No pricings; Oneok hits the road; new Post, AMAG issues firm smartly; funds lose $1.21 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 13 – After three straight billion-dollar-plus sessions, the high-yield primary market quieted down on Thursday, syndicate sources said.

They saw no pricings of any new junk-rated, dollar-denominated paper from domestic or industrialized-country borrowers. In contrast, $1.7 billion of such paper had come to market in three tranches during Wednesday’s session. Tuesday and Monday had seen $1.8 billion and $1.11 billion of new paper, respectively, get done.

The syndicate sources said that one prospective new deal emerged and joined the forward calendar. Natural gas company Oneok Inc. opened a roadshow for its $500 million offering of eight-year notes.

Otherwise, the sources saw no fresh news coming from the new deal sphere, surmising that the traditional “dog days” of mid-summer were at last upon Junkbondland.

Even so, in the secondary realm, traders saw brisk activity in several recently priced issues, with both halves of the Post Holdings, Inc. megadeal and the new bonds from AMAG Pharmaceuticals, Inc., all of which had priced on Wednesday, seen trading more than 2 points above their respective issue prices, on heavy volume.

Away from the new deals, a better tone prevailed in the market, even allowing oil and natural gas credits such as California Resources Corp. and Energy XXI to buck continually sliding crude oil prices and finish higher on the day.

Statistical measures of junk market performance turned mixed on Thursday after having been lower across the board on Tuesday and Wednesday, their fourth such loss in the last five sessions. The indicators had also been mixed on Monday.

High-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends, meanwhile stayed on the downside this week, their third consecutive weekly downturn, with $1.21 billion more having left those weekly-reporting-only funds than had come into them during the week ended Wednesday.

Oneok starts roadshow

Oneok began a roadshow in New York City for a $500 million eight-year senior unsecured bullet deal (Ba1/BB+) that is expected to price on Tuesday.

Citigroup Global Markets Inc. is the bookrunner.

The Tulsa-based natural gas company plans to use the proceeds to fund the acquisition of limited partner units of Oneok Partners LP, which will then be used to repay commercial paper at Oneok Partners and fund capital expenditures at Oneok Partners.

Thinning ranks

Aside from Oneok, there is one deal that has been on a roadshow.

KIK Custom Products Inc. (Kronos Acquisition Holdings Inc.) was scheduled to conclude a roadshow for its $390 million offering of eight-year senior notes (Caa2/CCC) on Thursday.

The Thursday session produced no update on the timing of the deal. Formal talk has yet to surface. However, earlier in the week the deal was being discussed in the mid-9% yield context, according to a buyside source.

“There is some price discovery underway right now,” a debt capital markets banker said on Thursday and added that high-yield sales forces are reaching out to investors in order to find where people care about these deals.

Don't look for a lot of new issue activity between now and Labor Day, the banker said.

In late August the big investors – the guys who can really drive the deals – are generally not around.

And given the present market sentiment, issuers are going to be inclined to wait.

Don't look for much to happen on Friday, the sellsider said.

However, should Friday turn out to be a strongly positive day and there is some follow-up stability on Monday, the drive-by market might reopen, the banker said.

Post trades the most

In the secondary market, Post Holdings’ new 7¾% notes due March 2024 were easily the busiest high-yield issue of the day, a trader said, with over $78 million having changed hands by the close. He saw those notes having jumped to 102 11/16 bid.

He also saw the other half of the St. Louis-based breakfast cereal producer’s $1.2 billion two-part offering, its 8% notes due 2025, up almost as much at 102 5/78 bid, with over $35 million having traded.

Post had priced $800 million of the 8.5-year notes and $400 million of the 10 years, each at par, in a regularly scheduled forward calendar transaction on Wednesday.

A second trader said that both tranches were trading in a 102½-to-103 context, although he saw the 10-year notes about ¼ point stronger than the 8½% notes.

The first trader also saw Post’s existing 7 3/8% notes due 2022 gain 1 ¼ points, ending at 103¼ bid, on volume of more than $18 million.

AMAG Pharma a tonic

Wednesday’s other new deal – the $500 million of 7 7/8% notes due 2023 from Waltham, Mass.-based specialty drug maker AMAG Pharmaceuticals – also proved to be good medicine for a recently sagging market.

A trader saw that issue get as high as 103 bid before it came slightly off that peak to end around 102¾ bid, with over $23 million traded.

“There just seemed to be buyers of that one,” he said.

Those levels were up from the 101¾-to-102½ neighborhood in which the bonds had traded on Wednesday after their pricing.

AMAG priced that scheduled forward calendar offering at par after having upsized it from an originally shopped $450 million deal.

Energy better though oil falls

Away from the new deals, even though crude oil prices fell to a six-year low on Thursday, fresh economic data appeared to stem losses in the oil and gas space.

“I would have expected some of the oil names to trade lower,” one trader said, adding that the mixed performance of the equities seemed to limit the slide.

Benchmark West Texas Intermediate crude oil declined $1.09, or 2.52%, to $42.21 a barrel on the New York Mercantile Exchange as new data showed domestic stockpiles were again on the rise.

However, a gain in retail sales and a decline in jobless claims seemed to appease investors.

A handful of oil and gas bonds even improved on the day despite the lower crude price.

California Resources’ 6% notes due 2024 was one such issue. A trader called the paper up half a point at 75¼, with over $28 million of the Los Angeles-based E&P operator having traded.

Energy XXI’s 11% notes due 2020 also “rebounded a touch,” according to a trader. He saw the Houston-based oiler’s notes trading up to 64, which he said compared to levels around “61-ish” on Wednesday.

Another market source saw that paper just under 64 bid, which he called a 2½-point gain, with over $13 million changing hands.

At another desk, a market source saw Chesapeake Energy Corp.’s 6 5/8% notes due 2020 inching up a point to 79 bid. However, a second source said that the Oklahoma City-based oil and gas company’s issue fell half a point to 78.

Indicators turn mixed

Overall, a trader said, “the amount of secondary activity has been very light.”

But he saw “some cash come into the market from the ETF guys.”

Statistical measures of junk market performance turned mixed on Thursday after having been lower across the board on Tuesday and again on Wednesday, their fourth such loss in the previous five sessions. The indicators had also been mixed on Monday.

The KDP High Yield Daily index posted its first gain after having suffered six straight losses and eight losses out of the prior nine sessions, rising by 9 basis points to finish at 68.31 – in sharp contrast to the 39-bps plunge that it had taken on Wednesday on top of a 23-bps drop on Tuesday.

Wednesday’s finish at 68.22 had established a new 52-week low for the index and in fact was its lowest close in nearly six years – since Sept. 15, 2009, when it had ended at 68.06.

Its yield, meanwhile, came in by 3 bps to wind up at 6.25%, its first narrowing after two straight sessions in which the yield had risen and four such widenings in the previous five sessions. The yield had ballooned out by 14 bps on Wednesday on top of a 7 bps rise on Tuesday.

But the Markit Series 24 CDX North American High Yield index failed to follow along on the upside; it eased by 1/32 point on the day to close at 104 15/16 bid, 105 offered. Thursday’s loss was its third straight downturn, its fifth loss in the last six sessions and its sixth such setback in the last nine sessions. The index had also retreated by 1/8 point on Wednesday.

However, the Merrill Lynch North American Master II High Yield index broke out of an eight-session slump on Thursday, rising by 0.214% after having dropped by 0.349% on Wednesday.

Thursday’s advance raised the index’s year-to-date return to 0.469% from Wednesday’s 0.254%, its lowest finish since the 0.203% reading recorded on Jan. 22.

Those levels, though, remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Several other index components also continued to erode, bringing them to their worst levels of the year so far.

The index’s yield to worst rose to its fifth consecutive new 2015 high of 7.641% from the previous high point of 7.328% on Wednesday.

Its spread to worst versus comparable Treasury issues widened out by 26 bps to 612 bps, its third straight new wide level for the year so far. The previous mark, 586 bps over, had been set on Wednesday.

One the other hand, its average price of the components listed within strengthened after having fallen to four consecutive new lows for the year. It firmed to 95.59565 from Wednesday’s 95.4045, the new low level.

Fund flows off

Another statistical gauge – flows of money into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – stayed on the downside this week, their third consecutive weekly downturn. Some $1.21 billion more had left those weekly-reporting-only funds than had come into them during the week ended Wednesday, almost identically matching the $1.20 billion net loss that was reported last week for the seven-day period ended Aug. 5. The funds had lost $1.72 billion in the week ended July 29. (See related story elsewhere in this issue.)

Stephanie N. Rotondo contributed to this review

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.