Primary quiet to close out $8.7 billion week; heavy trading in new Peabody, Energy XXI bonds

By Paul A. Harris and Paul Deckelman

New York, March 6 – The first trading week in March came to a close on a quiet note on Friday, with no new dollar-denominated, junk-rated issues coming to market.

That left the week’s tally of new junk bonds right where it had closed out Thursday, with $8.72 billion of such bonds from domestic and industrialized-country borrowers having priced, according to data compiled by Prospect News.

That was up from the $6.60 billion of new paper which had gotten done in eight tranches the previous week, ended Feb. 27.

The latest offerings in turn raised new-deal issuance for 2015 so far to $58.96 billion in 89 tranches, the data said – well up from $47.25 billion that had priced in 90 tranches by this time on the calendar last year. New issuance is thus running about 24.7% ahead of last year’s pace, although that was a narrower gap than the yawning nearly 37% difference seen last week.

Traders said that the week’s newly issued bonds were the dominant feature in Friday’s secondary market, which was otherwise lower by anywhere from ¼ to ½ point, with some better-grade issues down even more, taking their cue from Treasuries, which were lower on expectations that the stronger U.S. economic data reported Friday morning will mean higher interest rates sooner rather than later.

Thursday’s two big deals were also the biggest players in Friday’s junk market, with over $100 million of the new Peabody Energy Corp. seven-year secured notes trading, followed by the more than $90 million of Energy XXI Gulf Coast, Inc.’s five-year secured notes. Peabody’s paper initially popped, but ended up changing hands right around its issue price.

On the other hand, the traders said that Energy XXI’s notes also firmed solidly when they were freed for secondary trading – but they held on to those gains to go out better by more than 3 full points.

There was also brisk trading in other new deals that came to market this week, including Pilgrim’s Pride Corp., Comstock Resources, Inc. and Laredo Petroleum, Inc.

Statistical measures of junk market performance were lower across the board Friday versus Thursday’s mixed picture. And they were down all around from where they had had been the Friday before – the first such downturn after four consecutive weeks of gains.

Reliance Comfort roadshow

While no new issues priced Friday, two future sales were announced, one in North America and one in Europe.

Reliance Comfort plans to start a roadshow on Monday in New York for a $375 million offering of eight-year senior secured notes.

That roadshow is set to end Thursday.

Joint bookrunner Barclays will bill and deliver. RBC is also a joint bookrunner.

The Toronto-based company plans to use the proceeds to refinance its 9½% senior secured notes due 2019.

No new issues priced on Friday.

The books for Athens-based tanker company Capital Product Partners LP’s $260 million offering of seven-year first priority ship mortgage notes (B2/BB-) were scheduled to close Friday afternoon and deal terms were expected to circulate before the Friday close.

However no terms were available at press time, a market source said.

Earlier in the week the deal had been talked to price at a discount to yield 8% to 8¼%.

Deutsche Bank, Goldman Sachs and Wells Fargo are the joint bookrunners for the debt refinancing deal.

Merlin starts Monday

The European primary market was comparatively quiet over the past week.

That should change in the week ahead, according to a London-based investment banker who professed visibility on a handful of deals for the week ahead.

One of those is Merlin Entertainments plc, which plans to start a roadshow on Monday for a €480 million offering of non-callable seven-year senior notes (expected ratings Ba2/BB).

Physical bookrunner HSBC will bill and deliver. Barclays and Royal Bank of Scotland are also physical bookrunners for the refinancing deal.

BNP Paribas, Citigroup, Goldman Sachs International, Lloyds, Mizuho, SMBC, SG CIB and UniCredit are passive bookrunners.

New Energy XXI jumps

A trader said that “there was nothing new today – but yesterday’s stuff was really active.”

He said Energy XXI’s new 11% senior secured second-lien notes due 2021 “were trading about 3 points higher than where they priced for most of the day.”

He saw the bonds going out in a 99 to 99½ bid context – well up from the 96.313 level at which the Houston-based oil and natural gas exploration and production company’s $1.45 billion forward calendar issue had priced on Thursday to yield 12% after it was upsized from an originally planned $1.25 billion.

“So that’s up about 3 points from where they priced,” he reiterated.

Another trader also saw the new bonds in a 99 to 99½ range, with over $92 million having changed hands.

The company’s existing 6 7/8% notes due 2024 were meanwhile unchanged at 47 bid, while its 7½% notes due 2021 “were very active,” a trader said, finishing down ¼ point at 47¼ on volume of over $10 million.

Busy Peabody little moved

A trader saw Peabody Energy’s 10% senior secured notes due 2022 trading in a 97½ to 98 bid context, little changed from the 97.566 price at which the St. Louis-based coal producer’s $1 billion issue had come to market on Thursday off the forward calendar to yield 10½%.

However, a second trader said that the notes “opened this morning and traded all the way up real early,” getting as good as 99¼ bid, before coming all the way back down to close right around their issue price. “So, up a couple of points but then back down to issue by the afternoon.” He said that volume was almost $100 million, making it easily the busiest bond of the day in Junkbondland.

A third trader pegged the notes “wrapped around 98.

He said the company’s existing bonds “were all pretty active too,” with volume of over $10 million on each.

He saw its 6¼% notes due 2021 down 2¼ points to close at 74¾ bid and its 6½% notes due 2020 down 1¾ points to 79 bid but the 6% notes due 2018 bucked the general downtrend and were up 1 1/8 points to 90 1/8 bid. The 7 3/8% notes due 2016 – which are being tendered for with the proceeds from the new bond deal – were up another ¾ point to 110¼ bid.

The latter notes had traded around the 105 level before the news of the new bond deal and accompanying tender offer for the existing bonds broke earlier this week, and had been up around 107 5/8 on Wednesday – the day before the new issue priced.

New Comstock bonds active

Going back a day, a trader saw Comstock Resources’ 10% senior secured first-lien notes due 2020 trading between 100¼ and 100¾ bid.

The Frisco, Texas-based oil and gas E&P company’s $700 million issue had priced at par on Wednesday, also as a scheduled forward calendar deal

At another desk a trader quoted the bonds wrapped around par, with over $31 million having traded.

One of the traders said that “most of these new big-coupon deals have done pretty well.”

Split-rated Newfield moves up

The trader said that Newfield Exploration’s split-rated (Ba1/BBB-/BB+) offering of 5 3/8% notes due 2026 “has done alright – [but] not up as much” as some of the other recent and purely junk deals. He saw the bonds trading between 100¼ and 100¾.

A second trader saw the Woodlands, Texas-based energy company’s issue wrapped around 100¾ bid, with over $34 million having traded.

The company priced a quickly shopped $700 million of those notes at par on Thursday, after the issue was upsized from $500 million originally.

Laredo posts gains

Also among new energy issues, Laredo Petroleum’s 6¼% notes due 2023 were finishing Friday in a 101¼ to 101½ bid context.

More than $16 million of the Tulsa, Okla.-based oil and gas company’s notes priced at par in a quick-to-market deal on Wednesday.

Pilgrim paper pops

Away from the energy issues, a trader said Pilgrim’s Pride Corp.’s 5¾% notes due 2025 “kind of popped a little bit,” trading at 101½ to 101¾ bid.

At another desk, a market source quoted the notes up 1/8 point at 101¾ bid on volume of more than $20 million.

The Greeley, Colo.-based chicken processor brought its $500 million drive-by issue to market at par on Wednesday.

Gimme Credit senior analyst Vicki Bryan liked the deal, rating Pilgrim as a “buy.”

In a research note, she pointed out that it called its $500 million of 7 7/8% notes due 2018 during the quarter – the last of $912 million of debt the company paid off, using its robust free cash flow.

“Since Pilgrim’s paid off all of its debt in the fourth quarter,” she added, “pro forma leverage including these notes is indicated at a nominal 1.2x strong 2014 EBITDA which was up an impressive 67% to $1.35 billion.”

Overall market slides

Away from the new-issue corridor, a trader opined that “the rest of the market, with stocks down as much as they are and the 10-year [Treasury] fading [to] a close at 2.25%, I would say the market was down anywhere from ¼ point to 1 point in some cases. The higher-quality stuff that’s more sensitive to Treasuries, that stuff is off a point.”

For instance, he said, Ball Corp.’s 4% notes due 2023 were trading around 98 on Thursday, and had fallen to around 97 bid on Friday.

There was “a general weakness” in the market on Friday, a second trader said, “especially with the interest rate-sensitive, higher-quality names [that] were generically weaker with the selloff in Treasuries. The BB paper starts to weaken, with Treasuries selling off like they did today.”

Government paper sold off, leaving the yield on the 10-year Treasury note up at 2.239%, considerably higher than Thursday’s 2.110%.

A blockbuster U.S. February jobs report sparked the selling in stocks and bonds on Friday as market players anticipated that the strong number presages Fed rate hike action sooner rather than later.

U.S. payrolls added 295,000 jobs last month, the Labor Department said, and that was much better than expected; while the unemployment rate ticked lower to 5.5% from 5.7%. January’s payroll increase was revised lower to 239,000 jobs, however.

The Dow Jones industrial average tumbled 278.94 points, or 1.5%, to 17,856.78; the S&P 500 stock index fell 29.78 points, or 1.4%, and the Nasdaq stock index lost 55.44 points, or 1.1%, to 4,927.37.

But while the overall junk market did sag a little in response to stocks and Treasuries, one of the trader said it wasn’t the day’s focus because “it was mostly the new deals that had everyone’s attention.”

Another trader agreed that the new deals “have been in the forefront.

“And anything we did today was all new issue.”

Indicators turn weaker

Statistical indicators of junk market performance were lower on Friday for a third time in the last four sessions, after having been mixed on Thursday.

They were also weaker versus were they had finished the previous Friday, after having been higher across the board week-over week for the previous four weeks.

The KDP High Yield Daily Index was down by 6 basis points on Friday, ending at 71.73, its fifth consecutive loss. On Thursday, it had been off by 4 bps.

Its yield meanwhile rose by 1 bp on Friday to 5.19, its fifth consecutive widening on top of the 2 bps gain seen Thursday.

Those levels compared unfavorably to the 72.07 index reading and 5.07% yield seen the previous Friday, Feb. 27.

The Merrill Lynch U.S. High Yield Master II Index lost 0.248%, more than offsetting Thursday’s 0.019% gain. Friday’s loss was its third setback in the last four sessions.

The latest retreat left its year-to-date return at 2.611%, down from Thursday’s 2.867%, and well down from its peak 2015 level of 3.125%, set this past Monday.

The index lost 0.412 % on the week – its first weekly loss after six straight weekly gains. With nine weeks in the books so far, the year has now seen seven weekly gains and two weekly losses. Last week, it was up by 0.73% on the week, lifting its year-to-date return to 3.036%.

-Rebecca Melvin contributed to this review

© 2015 Prospect News.
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