a London-based debt capital markets banker pointed out.

Joint bookrunner JPMorgan was the global coordinator for Inovyn’s debt refinancing deal. BofA Merrill Lynch, Credit Suisse, HSBC, ING and Royal Bank of Scotland were also joint bookrunners.

Volvo to roadshow €500 million

Elsewhere, Volvo Car AB plans to start a roadshow on Monday for a €500 million offering of non-callable five-year senior notes.

Global coordinator HSBC will bill and deliver. Barclays is also a global coordinator.

ING, Nordea, SG CIB and Swedbank are joint bookrunners.

The Gothenburg, Sweden-based car and truck manufacturer plans to use the proceeds for general corporate purposes.

BiSoho roadshow

BiSoho SAS, a special purpose vehicle for financing the LBO of France-based apparel retailer SMCP by China’s Shandong Ruyi Group, plans to start a roadshow on Monday for a €470 million two-part offering of senior secured notes.

The deal is coming in tranches of seven-year fixed-rate notes and 6.5-year floating-rate notes, with tranche sizes to be determined.

Global coordinator and physical bookrunner JPMorgan will bill and deliver. Commerzbank is the joint bookrunner.

Proceeds will be used to refinance debt and to partially fund the LBO.

The week ahead

The dollar-denominated new issue market will ramp up in a big way in the week ahead, sources say.

Estimates for anticipated volume climbed during the latter part of the past week. However the $10 billion mark seems to be easily within range.

BofA Merrill Lynch is expected to bring $3 billion to $4 billion of deals, while J.P. Morgan is expected to bring $4 billion to $5 billion, a trader said.

Reynolds Group Holdings Inc. could show up with a deal – although probably not a very big one – driven by reverse inquiry, the trader said, adding that Credit Suisse will likely be the bookrunner.

Look for two big deals from the energy sector and one big deal from the industrial sector, a sellside source said.

And Dell Inc. could show up to $16 billion of investment-grade secured notes as early as the week ahead, an investor said.

Look for up to $9 billion of Dell junk to follow.

Issuance is also expected to increase substantially in the euro-denominated high-yield primary market during the week ahead, sources there said on Friday.

Big ETF outflows continue

The daily cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, a trader said.

However high-yield ETFs – and in particular iShares iBoxx $ High Yield Corporate Bd (HYG) – continued to see big daily outflows on Thursday.

The ETFs were negative $809 million on the day, the fifth consecutive triple-figure outflow that the ETFs have sustained, sources say.

Three of those daily outflows were greater than $600 million.

The ETFs were selling again on Friday morning, said traders who were seeing bids-wanted-in-competition (BWIC) lists.

Various theories have surfaced regarding the outflows, including a preponderance of “timer” money in high-yield ETFs, attracted because junk appeared cheap in the late-winter period.

“There had not been much of a calendar and a lot of guys were long HYG,” the trader said on Friday.

However that changed as issuance has picked up over the past two weeks, the source added.

Now investors are buying new issues – which are still relatively cheap – and selling HYG, the trader said.

In the face of ETF outflows, the daily flows for actively managed funds have been flat to modestly positive.

The actively managed funds saw $60 million of inflows on Thursday.

Easier market after outflows

In the secondary market, traders saw generally lower levels on Friday amid dull activity.

One said that “generically, things were ¼ to ½ point weaker.”

At another desk, a trader noted that “we had those big outflow numbers yesterday,” when Lipper reported that some $1.807 billion flowed out of the domestic weekly-reporting-only funds that it watches in the week ended Wednesday in contrast to the four straight weeks of inflows before that.

He said that “the ETF outflows probably took some of the wind out of the market’s sails.”

Another trader said that “the market has grown semi-comfortable with the fact that we’re not going to have a rate hike in June,” based on the published minutes of the Federal Reserve’s most recent policy meeting.

“But maybe that means that things in the economy are sloppier than what people would like.

“So the day’s market was lethargic and weaker.”

Endo bonds battered

Among specific issues, traders noted the sharp fall in Endo International’s shares and its junk bonds, after the Dublin, Ireland-based pharmaceutical company put out sharply lower full-year revenue and earnings projections.

Its Endo Finance 6% notes due 2023 were the most actively traded junk market issue, with over $98 million changing hands.

A trader pegged those bonds at just below the 87 bid mark, a loss of more than 4 points on the day.

Other Endo issues followed a similar downward trajectory. Its 6% notes due 2025 declined to 88 bid on $29 million of volume. Its 5¾% notes due 2022 eased to 89 bid, with over $17 million traded.

Endo’s Nasdaq-traded shares Its shares fell $10.42, or 29%, to $16.17. Volume of 57.8 million shares was more than seven times the norm.

The company said it lost $133.9 million, or 60 cents per share, for the first quarter, compared to a loss of $75.7 million, or 43 cents per share, in the year-earlier period.

Adjusted earnings were $1.08 per share, which was a few cents better than many analysts expected, however.

Endo reported revenue of $963.5 million, which was up from $714.1 million in revenue in the year-earlier period, but below estimates for revenue of $964.4 million.

Looking ahead, the company cut its full-year estimates to a range of $4.50 per share to $4.80 per share for earnings, which was lower than $5.85 to $6.20 per share previously expected, and revenue was cut to $3.87 billion to $4.03 billion, which was down from $4.32 billion to $4.52 billion previously expected.

Analysts had been expecting earnings of $5.68 per share on revenue of $4.3 billion.

The company blamed its lowered forecast on increasing competition and regulatory delays.

Penney paper punished

Another decliner was J.C. Penney, whose 8 1/8% notes due 2019 dropped more than 3 points on the day to 99¾ bid.

A trader at another shop saw the Plano, Texas-based department store retailer’s 5.65% notes due 2020 fall to a 90½ to 91½ context – well down from prior levels in the 95 to 96 bid area.

And yet another trader located the 5.65s at 93 bid, calling them down a deuce on the day.

Penney’s notes followed its New York Stock Exchange-traded shares lower; those shares lost 67 cents, or 7.50%, closing at $8.26.

The shares and bonds retreated in reaction to news reports indicating that the retailer has slashed employee hours and frozen overtime at its more than 1,000 stores in the United States and Puerto Rico to avoid missing its quarterly targets.

Energy names ease

In the volatile energy sector, bonds which had firmed smartly on Thursday amid higher crude oil prices were seen having given back some of those gains on Friday, even though crude prices continued to gain.

A trader suggested that profit-taking on the Thursday gains might be a factor,

“Chesapeakes were a little lower,” he noted seeing the company’s benchmark 8% second-lien senior secured notes due 2022 at 64½ bid, 65½ offered, off from their Thursday close around 67 bid.

At another desk, the bonds were seen down 2¾ points at 64¼ bid, with over $21million traded.

Chesapeake sector peer California Resources’ ’8% notes due 2022 slid 6½ points to 60 bid on over $14 million of volume

Indicators stay lower

Statistical market performance measures were lower across the board for a fourth consecutive session on Friday. Those losses followed three straight mixed sessions before that. Friday was the fifth lower session in the last 10 trading days.

The indicators were also lower all around versus where they had closed out last week, after having been mixed the week before.

The KDP High Yield Daily Index suffered its fifth consecutive loss on Friday, retreating by 22 basis points to end at 67.08, after falling 16 bps on Thursday. Those losses followed three consecutive gains.

For a second straight session, the index’s yield rose by 7 bps. The widening to 6.35% was the fourth straight weaker sesseion.

hose levels compared unfavorably to last Friday’s 67.74 index reading and 6.13%.

The Markit Series 26 CDX North American High Yield Index dropped by 5/32 point, closing at 101½ bid, 101 5/8 offered. It was the index’s fourth successive loss. On Thursday, it had ended off 9/38 point.

For the week, it was down from last Friday’s 102 29/32 bid, 102 15/16 offered.

The Merrill Lynch North American High Yield Master II Index meantime retreated by0.328% on Friday, its fourth consecutive setback, including Thursday’s 0.023% loss.

The latest downside move cut the index’s year-to-date return to 6.415% from Thursday’s 6.766%, and from Monday’s close of 7.398%, the peak level for the year so far.

For the week, the index lost 0.869%, its first weekly loss after five consecutive weekly gains.

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